Conflicts of Law - Internet Case - Digested Cases

Conflicts of Law
TOPIC: Internet Case

                                                                                         

Bensusan Restaurant Corp. v. King, 126 F.3d 25, 44 U.S.P.Q.2d (BNA) 1051 (2nd Cir. 1997).

New York's long-arm statute does not reach a Missouri defendant whose only connection to New York is an Internet web page that advertises a Missouri music club with predominantly local patrons.

Facts:

Plaintiff, a New York resident, owns and operates a well-known jazz club in New York under the name "The Blue Note." Defendant, a Missouri resident, owns and operates a small music club in Columbia, Missouri also called "The Blue Note." In 1996, Defendant created a web page, accessible to anyone via the Internet, which advertised the Missouri club and provided a phone number for ordering tickets. Although patrons could order tickets over the phone, they had to claim the tickets in person at the Blue Note box office in Missouri. Defendant's web page also contained a disclaimer noting that its club was not affiliated with Plaintiff's club of the same name, located in New York. Following the creation of this web site, Plaintiff brought suit in the District Court for the Southern District of New York, alleging trademark infringement and dilution based on Defendant's use of the name "The Blue Note." Defendant moved for dismissal under F.R.C.P. 12 (b)(2) for lack of personal jurisdiction. Plaintiff argued that jurisdiction was appropriate under New York's long-arm statute, N.Y.C.P.L.R. � 302, because Defendant maintained a web page that was accessible to New York residents.

In granting Defendant's motion to dismiss, the district court noted that personal jurisdiction over an out-of-state defendant is determined by the law of the forum state and that New York's long-arm statute recognizes personal jurisdiction over an out-of-state defendant in two relevant situations. First, jurisdiction can be established under N.Y.C.P.L.R. � 302 (a)(2) when the defendant commits a tortious act in New York. Second, jurisdiction can be established under N.Y.C.P.L.R. � 302 (a)(3)(ii) for tortious acts committed outside of New York. Additionally, the district court noted that New York's long-arm statute, like all statutes, is limited by the Due Process Clause of the United States Constitution.

The district court held that New York's long-arm statute did not reach the Defendant. Under N.Y.C.P.L.R. � 302 (a)(2), the district court found that the purchase of tickets based on the information provided on the web page would not constitute a tortious act in New York because such a purchase would ultimately occur in Missouri and not in New York.

Additionally, the district court held that N.Y.C.P.L.R. � 302 (a)(3)(ii) did not reach the defendant. The district court noted that to establish jurisdiction under � 302 (a)(3)(ii): (1) a defendant should have "reasonably expected" the act in question to have consequences in New York and (2) a defendant's business must derive "substantial revenue" from interstate commerce. The district court reasoned that because Defendant's business was primarily local, Defendant did not draw income from interstate commerce. The district court also found that, while it was foreseeable that New York residents might view the web page, the local character of the club made it unreasonable for Defendant to expect his advertisement to have consequences in New York.

The district court additionally found that even if New York's long-arm statute did reach Defendant, Due Process concerns would defeat jurisdiction based on the "minimum contacts" test provided in traditional jurisdictional analysis. See World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980). The district court found that Defendant's web site did not establish "minimum contacts" in New York, as Defendant did not direct the web site at residents of New York and did nothing to "purposely avail himself of the benefits of New York."

Plaintiff appealed the decision to the United States Court of Appeals, Second Circuit.

Issue(s)

Whether maintaining a web page that advertises a predominantly local service subjects an an out-of-state defendant to jurisdiction under New York's long-arm statute

Ruling

No. New York's long-arm statute does not reach a defendant whose actions, while possibly constituting a violation of a federal statute, are primarily of a local nature, occur outside of New York, and do not have reasonably foreseeable consequences in New York.

State of the Law Before Bensusan.

In 1945, the Supreme Court established that a district court has personal jurisdiction over an out-of-state defendant where (1) the defendant has "minimum contacts" with the hailing court's state and (2) that the maintenance of the suit does not "offend traditional notions of fair play and substantial justice." International Shoe Co. v. Washington, 326 US 310, 316, (1945). Several notable decisions have applied this test and established guidelines for what constitutes "minimum contacts" and what will offend "fair play and substantial justice."

Courts have only recently begun to apply these doctrines to situations where a party's use of the Internet has been the basis for establishing "minimum contacts." Thus, the law regarding personal jurisdiction for actions on the Internet remains under development. In fact, Bensusan was one of several in an initial wave of decisions discussing this issue. Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414 (9th Cir. 1997) (finding that the use of an allegedly infringing logo on the defendants web page was not enough to establish personal jurisdiction over an out-of-state defendant); CompuServe v. Patterson, 89 F.3d 1257 (6th Cir. 1996) (finding that a Texas defendant contracting with an Ohio computer network service to sell computer software in Ohio via that service was subject to personal jurisdiction in an Ohio action seeking declaratory judgment of trademark infringement); Heroes, Inc. v. Heroes Foundation, 958 F.Supp 1 (D.D.C. 1996) (finding that a charitable organization based in New York advertising a toll-free number over the Internet and in newspapers to solicit donations from residents of Washington D.C. was subject to personal jurisdiction Washington, DC in an alleged trademark violation); Panavision International, L.P. v. Toeppen, 938 F. Supp. 616 (C.D. Cal. 1996) (finding that an Illinois defendant who registered Internet domain names that were likely to violate the trademark rights of a California corporation and then offered to sell the domain names to the corporation was subject to personal jurisdiction in California); State v. Granite Gate Resorts, Inc., No. C6-95-7227, 1996 WL 767431 (D. Minn. Dec. 11, 1996) (finding that personal jurisdiction existed over a defendant whose only contact with the forum state was a "passive" web page advertised gambling services).

Effect of Bensusan on Current Law

The United States Court of Appeals for the Second Circuit affirmed the district court's finding that the acts in question all occurred in Missouri and therefore did not give rise to jurisdiction under N.Y.C.P.L.R. � 302(a)(2). The circuit court also affirmed the district court's second finding that jurisdiction was not established under N.Y.C.P.L.R. � 302(a)(3)(ii) because of the local character of the defendant's business. The court noted that the intent of the legislature in section 302(a)(3)(ii) was to exclude a "non-domiciliary whose business operation was of a local character." The circuit court did not address the Due Process arguments discussed in the district court opinion.

The effect of this decision seems very limited, as the circuit court did not affirm the district court's "minimum contacts" argument. However, the circuit court's decision does indicate a level of activity below which personal jurisdiction cannot be established: a passive web site simply advertising a local service and directed at a local audience does not establish national jurisdiction, at least not if the defendant is geographically remote. This decision seems to offer some assurance that local businesses are free to use the Internet to promote their business without subjecting themselves to jurisdiction in every state.

More generally, the court's opinion successfully applies traditional jurisdictional doctrines, suggesting that courts encountering jurisdictional challenges in claims arising out of actions on the Internet need not establish new law. The "minimum contacts" standard of International Shoe, along with the accompanying doctrines, continue to control the resolution of jurisdiction disputes, including those on the Internet.

The Supreme Court has not addressed this issue, and the lower courts have not developed any standard applications. However, when the Court does address this issue the standard it establishes will likely incorporate some interpretation of International Shoe.

                                                                                                        

America Online, Inc. v. Superior Court (Mendoza) (2001)

Facts:

Al Mendoza, Jr., and others (plaintiffs) filed a class action suit in California state court against America Online, Inc. (AOL) (defendant), an Internet access provider located in Virginia. Mendoza alleged that AOL charged customers for service long after their subscriptions had been cancelled. The claimants asserted violations of California’s Unfair Business Practices Act and Consumer Legal Remedies Act (CLRA), common law conversion, fraud, and other claims. AOL moved to dismiss the complaint because forum-selection and choice-of-law clauses in the subscription service agreements provided that Virginia law governed any dispute. The trial court denied AOL’s motion to dismiss. AOL filed a petition for a writ of mandamus with the court of appeal.

ISSUE:

Whether or not the forum selection and choice of law clauses are enforceable.

RULING:

On burden of proof.

Normally, the burden of proof is on the party challenging the enforcement of a contractual forum selection clause. However, the lower court assigned the burden of proof to AOL based on its conclusion that Wimsatt v. Beverly Hills Weight etc. Internat.,Inc. controls this case. In Wimsatt, the court noted that the remedies sought by the franchisees were statutorily enumerated, and were specifically designed to protect the rights of persons purchasing and operating franchise businesses in this state. These protections included a non-waiver statute that voids provisions in a franchise agreement purporting to waive any of the protections under the Franchise Investment Law (FIL). The court reasoned that a franchise agreement's forum selection clause might subject California franchisees to litigation in a state that does not provide the same level of legal protections afforded by California law. Under those circumstances, enforcing the forum selection clause would effectively waive the remedies of California's FIL, thereby violating the anti-waiver component of that law. Faced with this potential, the burden of proof was on the franchisor to prove that enforcing the clause would not violate the statutory anti waiver provision of the FIL by "diminish[ing] in any way the substantive rights afforded California franchisees under California law. “In comparing the purpose and remedies afforded to California franchisees under the FIL to those afforded California consumers under the CLRA, we find identical policy considerations which command shifting the burden of proof here to AOL, the party seeking enforcement of the forum selection clause, as was done in Wimsatt.

Forum Selection Clause Enforcement

Our law favors forum selection agreements only so long as they are procured freely and voluntarily, with the place chosen having some logical nexus to one of the parties or the dispute, and so long as California consumers will not find their substantial legal rights significantly impaired by their enforcement. Therefore, to be enforceable, the selected jurisdiction must be "suitable," "available," and able to "accomplish substantial justice." (The Bremen v. Zapata Off-Shore Co. (1972) 407 U.S. 1, 17 [92 S. Ct. 1907, 1917, 32 L. Ed. 2d 513]; Smith Valentino, supra, 17 Cal.3d at p. 494.) fn. 5 [3b] The trial court determined that the circumstances of contract formation did not reflect Mendoza exercised free will, and that the effect of enforcing the forum selection clause here would violate California public policy by eviscerating important legal rights afforded to this state's consumers. Our task, then, is to review the record to determine if there was a rational basis for the court's findings and the choice it made not to enforce the forum selection clause in AOL's TOS agreement.

Enforcement of the Forum Selection Clause Violates Strong California Public Policy

California courts will refuse to defer to the selected forum if to do so would substantially diminish the rights of California residents in a way that violates our state's public policy.

                                                                                                    

Panavision Int'l, Ltd. P'ship v. Toeppen - 141 F.3d 1316 (9th Cir. 1998)

RULE:

The appeals court applies a three-part test to determine if a district court may exercise specific jurisdiction: (1) the nonresident defendant must do some act or consummate some transaction with the forum or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws; (2) the claim must be one which arises out of or results from the defendant's forum-related activities; and (3) exercise of jurisdiction must be reasonable.

FACTS:

Plaintiff Panavision Int’l, Ltd. filed suit against Defendant Denis Toeppen under the Federal Trademark Dilution Act, 15 U.S.C.S. § 1125(c), and the California Anti-dilution statute, Cal. Bus. & Prof. Code § 14330, claiming that Defendant made commercial use of Plaintiff's trademark on the internet and his conduct diluted Plaintiff's marks. Defendant engaged in a scheme of registering company trademarks as his domain name on the internet, and then, attempting to extort money from them by trading on the value of their names. The district court found that under the "effects doctrine," Defendant was subject to personal jurisdiction in California. The district court then granted summary judgment in favor of Plaintiff, concluding that Defendant’s conduct violated the Federal Trademark Dilution Act of 1995, and the California Anti-dilution statute. Defendant appealed, arguing that the district court erred in exercising personal jurisdiction over him because any contact he had with California was insignificant, emanating solely from his registration of domain names on the Internet, which he did in Illinois. Defendant further argued that the district court erred in granting summary judgment because his use of Plaintiff’s trademarks on the Internet was not a commercial use and did not dilute those marks.

ISSUE:

1.     Did the district court err in exercising personal jurisdiction over defendant?

2.     Can defendant be held liable for violation of plaintiff’s trademarks?

RULING

1) No 2) Yes.

The Court held that the district court’s exercise of jurisdiction was proper and comported with the requirements of due process. According to the Court, defendant did considerably more than simply register plaintiff’s trademarks as his domain names on the Internet. He registered those names as part of a scheme to obtain money from plaintiff. Pursuant to that scheme, he demanded $13,000 from Plaintiff to release the domain names to it. His acts were aimed at Plaintiff in California, and caused it to suffer injury there. The Court further held that Plaintiff was entitled to summary judgment under the federal and state dilution statutes, as Defendant made commercial use of Plaintiff’s trademarks, and Defendant’s conduct diluted those marks.

                                                                                                            

Maritz, Inc v. Cybergold, Inc 

In Maritz, Inc v Cybergold, Inc 947 F Supp 1328 (ED Mo, 1996), there was not only the potential for contact, but 131 instances in which the defendant succeeded in contacting Missouri residents. Id.

Interestingly, the court refused to consider the 180 instances in which plaintiff accessed the defendant's website, noting that "if such contacts were to be considered, a plaintiff could always try to create personal jurisdiction." Id., 1333, n 4.

The court thus implicitly suggested that the potential for contact does not by itself create jurisdiction, and that the plaintiff must show actual contact. The nature of the Maritz plaintiff's cause of action also forms a salient factual distinction.

The plaintiff alleged that it was injured by the defendant's trademark violation every time an Internet user accessed the site. The court was thus able to conclude that the defendant's conduct caused a tortious effect in Missouri. Id., 1331.

The Court found jurisdiction where the defendant maintained a website that was "continually accessible to every Internet-connected computer in Missouri and the world." Id., 1330.

Emphasizing the newness of Internet technology and the unique marketing opportunities offered by the Internet, the Court contrasted the Internet from older forms of communication and concluded that the ease and rapidity of Internet communications justified personal jurisdiction based on the website:

A company's establishment of a telephone number, such as an 800 number, is not as efficient, quick, or easy way to reach the global audience that the internet has the capability of reaching. While the internet does operate via telephone communications, and requires users to place a "call" to a website via the user's computer, a telephone number still requires a print media to advertise that telephone number. Such media would likely require the employment of phone books, newspapers, magazines, and television. Even then, an 800 number provides a less rapid and more limited means of information exchange than a computer with information downloading and printing capabilities. With a website, one need only post information at the website. Any internet user can perform a search for selected terms or words and obtain a list of website addresses that contain such terms or words. The user can then access any of those websites. [Id., 1332-1333.]

The court further commented that the defendant had deliberately used the Internet to reach potential customers and that 131 Missouri residents used the website to contact the defendant for more information. Id., 1333.

                                                                                 

CompuServe, Inc. v. Patterson, 89 F.3d 1257, 39 U.S.P.Q.2d (BNA) 1502 (6th Cir. 1996).

PERSONAL JURISDICTION - DECLARATORY JUDGMENT - INTERNET - TRADEMARK - UNFAIR COMPETITION - COMPUTER INFORMATION AND NETWORK SERVICE - LONG-ARM STATUTE

Continued supply and sales of shareware via a computer information and network Internet access provider based in the forum state satisfies the due process requirements of the federal Constitution concerning the exercise of personal jurisdiction over an out-of-state defendant.

Facts:

Plaintiff-Appellant CompuServe, Inc. ("CompuServe"), a nationwide provider of both electronic network and information services, has its headquarters in Ohio. Among the services provided by CompuServe is the opportunity for subscribers to post and sell software in the form of "shareware." Shareware, provided to the end user initially free of charge, allows the user to test the software for a specified length of time, after which he or she must decide whether to pay the software's author for continued use, or terminate the use of the software. CompuServe accepted payment for the shareware from purchasers and remitted that payment, less a commission, to the authors of the software.

Richard S. Patterson ("Patterson"), a resident of Texas, subscribed to CompuServe. Patterson took advantage of CompuServe's shareware service by posting Internet navigation software that he developed but marketed via his own corporation, Flashpoint Development. Before use of the shareware service, Patterson entered into a "Shareware Registration Agreement" ("SRA") that provided that Ohio law governed the parties' relationship.

Subsequent to the posting of Patterson's navigation software, CompuServe itself began to market its own navigation software. Patterson believed that CompuServe's software was confusingly similar to his own trademarked software and notified CompuServe.

CompuServe filed a declaratory judgment action in the District Court for the Southern District of Ohio, seeking a declaration that it had not infringed Patterson's trademarks. Patterson filed a motion to dismiss for lack of personal jurisdiction. The district court granted Patterson's motion.

CompuServe filed an appeal arguing that Patterson's repeated availment of the shareware sales procedures constituted minimum contacts with the forum state. CompuServe further argued that the existence of the Shareware Registration Agreement clearly stipulating that Ohio law governed disputes regarding the agreement meant that the exercise of personal jurisdiction comported with traditional notions of fair play and substantial justice.

Issue(s)

Whether an Internet service provider's home state can exercise jurisdiction over an out-of-state author of software who subscribes to the Internet service provider and receives commissions for software sold via the Internet service provider.

Ruling:

Yes. A forum state can exercise jurisdiction over an author of software who sells his software via a Internet service provider based in the forum state because 1) the author purposefully avails himself of the forum's laws by acting in the forum, 2) the cause of action arises from that availment, and 3) the burden on the defendant author is less than that on the forum state's interests in determining its laws concerning trademarks and trade names.

Source(s)

Bensusan Restaurant Corp. v. King, 126 F.3d 25, 44 U.S.P.Q.2d (BNA) 1051 (2nd Cir. 1997)., Retrieved August 28, 2020, from https://www.law.cornell.edu/background/internet/Bensusan.htm

CompuServe, Inc. v. Patterson, 89 F.3d 1257, 39 U.S.P.Q.2d (BNA) 1502 (6th Cir. 1996). Retrieved August 28, 2020, from https://www.law.cornell.edu/background/internet/CompuServe.htm

Panavision Int'l, Ltd. P'ship v. Toeppen - 141 F.3d 1316 (9th Cir. 1998), Retrieved August 28, 2020, from https://www.lexisnexis.com/community/casebrief/p/casebrief-panavision-int-l-ltd-p-ship-v-toeppen

Maritz, Inc. v. Cybergold, Inc., 947 F. Supp. 1338 (E.D. Mo. 1996), Retrieved August 28, 2020, from h https://www.lawpipe.com/U.S.-Federal-Courts/Maritz_Inc_v_Cybergold_Inc.html