E-Commerce Law

Federal Court Dismisses Defamation Suit Brought by Man Who Claimed to Have Used Drugs and Had Sex with President Obama

On February 10, 2009, the United States District for the District of Columbia dismissed the defamation complaint of the man who posted a YouTube video alleging that he used cocaine with, and performed a sex act on, then-state senator Barack Obama. The matter came before the court on the plaintiff's motion to compel information identifying the individuals who posted anonymous responses to the video in which they alleged that the plaintiff was lying about his allegations and was actually a patient in a mental hospital at the time that he claimed to have encountered now-President Obama.  The court rejected the plaintiff's attempt to compel disclosure of the identities of the three anonymous posters and dismissed his complaint.

Federal Court Upholds YouTube Terms of Use

On April 15, 2008, the United States District Court for the Western District of Washington dismissed a lawsuit filed by a YouTube user in the wrong venue.  In Bowen v. YouTube, Inc., 2008 WL 1757578 (W.D. Wash. 2008), the Court enforced YouTube's Terms of Use which require that all suits arising from YouTube's website be brought in San Mateo County, California.  In support of the ruling, the Court noted that

[while] new commerce on the Internet has exposed courts to many new situations, it has not fundamentally changed the principles of contract . . . when a benefit is offered subject to stated conditions and the offeree makes a decision to take the benefit with knowledge of the terms of the offer, the taking constitutes an acceptance of the terms, which accordingly become binding on the offeree.

Id. at *2 (quoting Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 403 (2d Cir. 2004).

This case further demonstrates the importance of including an enforceable choice of law provision in a website's terms of use.

Website’s Hosting of Pay Per Click Advertisements Satisfies Interactivity Requirement for Personal Jurisdiction

Last week, in Chicago Architecture Foundation v. Domain Magic, LLC, 2007 WL 3046124 (N.D. Ill. 2007), the United States District Court for the Northern District of Illinois denied a Motion to Dismiss for lack of personal jurisdiction, holding that pay per click advertisements found on the Defendants’ website made the site sufficiently interactive for the court to exercise personal jurisdiction over Defendants.

More on Universal Jurisdiction: Louisiana Appeals Court Affirms Exercise of Personal Jurisdiction Over Texas Citizens Who Sold Vehicle on eBay

In Crummey v. Morgan, ____ So.2d ____ (La. App. 1 Cir. 8/8/07), the Louisiana Court of Appeals affirmed the trial court’s exercise of personal jurisdiction over Texas citizens who sold an allegedly defective recreational vehicle (RV) on eBay.

The plaintiff discovered the availability of the RV by viewing it on eBay and called the defendants to inquiry about the condition and price of the vehicle. He later made an $800 down payment on his credit card and picked up the RV in Texas (though the defendants had offered to deliver the vehicle to him in Louisiana). Several miles into his return trip to Louisiana, the RV stopped running and the plaintiff discovered several other alleged defects. When the defendants refused to rescind the sales transaction, the plaintiff filed suit. The defendants asserted a lack of personal jurisdiction in defense of his claims.

The Court’s jurisdictional analysis began, predictably, with a review of the Louisiana Long-Arm Statute (which is substantively similar to the Long-Arm Statutes of many other states) and constitutional due process requirements. In affirming the trial court’s ruling, the Court applied the Zippo sliding scale analysis to the defendants, even though they were not the operators of the eBay website, and found that eBay was an "active website" which established the necessary "minimum contacts" with the forum, when used by a purchaser to research, communicate about, and ultimately purchase the vehicle at issue. In particular, the Court found that

[t]he defendants entered into a contract to sell a vehicle-alleged to be defective-to a Louisiana resident utilizing the website, eBay, which greatly expanded their market. They accepted the original down payment, securing the sale with a credit card sent from Louisiana through the Internet. Defendants also provided Crummey with a telephone number which allowed him to engage in additional conversations with the sellers while he was in Louisiana. This was not an "information only" situation. Defendants used a variety of means of electronic communication to advertise, puff, negotiate, and accept payment for its product directed to a Louisiana consumer. Thus, sufficient minimum contacts, effectuated by electronic communications, have been established to maintain personal jurisdiction. See Hunter v. Meyers, 96-1075, p. 5 (La.App. 1st Cir.3/27/97), 691 So.2d 318, 323. To hold to the contrary would have a chilling effect on e-commerce in that buyers, wary of being haled into the home courts of out-of-state sellers, will refrain from purchasing goods on eBay and other similar internet websites should the merchandise they considered purchasing be defective or otherwise not conform to the advertised online representations.

In reviewing the opinion, two issues become apparent:

• The Court states its intention to protect eBay buyers from being haled into the home courts of out-of-state sellers but the decision in this case does little to reduce that risk. The ruling would do nothing to protect the buyer where he is the party being sued.  Presumably, under the same analysis applied by the Court, a Texas court could have exercised jurisdiction over the plaintiff in a suit brought by the defendants. After all, the plaintiff in the case: (1) used the "active" eBay website to search for vehicles to purchase, which greatly expanded the inventory of available vehicles and probably permitted him to obtain a lower price than would be possible with a smaller "supply"; (2) contracted to purchase an RV from the Texas-based sellers, knowing they were selling the vehicle from Texas; (3) communicated directly with the Texas-based sellers about the subject vehicle; and (4) took delivery of the purchased vehicle in Texas, even though he was given the opportunity to have the vehicle delivered to him in Louisiana. It would seem that the plaintiff, then, has transacted business in Texas and might, therefore, be subject to personal jurisdiction in that state under Texas’s Long-Arm Statute.

• Notwithstanding the fact that the Court's ruling does little to reduce a potential eBay buyer's fears of being haled into court in a foreign jurisdiction, the Court seems to ignore the potential "chilling effect" which may result when potential eBay sellers, fearful that they will be dragged into the home forum of any potential buyer, refrain from selling goods on eBay and other similar websites.  It seems that the Court has merely exchanged one "chilling effect" for another.  Admittedly, deciding that the jurisdictional burden should follow the money (that is, determining that an eBay seller, who stands to gain financially from the use of the website, should be subject to personal jurisdiction in a buyer's home forum under the facts in Crummey where the converse would not necessarily be true) has the advantage of placing the burden with the party who has the financial incentive to shoulder it, thus limiting its "chilling effect."

If nothing else, the decision in Crummey should serve as a reminder to Internet businesses that they must include choice of forum language in their terms of use and and other contracts or risk being haled into court in the home jurisdictions of their customers.

Technorati Tags:  personal jurisdiction, fraud, Internet

New Jersey Court Finds Personal Jurisdiction Over California Resident Who Directed Defamatory Statements to Forum

In Goldhaber v. Kohlenberg, the Appellate Division of the Superior Court of New Jersey has affirmed a trial court ruling that a New Jersey court could exercise in personam jurisdiction over a California resident who posted defamatory statements to an Internet newsgroup, where the statements were directed at the forum state.

The Court first acknowledged that traditional jurisdiction principles apply even in the context of cases based upon Internet communications; thus, "[t]he question is whether ‘the defendant’s conduct and connection with the forum State are such that he should reasonable anticipate being haled into court there.’" Blakey v. Continental Airlines, 164 N.J. 38, 67 (2000) (quoting World-Wide Volkswagon Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490, 501 (1980)).  Obviously, posting a statement on the Internet that could be read in the forum state, just as it could be read virtually anywhere else in the world, is not sufficient to subject the poster to in personam jurisdiction. However, where the effects of a defamatory statement would be felt in the forum state (where the plaintiff resides or does business) and the statement is directed or targeted to that forum, the poster's contacts with the forum are sufficient to impose personal jurisdiction. See id. at 70 (citing Calder v. Jones, 465 U.S. 783, 104 S.Ct. 1482, 70 L.Ed.2d 804 (1984)) (adopting the "effects" test for personal jurisdiction set forth by the United States Supreme Court).

In Goldhaber, the Court found that

[t]he author not only knew that plaintiffs resided in New Jersey, he knew the municipality in which they resided and made specific disparaging references to that municipality in many of his postings. . . . He also made insulting comments about that municipality’s police department. In addition, he referred to plaintiffs’ neighbors in the apartment complex in which they resided and at one point even posted their address.

Accordingly, the Court held that defendant should reasonably have anticipated being haled into court in New Jersey.

Technorati Tags:  personal jurisdiction, defamation, Internet

Use of Otherwise "Passive" Website to Provide Customer-Tailored Demonstration May Subject E-Commerce Business to Personal Jurisdiction in Customer’s Home Forum

In dismissing a motion to dismiss for lack of personal jurisdiction, the United States District Court for the District of Colorado considered the defendant’s use of its otherwise "passive" website to provide "specifically tailored promotional demonstrations" to the plaintiff in Colorado as a fact, among others, which demonstrated that the defendant had "purposefully availed itself" of the privileged of doing business in the forum state. See EagleDirect Marketing Solutions, Inc. v. Engenus NA LLC, 2006 WL 2988952 (D.Co. October 18, 2006).

For more analysis of personal jurisdiction in the context of e-commerce business transactions, see Common Issues Facing E-Commerce Businesses - Issue #4:  The Potential for Universal Jurisdiction and Jonathan D. Frieden & Sean P. Roche, E-Commerce: Legal Issues of the Online Retailer in Virginia, 14 Rich. J.L. & Tech. (forthcoming Fall 2006).

Technorati Tags:  personal jurisdiction

Common Issues Facing E-Commerce Businesses

Issue # 4: The Potential for Universal Jurisdiction

One of the primary advantages of Internet marketing and sales is the ability to reach potential customers anywhere in the world. Unfortunately for e-commerce businesses, this reach often works in both directions, so that a customer in a distant jurisdiction may be able to sue the retailer far from its base of operations. The defense of such a suit generally begins with the e-commerce business’s challenge to personal jurisdiction.

Generally, a court’s resolution of such a challenge involves a two-step inquiry: (1) a determination of whether the particular facts and circumstances of the case fall within the reach of the forum state’s long-arm statute and (2) a determination of whether the exercise of personal jurisdiction over the e-commerce business would be consistent with the Due Process Clause of the United States Constitution. In many jurisdictions, the analysis of these two issues flows together, such that the Due Process consideration becomes determinative.

The Due Process Clause prohibits a court from exercising personal jurisdiction over a defendant unless the defendant has "certain minimum contacts" with the forum state "such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." Int’l Show Co. v. Washington, 326 U.S. 310, 316 (1945). In addressing the exercise of personal jurisdiction over a defendant whose contact with the forum state occurs primarily over the Internet, many jurisdictions have adopted the "sliding scale" approached formulated in Zippo Manufacturing Company v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1124 (W.D. Pa. 1997).

In Zippo, the district court concluded that jurisdiction certainly should be exercised when one proactively enters a jurisdiction via the Internet but that jurisdiction should be exercised when one merely posts information on the Internet which may or may not be viewed by residents of a particular jurisdiction. As to the great mass of cases resting in the "middle ground," the court held that "the exercise of jurisdiction is determined by examining the level of interactivity and commercial nature of the exchange of information that occurs on the Web site." Thus some sort of practice, purposeful availment must occur on the part of the e-commerce business in order to be subject to personal jurisdiction in a distant jurisdiction. However, some states are "single act" states, in which even a single transaction completed over the Internet may subject the e-commerce business to personal jurisdiction in that state.

The potential for universal jurisdiction attendant to Internet sales is a very real threat to e-commerce businesses, especially small businesses who would not otherwise reach a customer base inconveniently distant from their primary place of business. An e-commerce business who wishes to limit this risk is best served by seeking the advice of a competent and properly-licensed attorney who can help ensure that the business is not purposely availing itself of the privilege of conducting business activities in an inconveniently distant jurisdiction. An attorney may counsel the e-commerce business to avoid offering products or services directed to, or useable only by, customers in an inconveniently distant jurisdiction and to limit the geographic scope of its customer base via a well-communicated policy of not filling orders for customers in distant jurisdictions.  The risk may also be reduced by well-written terms of use.

Note: Some of this material appears in Jonathan D. Frieden & Sean P. Roche, Legal Issues of the Online Retailer in Virginia, 13 Rich. J. L. & Tech. (forthcoming Summer 2006).

Previous Posts in this Series

Issue # 1:  Protection of Domain Names

Issue # 2:  Protection of Original Website Content

Issue # 3:  Website Terms of Use

"Common Issues Faced by E-Commerce Businesses" is a seven-part series appearing each Tuesday afternoon on E-Commerce Law. Readers are reminded that all of the information on this site is provided for informational purposes only and is not intended to be a substitute for legal counsel. No one should act or refrain from acting on the basis of any content included on this site but should instead seek the appropriate legal advice on the particular facts and circumstances at issue from a properly licensed attorney.

Technorati Tags:  internet, jurisdiction

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