Where do the boundaries of personal jurisdiction begin and end, when applied to the boundless reach of the internet? Courts attempting to answer that question have reached mixed results—meaning internet users could find themselves at the mercy of an unfamiliar, and perhaps unfavorable, courtroom far away from their home jurisdiction if a dispute arises. For those seeking more control and certainty over jurisdiction, incorporating a clickwrap agreement into a website may be the answer.
June 25, 2019 technology
Click Here to Limit Personal Jurisdiction
Where do the boundaries begin and end, when applied to the boundless reach of the internet?
By Stephen E. Breidenbach
How Courts Apply Personal Jurisdiction to Websites and E-Commerce: The Zippo Test
General or all-purpose jurisdiction exists where a defendant is either domiciled or engages in “substantial” or “continuous and systematic” activities in the forum state. Where a defendant has either limited or no physical presence in a state, as is the case with most litigation arising out of an internet transaction, courts look to whether a defendant has certain “minimum contacts” with the forum to establish specific jurisdiction.
There are multiple standards to determine whether a defendant’s online activities are sufficient to meet the “minimum contacts” requirement. The most commonly used test is the Zippo test, established in the landmark case of Zippo Manufacturing Co. v. Zippo Dot Com, Inc., among the first to evaluate personal jurisdiction in the context of e-commerce. Zippo involved a domain name dispute in which the court held it had personal jurisdiction over the out-of-state defendant because its e-commerce transactions with Pennsylvania residents were sufficient for specific jurisdiction. The defendant had approximately 140,000 subscribers worldwide, approximately two percent of which resided in Pennsylvania. The defendant also had contracts with seven Pennsylvania internet access providers.
The court came to that conclusion by establishing a sliding scale. On one end of the spectrum are “passive sites” that lack interactivity and merely present information to visitors. Personal jurisdiction is unlikely. On the other end are “active sites” used by defendants to contract with residents of the foreign state and which involve the “knowing and repeated transmission” of files. In the middle are “interactive Web sites where a user can exchange information with the host computer.” Those that fall in the middle ground are evaluated by the “level of interactivity and the commercial nature of the exchange of information that occurs on the Web site.”
Where a defendant has either limited or no physical presence in a state, as is the case with most litigation arising out of an internet transaction, courts look to whether a defendant has certain “minimum contacts” with the forum to establish specific jurisdiction.
Applying Zippo to “Middle Ground” Websites
Not surprisingly, determining the type and level of internet activity that is sufficient to tip a website from the “middle ground” and into either an “active” or “passive” category is a fact-intensive inquiry.
For example, in Pascarelli v. Koehler, the plaintiffs sued James Koehler in their home state of Georgia. Koehler resided in South Dakota and owned and operated a Marriott International, Inc., franchise located in Wyoming. Though Koehler did not operate an independently owned website for his hotel franchise, he did have his hotel listed on Marriott’s website as part of his franchise agreement. Marriott’s website advertised Koehler’s hotel, among many others, and provided information about the amenities offered at Koehler’s hotel and a centralized reservation system for booking stays online. Georgia residents generated less than one percent of the annual revenue for Koehler’s hotel. The plaintiffs sought to impute the entirety of Marriott International’s internet activity to Koehler.
The Pascarelli court assumed without deciding that Marriott International’s online activity could be imputed to Koehler. Relying on a number of out-of-state decisions, the appellate court concluded that a website with a reservation system, without more, did not constitute sufficient minimum contacts for the exercise of personal jurisdiction.
In so holding, it distinguished its previous decision in Aero Toy Store v. Grieves, where it concluded the defendant was subject to personal jurisdiction in Georgia. In Aero Toy Store, the defendant had advertised cars for auction on eBay’s website and sold and shipped cars to Georgia customers himself—without using an independent delivery agent. The Pascarelli court reasoned that unlike an online ordering system that fulfills its purpose by transmitting goods into the forum, the online hotel reservation system required the plaintiffs to travel outside their home forum to the hotel.
The court in Aaron Consulting Company, LLC v. Snap Solutions, LLC similarly concluded it had no personal jurisdiction over an out-of-state defendant based solely on its internet activities. Aaron Consulting filed suit in its home state of New York, alleging trademark misappropriation against Snap Solutions, LLC, a Delaware corporation with its principal place of business in Chicago, Illinois. Snap maintained Events.org, a website that provided services for nonprofit organizations, as well as ibid.co and ibid.org, which provided “online bidding software and services on mobile devices” for live and silent auctions. The sites did not sell any merchandise, but Events.org did advertise New York events and list various events in New York.
The Aaron Consulting court concluded that the advertisement of New York events were typical of “passive” websites because Snap did not organize the listed events and did not derive any revenue from the advertisements. It explained that “online advertising, even if directed at New York residents, is not sufficient to support the exercise of personal jurisdiction over a defendant when it is not supplemented by business transactions occurring in the state. . . .” By contrast, it stated that websites that allow New York buyers to submit orders online are considered “interactive” and will be subject to personal jurisdiction.
Using Clickwrap Agreements to Limit Jurisdictional Disputes
Website operators can take steps to avoid litigating jurisdictional issues, however. Much like in the offline world, parties in the online world can select their forum through a clickwrap agreement. The website operator posts its terms and conditions of service, and the user accepts by clicking an “I Accept” button.
Courts have generally enforced clickwrap agreements—including the forum selection clauses contained therein. The court in Brown v. Web.com Group, Inc. did just that. In Brown, a New York attorney sued its Florida-based web hosting service, alleging his data had been wrongfully deleted. The defendant transacted business exclusively through its website, and 7.5 percent of its domestic customers resided in New York. Accordingly, the Brown court found the defendant’s online activities established personal jurisdiction under Zippo.
Nevertheless, the Brown court still dismissed the action for improper venue due to the validity of the defendant’s clickwrap agreement. In 2011, the defendant implemented an updated Master Service Agreement, which contained a forum selection clause stating that “any judicial proceeding relating to or arising out of [the] Agreement or the Services shall be instituted only in a federal or state court of competent jurisdiction in Duval County in the State of Florida.” The defendant posted a large banner message stating that customers were required to review and approve the new terms of service before being allowed to access their accounts. The banner message contained a link to the Master Service Agreement at the top of the login page. The plaintiff accepted the new terms of service. The Brown court upheld the forum selection cause.
Moral of the Story
In this day and age, the internet is unavoidable and an inherent part of doing business. While the risk of being sued for doing business online will always be there, at least businesses can choose where they get sued. The key is to craft and use a good clickwrap agreement.
Stephen E. Breidenbach is a contributing editor for Litigation News.
Resources
- Int’l Shoe Co. v. Washington, 326 U.S. 310 (1945).
- Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997).
- Pascarelli v. Koehler, 346 Ga. App. 591, 591, 816 S.E.2d 723, 724 (2018).
- Aaron Consulting Co., LLC v. Snap Sols. LLC, No. 16-CV-6775 (NGG) (VMS) (E.D.N.Y. Sept. 20, 2018).
- Brown v. Web.com Grp., Inc., 57 F. Supp. 3d 345, 360 (S.D.N.Y. 2014).
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