Posted by Jeff from LTU-207-73-69-80.LTU.EDU (207.73.69.80) on Friday, May 17, 2002 at 1:32PM :
:o)
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LONG
Arm of the Law Gains Internet
The issue is basic to maintaining a viable judicial system: When can one party require another party, located in a different state or country, to come and defend itself before the court of the suing party?
The Internet has complicated the resolution of this issue by greatly expanding the geographic reach of business operations. Furthermore, in our litigious society, resolution of this issue is one of those areas of uncertainty that has the potential of inhibiting the robust growth of the Internet. MUSCLE
constitutional
REQUIREMENTS
The U.S. Constitution requires that
in order for a court of one state to have jurisdiction over a non-resident party, the non-resident party must have had "minimum contacts" with the local state [1]. An important element of "minimum contacts" is that the non-resident "purposely established" contacts and "create continuing relationships and obligations with the citizens of another state ..." [2] In effect, the contacts need to be of such a character and degree that a defendant party could reasonably have expected to be hauled into court in the distant state [3] due to the substantial connection established with such state. [4] However, to establish minimum contacts,
a court must examine the totality of the circumstances.
.
Almost 40 years ago the Supreme Court recognized that "as technological progress has increased the flow of commerce between states, the need for jurisdiction has undergone a similar increase." [5] Additionally, physical presence in a state has long been viewed as unnecessary for jurisdiction.
[6] Accordingly, it is easy to see how the Internet will have an expansive effect on the jurisdictional reach of both state and national courts.
passive or
INTERACTIVE?
The cases have already established that under particular circumstances, Internet presence alone can be sufficient to grant jurisdiction over a non-resident. However, "the likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet." [7] In any given situation, the "nature and quality of the commercial activity" must be evaluated. It is important to note that the "nature and quality" requirement does not depend upon a minimum number of contacts (one can be sufficient) or a minimum dollar value generated from contacts.
On one end of the spectrum, where a Web site will not confer jurisdiction, is the passive-local Web site. This is a Web site that does not have interactive components (e.g., order processing capabilities)
and is only directed to people in a limited geographic area. For instance, a New York court did not have jurisdiction over a Missouri restaurant for trademark infringement, where the Web site for the restaurant was not interactive and was not designed to attract New York residents. [8]
On the other end of the spectrum is the Web site that is specifically designed to attract people in all states, process orders and establish ongoing relationships with customers. For example, a company that offers a paid news service over the Internet -- which has more than 3,000 paying customers in a particular state, and has also entered into contracts with multiple Internet service providers in that state -- has satisfied the minimum contacts requirement. [9]
unpredictability
For the time being, there will be substantial unpredictability for Internet activity that falls somewhere between the passive-local presence and full interactivity examples.
Defendants have tried to argue that the mere establishment of a Web site will not satisfy the minimum contacts requirement because it does not constitute a purposeful effort to have contacts with people in any particular location. This may be true where no actual contact has occurred with residents of a state. However, even though residents of a particular state were not originally targeted, after a certain number of sales occur, or contractual relationships are established, then these contacts have been viewed as more purposeful by courts.
Where the minimum contacts upon which jurisdiction is allegedly based are unrelated to the acts comprising the cause of action, the courts have applied a strict test to determine whether a transaction constitutes purposeful availment. However, where a harm (such as a tort) occurs which arises directly from the contact in the state, then the threshold for satisfying the "purposeful" requirement is significantly lower. For example (in the non-Internet context), where a reporter called an out-of-state source, who allegedly made a libelous statement that was printed in the local paper, a court held that the single act of answering the phone and making the comment with the reporter constituted purposeful contact by the source with the distant state. [10]
It is unclear how a court would view the non-interactive site that serves as a mere advertisement attempting to attract customers in all fifty states. If such a site is considered equivalent to an advertisement, then there will be no jurisdiction, because advertisements placed in national publications will not by themselves provide a basis for jurisdiction in all states where they appear. However, the analogy to advertisements might not hold up, because the contact achieved by even a passive Web page may greatly exceed that achieved by an advertisement. As one court noted, "unlike hard-copy advertisements ... which are often quickly disposed of and reach a limited number of potential consumers, Internet advertisements are in electronic form so that they can be accessed again and again by many more potential consumers." [11]
Some courts have found that when a site includes an 800 number, which presumably encourages contact from out of state, this is an indication that the site is purposefully trying to reach out-of-state residents. Courts have also given some weight to factors such as where the agreement was entered into, which law the agreement selected to govern, amount of revenue generated from the state and the location of the server.
Lastly, imposing jurisdiction on a non-resident must not "offend traditional notions of fair play and substantial justice." [12] One factor in this assessment has always been the distance that the defendant would have to travel. However, as mobility has increased, the importance of this factor has decreased, and will only be seriously considered in borderline cases.
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Those concerned about jurisdiction issues might select a jurisdiction contractually, when appropriate. Also, if a site has a registration process for users, then users from certain jurisdictions could be filtered out. Additionally, interactivity could be reduced by directing customers to offline processing of orders. However, most of these options are not practical. Businesses using Web sites will simply have to start building into their business plan evaluations the possibility that they may be defending themselves in distant courts.
Where the Internet is concerned, many in a position to make policy are moving cautiously, not wanting to produce broad decrees that may have substantial and unforeseen repercussions. Therefore, do not expect clear guidance on this issue from the courts any time soon. As the Supreme Court recently stated, given the "changes taking place in the law, the technology, and the industrial structure, related to telecommunications, we believe it unwise and unnecessary definitively to pick one analogy or one specific set of words now." [13] *
William Galkin is the adjunct professor
of computer law at the University of Maryland School of Law, and an attorney who represents companies dealing with a wide range of legal issues associated with computers and technology. E-mail: <wgalkin@law circle.com>.
-- Jeff
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