Internet Law and Policy Forum

Professor KAZUNORI ISHIGURO:

Thank you, Mr. Lindberg. Professor Ishiguro?

Good morning! Before I enter into the content of my presentation, there is one thing which should be mentioned here. I made a big mistake, perhaps you will find in some part of my paper the name of Mr. Lindberg referred to as she or her, not he or his, I apologize to him again. Sorry.

My paper consists of four parts. Please refer to the introductory note of my ADDITIONAL PAPER.

The topics which will be discussed in this forum are not limited to private law areas, but cover public law areas, including taxation and the role of the WTO.

In this regard, first of all, one must be aware of the fact that the way of distinction between the private and the public law, or, in other words, distinction between civil and non-civil matters, is fundamentally different between the European continental countries and Japan on one hand, and the common law countries on the other hand. Often that point causes several confusions in cross-border legal problems, including those in actual interpretation of treaties.

In common law countries, there seems to be a common understanding that if the civil procedure is used, then the problem at issue is categorized as civil or private. However, the intrinsic character or function of the relevant legal institution is decisive in Japan, as in European continental countries.

Now, with regard to choice of law problem, for the mutually better understanding of lawyers from various countries, the most basic point is that there is a big difference in the depth of the basic methodology concerning choice of law process, between the U.S. on one hand, and other countries including Japan on the other hand. Namely the problem of the U.S. choice of law revolution since Babcock v. Jackson in 1963. One should not forget the fact that whether such a basic discrepancy can be overcome or not is the very prerequisite of the real harmonization of choice of law problems among nations concerning the Internet.

The next problem would be the appropriateness or suitability of the so-called country-of-origin rule proposed by Global Business Dialogue on electronic commerce (GBDE). Similar opinions can be found in the arguments on cross-border copyright infringements in cyberspace, namely the lex originis rule which I discussed in Appendix 1 of my paper.

There is an argument on the GBDE side that compliance with all legal regimes of all jurisdictions, based on the location of the consumer, will result in conflicting obligations and will create trade barriers.

However, the location of habitual residence of the relevant consumer is an important connecting factor for both jurisdiction and choice of law, especially for consumer contracts, as Mr. Lindberg explains now.

According to such a proposal, article 120, paragraph (2) of the Swiss Code on Private International law of 1989 will become the target of negotiations aiming that reducing trade barriers, because that provision clearly rejects the party autonomy for consumer contracts.

However, according to my view, the legal development seen in this Swiss article which goes one step further than Article 5 (consumer contracts) of the 1980 Rome Convention is well-founded for the sake of consumer protection at the level of conflict of laws.

Next: With regard to the international jurisdiction in civil matters, the U.S. long arm statutes have been posing serious problems on business activities between the U.S. and Japan, including international concurrent or parallel litigations as found in Hitachi v. IBM case, just as between European countries and the U.S., as found in the famous Laker Airways case, both occurred in 1980s. Undoubtedly, similar cross-border problems will occur frequently concerning transactions in cyberspace too.

To take one of the most basic example, namely the jurisdiction of the court of the domicile of a defendant which is admitted as the most basic principle in Japan and Europe, the U.S. Supreme Court chose a different way, as clearly seen in Piper Aircraft v. Reyno, a Supreme Court case. A foreign plaintiff can sue a defendant in the U.S. domicile of the latter only in rather few cases where the doctrine of forum non conveniens is not a bar.

If jurisdictional rules among nations are to be harmonized for the sake of further developments of cyberspace, one must think of whether such a fundamental difference can be overcome or not, though that is only the tip of an iceberg.

The next problem would be the chilling effect of worldwide injunction. In this context, the U.S. Playmen case of 1996 would be a good example. That was a case of civil contempt. The U.S. court ordered the Italian defendant, as one of the alternative remedies, to shut down its Internet site completely, within two Weeks: not two years, but two weeks.

In this case, the court order was based exclusively on the U.S. law. As stated before, it was a contempt case. The court found no need to mention the applicable law and jurisdiction in rendering the new injunction. Therefore, the problems of applicable law and jurisdiction were completely bypassed, and there was a meltdown of conflict of laws problems in the depth of the U.S. judicial system.

This is a peculiar phenomenon in the United States. Even if jurisdictional rules among nations are harmonized, such U.S. solutions will surely survive and might cause serious problems surrounding the Internet.

The next problem is recognition and enforcement of foreign judgements. In this respect, again, one must be very cautious about the fact that there are different understandings between common law countries, on one hand, and civil law countries including Japan, on the other hand, with regard to the distinction of civil and non-civil matters.

In the Playmen case mentioned before, from the Japanese perspectives, there was a symbolic feature of the intermingling of civil and non-civil matters in common law countries.

If the defendant was a Japanese company and the Internet site at issue were located in Japan, this type of U.S. injunction might be seen at first sight as eligible for recognition and enforcement in Japan. However, my answer is negative. This was a case of contempt. The intrinsic character or function of the relevant legal institution in its totality should be viewed as decisive in rejecting its recognition and enforcement in Japan in the above-mentioned hypothetical case, according to my opinion.

In the U.S. legal system, for example, there are remedies of distinctive features such as punitive or multiple damages, disgorgement in security regulations, parens patriae, et cetera. They will surely survive any attempts of harmonizing legal rules among nations, because they are so deeply embedded in the U.S. legal system. Examples of similar peculiarities can be found in legal systems of other nations too.

If one is willing to harmonize legal rules among nations for the purpose of this forum, one should not forget such aspects of the problem in order not to concentrate oneself on rather superficial harmonization of rules.

Next, with regard to extraterritoriality and the doctrine of state jurisdiction, excessive, the so-called excessive extraterritorial application of U.S. laws has been the target of serious concerns on the Japanese side. Both legislative jurisdiction and enforcement jurisdiction are relevant in this regard, though there is some confusion with regard to the definition of each type of jurisdiction.

Here I would like to take one example. Suppose a case where, without the consent of the Japanese government, an official of a foreign government, or his nominee, has actually removed from the Japanese territory, over the telecommunication networks or by using other means, a decryption key deposited within the Japanese territory. That should be viewed as a clear infringement of the Japanese sovereignty or, in other words, the use of sovereign power by the foreign country within the territory of Japan. Similar problems on enforcement jurisdiction were reported in the 1995 U.S.-Japan trade friction on automobile.

In order to avoid frictions between or among nations with regard to the extraterritorial application of national laws, it is quite understandable that people tend to favor, without any reservation, the establishment of bilateral or multilateral treaty systems. Such treaty routes are undoubtedly important.

However, exclusiveness of such routes depends on the constitutional system of each country and the actual practice which reflects such a background. Even if a treaty is concluded between or among countries, there remains room for imbalance or, in a sense, even free riding, between or among the relevant countries.

This point is serious especially in cases where a country adheres to use unilateral measures which might contradict its treaty obligations.

If unilateral measures survive all attempts of harmonization, one must reconsider the very notion of equal footing before one devotes oneself to such attempts.

And, at the same time, one must be very cautious when the word COMITY is used in discussions at the global level like this forum.

In continental European countries and Japan, comity is theoretically not a legal rule at all. However, in common law countries, it often functions as if it were a legal rule.

In this regard, one must be aware of the important message of Professor F.A. Mann, the author of the worldwide famous book "The Legal Aspects of Money", that: "It is time to forget comity and to recognize the term as meaningless and misleading." Please see Note No. 29 of my main paper.

The last point which should be mentioned here is the impact of the W.T.O. system. The issues of electronic commerce will be included in the next WTO round. Detailed discussions are needed. Consumer protection in the digital age is, of course, very important. However, regrettably, the fundamental position of the general public or even the society itself has become more and more vital in this respect.

As seen in the collapse of the OECD activities on the M.A.I., namely Multilateral Agreement on Investment, the reality in recent negotiations for liberalizing trade and investments tends to reflect one-sidedly the major supply-side voices. Please refer to Appendix II of my paper.

Now, conclusion. It is quite understandable that not a few people regard the traditional framework of conflict of laws as insufficient and useless, in particular in the context of the Internet or the GII. However, the traditional Savigny-type conflict of laws should be viewed as the fruits of scholarly research over centuries, or even a crystal of our historical wisdom, even if it appears to be too fragile at first sight.

The most important premise of the traditional Savigny-type conflict of laws is the equality of every legal system which has something in common with the very basic structure of the world trading system.

However, in this respect, the GBDE's arguments are typical supply-side ones which remind me of the OECD activities on the MAI collapsed in 1998 because of the resistance of the so -called civil society. A well balanced approach is needed for the purpose of the sustainable development of the Internet and the GII.

That's the conclusion of my presentation. Thank you.

(APPLAUSE)

Thank you, Professor Ishiguro. If I'm interpreting the schedule and my instructions from Ruth Day correctly, we have about 20 minutes for questions and discussion. Let me encourage those of you that might have questions or comments to begin making your way to one of these two microphones in the aisle. While you're doing that, let me ask a question of each of our panellists, and I'm going to put both questions on the table so you can think about it a little bit before you answer.

Professor Ishiguro, at page 3 of your paper, in talking about the differences and choice of law approaches between Japan and the United States -- yes, your main paper -- if I understood it correctly, you said that Japan prefers the traditional theories of the First Restatement of Conflicts to what you characterize as the American Jump into the darkness, under the current Restatement, which I think is a fair characterization of current American choice of law jurisprudence; how, if we take one of the traditional rules such as you apply - - the law of the place of the wrong - - to a tort like defamation, how do you decide what the place of the wrong is, if you have, let's say, defamation or copyright infringement through a website that's visible around the world?

My question to Mr. Lindberg is whether he sees prospects for transatlantic harmonization with respect to either adjudicative jurisdiction or prescriptive jurisdiction or both, given that there is a draft proposal before The Hague Conference on Private International Law that purports to harmonize jurisdiction on an international basis?

Professor Ishiguro, you want to respond first?

Professor KAZUNORI ISHIGURO: Yes. One thing which I'd like to say here is with regard to the applicable law in tort cases is that it always depends on the details of a case and that such an uncertainty which people may feel is more deadly severe in the United States legal system. For example, in California, how could they decide the place of wrong or how could they decide the applicable law in a tort case, and then how could you do it in New York? Every state has a different solution, and the total phenomenon in the United States, theoretically, is, if I may say the same thing again, quite different from other countries. Even in Canada, Australia, and even in the U.K. the traditional approach, namely Savigny-type one has been adopted in principle. The U.S. revolution began in 1963, but the counter-revolution began in 1969, and after this, perhaps U.S. courts and Congress laws cannot find the way to - yes, can't find a new way, it's like an impasse, I think, yes that's my answer.

Mr. Lindberg?

Mr. AGNE LINDBERG:

Well, I certainly hope that the answer is yes, and I think it is, and you mentioned that the work being done with The Hague Convention, and that is a very promising work, and this forum will be an international conference on jurisdiction on the Internet, and I know that there will be participants from the ABA Jurisdiction Project at that place.

From the European perspective, I think it's very clearly stated in the words from the EU that they want to have a global solution. However, of course, they, at the same time, say that they want to play a very important role in establishing those rules, meaning once again that maybe not relying very much on self-regulatory methods but rather on regulation, and that's where my worry is, that there is a different approach between the U.S. North-America and Europe for self-regulation, that's my main worry actually.

I don't see any great line at the microphones. Good! Let me ask you for the benefit or our reporter and also for the audience, if you would begin by stating your name and your affiliation.

Mr. ROGER TASSÉ:

My name is Roger Tassé, I am from Ottawa, welcome to Canada to all of you!

I wonder whether in effect in terms of federal states, like Canada and the U.S., whether in effect harmonization is not more difficult to achieve in areas of provincial or state jurisdiction. In our country, we have, for example, in terms of consumer protection, consumer legislation, both the Federal and the Provincial governments have responsibilities and have enacted legislation; same thing with jurisdiction liabilities. So there's a full range of issues relating to the Internet that fall on both Federal and Provincial jurisdiction.

I believe it's the same in the U.S.: you have 50 states, when one reads the cases emerging from your country, you have an impression that there's some very different views on some of these matters, although both in Canada and the U.S., one could say that the basic principles that Mr. Perritt referred to in terms of sovereignty of the states and perspective and adjudicative jurisdiction and enforcement are basically the same, but when you start looking at the details, you find that there are some important differences that businesses would have to understand.

My impression is that, having said that, my impression is that in the EU there is an instrument to harmonize the directive which might in effect give some edge to the EU when compared to Canada and the U.S., where I don't see -- maybe you have in your country the treaty power in the U.S. -- the same instrument to achieve harmonization in some key areas. Would you care to comment on this question of harmonization in federal states, like ours and yours?

Well, one might also say Germany, because in Germany, for example, the competence to regulate broadcasting is at the lander or state level rather than the federal level, and so problems of federalism exist in several different parts of the world. Just to start off with an American response, I think I agree with you that there are mechanisms for forcing harmonization on states, for example, federal preemption in the United States. Since a treaty has the same status as a federal statute, it has preemptive effect, but just as in Europe, where a Commission directive has preemptive effect, it's one thing to say that you have a legal instrument to wipe out the differences among subordinate bodies in the federal states and it's quite another thing to deal with the politics of that.

And so I think one of the interesting questions for us to begin thinking about today and tomorrow is whether some of these uncertainties that we'll be talking about on the one hand create an opportunity to straighten out some of our domestic messes as in the U.S. with respect to choice of law by working on some kind of an international treaty, or whether the politics of that would just be so difficult that it would be altogether fanciful to undertake that approach. Do you all have responses to the federalism issue?

Okay, our second questioner.

Hi, I'm Chris Reed from the University of London, I'm speaking after lunch, but that's too long to wait, so I'll get my question now. I actually wanted to just to --

You better be careful though, because Ruth will deduct the time that you had.

I know, I know, but I'm already down to 15 minutes this afternoon, so it's getting tougher.

I wanted to give an answer or additional answer to the question you posed about defamation and the place of the wrong, because we do have some European jurisprudence on that point, there's a case called Chevilon Press, it's about 10 years ago, and some recent litigation in London involving some Russians suing in England for defamation, all in the case of print media, but that crosses national boundaries, although less fluidly than communications by the Internet, and the results that we seem to have been coming up with in Europe are to say that for defamation anyway, the place of the wrong is very easy to determine, because it's the place where your reputation is damaged, and so if you have a reputation in a jurisdiction, you can sue there for the damages to your reputation that you've suffered in that jurisdiction. That's essentially the result of Chevilon and Press Alliance.

The complicating factor, though, is that you can only sue for the damage you have suffered in that jurisdiction. It was at one time thought that you might be able to bring an action in one of the jurisdictions where you had suffered loss and then claim compensation for all your other worldwide losses, and that's where the line has currently been drawn.

So in a sense, it's a fairly plaintiff friendly solution, in that defendant has to bring actions in every jurisdiction where he or she has suffered damage to his or her reputation.

But what do you do -- wait, wait -- but what do you do about, assuming that a corporation can be defamed for a moment, what do you do about a plaintiff such as Yahoo as to which the reputation that matters, I would submit, is global?

The current answer is that Yahoo's global reputation is made up of a collection of national reputations, and he would have to bring a suit in every country in which it had suffered loss.

So there's adjudicative jurisdiction everywhere and the substantive law of every place could be applied, which sounds rather like Professor Ishiguro's jump into the darkness.

Yes, I think that's right, it just happens to be the current solution I'm not saying it's the right one, but it's the place we're starting from, at least in Europe.

Okay. Seeing no further line at the microphones, let me give Professor Ishiguro and Mr. Lindberg a chance to offer any concluding thoughts that they might have on this opening subject. Mr. Lindberg, you want to go first?

Mr. AGNE LINDBERG:

Sure. Well, some of the conclusions I'm drawing from the European perspective is that, yes, we are achieving a more predictive legal framework by the regulation. Problem number 1 is, and we already touched that because of your question here, is that it's a European solution and not a global solution and that's not a solution to the commerce problem. So it's both a positive thing that the regulation is creating a solution for Europe, but also a dangerous thing that we are kind of locking Europe in its own borders and not achieving the global solutions that are required for E-Commerce; that's one of the conclusion I'm drawing, the drawing of the work that's being done in Europe.

Professor KAZUNORI ISHIGURO:

Professor Ishiguro?

Professor Perritt quite often referred to the concept of jurisdiction, but I'd like to say something about it. You say that prescriptive jurisdiction is the base of the total problem. It is a peculiar phenomenon in the United States. Now, for example, this type of discussion is based on the U.S. legal system or judicial system, namely the distinction between civil and non-civil matters, but there is quite a difference, for example, even in civil cases, between the U.S. and the U.K. There's a difference also concerning the notion of action in rem. In the U.K. only the admiralty case is in rem. But not so in the U.S.

So what I'd like to say is that what is most important for us is to realize and recognize the differences of our legal systems as discussed in my paper.

DEVELOPMENTS IN THE LAW: JUDICIAL DECISIONS AND PRACTICAL APPROACHES

Thank you. My impressions from the presentations that we heard this morning are that Europe, taking a more statutory approach, and as Mr. Lindberg said, loving regulation, is perhaps ahead of the rest of us not only in trying to craft language that addresses some of these new prescriptive, adjudicative and enforcement jurisdictional questions but, perhaps more important than that, developing real practical experience on hammering out differences among different sovereigns that make up Europe. I would think that the world can benefit from that experience in hammering out some of these differences, setting up processes for working them out and can draw some ideas about some of the institutional solutions that have been adopted in Europe.

What I get from Professor Ishiguro's presentation is that Japan prefers certainty offered by some of the traditional rules, especially for choice of law, and is more guarded about the application of adjudicative jurisdiction rules than American courts applying state long arm statutes. More troubling to me, he seems quite dubious about the prospects for harmonization, because, as he points out, the differences that we see, even though they may look like differences in detail, are in fact fairly deeply rooted differences of legal culture. He says we have to be attentive to those, and I understand him to be rather pessimistic about whether, even if we are highly attentive to these differences, that we can do much to paper over the differences.

My sense is that, whatever the prospects for success, we need to try. I think that there is one hard question about what we should try first, but that there also are some interesting new institutional possibilities.

The hard question, I would submit, is whether we should try, issue by issue, to understand the prospects for substantive harmonization first before we come to the choice of law and personal jurisdiction questions, or whether instead we ought to start with the choice of law and personal jurisdiction questions? In other words, if one is in a treaty negotiating mood, should you first try to negotiate a tax treaty or should you first try to negotiate a choice of law treaty for the Internet?

I'm not sure what the right answer is to that $64.00 question, but my sense is that we ought to do it on a sector by sector, that is to say subject - area by subject - area basis, because I think that's going to turn out to be easier. I think it will be easier to deal with problems of child pornography on a global basis than it will be to deal with issues of antitrust treble damages on a global basis, and so I think it might be a good idea to start with child pornography, because there's a large probability of agreement there and that would build confidence and experience that then could carry us forward into some of the intermediate areas where agreement may be possible but more difficult.

Now, we do have some new arrows in our quiver. It is remarkable to me that there is agreement in France as well as in Florence, South Carolina in the United States, that private self-regulation may have at least some role to play in connecting law with the Internet. I think our efforts are likely to bear the greatest fruit if we emphasize new hybrid concepts of regulation where we try to figure out what the framework, what the public law framework might be for private ordering.

That's exactly what's going on right now with the very competent and energetic aid of Barbara Wellbery, from the Department of Commerce, in the negotiations between the European Union and the United States Government about some sort of safe harbor under the European privacy directive for American companies that agree to comply with privately developed guidelines.

Those negotiations are difficult, but I think the idea is the right one, because on the one hand private self-regulation can be inherently global, nothing inherently territorial about that, and so that may be a very attractive answer to the personal jurisdiction problem. We already know, under the New York Convention, that you can deal with adjudicative jurisdiction issues by agreeing to arbitrate, and we already know, at least in the United States and Europe, and I think I understood Professor Ishiguro to say the same thing with respect to Japan, that at least in some commercial contracts the choice of law rule is: the parties decide. So whatever their contract says about the source of substantive law to be applied, that's the answer. So there is considerable power in private ordering.

On the other hand, I disagree with my friend David Johnson, whom I mentioned before, that one can take the Internet out of the world and remove it from the politics and the legal institutions that had been developed over hundreds and thousands of years, punctuated by wars fought over the definition of these legal systems.

However much we would like to have some sort of entirely autonomous self-governance for the Internet and electronic commerce, entirely free of unwelcome regulation in some traditional country of the world, we aren't going to have that, because the political reality in any democratic country anyway will force regulators and legislators to assert their traditional public law tools over the Internet, unless we're creative enough to figure out some new hybrid institutional solutions as an effective alternative.

Thanks a lot, and I think it's time for your coffee break.

(APPLAUSE)

Ms. RUTH DAY:

I think we're going to go ahead and get started and people will just be joining us as they come. One clarification that is very important: someone asked me where is this password to get into all materials on the website, if you look at the book that you have today, you open it to where it says Presentation Material, it's a green page, that will tell you how to access the material in full.

One of the questions at the end of the last panel was something about federalism in 50 states and the differences of law in 50 states in the United States. We have as our next panel a discussion of how that works in the 50 states, developments of law in the United States, primarily dealing with whose law governs and a practical explanation of how Web companies have been dealing with those differences over the last five years. So Liz Blumenfeld is our moderator, and as soon as she's ready.

Good morning or almost afternoon! I hope everyone's coming from outside. As the title of this panel suggests, we're going to be examining judicial decisions and practical approaches. Unfortunately, Peter Harter, who was going to join from EMusic.com isn't able to be with us today, but we have two great panellists. First is Professor John Gedid, who will take us back to law school and remind us of International Shoe minimum contacts analysis, he'll then review U.S. Internet jurisdictional case law and we'll see how that minimum contacts analysis holds up in this borderless medium.

Professor Gedid teaches at Widener University School of Law, and has a law degree from Yale; he's elected to membership in the American Law Institute and former Dean of Widener. Just as a note, since everyone else has noted in the ABA Jurisdiction Project, Professor Gedid is in charge of the ABA's Jurisdiction Project Sale of Goods Subcommittee.

Next, we're going to have Tom Bell, Partner at Perkins Coie, who will provide us with some practical approaches and their policy implications. Tom graduated from Columbia University School of Law and also is an adjunct at the University of Washington Law School, where he's taught Internet and E-Commerce law.

At Perkins Coie, Tom specializes in Internet and electronic commerce issues, and his clients range from Amazon.com, Yahoo, Dell Computer Corporation, Costco Online, Walldata, Northern Light and Wheel Networks. So we'll be able to get a really great perspective on the practical implications of some of these legal decisions as well as the policy implications of them.

After Tom's remarks, we're going to go through a series of hypotheticals that will help all of us take a look at what the case law really means in practical real life, and then we're going to try to open up the floor for questions. We got started a little bit late and we only have -- well, we're only supposed to have an hour, I think we've got less than that now. So I apologize in advance if we rush a little bit, but we will have a lot of information to share with all of you. So first, Professor Gedid.

Thank you, Liz. Good morning! You may be wondering how we got around to this topic. Let me tell you what happened: at an early stage of the ABA Jurisdiction and Cyberspace Project, we said: you know, we ought to take a look, what is the law, we're all talking about the law, what is the law in the United States?

A preliminary look disclosed to several of us that there was some confusion in the application of the International Shoe long arm jurisdiction principles, and so we did some digging: look at the cases you'll find in the materials and on the website, two efforts to review and explain the cases over primarily the last six or seven years involving long arm jurisdiction. Our focus is on the United States case law primarily the lower federal courts.

To understand what is going on in the lower federal courts however, we need something close to the heart of a professor, a quick review of International Shoe. We're going to focus on specific jurisdiction and omit general jurisdiction. For those not familiar with long arm jurisdiction principles of International Shoe in the United States, by definition specific jurisdiction means that the cause of action, the lawsuit, arises out of the context or specific activities of the defendant in the forum.

International Shoe established two requirements for the exercise of long arm jurisdiction, that type of jurisdiction by which a state can force an absent defendant to defend where the plaintiff's residence is, that's the way -- or place of business is, which is the way most of the cases arise.

The first prong, and it's the one we'll be focusing on, is known as the minimum contacts requirement or the power prong; this focuses on the nature of the defendant activities that impinge on, that touch on the forum.

The second prong of the test established by International Shoe is known as the Fundamental Fairness or Reasonableness prong; it's much less, as a practical matter, the second prong has turned out to be much less important, is much less important in the lower federal court cases and the subsequent U.S. Supreme Court cases that followed International Shoe, because usually, if you satisfy minimum contacts frequently, it is not unfair because of the nature of the defendant activities in the forum for the defendant to have to defend in that forum.

In particular, in reviewing International Shoe, what you need to focus on are the later Supreme Court cases, and I just want to mention very briefly the polishing up that four later Supreme Court cases gave to the minimum contacts test in International Shoe. First case, many of you will remember, is Hanson v. Denckla. Hanson explained that the basis for International Shoe and minimum contacts is the territorial limitations on the power of the state. You've got to have, as a result, defendant actions that result in contacts. You can't have a product wondering into the forum somehow through a scheme of distribution or third party action that somehow impinges on the forum; it must be actual defendant activity.

And the way that Hanson, the term of art or the concept that the Hanson case gave that is repeated in the later cases, the cases now, the Internet cases, that the lower U.S. federal courts are struggling with is the idea of purposeful availment. In defining these defendant activities, these minimum contacts, the Court said you've got to have some act or acts by which the defendant purposely availed herself of the privilege of acting within the forum state that invokes the forum states law. In other words, they're operating under the aegis of the law of the forum.

A second case in this series that polished up this initially somewhat vague International Shoe test was the World Wide Volkswagen case. World Wide explained further what purposeful availment means, and World Wide explained that it means a degree, a level of defendant activity that should warn the defendant, put the defendant on notice that if a dispute arises, he might have to defend in the forum, he might have to defend in one of these other states where he's selling or distributing or so forth. Notice the shift that's occurred here: from Hanson to World Wide Volkswagen, the shift is from some sort of territorial idea in Hanson to notice to the defendant in World Wide Volkswagen, to foreseeability on the part of the defendant to the possibility of a lawsuit being brought against defendant in the forum.

Next case in the series is Burger King. Burger King further explained this idea of what constitutes or further elaborated on this idea of what constitute purposeful availment, and defendant activity in the forum that will justify pulling defendant into the forum. You can't have isolated or attenuated contacts, they must be substantial, and Burger King -- and a lot of people overlooked this -- gave concrete examples of what constitutes defendant intent to target the forum, intent to act in a forum. Deliberate defendant activities: selling, perhaps would be an example, and in fact, selling goods is given as an example; the creation of continuing obligations with residents of the forum, which is exercising jurisdiction over the defendant, whether by entering into contracts or informal arrangements where information goes back and forth, and then the Court threw in two catch-all categories: doing business or other activities in the forum by which the defendant is taking advantage of the privileges and benefits of forum law.

The last case is perhaps the most difficult to explain, it's the Asahi case, a case where an Asian vendor of a tire valve that was incorporated into a tar which was then used on a motorcycle in California, was the defendant. In Asahi, you had a plurality opinion; it was a four for one split; Justice O'Connor, writing for one group said, adopted a narrow definition of a stream of commerce. Stream of commerce is a definition, is a concept of specific jurisdiction which has been developed by the lower federal courts. What it in effect says is if you put the goods into a chain of distribution and you know they're going to arrive in a forum, frequently, you will be liable to suit for the exercise of jurisdiction by that forum.

The opinion written by Justice O'Connor said: "Defendants merely placing the goods into the stream of commerce is not sufficient for the exercise of jurisdiction by a distant forum." Justice O'Connor explained you need something more, and that something more that will justify the exercise of jurisdiction is defendant action purposely directed at or targeting or focused on the forum, and just Justice O'Connor gave some examples: designing for the forum market, advertising specifically in the forum, or directing advertising at specifically or particularly the forum state, or the establishment of distribution channels with distributors in your control who will cooperate with you to develop a market in the forum. All of these things are sufficient to constitute to something more in Asahi that will render a distant defendant subject to jurisdiction.

And by the way, the defendant was held not to be subject to the jurisdiction of California in Asahi.

There was another group of four justices led by Justice Brennan, who adopted a broad interpretation of a stream of commerce. They simply said if defendants know the goods are arriving in the forum, then defendant has notice that defendant might be sued there. So a very broad definition of stream of commerce.

The reasonableness prong has hardly been a factor, the reasonableness prong of the International Shoe test. I'm not shifting from minimum to the reasonableness prong. I will suggest that only the first three factors are primarily what are looked at by the courts, but there are very few cases where the reasonableness factors have affected the outcome of the case. Most of the focus of the federal cases has been on minimum contacts, the first prong of International Shoe.

Now, here's what I find that I'm sure many of you are familiar with this, at first look, I find great confusion in the law review articles and in the lower federal court cases. When it came to websites with ads, there were two lines of cases, two groups of cases: one group of cases was headed by Bensusan and other similar cases that are listed in the written materials. Bensusan reasoned that an advertisement of a website which merely advertises is not sufficient to constitute purposeful availment under International Shoe; it simply doesn't show defendant intent to reach the forum that all it shows is a very general national, or international, approach.

But there was a second group of cases: the Inset and Maritz cases in the materials which you'll see, in which the courts said merely posting an ad on the Internet is sufficient to justify any state, and by inference, any sovereignty on earth, I would guess, to exercise jurisdiction. The Inset court held that Internet ads are different from earlier forms of communication, magazine ads, for example, tried to draw a distinction -- and, please, the language as to the Internet distinctions is the Court's not mine; I don't, for the life of me, understand several of the points that the Court was trying to make in those opinions.

One of the things the Court said is: since the Internet is designed to reach every state and since we, Connecticut are one of the states, therefore the defendant has purposely availed itself of coming into our state, and we can exercise jurisdiction. It's an amazing feat of logic, and the other point that the Court made in Inset was that large numbers of persons, 10,000 persons at that time were connected to the Internet in Connecticut, all 10,000 could have seen the advertisement, therefore, the State of Connecticut can exercise jurisdiction.

Some of these early cases dealt with situations involving magazine ads, pardon me, toll free telephone numbers; mostly the cases have said that they are general in nature, they don't involve targeting a particular jurisdiction and usually, if they're not following the Inset case, will not result in a constitutional exercise of long arm jurisdiction.

The same is true about, generally about an Internet website ad coupled with a magazine ad; if the magazine add is in a national magazine, many courts have held no jurisdiction can be exercised.

These same cases worked out some additional principles that have been fairly well accepted, I think they're fairly obvious, but the courts had some difficulty in discovering these.

First, the actual nature of the contacts, the number of hits and where they're from might have something to do with the nature of jurisdiction. Some cases said Internet contacts alone are not sufficient, that you need also non-Internet contacts, and finally, other courts reasoned and made clear that in looking at an Internet case, the Courts will consider the totality of context; that is Internet and non-Internet cases together.

Finally, in late, in mid to late 1997, a case was decided that I think changed everything that was going on in the United States and began the process of making some sense out of the long arm jurisdiction cases. That case was Zippo v. Zippo.Com. Zippo adopted a comprehensive approach, explained and reconciled the earlier cases, and carefully tied in the Internet technology and the long arm jurisdiction test to the International Shoe requirement; Zippo adopted what it called a Sliding Scale, a set of categories based on the nature and quality of the defendant Internet activity, three, Zippo described, looked at the cases and described three different, three categories of case in which you get different results.

First is the passive website where there's merely an ad no jurisdiction; second is the intermediate website where there is some interactivity between website and persons who visit, some of those cases may permit the exercise of long arm jurisdiction; and finally is the fully interactive website where large numbers of files are exchanged and where contracts are entered. Passive website is easy, that's the Bensusan case, mere ads on the Internet, Zippo establishes, do not permit the exercise of long arm jurisdiction.

The interesting category is the Zippo intermediate category. In this category, there's some Internet exchange of information, and the specific test in this category, what the courts are supposed to look at in an intermediate category case is the level of interactivity and the commercial nature of the exchange. They may be sufficient to show purposeful availment.

The third category is easy, that's the fully interactive where you're entering contracts, exchanging large numbers of files.

Conclusion. There's a, I won't say a sea-change, but Zippo represents a major step forward for this reason: the case was well-written, analytical and persuasive. As a result, numerous lower federal courts have bought into the Zippo analysis so that now instead of cases on long arm jurisdiction in the United States going off in a number of different directions, it appears that we have evolving a single test for application of the International Shoe minimum contacts long arm jurisdiction test. Most courts, following Zippo, now agree on a certain set of relevant factors.

Now, it's an evolutionary process, it's not final, there are going to have to be more cases decided until the application in many specific situations becomes clear, but at least things like the degree of interactivity and the actual, what is actually going on will inform the decision and you won't have, hopefully, you won't have courts exercising jurisdiction simply because they want to, which I think is what happened in some of the earlier cases. And that's where we are with U.S. long arm law right now, and I will now surrender the floor.

(APPLAUSE)

Ladies and gentlemen, it's a pleasure to be here today to speak to you. The title of my remarks is Sticky Sites, ECEOs, Bopping Beavers and Jurisdictional Anomalies, and I really have two goals in my presentation today: 1) is to present some practical insight into how we see companies dealing with jurisdictional issues, and 2) is to suggest some conclusions about jurisdictional issues from a policy perspective that we, as lawyers and policy makers, can take into account. I want to do that by using four anecdotes and three jurisdictional anomalies.

The anecdotes are as follows: first, this notion of a sticky site; it's a buzzword on the Internet right now, it is particularly popular in the portal area and it really means three things: it means that your site is attractive, so it draws people to it; 2), it's attractive so they stay there, meaning they do more than view the first page; and 3) it means that they come back. That's what makes up a sticky site.

If you think about the case law, particularly the Zippo analysis, an interactive site is by definition sticky, and so I think we're quickly moving, at least to the commercial area, to a situation where Zippo would dictate that jurisdiction is going to be had against most commercial companies who are doing business at least nationwide, and, for certain, worldwide.

Second anecdote: Internet Law Symposium which was really the birth place, at least in part, of the ILPF. About four years ago in Seattle we talked about the Internet and law, and the discussion seems to be whether or not there should be any law regulating the Internet, a lot of discussions about free speech in the Internet as a published medium. We only talked about the Internet as a commercial or E-Commerce medium as something that might happen potentially in the future.

Third anecdote: ECEOs, there was a very interesting article in a recent Fortune magazine, it was the cover story and it was about Internet E-Commerce companies and how the CEOs are having different demands placed on them today, particularly dictated by the speed with which you must get to market, because the first to market in the Internet has such a big advantage.

And finally, the Bop, the Beaver story. A true story, and speaking with a in-house counsel at a large E-Commerce company here in the United States, we were talking about what her job was like, and she described it as a carnival game, and you've seen the carnival where there's a table and there's usually a set of holes, and randomly this little plastic animal pops up and you have a mallet, and whichever animal pops up, you try to hit it before it can disappear, and she said: that's what my day is like; people are constantly creating these random business models, wanting to deploy them tomorrow and they want me to answer them, and so I'm constantly bopping down the beavers and telling them: no, you have to do this first, no, you have to do that first.

Now, three anomalies, and I'll try to tie this together at the end. First, the anomalies in the jurisdiction that we see in the United States really focus on business models, and as a caveat, tax nexus permeates this discussion, and there's a lot of discussion about tax nexus coming up later and some good papers, so I'm not going to talk about tax nexus, except as it relates to these other business models, because, again, when our clients are talking about whether they can do something in a particular jurisdiction, that is almost always the first thing they're worried about.

Now, one of the businesses we've been in lately, it seems like it's doing 50 state surveys and overseas surveys for a particular business model, let's talk about two of them: auctions and pharmacies, very popular on the Internet right now.

Now, the auction one is particularly interesting because in some ways the Internet is very close to a perfect market, where we went from a situation where people were basically selling on auction sites their yards materials to now helicopters, medical practices and other things you can find listed on some of the popular auction sites.

Interestingly enough, most states in the United States do have laws that regulate auctions; the statutes are old, they were intended to cover basically the itinerant or travelling -- the citizenry against the itinerant or travelling auctioneer who would come to the jurisdiction, take the goods for themselves, not under the consignment laws or charge exorbitant fees. They were also intended to -- they tended to regulate those people by making them register, in some cases take tests or post a bond.

One of the anomalies in the auction area is that if you think about it, online auctions really aren't auctions. I think they're actually much more akin to a flee market or swap meet: there is a person who is willing to provide a forum; the seller of the good doesn't lose control of the good, doesn't give it to the auctioneer, dictates the terms basically upon which it will be offered, and often times decides whether or not they're going to perform.

Nonetheless, 50 states worth of auction laws have to be looked at. Well, is it really an auction? If it is, even if it is an auction, where does it occur other than on the server of the auctioneer? And finally, most of the problems that have been associated with auctions have been in the sale and delivery of goods as opposed to actions taken by the auctioneer. So in some ways, the activity that seems to plead more for regulation would be the activity between the buyer and the seller as opposed to the party who's providing the forum.

Well, the practical approach for us is that if barriers to entry are low, generally speaking, we comply with the auction laws; if the barriers to entries are too high, then we're locked out of a state.

Second model: pharmacies. This is actually a much more compelling model, because states are trying to protect the help and safety of their citizenry. The 50 state laws tend to focus on the location of the pharmacy, meaning not that I'm in a state, but the physical address where the pharmacy operates, the pharmacist and licensing the pharmacist. There's quite a bit of a statute, particularly for Internet companies, on mail- order companies, because mail-order companies really prompted some of these statutes, at least provisions to them.

The notable feature of the 50 state statutes are that in most cases they require that an out-of-state pharmacy that is going to be delivering pharmaceutical products, drugs, in some cases even things as innocuous herbals and vitamins to a state, need to register as an out-of-state pharmacy.

Now, the anomaly that is created in some of the laws, some of the states have determined that it's so compelling to regulate this, it's so important for them to get registration from out-of-state pharmacies, that they are actually willing to go out on a limb and say that registering as an out-of-state pharmacy in and of itself does not subject the out-of-state company to tax nexus, which again is something that's critical to companies that are trying to take advantage of some of the advantages on the Internet.

One more anomaly -- I call this the big versus little. Interestingly enough, one of the phenomena of law in the Internet is that sometimes the big multistate, multinational companies are put at a severe disadvantage under regulatory frameworks vis-à-vis the small dot com crowd, as we call them.

Now, there's a couple of examples of this, tax nexus is a perfect example: if a large multistate retailer is competing with an Internet start-up that's selling goods from one location, generally speaking the retailer is at a disadvantage because they're charging sales tax in each of the 50 states. Now, they may take an aggressive approach, form a subsidiary and take the position that the online subsidiary does not have to pay taxes, but there are inherent risks in that model.

Data collection is another area where the differential can be a problem, and this extends not only to the states but to international collection of data and the privacy laws. For instance, if a large multinational company is subjected to privacy rules that require it to segregate data, okay, that it collects about people in one jurisdiction versus the other, then one of the advantages that a large multinational company has goes away, because in other words, they can't take advantage of the large data base that they have already collected because they have to segregate that data in order to achieve certain advantages.

Digital delivery of products is another category where the dot com crowd seems to be at advantage and in fact has led a number of companies to close their stores, consolidate their entity into a new one where there's a favorable tax jurisdiction, and provide products either online or at least not through a store at all.

Now, some observations that flow out of these what I call them jurisdictional anomalies: 1) is that a few years ago, and this goes back to ILPF, law was ahead of businesses. Clearly, today, that is not the case; businesses are doing business online, they are looking at 50 state and overseas laws, they are going forward.

The Internet pace demands of those ECEOs that companies act now in spite of jurisdictional uncertainty. New business models are facing legacy laws that may or may not apply to their business model whether it's called an auction or not, is it really?

Small companies can compete with large companies and in fact some of the laws give small companies the jurisdictional advantage. Jurisdictional anomalies occur in both laws old and new, not just in the legacy laws, through our 50 states surveys and overseas survey, we note that the practical approach is to advise to the highest common denominator of laws but to opt out of those jurisdictions where there is too much uncertainty or the regulation is overly burdensome.

The conclusion is that business on the Net seems to be a lot like the flow of water: if you open a channel and it starts to trickle out, it tends to erode itself into the path of least resistance. Jurisdictions that provide uncertainty or too much resistance will lose the flow of water and much like the water rights cases that we've had in the past, regulation will be a combination of both self-regulation and those imposed by the states that are just and fair.

Thank you.

(APPLAUSE)

What we're going to do now is go through a couple of hypotheticals just to bring some of this into context, and we'll get both John and Tom's perspective on these hypotheticals.

The first one, it's up there, an Illinois seller, posts an advertisement on his website, or a third party website for a widget, a sale of a good. California buyer visits the website and goes out and purchases the widget at a department store in California, so it's an offline purchase. Apparently, there's a serious defect and so the buyer sues in California.

John, what would the case law suggest?

Foregone conclusions: Bensusan and the other cases, passive website, no jurisdiction.

Easy case, I agree.

Okay, good! Next case. We like agreement here. Hypothetical 2: same as before, but the defendant adds a toll free telephone number at the website which callers can obtain additional information; does this change the scenario?

Most of the cases that have considered this have reached the conclusion that adding the toll free telephone number does not constitute focusing or targeting a particular jurisdiction, and without more, once again, passive website, no jurisdiction under International Shoe.

And, Tom, do you agree?

I agree but my policy then will start to show three breaches: the toll free 800 numbers have been a characteristic of mail-order companies for years, and unfortunately, I think it's now the jurisdiction cases are starting to treat Internet companies with a little bit -- they're treating them differentially from the mail-order companies that have been shipping products telephone stations for years, and an 800 number should make the difference at all.

Okay. Next hypothetical 3: same as everything before, but the defendant also ran a magazine advertisement, national magazine ad in addition to the website advertisement.

Many of the cases that have considered this situation have said: as long as the ad is national, doesn't focus the forum or a particular state, no jurisdiction under International Shoe.

I agree. There's an interesting other comment here on international side, because among the 50 states, the online sellers don't usually differentiate very much in their websites, there might be specific persons to the pharmaceuticals or auctions who will give certificates, sweepstakes when there will be some bird seed down at the bottom of the cage to differentiate. But the real interesting one about this I think is the overseas implications, because retailers online have now started to direct a version of their site to a jurisdiction; it's in that language. It is quoted in those prices, it addresses the other public policy implications that come up in that country, so it's not just an advertisement, but it's clearly directed to a country. It would be interesting to see how this ends up being played out in an international context.

I think that's right, and I think that, you know, your perspective on what constitutes directed or what businesses are thinking about when they're trying to target a particular country or state. For example, what about some of the local website areas that are directed towards a specific state or a particular country, are those considered directed sites and does that mean that any advertisement that appears on that site would also be considered directive?

Mr. TOM BELL: Yes, we take the position that in your 50 state question, it shouldn't be. You're just trying to comply with the law of the state, for instance, if they're giving gift certificates out and constant reply with the differences in California law versus the New York law, you're just being a good corporate citizen.

A little bit more difficult is the international context, it's the context specifically target the site to a country, but you're not doing that, but we'll see how those cases come out.

One further thought: in the United States, in the U.S. state long arm cases, there are a couple of cases which have said: if you happen to put an ad into a magazine that circulated in one or only a couple of states, that's sufficient targeting for the exercise of jurisdiction. So the hypo emphatically deals with ads, national ads in magazines distributed nationally or internationally.

Okay. Hypothetical 4 is a little bit more complex, we're trying to add some interactivity and go down the Zippo sliding scale. In this case, the seller adds a form on the website that the prospective buyer or interested persons can fill out, requesting information, and the seller will send the information on various products and their prices. The seller generally, as a business matter, answers all of the inquiries so that it is interactive in nature, and in fact answers the particular buyer from California's inquiries. The buyer goes out to the store, buys the product, there's a defect and the buyer sues in California; how does this change the equation or does it?

Well, we're now into the intermediate Zippo category, and depending on the way you read, the way the Court reads the level of interactivity and the commercial nature of the website, a court may reach the conclusion that jurisdiction can be exercised.

The argument that would be made is that the defendant is creating a demand in the forum by this interactive activity, that's targeting, that's directed at the forum, that is in effect in the forum almost doing business in the forum.

Furthermore, furthermore, under the Asahi test, defendant has notice, clear notice that they're dealing with residents of a particular forum, and notices are important. A number of cases had considered something close to this scenario; in the materials, the origin in Millennium cases held no jurisdiction.

The Vitulo case in which the information sent back touted a boat show in the residence forum Illinois, along with the knowledge by the seller that the goods went into Illinois and particularly were being sold in Chicago, it was enough to convince the Court that there was a sufficient level of interactivity on the totality of the contacts for Illinois to exercise jurisdiction. So this isn't clear either way, it's going to depend on the specific facts of the case.

Tom, let me ask you a question about this: from a policy perspective, I mean, the beauty of the Internet is the interactivity, and so the more that websites utilize the functionality, it seems like the Zippo is, Zippo case is saying: the more interactive the site is the more likelihood of jurisdiction being applied, so the more sophisticated websites may face jurisdiction across the country or across the world. What do you think about that?