Personal jurisdiction in the Silicon Forest
By Keith S. Dubanevich and Alec J. Shebiel
small business client comes to you to discuss a business plan to expand
into e-commerce to keep up with competition. One question you will want
to explore with your client is whether the intention is to market to customers
outside of Oregon, or merely to provide the Oregon customers with another
mode of communication. If it is the latter, you should advise your client
of the perils of Internet jurisdiction and recommend steps to limit the
possibility of being haled into out-of-state courts.
notions of due process and jurisdiction have undergone substantial reassessment
with the advancement of telecommunications. In the middle of the past
century, telephone and mail contact with a forum state were often examined
to determine whether minimum contacts existed so as to allow the assertion
of jurisdiction over the defendant. Now the courts are confronted with
worldwide access to web pages, e-mail contracts and other electronic business
relationships in deciding whether the assertion of personal jurisdiction
satisfies constitutional muster. It is important to understand your client's
desired business goals and advise about the jurisdictional ramifications
defendant, a Texas resident, entered into a contract with Compuserve which
was headquartered in Ohio. Defendant marketed software through Compuserve
and agreed to certain terms and conditions posted on Compuserve's website
stating that the 'service agreement' was entered in Ohio and
was to be 'governed by and construed in accordance with Ohio law.'
The defendant assented to these terms electronically by clicking on a
box entitled 'Agree' when he transmitted his software to Compuserve
over the Internet. The defendant and his company had no other contacts
with Ohio, and as a result, argued there was no jurisdiction in Ohio.
court found that although these were minimal contacts, the defendant had
knowingly made an effort to market his product in other states through
Ohio-based Compuserve and thus, it was foreseeable for defendant to anticipate
being haled into Ohio courts.
accurately predicted what courts would look at in future cases in assessing
what amount of commerce over the Internet will be sufficient for jurisdiction.
The court said that a standard consumer 'seated at his computer terminal'
might not necessarily expose himself to jurisdiction in every state wherein
a website he visits is operated. Thus, not only the amount of commerce
but also the type of commerce or contact the defendant has is a pertinent
court recognized that maintaining a website accessible to residents of
Missouri presented an issue of first impression with respect to personal
jurisdiction analysis. The court recognized a distinction between the
use of telephone and mail contact with a forum and simply posting an Internet
site. Thus, the court dismissed the defendant's characterization of its
activity as maintaining a 'passive website' and found that the
defendant's intent was to reach all Internet users, regardless of geographic
court's ruling in Cybergold boiled down to the proposition that
an Internet provider can limit access to its website and its failure to
do so may subject itself to jurisdiction in every state, particularly
if the information gives rise to an injury within the forum state. A similar
result was reached in Zippo Manufacturing Company v. Zippo.com, Inc.,
952 F.Supp. 1119 (W.D. Pa. 1997).
Zippo, the court was presented with a trademark infringement and
dilution complaint. The defendant moved to dismiss for lack of personal
jurisdiction. Zippo Manufacturing made the well-known Zippo lighter. The
defendant 'dotcom' was a California corporation with its principal
place of business in Sunnyvale, Calif., operated an Internet website and
Internet news service and obtained the exclusive right to use the domain
names 'Zippo.com,' 'Zippo.net' and 'Zipponews.com.'
Zippo Manufacturing had its principal place of business in Pennsylvania
where the suit was filed.
defendant's contacts with Pennsylvania had occurred almost exclusively
over the Internet. The defendant had no employees, offices or agents in
Pennsylvania, and its Internet servers were located in California. Nonetheless,
approximately 3,000 of its Internet webpage subscribers were Pennsylvania
analyzing the Internet and jurisdiction, the court reviewed extensive
case law including the historical underpinnings of jurisdictional analysis.
For example, in Hanson v. Denckla, the Supreme Court noted that
'as technological progress has increased the flow of commerce between
the states, the need for jurisdiction has undergone a similar increase.'
357 U.S. 235, 250-51 (1958). Twenty-seven years after Hanson v. Denckla,
the Court observed that jurisdiction could not be avoided 'merely
because the defendant did not physically enter the forum state.'
Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476 (1985). The Court
Zippo court went on to describe a sliding-scale approach so that the
assertion of personal jurisdiction is 'directly proportionate to
the nature and quality of commercial activity that an entity conducts
over the Internet.' 952 F.Supp. at 1124.2
court determined it had jurisdiction because the defendant had entered
into contracts with residents of the forum state. The defendant was not
a mere informational website but instead, purposely availed itself of
the benefits and detriments of doing business in the forum state.
defendants were South Carolina corporations that operated retail music
stores in South Carolina and sold products through their stores and their
Internet website. The defendants did very little business via their website,
however. The only Oregon contact was someone working for an acquaintance
of plaintiff's counsel who purchased a compact disc from the defendants
through their website. Defendants sold no other merchandise to any Oregon
court found that there was no basis for general jurisdiction because the
sale of one compact disc was neither substantial nor continuous and systematic.
The court then analyzed specific jurisdiction.
contended that the sale of one compact disc constituted purposeful availment
because the sale occurred after defendants had 'solicited sales over
the Internet in the State of Oregon.' The court disagreed because
the sale to the Oregon resident was nothing more than an attempt by the
plaintiff to manufacture contact with the forum sufficient to establish
personal jurisdiction. Defendants did not purposefully avail themselves
of the protections of the forum as it was the plaintiff that brought the
defendants into the forum by requesting the business transaction. Because
the sale of the one compact disc did not cause the plaintiff an ascertainable
loss and did not form the basis of the plaintiff's Lanham Act claim, that
transaction was insufficient to establish jurisdiction. See 900 Support
Inc. v. Microportal.com, Inc., 2001 U.S. Dist. LEXIS 8603 (D. Or.
2001) (defendant arguing against personal jurisdiction submitted a declaration
stating that its sales to Oregon constituted just over one-half of one
percent of its business during the period in question - such contact was
held insufficient to constitute 'continuous and systematic'
contacts in Oregon).
the defendant had acquired product from an Oregon-based supplier, the
court found that sporadic purchases within a forum cannot support the
assertion of personal jurisdiction unless the cause of action arose from
or related to those purchases. Finally, the court found no support for
the argument that the defendant had intentionally directed its activities
at Oregon knowing that the plaintiff would be harmed. Thus, the court
granted the defendant's motion to dismiss.
Perry v. Righton.com, 90 F.Supp 2d 1138 (D. Or. 2000) Judge Redden
granted a motion to dismiss finding that the plaintiff had not proven
that the defendant had purposefully done business in Oregon by conducting
business over the Internet on a nationwide basis. The case involved a
fight over a domain name. Plaintiff was an Oregon resident who owned the
trademark Righton. Defendant was a Delaware corporation headquartered
in California and owned the Internet domain name righton.com.
court granted defendant's motion to dismis finding that the plaintiff
had not proven that the defendant 'intentionally directed its acquisition
of the righton.com domain name at [plaintiff's] business in Oregon, with
knowledge that [plaintiff] would be, or was likely to be, harmed.'
Id. at 1141. In addition, the defendant had not engaged in any
national advertising, had not directed any marketing activities toward
Oregon, had not sold any product or service in Oregon and had not accepted
any inquiries from Oregon residents for the sale of any product or service.
Id. at 1139.
July 2000, the Magistrate Judge Stewart denied a motion to dismiss for
lack of personal jurisdiction in a Lanham Act claim brought by Tech Heads
against a company that maintained a similarly worded website. Tech
Heads, Inc. v. Desk Top Service Center, Inc., 105 F.Supp.2d 1142 (D.
Or. 2000). Plaintiff asserted that the defendant had violated certain
servicemarks when it set up and maintained a website in which it offered
computer-related services. Plaintiff, an Oregon corporation with its principal
place of business in Oregon, also provided computer-related services including
consulting and training.
defendant had no physical presence in Oregon, was not registered to conduct
business in Oregon, had no registered agents, employees or sales representatives
in Oregon, had never received a franchise inquiry from Oregon and a vast
majority of its business was in Virginia, Maryland and North Carolina.
The defendant also contended that it had conducted no business of any
type at any time in the State of Oregon, or 'further west than the
western border of the state of Virginia.' Id. at 1145.
these facts, the court concluded that it did not have general jurisdiction
because the plaintiff was unable to show the continuous and systematic
contacts necessary for personal jurisdiction. The court then analyzed
asserted that Desk Top was subject to jurisdiction in Oregon because its
allegedly infringing activities caused harm in Oregon because defendant's
contact with Oregon included a 'highly interactive' website
accessed by at least one Oregon resident. Defendant had also advertised
in a national newspaper circulated in Oregon and there were threats of
litigation in Oregon. Id. at 1147. The court rejected plaintiff's
first assertion, finding that there was no evidence that Desk Top intentionally
directed its activities at Oregon knowing that plaintiff would be harmed.
addressing the website maintained by Desk Top, the court applied the 'sliding
scale' test adopted in Zippo. It found that the site was not
passive as described in Cybersell because it actively encouraged
and sought an exchange of information and commerce. Conversely, the court
found that the company did not direct most of its business through the
website and there was no evidence of any contract between an Oregon resident
and Desk Top. Thus, the website fell into the middle of the sliding scale.
court acknowledged that in Millennium it had previously found that
the sliding scale needed further refinement in the middle zone to include
the fundamental requirement of personal jurisdiction:
Tech Heads court distinguished Millennium finding that defendant's
website was highly interactive and that it actively encouraged and received
resumes from job seekers. In doing so, Desk Top 'purposefully reached
out across the United States, including Oregon, and around the world,
not only through its Web site, but also through national advertising and
a toll-free telephone number.' Id. As a result, the court
found sufficient contact to exercise personal jurisdiction.
the court recognized that exercising personal jurisdiction in this case
does not strictly comply with 'traditional notions of jurisdiction.'
Id. at 1152 citing Stomp, Inc. v. NeatO, LLC, 61 F.Supp.2d
1074, 1080 (C.D. Cal. 1999). However, the court recognized that 'traditional'
notions of jurisdiction 'must remain flexible in the context of a
constantly changing society where technological innovations have transformed
the interactions that serve as the basis for personal jurisdiction.'
105 F.Supp. 2d at 1152.
Stomp Inc. v. NeatO, LLC, the court recognized that a
advising your clients, it is important to understand what your clients'
goals are for utilizing Internet technology. If they are interested in
doing business on a regional or national level, then you should advise
them accordingly that they increase the chance that other states could
obtain personal jurisdiction over them. When a merchant seeks the benefit
of engaging in unlimited interstate commerce over the Internet, it runs
the risk of being subject to the process of the courts in those states.
Stomp Inc. v. NeatO, LLC, 61 F.Supp. 2d at 1081. If one of your
clients wants to remain local, there are certain steps it should take
to help minimize any unintended jurisdictional exposure.
strategy is to establish passive websites that are no more than advertisements
on the Internet. See Cybersell, Inc. v. Cybersell, Inc., 130 F.3d
414, 417-419 (9th Cir. 1997). If the site is interactive, the owner of
a website can include a disclaimer that it will not sell its products
outside a certain geographic area, and an interactive 'clickwrap
agreement' that includes a choice of venue clause which a consumer
must agree to before being allowed to purchase any products. Stomp
Inc. v. NeatO, LLC, 61 F.Supp. 2d at 1080-1081; American Eyewear,
Inc. v. Peeper's Sunglasses and Accessories, Inc., 106 F.Supp.2d 895
(N.D. Tex. 2000) (an Internet company can limit the jurisdictions in which
it could be subject to suit such as a disclaimer that it will not sell
products or provide services outside a certain geographic area or an interactive
agreement that includes a choice of venue clause).
'clickwrap agreement' allows the consumer to manifest her assent
to the terms of a contract by 'clicking' on an acceptance button
on the website. If the consumer does not agree to the contract terms,
the website will not accept the consumer's order. Such agreements are
common on websites that sell or distribute software programs that the
consumer downloads from the website.
forum selection clause is 'presumptively valid and should not be
set aside unless the party challenging the clause clearly show[s] that
enforcement would be unreasonable and unjust, or that the clause was invalid
for such reasons as fraud or overreaching.' M/S Bremen v. Zapata
Off-Shore Co., 407 U.S. 1, 15, 32 L.Ed. 2d 513, 92 S.Ct. 1907 (1972).
Where forum selection clauses are reasonable, fair, and clearly written,
they are generally enforceable. Thrapp v. Erin Truckways, Ltd.,
2001 U.S. Dist. LEXIS 7871 (D.Or. 2001). At least one court has held that
such 'clickwrap agreements' are enforceable contracts. See
Groff v. America Online, Inc., 1998 R.I. Super. LEXIS 46.
keeping a website passive, or by utilizing disclaimers and 'clickwrap
agreements,' local merchants may be able to limit the jurisdictions
to which they may be haled into court. Although plaintiffs have many hurdles
to overcome in the litigation process, including establishing personal
jurisdiction, it is the merchants who seek to sell their products only
to consumers in a particular geographic area that can control the location
of resulting lawsuits.
these recommendations ought to be considered during the development and
design phase of a website, you should discuss these issues with your client
as early as possible. It will do little good when a client, who has just
been sued in Vermont, comes to you and asks what the chances are to successfully
move to dismiss for lack of personal jurisdiction, when the already-launched
website is interactive with no disclaimers and no clickwrap agreements.
ABOUT THE AUTHORS
S. Dubanevich is an owner in the firm of Garvey, Schubert & Barer and is
chair of the firm's litigation practice group. Alec J. Shebiel is an associate
with Garvey, Schubert & Barer.
© 2001 Keith S. Dubanevich and Alec J. Shebiel.