When Does The Web Site Of A Foreign Company Subject It To The Jurisdiction Of U.S. Courts?

Thursday, May 1, 2008 - 01:00

While the Internet allows companies to expand their market base into other countries with minimal effort, they may not realize that their commerce with customers in the United States may subject them to the jurisdiction of the U.S. courts even if they have no other contacts with this country. The law is still developing but the trend is to permit the exercise of jurisdiction over a company whose Web site allows a buyer to consummate a transaction but not over one whose site is informational only.

The jurisdiction of U.S. federal and state courts is a complicated subject beyond the scope of this article. In general terms, courts are authorized to hear claims against a defendant who is physically present within the jurisdiction, such as a company that maintains an office and phone listing (this is known as "general" jurisdiction). The fact that residents are able to access a company's Web site does not constitute presence within the jurisdiction. Under the theory of specific jurisdiction, however, a court may require a company to answer a claim even though it is not present within the jurisdiction, so long as there is some minimal contact with the jurisdiction and the claim arose out of that contact. In most cases, the minimal contacts necessary for jurisdiction are spelled out in what are known as "long arm" statutes in each state (so named because it is as if the state is reaching its arm out to exercise power over the absent defendant). The application of these statutes is further limited, however, by the Due Process Clause of the Fourteenth Amendment of the U.S. Constitution, which our Supreme Court has held requires that the exercise of jurisdiction must be reasonable given the contacts with the forum. The U.S. Supreme Court has not yet addressed under what circumstances jurisdiction over a foreign defendant may be based on Internet or Web site activity. In the meantime, we must rely for guidance on decisions by various lower courts and the opinions of commentators.

These authorities have found that analysis of jurisdiction where the defendant's contacts arose through the Internet should follow the traditional framework described above. To determine whether a foreign defendant's Internet site provides the sufficient "minimum contacts" required under the Constitution, the court will look to the "nature and quality of the commercial activity that an entity conducts over the Internet." Courts have identified a spectrum of such activity: interactive Web sites (where visitors can spend money or otherwise enter into a binding relationship with the Web host); passive Web sites (where visitors can only obtain information); and mid-range Web sites (which allow visitors to do more than receive information).

Courts are most likely to find jurisdiction over a foreign company whose Web site is interactive, allowing a visitor to purchase goods or services online or arranging a repeated and deliberate transmission of electronic files over the Internet, for example, through an email newsletter. The level of interactivity that the Web site allows and the number of residents from the forum state who have interacted with the Web site will be relevant considerations. Evidence that the foreign company uses the Web site to solicit business in the forum state, for example, by requesting its visitors to provide an email address or other marketing information, will also weigh in favor of finding personal jurisdiction.

On the other end of the spectrum, a passive Web site that does nothing more than advertise or post information is unlikely to subject a company to U.S. jurisdiction. A Web site is truly passive when there is no available method to contact the Web host online. A passive site often will provide traditional contact information (e.g., local telephone number, fax number, or local address for the host) that requires a visitor to contact the host in the host's jurisdiction. Courts have held that it would violate a foreign company's rights under the Constitution to exercise jurisdiction over it based solely on the ability of U.S. customers to access such a passive Web site, because the company has not purposely availed itself of the privilege of doing business in the U.S. forum, a requirement under constitutional due process analysis.

In the middle of the spectrum, "mid-range" Web sites fall short of allowing a customer to purchase goods or services online but do allow for some information to be exchanged. Examples of mid-range Web site features include, but are not limited to, links to email addresses of the defendant, electronic messaging systems (i.e. "chatting"), the ability to send proposed orders or reservations but falling short of actually placing a binding order online, or a link to a local affiliate inside the forum jurisdiction that would complete the transaction. Whether a U.S. court will exercise jurisdiction over a Web site with these characteristics depends very much on the specific facts, with the outcome difficult to predict. The courts generally consider the level of interactivity and the commercial nature of the information being exchanged. It would also be necessary for the plaintiff to show a connection between its underlying legal claim, the Web site, and the forum jurisdiction.

Some proactive planning can help foreign companies avoid unintentional exposure to jurisdiction in American courts. First, the company should not enable customers from the U.S. to consummate a transaction through its Web site unless it is prepared to subject itself to the jurisdiction of the courts in this country. If it decides not to allow such transaction by U.S. customers, it should prominently state such limitation on the site.

If a foreign company is sued in an American court and the company's Web site is its only connection to the United States, the company and its U.S. counsel should carefully evaluate whether to ask the court to dismiss the claims based on the absence of jurisdiction. Kelley Drye lawyers have argued this issue in the courts a number of times. We would typically determine at the outset the facts concerning such things as the function and mechanics of the Web site, any promotion of the site to U.S. customers, actual usage of the Web site by U.S. customers, and other possible jurisdictional contacts of the company with the United States. It will be important to develop a persuasive affidavit or declaration from a knowledgeable witness for the company. The witness should be someone who would be effective testifying live, for depositions or courtroom testimony.

RichardE. Donovan is Co-chair of the Litigation and Antitrust/Trade Regulation Groups at Kelley Drye & Warren LLP. Veronica D. Gray is an Associate in the Litigation Practice Area of Kelley Drye & Warren LLP.

Please email the authors at rdonovan@kelleydrye.com or vgray@kelleydrye.com with questions about this article.