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Surfing Around the Shoals on the Internet

This article by Stuart Adams appeared in Louisville Computer News August, 1998

If you are in business and are reading this article in a computer newspaper, it is inevitable that you have either put your business on the Internet by establishing a Web site, have conducted some form of electronic commerce over the Internet, or are certainly contemplating one or both of these.

Microsoft has initiated an internal online procurement program called MS Market which is reported to handle nearly 99% of the company’s purchases, or approximately $2.6 billion per year. Even the federal government is getting into the game by rolling out Echeck, its new service to allow purchasing managers to make payments and submit information using smart cards and digital certificates, via e-mail.

The bulk of what we read and see on TV tells us we must get our business on the Internet in order to survive, even if we only run a small and very local pizza parlor. How can we afford to miss the boat. Maybe someone from China will walk in because they saw our daily special advertised on our Web site before they left to come here. Actually, they could call up the local city directory from their laptop when they get in town and see the local restaurant listing featuring the pizza parlor, but that may not be a cost effective roll of the entrepreneurial dice for the otherwise very local business.

On the other hand, what happens when you advertise your goods or services from your local Web server and it is viewed in China or some other remote jurisdiction? Suppose you bought your computer over the Internet or booked those airline or hotel reservations which fell through causing you to miss your very important meeting. What is the likelihood you can sue "here" where you interacted with the remotely transmitted Web transmission? What is the possibility you could be sued in China and have to defend or default and risk a judgment being rendered there and then executed against your assets "here?" Did it just get warm in here?

In the United States our Constitution has resulted in some concepts of personal jurisdiction which we pretty well taken for granted in other than international commerce. All states have some form of "long-arm" statute which allows plaintiffs to sue out-of-state defendants who have either transacted business within the state, committed a tortious or negligent act within the state, or committed a tortious act outside of the state resulting in harmful impact within the state, accompanied by some sort of additional activity. That additional activity is quite often regular solicitation of business within the state, a continuing contact with the state or a reasonable expectation that the actions would result in an injury within the state. Depriving an in-state resident or the state itself of substantial revenue from the transaction has also been held to be such additional grounds.

One of the battle grounds between the traditional concept of personal jurisdiction in the United States and the law Internet commerce has created, is the "minimum contacts" issue. The constitutional due process limitations on actions against non-resident defendants have often revolved around a three-pronged test used by courts in this Country to establish minimum contacts. These prongs are:

R That the non-resident defendant has benefited from the relationship with the residents of the home state;

R That the basis of the litigation arose from the activities of the defendant in the home state; and

R That exercising personal jurisdiction over the non-resident defendant, complied with "traditional notions of fair play and justice."

The problem for businesses and the judicial system is that these notions of fair play and justice do not easily apply to electronic commerce issues which were not contemplated by the drafters of our Constitution nor the courts who rendered the decisions in the long line of cases which has brought the law to where it stands today. As a result, state and federal courts are currently rendering decisions heading to all points on the compass. The factual problems this article deals with relate to the mere existence of web sites, actual communication through e-mail and the usual laundry list of contract and negligence actions.

Typical types of actions the courts are dealing with involve activities such as simple breach of contract, product liability, false advertising, copyright and trademark infringement, etc. While the old cases dealt with how many times an insurance agent had been in the state or how many solicitation letters had been mailed into the home state from a foreign jurisdiction, the new cases deal with teleconferences where only electric signals are entering the states and the parties remain in two or more remote locations, whether electronic signatures are enforceable and other even more interesting emerging issues such as where web robots solicit and respond remotely through the software procurement engines.

The following are some examples of some decisions by U. S. decisions which have found it appropriate to exercise jurisdiction over foreign defendants involved in E-commerce. A northern Illinois court exercised jurisdiction over the "foreign" defendant which had established an interactive web site allowing contact through e-mail and including a list of events, such as the Chicago Boat Show, specifically targeted at Illinois customers.

A hotel company was successfully hauled into an Arizona court where Arizona residents had accessed the remote web site and used it to make reservations at the out-of-state hotel.

The United States District Court in Virginia determined it had personal jurisdiction over Hong Kong defendants in an action by a New York based publisher, for trademark and copyright infringements relating to the web site of the defendants.

A California court found sufficient jurisdiction in that state to exercise personal jurisdiction against a non-resident company for trademark infringement. In this case the combination of Internet advertisement and national periodicals, plus the use of a 1-800 telephone number and actual sales transactions with state residents, sealed the fate of the defendant.

While the few cases cited above give the negative side of the issue, there are at least as many denying jurisdictions. Obviously our goal here is to avoid litigation altogether or at least be on the "jurisdiction denied" side of the table.


What I am about to say here will fly in the face of any advise given to you by a web marketing firm. Unfortunately, the less useful your electronic efforts are to you, the safer you will probably be. Wouldn't it be nice it if was easy and cheap.

Probably the first rule to trying to protect yourself in the constantly shifting and uncertain waters of jurisdictional jurisprudence is to have a simple and clear disclaimer that the web site is not intended for customers outside of the home state and is not intended as a solicitation of business of any sort. A mere "public service" informational type site with a "surf at your own risk" label on it will go a long way toward deniability of interstate of intercontinental marketing efforts directed at the forum or the court that is sitting in judgment.

Additionally, the typical step of requiring visitors to log on and use a "point and click" contract type acceptance of the terms and conditions of the web site, as stated therein, will also help your case. Language in the disclaimers through which the invitee must pass can include language indicating that any litigation arising out of use of the web site for any purpose must be filed in the jurisdiction of the web publishing company rather than the recipient and that the recipient that transactions, if any, between the two will be governed by the state chosen by the web host.

Other measures for particular use, such as gambling over the Internet, obviously illegal in some states, could be to require a "free membership" situation in which the prospect must key in certain information, including home state and zip code, which can then exclude membership in an activity based which might be illegal in some jurisdictions. This, at least, would show an intent not to breach the law of any given jurisdiction but will require you to do some legal research as to which jurisdictions do declare the activity to be illegal. This research must be updated on a continuous basis since every jurisdiction, including city, county, state and country might enact a new law prohibiting your activity just after you have researched it. Certainly some boilerplate language such as "don't engage in this activity if it is illegal in your jurisdiction" could provide you some help in this area.

The general rule is that the more passive the site, the less likely will be a finding of jurisdiction. Although this is contrary to good web marketing, a good content based site with adequate disclaimers, log-on requirements, and thoughtful setup can still be an extremely worthwhile marketing tool. The alternative is Russian Roulette.

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