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ABA Section of Business Law
Business Law Today
July/August 1999
It’s a question of jurisdiction
Irreconcilable differences in cyberspace
By THOMAS P. VARTANIAN
Vartanian is chair of the financial institutions and electronic commerce practice at Fried, Frank, Harris, Shriver
& Jacobson in Washington. He is also chair of the Section’s Cyberspace Law Committee and the ABA’s
“Jurisdiction in Cyberspace” project.
Commerce is speeding onto the Net at a stunning pace. But as more and more information, products, services
and payments travel in no particular pattern through a global maze of desktops, servers, routers and fiber
optic lines, where companies are doing business is once again a fundamental legal question.
Cyberspace transcends geographic boundaries. So, when The Blue Note Cafe in St. Louis promotes itself
through a Web site, it may be seen as infringing on the intellectual property of The Blue Note Cafe in
Manhattan. When a business located in Las Vegas offers online gambling through a server in Belize, it may be
viewed as violating consumer protection laws in Minnesota when consumers there gamble through its site.
When loans are processed by a bank through a server in another state, that state may attempt to assert its
right to tax the revenue that flows through that server.
And, if an Internet service provider in the United States transmits pornographic material made available by one
of its subscribers, it may be accused of violating pornography laws in a foreign country. These are just some of
the domestic jurisdictional questions that arise as commerce goes digital.
The irrelevancy of borders in digital commerce suggests that the law should take a fresh look at how
jurisdiction should be determined. The ABA’s Business Law Section, through its Cyberspace Law Committee,
and with the joint sponsorship of five other Sections, has funded a two-year transnational Jurisdiction in
Cyberspace Project that will make its report on nine different areas of the law at the ABA Annual Meeting in
London in 2000 (see www.abanet.org/buslaw/cyber).
The ABA’s analysis of issues and global harmonizing principles will focus on the extent to which electronic
commerce in cyberspace affects the legal conventions that determine:
• where corporate citizenship resides;
• where a business may be sued;
• who may tax revenues and consumption;
• what laws should apply; and
• who should regulate cyberspace businesses.
Some may contend that electronic commerce should not materially affect current principles of jurisdiction,
since electronic commerce is analogous to telephone, fax, cable, wireless and satellite communications. Others
may argue that the omnipresent push and pull of cyberspace commerce pops the final pins out of the delicate
undercarriage on which jurisdiction has been built and that business predictability requires a "country-oforigin" approach. Some courts have found that an interactive Web site is sufficient to assert jurisdiction, while
others are requiring additional non-Internet activity in the forum, regardless of whether the activity is related
to the underlying claim, or whether additional conduct in the forum is related to the plaintiff’s cause of action.
Using a Web site to conduct business underscores the result-oriented analysis that the jurisdictional doctrine of
"purposeful availment" suggests. Perhaps the movement of commerce into cyberspace should spur a
comprehensive rewrite of jurisdictional rules to bring a sense of reason and predictability to them. As inviting
as that debate may seem, it must lie beyond the scope of this article.
The courts, however, must deal with these issues today. To illustrate the nature of some of the jurisdictional
issues being raised by electronic commerce, this article will summarize the development of general and specific
jurisdiction principles in the United States.
Determining whether personal jurisdiction exists over an out-of-state defendant involves two inquiries:
whether the forum state’s long-arm statute permits the assertion of jurisdiction and whether assertion of
personal jurisdiction violates federal due process. Due process requires that a defendant, if not present in the
state, have certain minimum contacts with it such that the maintenance of the suit does not offend traditional
notions of fair play and substantial justice. Minimum contacts can be demonstrated through facts supporting
either general or specific jurisdiction over the defendant.
General jurisdiction refers to a court’s authority to hear any cause of action, regardless of whether it arose
from the defendant’s activities within the forum state. For a court to do so, the defendant must have
"continuous and systematic" contacts with the forum state. Specific jurisdiction may exist when the cause of
action arises directly from a defendant’s contacts with the forum state. At least one
federal circuit (the Ninth) uses a three-part test to determine whether the exercise of specific jurisdiction
comports with due process:
• the defendant must perform some act or consummate some transaction within the forum by which it
"purposefully avails" itself of the privilege of conducting activities in the forum;
• the claim must be one that arises out of or results from the defendant’s forum-related activities; and
• the court’s exercise of jurisdiction must be reasonable.
An increasing number of courts in the United States are considering this issue, and, despite variations, some
important and perhaps predictable patterns are developing. While some early cases did impose jurisdiction
based solely on the existence of a Web site that advertised the existence of an entity, the trend has clearly
shifted away from finding jurisdiction based solely on the existence of "passive" Web-site advertising. Courts
that have asserted jurisdiction in cases involving passive Web sites seem to have done so because the
defendant had additional contacts with the forum that related to the plaintiff’s claim, that is, it "conducted
business" over the Internet by engaging in repeated or continuing business transactions with residents in the
forum, or by entering into a contract with the plaintiff through the Internet.
This survey of jurisdiction cases will simply summarize the development of the U.S. law in this area in the last
three years. Space considerations do not allow a fuller analysis of how each of these cases measures up to the
criteria for general and specific jurisdiction described above. However, such an analysis is available in a new
book entitled 21st Century Money, Banking & Commerce and the "E-BankFuture" updates to its Chapter 19
(www.ffhsj.com/21stbook).
In the earlier jurisdiction cases, the courts seemed to apply an overly simplistic analysis. In Inset Systems Inc.
v. Instruction Set Inc., 937 F. Supp. 161 (D. Conn. 1996), one of the first Internet jurisdiction cases, the
plaintiff alleged that the defendant’s Internet Web site, which contained advertising and a toll-free telephone
number, constituted sufficient minimum contacts for purposes of federal due process. The court agreed that,
through its Web site, the defendant had purposefully availed itself of the privilege of doing business within
Connecticut.
In Maritz Inc. v. Cybergold Inc., 947 F. Supp. 1328 (E.D. Mo. 1996), the defendant maintained a Web site that
offered subscriptions to receive future information. Noting that forum residents had accessed the site 131
times, the court found jurisdiction because the defendant consciously decided to transmit advertising
information to all Internet users, ignoring whether any resident in the forum actually had subscribed or
received information.
In GTE New Media Services Inc. v. Ameritech Corp., 21 F. Supp.2d 27 (D.D.C. 1998), companies providing
national "Yellow Pages" directory services over the Internet were subjected to the court’s jurisdiction because
they were highly interactive and the "quality and nature significant so as to allow the assertion of personal
jurisdiction." The defendant in this case actually derived substantial ad revenues from the sites from residents
of the forum accessing and using the site.
In Vitullo v. Velocity Powerboats Inc., 1998 WL 246152 (N.D. Ill. 1998), the "out of state" defendants’ Web site
solicited residents to attend a "local boat show" within the forum state. It provided a hyperlink with information
about the show. The court found that the Web site’s targeting of local residents was sufficient to assert specific
jurisdiction.
Jurisdiction has also been found where:
• the defendant’s Web site encouraged and enabled anyone, including residents in the forum, to send e-mail to
the company (Hasbro Inc. v. Clue Computing Inc., 994 F. Supp. 34 (D. Mass. 1997));
• minimal sales in the forum through traditional methods, along with an interactive Web site, were viewed as
constituting continuous and systematic contacts with the forum (Mieczkowski v. Masco Corp., 997 F. Supp. 782
(E.D. Tex. 1998));
• an interactive Web site accepted hotel reservations from residents of the forum (Park Inns International v.
Pacific Plaza Hotels Inc., 5 F. Supp.2d 762, 764-65 (D. Ariz. 1998));
• purposeful availment was found based on the defendant’s sale of subscriptions for Internet services to
residents of the forum state, and contracts were executed with those residents through its Web site (American
Network Inc. v. Access America/Connect Atlanta Inc. , 975 F. Supp. 494 (S.D.N.Y. 1997));
• the defendant had purposely availed itself of the benefits of the forum by entering into an agreement with the
residents of the forum and thereafter sold products to forum residents on at least three occasions through its
Web site (Digital Equipment Corp. v. AltaVista Technology Inc., 960 F. Supp. 456 (D. Mass. 1997)); and
• the defendant knowingly registered established trademark names as domain names for its Web sites, then
attempted to "sell" the rights to the domain name to the holder of the trademark (Panavision International v.
Toeppen, 141 F.3d 1316 (9th Cir. 1998)).
Courts have typically denied jurisdiction based either on their own application of developing legal principles or
a failure by the plaintiff to offer sufficient evidence of contacts with the forum. In Bensusan Restaurant Corp. v.
King, 937 F. Supp. 295 (S.D.N.Y. 1996), aff’d, 126 F.3d 25 (2d Cir. 1997), the elimination of local boundaries
was musically punctuated when the operator of a well-known New York jazz club brought suit against the
owner of a small Missouri jazz establishment, claiming merely that its Web site infringed on its right to the
trademark "The Blue Note." The court concluded that assertion of jurisdiction over the defendant on this basis
alone would violate the due process clause.
In Zippo Manufacturing Co. v. Zippo Dot Com Inc., 952 F. Supp. 1119, 1123 (W.D. Pa. 1997), the plaintiff
alleged trademark dilution and infringement based on the defendant’s Web-site domain names. In denying
jurisdiction, the court applied a "sliding scale" under which the likelihood that personal jurisdiction could be
constitutionally exercised was directly proportionate to the nature and quality of commercial activity conducted
over the Internet.
At one end of the scale are circumstances where a defendant "conducts business" with residents of the forum,
allowing for the assertion of personal jurisdiction in most cases. At the opposite end are situations where a
defendant simply posts information on a Web Site that is accessible to users in the forum state, as well as
others. In the middle are situations where a defendant operates an interactive Web site, allowing a user to
exchange information with the host computer.
In Edberg v. Neogen, (17 F. Supp.2d 104 (D. Conn. 1998)), a Web site allowing users to order product
information and send electronic mail to the defendant did not support jurisdiction where no user in the forum
state was shown to have accessed the site. Similarly, the defendant in E-Data Corp. v. Micropatent Corp. (989
F. Supp. 173 (D. Conn. 1997)) operated a Web site where users could purchase, license and download
photographic images. Plaintiff merely showed the potential for the defendant to reach and solicit forum
residents, but offered no evidence that the defendant did so. The court rejected jurisdiction.
Courts have similarly rejected personal jurisdiction where:
• the defendant’s Web site allowed the user to type in an e-mail address and receive a copy of a publication
(Scherr v. Abrahams, 1998 WL 299678 (N.D. Ill. 1998));
• a domain name was used by two parties who advertised and sold their services over the Internet (CD
Solutions v. Tooker, 965 F. Supp. 17 (N.D. Tex. 1997);
• a company provided Web advertising, marketing, consulting services and business-consulting services for
strategic management and marketing through a "passive" Web site that included the company logo, a local
phone number, an invitation to send electronic mail and a hypertext link through which users could introduce
themselves (Cybersell Inc. v. Cybersell Inc., 130 F.3d 414 (9th Cir. 1997); and
• a subscriber of a plaintiff’s Internet provider services purposefully availed himself of the privilege of doing
business in the forum by entering into an agreement with the plaintiff under which the defendant electronically
transmitted 32 software files to plaintiff, a corporation located in Ohio (Compuserve v. Patterson, 89 F.3d 1257
(6th Cir. 1996)).
Based on these precedents, it appears that the courts believe that "purposeful availment" is shown if a
defendant has taken deliberate action within the forum state, or if it has created continuing obligations to
forum residents. But what is "purposeful availment" in cyberspace, particularly when the user must take
affirmative actions (that is, turning on a computer and searching for a site) to complete the purported
availment?
A recent case, Millennium Enterprises Inc. v. Millennium Music, LP, Civ. No. 98-1058-AA, 1999 WL 27060 (D.
Ore. Jan. 4, 1999), provides an excellent summary of the cyberspace jurisdiction cases decided to date and
was a principal source for this article.
The plaintiff in the Millennium Music case was incorporated and principally did business in Oregon under the
tradename Music Millennium. It also sold products through mail, telephone orders and its Internet Web site.
The defendant, a South Carolina corporation, operated retail music stores in South Carolina and also sold
products through its Internet Web site.
The vast majority of its sales, however, occurred at its retail locations. From March 1998 through September
1998, defendant’s total retail sales were $2,180,000, of which $225 represented sales of 15 compact discs to
nine separate customers in six states and one foreign country. The defendant purchased a small amount of
compact discs from a distributor located in Portland, Ore. between 1994-1997, totaling approximately one-half
of 1 percent of the defendant’s inventory purchases for those years.
In 1998, the plaintiff received a credit document from a distributor in Oregon, which apparently was intended
for the defendant. Later in 1998, an Oregon resident purchased a compact disc from the defendant through its
Web site at the request of an acquaintance of the plaintiff’s counsel. The defendant sold no other merchandise
to any Oregon resident.
In a very scholarly opinion, the court concluded that, although contacts that are "isolated" or "sporadic" may
support specific jurisdiction if they create a "substantial connection" with the forum, contacts should be more
than random, fortuitous or attenuated. A defendant need not be physically present within the forum provided
its efforts are purposefully directed toward forum residents.
Did the defendant in the Millennium Music case "purposefully avail" itself of the forum at issue by soliciting
sales over the Internet? Its only sale in Oregon was nothing more than an attempt by the plaintiff to
manufacture a contact with this forum sufficient to establish personal jurisdiction. Likewise, the defendant’s
infrequent purchases from a distributor in the forum were not sufficient to establish the requisite minimum
contacts because the cause of action did not arise from or relate to those purchases. The court concluded that
the defendant did not "conduct business" in Oregon over the Internet since it did nothing more than publish an
interactive Web site.
But, neither was the defendant’s Web site passively providing information for those interested. Thus, the site
fell into the middle interactive category of sites that the courts have enumerated, requiring a further inquiry
into the level of interactivity and commercial nature of the exchange of information to determine whether
jurisdiction should be exercised.
The defendant’s Web site could support personal jurisdiction under the analysis in Zippo because the level of
potential interactivity was not insubstantial. But, the Millennium Music court found that this middle interactive
category required "deliberate action" within the forum state in order to provide a basis for jurisdiction. Such
deliberate action could include transactions between the defendant and forum residents through the
defendant’s Web site or conduct purposefully directed at residents of the forum state through the Web site.
While the Millennium Music defendant did maintain a Web site that allowed users to purchase products, thus
rendering it foreseeable that residents of Oregon, or any other state or country for that matter, could purchase
a product, foreseeability alone was not sufficient to serve as the constitutional benchmark for personal
jurisdiction in the view of the court.
Neither was the defendant’s Web site considered a "conduct and connection" with Oregon giving defendant
"fair warning" that it should reasonably anticipate being "haled" into court in Oregon. The defendant had not
taken action creating "a substantial connection" with Oregon.
The court’s decision contrasts with decisions in Inset and Maritz because it determined that a defendant that
establishes an interactive Web site must "purposefully direct" its activities at or take "deliberate action" in, or
create "substantial connection" with, the forum state so as to provide "fair warning" that such activities may
subject the defendant to jurisdiction in a distant forum.
The Millennium Music case is on the right track, but it is not clear that it reached the station. The existence of a
Web site, whether passive or interactive, should not by itself rise to the requisite level of conduct that subjects
a business to jurisdiction in another forum. A Web site is not automatically projected or "pushed" to a user’s
computer without invitation, as are ads in a newspaper or on TV and radio. Rather, the user must take
affirmative action to "pull" either a passive or interactive Web site and complete the Web site’s intention of
"purposeful availment." Contrary to the scenario described in Inset, information published on Web sites is not
thrust on users indiscriminately.
Finally, specific jurisdiction is not appropriate unless the forum-related contacts give rise to or relate to the
plaintiff’s cause of action. Absent actual business transactions in the forum or evidence that consumers were
targeted in the forum, the distinctions between specific and general jurisdiction become blurred. If an
interactive Web site constituted "purposeful availment" simply by being continuously accessible, a plaintiff could
sue a foreign defendant in any forum and claim jurisdiction even if the cause of action were unrelated to the
Web site. That should not be the correct result either as a matter of law or business.
The court in Millennium Music was correct that the "imposition of broad territorial concepts of personal
jurisdiction on the commercial uses of the Internet has dramatic implications, opening the Web user up to
inconsistent regulations throughout 50 states, indeed, throughout the globe." Overreaching jurisdiction
increases the likelihood of "dramatically chilling what may well be the most participatory marketplace of mass
speech that this country — and indeed the world — has yet seen." Businesses may forgo the efficiency and
accessibility of electronic commerce if faced with the "litigious nightmare" of being subject to suit in every
jurisdiction on the globe.