Personal Jurisdiction in the Borderless World of E-Commerce

The opening and phenomenal growth of the Internet has created a new body of law, ranging from topics as pedestrian as protocol issues to perhaps sexier Internet-specific crimes. Yet, when commercial dealings on the Internet result in litigation, and where the activity is interstate, any court’s first step is still to make the preliminary determination of whether there is in personam jurisdiction over the party or parties being sued.

In a survey conducted by the American Bar Association, a large sampling of companies of all sizes from diverse locations were questioned about their major concern in doing business over the Internet. Topping the list in their replies was the threat of being required to defend against a lawsuit in a foreign jurisdiction.1 These perceptions are certain to shape the way in which businesses utilize the Internet to conduct commerce and to communicate. Whether it pertains to the Internet or otherwise, the body of law concerning personal jurisdiction is built upon the foundation of due process under the Fifth and 14th amendments of the United States Constitution. These provisions have been construed to require that a defendant not be subject to the decisions of a foreign or sister state unless that defendant had purposefully availed itself of the benefits of that forum state and could reasonably anticipate being sued there.2

The courts have consistently held that no state should infringe upon the sovereignty of other states so that only under limited circumstances may a defendant be haled into court in another state. However, the territorial lines of a state are not as easily applied in the Internet’s ethereal world, which, by its very nature, is without boundaries.

To date, the United States Supreme Court has not yet taken up any cases for consideration regarding in personam jurisdiction and the Internet, but as the law has developed the lower federal courts have sought to develop a more uniform approach to dealing with the Internet.

The state courts of New Jersey have been somewhat resistant to this trend. In Blakey v. Continental Airlines,3 the New Jersey Supreme Court decided that “[r]ather than to attempt to create a new order of jurisdictional analysis adapted to the Internet, we prefer in this case to adhere to the basics.” In reaction to scholarly calls for the development of an Internet-specific jurisdictional analysis, the New Jersey court stated, “We leave to the proper commercial setting these complex issues.” In theory, however, the federal/state distinction should not lead to different results depending on where the case is pending, as New Jersey courts exercise their in personam jurisdiction to the “outermost limits permitted by the United States Constitution.”4

The ‘basics’ are well known to virtually all litigation practitioners. In federal court, to assert personal jurisdiction over a defendant the courts must first comply with the state’s long-arm jurisdiction statute, Fed. R. Civ. P. 4(e), and the requirements of the due process clause of the Constitution. The due process requirements differ depending on whether the plaintiff is seeking to base jurisdiction on general jurisdiction or specific jurisdiction.

General personal jurisdiction is at issue when the facts of a particular lawsuit do not arise from conduct in the forum state, but jurisdiction is predicated on the defendant’s continuous and systematic activities in the forum state.5 A greater degree of contact is required for general jurisdiction than for specific jurisdiction, due to the forum state’s limited interest in the dispute when the relevant events occurred elsewhere.6

Although the United States Supreme Court has not provided a definition of activities that constitute continuous and systematic activities, case law has looked to operations, or brick and mortar. Personal Jurisdiction in the Borderless World of E-Commerce by Bruce E. Baldinger The opening and phenomenal growth of the Internet has created a new body of law, ranging from topics as pedestrian as protocol issues to perhaps sexier Internet-specific crimes. Yet, when commercial dealings on the Internet result in litigation, and where the activity is interstate, any court’s first step is still to make the preliminary determination of whether there is in personam jurisdiction over the party or parties being sued. 4

Internet activities generally do not meet the continuous and systematic criteria over a foreign defendant.

Specific jurisdiction, on the other hand, is present when the cause of action in the case arises directly out of the defendant’s activities in the forum state.7 A court is able to assert specific in personam jurisdiction where the defendant has “minimum contacts” with the forum, the litigation arises from those contacts, and asserting personal jurisdiction is reasonable.8 Ultimately, specific jurisdiction must not offend the “traditional notions of fair play and substantial justice.”9 Additionally, and perhaps most importantly to Internet cases, the courts may apply the effects test, which permits a court to find specific personal jurisdiction where there was purposeful direction. Purposeful direction requires that there was an intentional act, expressly aimed into the forum state, with the knowledge that the brunt of the injury would be felt in the forum state.10 Notwithstanding the newer Internet-specific developments described below, this traditional effects test essentially remains the law in the New Jersey courts, as explained by the New Jersey Appellate Division in Goldhaber v. Kohlenberg.11Thus, in New Jersey, jurisdiction will still be found in the state or states where the effects of the defendant’s conduct “were expected or intended to be felt.”12

The first decision to bring some recognized uniformity to Internet commercial cases came out of the Western District of Pennsylvania in Zippo Manufacturing Co. v. Zippo Dot Com.13The Zippo case involved claims of trademark infringement brought by the well-renowned lighter manufacturer located in Pennsylvania and derived from the registering of Zippo.com, Zippo.net and Zipponews.com by a California website publisher. In discussing the defendants’ assertion that the court lacked in personam jurisdiction, the district court created a review standard based upon a unique sliding scale test for specific jurisdiction based upon Internet activity.

The court divided the cases into three distinct categories. “At one end of the spectrum are situations where a defendant clearly does business over the Internet. If the defendant enters into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files over the Internet, personal jurisdiction is proper.”14 The other end of the spectrum is where a website is “passive” and merely provides information.15 The middle ground constitutes interactive websites, and in such cases “the exercise of jurisdiction is determined by examining the level of interactivity and commercial nature of the exchange of information that occurs on the website.”16

Perhaps with the expansion of Internet commerce since the seminal Zippo decision, many courts inclusive of the Third Circuit have looked for something more than merely a point on the sliding scale. In Toys “R” Us v. Step Two, S.A.,17 the plaintiff, a New Jersey corporation, asserted that defendant Step Two had infringed upon its copyright. The defendant’s website had all of the interactivity earmarks that would have provided for the widest reach of acceptance of personal jurisdiction. The website was interactive with the ability to transact retail commerce. It maintained a newsletter feature and a membership in a children’s “club” with games and information.18 Yet, despite achieving the level of interactivity that would otherwise provide jurisdiction under Zippo, the Third Circuit incorporated the evolution of the law in other districts post-Zippo and held that there must be additional evidence that the defendant had “purposefully availed” itself of the benefits of engaging activity in New Jersey. Prior decisions indicate that such evidence is necessary, and that it should reflect intentional interaction with the forum state.19

This evidence could include Internet activity as well as non-Internet activity such as “serial business trips, telephone and fax communications, purchase contracts, and advertisements” in and with the forum state.20 These items, the court held, “may form part of the ‘something more’ needed to establish personal jurisdiction.”21 The something more test means that the mere ability to access a company’s information over the Internet, shared in common with residents of other states, is not sufficient to create personal jurisdiction.

A similar approach was used in Amberson Holdings, LLC v. Westside Story Newspapers.22 In Amberson, the plaintiff commenced an action for trademark infringement and cybersquatting (the act of registering a trademark as a domain name for the purpose of selling it for a profit to the rightful owner). In an effort to establish jurisdiction in New Jersey based merely upon entering into of a contract with the web hosting company that was based here, Judge Nicholas Politan first applied the activity test under Zippo (although attributing the test to Mink v. AAAA Development, LLC23) and then explained that the court must then apply the something more test of whether the defendant purposefully availed itself of jurisdiction in this state. Finding that contracting with a host server was insufficient, that there was no other conduct of business in New Jersey and that the “traditional notions of fair play and substantial justice” would be offended, the court dismissed the plaintiff’s complaint.

In fact, the something more analysis under Toys “R” Us, is, in many ways, merely the merging of the sliding scale test developed in Zippo with the Calder effects test. Courts in other circuits have also blended the two tests, but in different ways. For example, in Bible & Gospel Trust v. Wyman,24 the district court applied the tests separately to conclude that jurisdiction was not met by either standard.

To add another layer of complexity, the Third Circuit will also review Internet-based cases in order to determine whether the forum maintains personal jurisdiction over a defendant conducting business utilizing the Internet. Under what is familiarly termed the stream-of-commerce test, in order to determine whether a defendant has minimum contacts with a state, thus conferring specific jurisdiction, the court is to conclude whether a defendant “injected his goods, albeit indirectly, into the forum state and either derived a substantial benefit from the forum state or had a reasonable expectation of deriving a substantial benefit from it.”25

The United States Supreme Court addressed the stream-of-commerce theory in Asahi Metal Industries Co., Ltd. v. Superior Court.26 Justice Sandra Day O’Connor, joined by three other justices, held that the “placement of a product into commerce, without more, is not an act of the defendant purposefully directed toward the forum state.”27 Justice William Brennan Jr., also joined by three other justices, held that the minimum contact requirement was satisfied as long as there is a “regular and anticipated flow of [the defendant’s products]” into the forum and the defendant “is aware that the final product is being marketed in the forum state.”28

As stated in Trueposition v. Sunon, Inc.,29 “The Third Circuit has not yet decided whether it follows the reasoning of Justice O’Connor’s plurality or Justice Brennan’s concurrence in Asahi.”30 Instead, the Third Circuit applied “both tests in determining whether personal jurisdiction exists.”31 In Trueposition, the Court found that the defendants had “purposefully availed” themselves of the forum state under either test through a mix of Internet and non-Internet contacts. Applying the sliding scale test, the court determined that the evidence showed the plaintiff had utilized the defendants’ website when deciding to purchase products, and that the website provided listings and hyperlinks to its Pennsylvania dealers. This, combined with the direct shipping of products, led the court to hold that its decision to exercise jurisdiction was not the “result of random, fortuitous, or attenuated contacts.”32

Obviously, the law of jurisdiction based upon Internet activity will require further refinement through the courts’ consideration of a wider variety of fact patterns, and ultimately through the United States Supreme Court’s elucidation of the applicable test or tests. Even then, in view of the split decision in the Pennzoil case, a Supreme Court decision could leave the law of Internet jurisdiction in an even more unsettled state. In the interim, it would be reasonable for the prudent practitioner not to assume that in personam jurisdiction may be based solely on website advertising or interactive features, but that significant, intentional and direct (though not necessarily physical) contact with the forum state, and/or some direct contact with the e-customer who later becomes a plaintiff, will usually be required in order to establish personal jurisdiction.

Bruce E. Baldinger is managing member of The Law Offices of Bruce E. Baldinger, LLC located in Morristown. He concentrates in all aspects of business, corporate and real estate law, as well as commercial litigation. His practice includes business and securities litigation in both state and federal court, as well as arbitration before the Financial Industry Regulatory Authority and its administrative body.

ENDNOTES

1. Michael Geist, Global Internet Jurisdiction: The ABA/ICC Survey, ABA Sec. Bus. L., April 2004, at 2, available at www. abanet.org/buslaw/newsletter/ 0023/materials/js.pdf.
2. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 714, 731 (1980).
3. 164 N.J. 38, 64 (2000).
4. Avdel Corp. v. Mecure, 58 N.J. 264, 268 (1971); Severinsen v. Widener University, 338 N.J. Super. 42, 768 A. 2d 200, 202 (App. Div. 2001.) 5. Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408, 414 n.9 (1984); Waste Management, Inc. v. Admiral Ins. Co., 138 N.J. 106 (1994). 6. Lebel v. Everglades Marina, Inc., 115 N.J. 317, 323 (1989).
7. Helicopteros Nacionales, 466 U.S. at 414 n.8.
8. Id. at 414.
9. International Shoe v. Washington, 326 U.S. 310 (1945).
10. Calder v. Jones, 465 U.S. 783 (1984).
11. 395 N.J. Super. 380, 389 (App. Div. 2007).
12. Id. at 389.
13. 952 F. Supp. 1119 (W.D. Pa. 1997).
14. Id.
15. Id.
16. Id.
17. 318 F.3d 446 (3rd Cir. 2003).
18. Id at 450.
19. Id. 451-52.
20. Id. at 453-54.
21. Id. at 454.
22. 110 F. Supp. 2d. 332 (D. NJ 2000).
23. 190 F. 3rd 333, 336 (5th Cir. 1999.
24. 354 F. Supp. 2d. 1025 (D. Minn. 2005).
25. Pennzoil Prods. Co. v. Colelli, 149 F.3d 197 (3rd Cir. 1998).
26. 408 U.S. 102 (1987).
27. Id. at 112.
28. Id. at 117.
29. 2006 U.S. Dist. Lexis 39681.
30. Id. at 23.
31. Id. at 23-24.
32. Id. at 26 (quoting Burger King, 471 U.S. at 475).