Internet Commerce Extends the Long Arm of the Law

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Internet Commerce Extends the Long Arm of the Law

By Jonathan T. Cain

Contributing Writer

Electronic Internet commerce is expected to grow into a $200 billion a year industry by the end of the decade, with content making up approximately 20 percent of total sales. Inevitably, some of these transactions will lead to litigation.

Anyone planning to advertise or sell products and services across the country over the Internet must understand the factors that may result in his being brought into court in a distant state.

A few dozen cases over the past two years have involved the court's personal jurisdiction over a defendant based on Internet activities. Some decisions reach opposite conclusions on similar facts, but there is enough precedent available to begin to draw some lessons.

Questions of personal jurisdiction turn on both the state statutes and on the due process clause of the Constitution. So-called "long-arm" statutes allow courts to assert personal jurisdiction over nonresidents in specific circumstances. If the requirements of the statute are met, then an out-of-state defendant can be required to defend a case in another state if doing so would not violate the due process clause. The wording of each state's long-arm statute varies, but in general, a defendant can be required to defend a case in a state where he transacts business or commits a legal wrong, such as defamation or trademark infringement.

The "doing business" test can be satisfied by a single isolated transaction, if the legal claim arises out of that specific transaction. If the legal claim arises out of some other act, then the defendant must engage in regular, systematic business activities in the state. If the requirements of the state long-arm statute are satisfied, then due process will allow the nonresident defendant to be sued if he has purposefully taken advantage of the privilege of conducting business in the state, under the protection of its laws.

The Internet personal jurisdiction cases decided to date have involved one of three sets of circumstances: the defendant is sued over the sale of specific products or services where the sale took place over the Internet to a customer in another state; the defendant is sued over a claim of copyright infringement or defamation for the content of World Wide Web sites or e-mail messages; or the defendant advertises on a Web site that is accessible from the plaintiff's state but is sued on an unrelated matter. The results of these cases, with a couple of exceptions, were predictable using the same analysis that has been used where the contacts were by mail, telephone and other electronic media.

If the defendant advertises or sells a good or service over the Internet to a customer in another state, and if the claim relates to that good or service, then the seller can expect to be called upon to defend the lawsuit in the buyer's state. Whether it be the sale of software, entertainment content, tangible goods or services, if the claim relates to the quality, content or delivery of the product or service, the buyer generally is entitled to bring suit where he took delivery.

In the case of legal claims relating to the content of a Web site or e-mail message, the results are less predictable. In one case, alleging defamation in an e-mail message, the court concluded that the out-of-state defendant could be sued in the plaintiff's state because the "effect" of the message was intended to be felt there. Another court agreed in a similar case, holding that a defamatory message posted in a computer forum was likely to cause an injury to the plaintiff in his home state.

In a case of trademark infringement, however, another federal court found that posting an infringing trademark on an out-of-state Web site did not allow the trademark owner to sue for infringement in his home state. There appears to be a distinction developing between cases involving the posting of a message to another jurisdiction and merely posting information on the out-of-state bulletin board or Web site.

The mere creation of a Web site does not confer personal jurisdiction over a defendant everywhere the site may be found. Two courts have been called upon to decide whether the fact that a Web site was accessible in their state conferred personal jurisdiction over defendants in suits on claims that were not related to the electronic content. Both courts concluded that an out-of-state defendant is not required to answer the lawsuit in the state. The posting of commercial information on a Web site, even with an invitation to call and order products or services, does not in itself constitute "doing business" in the state where the site is viewed.

Jonathan T. Cain chairs the Technology Practice Group of Mays & Valentine LLP, McLean, Va. His e-mail address is jcain@maysval.com.