Vol. 76, No. 10, October 2003

Personal Jurisdiction and the Internet: An Update

by Eugenia G. Carter & Jennifer R. Racine

Are your clients subject to personal jurisdiction in every forum in which Internet users access the clients' Web sites? Possibly. Internet contacts can be sufficient to confer personal jurisdiction in a state with which a defendant has no other contacts. For a court to constitutionally exercise personal jurisdiction over a defendant, the plaintiff must show that the defendant had "minimum contacts" with the forum state.¹ These minimum contacts must be such that subjecting the defendant to personal jurisdiction in that state would be within the bounds of traditional notions of fair play and substantial justice.² Sometimes, Internet contacts meet this requirement.

A 1998 Wisconsin Lawyer article³ outlined the way in which early cases dealt with this issue. Although the early cases, especially Zippo Manufacturing Co. v. Zippo Dot Com Inc.,⁴ are still very important, the topic deserves revisiting for two reasons. First, Internet activity has increased significantly in the last five years and, as a result, the number of cases dealing with the issue of the effect of Internet activity on personal jurisdiction also has increased significantly. As many as 25 cases, for example, addressed the issue in the last six months. Second, although Wisconsin courts have not yet dealt with the issue,⁵ a definite trend in the law has emerged as more courts, including district courts in the Seventh Circuit,⁶ adopt some version of the Zippo "sliding scale" approach to determine the sufficiency of Internet contacts to confer personal jurisdiction.

This article summarizes the now-standard Zippo approach to dealing with Internet activity as the basis for personal jurisdiction, describes recent cases applying the Zippo approach, and further notes an alternate approach used by some courts to deal with Internet activity and personal jurisdiction. The article concludes with practice pointers for handling the personal jurisdiction issues raised by operating a Web site.

The Standard Approach: The Zippo Sliding Scale

In most of the cases dealing with the effect of Internet activity on personal jurisdiction, courts have adopted and applied some form of the approach first put forth in the Zippo case. This approach is known as the "sliding scale."⁷ Whether a defendant's Internet activity constitutes the requisite minimum contacts to warrant the imposition of personal jurisdiction depends on where the particular Web site falls on the sliding scale.⁸ There are three main categories into which Web sites fall: passive, active, and interactive.

Passive Web Sites: No Personal Jurisdiction. On one end of the sliding scale are passive Web sites. If the court finds the Web site passive, personal jurisdiction over the defendant based on that Web site is improper.⁹ A passive Web site is one that is purely informational and does not offer those who access it any means for interacting with the Web site's owner to make purchases or exchange information.¹⁰ In one recent case, for example, no personal jurisdiction existed when the particular Web site provided general product information, advertisements, and contact information but did not allow for direct contractual relationships or purchasing.¹¹

Active Web Sites: Personal Jurisdiction is Proper. On the opposite end of the sliding scale are active Web sites. A defendant operating an active Web site can be properly subjected to personal jurisdiction based on Internet activity alone.¹² An active Web site is one that the defendant clearly uses for doing business on the Internet.¹³ The Zippo case itself found the particular Web site to be active because the defendant had entered into contracts with approximately 3,000 forum state residents and seven Internet access providers in the forum state.¹⁴ Even fewer specific transactions with residents of a state can support personal jurisdiction. In a recent decision, a federal district court in Florida found a Web site to be active because it allowed users to place orders, and five residents of the forum state had in fact used the Web site to place an order.¹⁵

Interactive Web Sites: Further Analysis Required. Web sites falling into the middle range of the sliding scale - those that are neither passive nor active - require additional analysis. The Zippo court termed these Web sites "interactive" because they allow some exchange of information between the Web site operator and the Web site user.¹⁶ Thus, the site is not merely informational like a passive Web site, but it also does not rise to the level of "doing business" like an active Web site. The interactive class of Web sites creates the most difficulty for courts because there is no clear line to distinguish those interactive features that will subject the Web site's operator to personal jurisdiction and those interactive features that will not. In making that distinction, courts analyze the level of the Web site's interactivity as well as its commercial nature.¹⁷ Consistent with the "sliding scale" analogy, the more interactive and the more commercial the Web site, the more likely that the court will find personal jurisdiction over the Web site's operator.

A leading case dealing with an interactive Web site is Millennium Enterprises Inc. v. Millennium Music L.P.¹⁸ In that case, the defendant's Web site allowed users to order products over the Internet; however, because there was no evidence that the defendant had ever sold any products to residents of the forum state, personal jurisdiction in that state was not proper.¹⁹ A recent federal district court case reached a similar result, holding that absent evidence that residents of the forum state have actually used the Web site to make purchases, the mere existence of a Web site on which purchases can be made was not sufficient to warrant personal jurisdiction.²⁰

Web Sites and Non-Internet Contacts: Further Analysis Required. In applying the Zippo approach, courts also may consider a defendant's non-Internet contacts with the forum state in combination with the Web site to determine whether personal jurisdiction is proper. For example, two recent cases held that the operation of a moderately interactive Web site combined with non-Internet contacts with the forum state may warrant the exercise of jurisdiction, despite the fact that neither factor would warrant the exercise of jurisdiction on its own. In Toys "R" Us Inc. v. Step Two S.A.,²¹ the Third Circuit reversed the district court's denial of the plaintiff's request for jurisdictional discovery on the issue of non-Internet contacts. The court noted that the plaintiff thus far had not shown, with regard to the defendant's Internet contacts, that personal jurisdiction existed.²² But, the court further held that when looking for the "something more" beyond operation of an interactive Web site required by the Zippo approach, it is appropriate to consider non-Internet contacts, and the court thus allowed jurisdictional discovery on that issue.²³

Similarly, the court in Haemoscope Corp. v. Pentapharm AG²⁴ found that the Web site in question was not on its own enough to warrant personal jurisdiction, but the combination of the Web site with other non-Internet contacts may be sufficient. Because the parties had not briefed the issue, the court ordered them to do so.²⁵

Defendants Outside the United States. Another interesting aspect of the effect of Internet activity on personal jurisdiction is its effect on securing personal jurisdiction over defendants operating Web sites outside the United States. When dealing with a defendant operating a Web site in a foreign country, the Zippo approach still applies; thus, the court examines the Web site using the same sliding scale analysis. However, Federal Rule of Civil Procedure 4(k)(2) provides that if a foreign defendant does not have the requisite minimum contacts with any one state, his or her contacts with the United States as a whole may be considered for purposes of U.S. jurisdiction. The court in Graduate Management Admission Council v. Raju,²⁶ for instance, analyzed the case using the Zippo approach and found no personal jurisdiction over the defendant based on his contacts with the forum state. However, the court then analyzed the case under Federal Rule of Civil Procedure 4(k)(2). Using the United States instead of Virginia as the forum, the court found personal jurisdiction.²⁷

An Alternate Approach: The "Effects" Test

Although most courts addressing the issue of personal jurisdiction and the Internet have adopted some form of the Zippo approach, some courts also have used an alternate approach based on traditional principles of personal jurisdiction.²⁸ The North Dakota Supreme Court, for example, recently found personal jurisdiction to be proper based on the "effects" test used to determine personal jurisdiction generally.²⁹ The "effects" test is based on a U.S. Supreme Court case, Calder v. Jones,³⁰ in which a defendant was subject to personal jurisdiction based upon the "effects" the nonresident defendant's activity would have on the forum state. In rendering its decision, the North Dakota Supreme Court also noted that many states apply the Zippo approach.³¹ Based upon the limited record in the appeal before the court, however, it was apparent that the defendant was subject to jurisdiction under the "effects" test based on both her Internet contacts and her other contacts with the state.³²

Other courts have combined the Zippo approach with the "effects" test. For instance, the Fourth Circuit has explicitly adopted the Zippo approach but developed its own three-prong test to bring in elements of the "effects" test. The test allows a state to exercise jurisdiction over a nonresident when the nonresident 1) directs electronic activity into the state, 2) with manifest intent to engage in business or other interaction within the state, and 3) that electronic activity creates a potential cause of action in the state's courts.³³

Conclusion

Clearly, your clients may be subject to personal jurisdiction based solely on their Internet contacts with a forum state. The good news, of course, is that so may your clients' adversaries. As the courts reach a more uniform approach to determining issues of personal jurisdiction and the Internet, it is easier to predict whether a particular Web site might subject a defendant to personal jurisdiction in a particular state. Businesses operating passive, information-only Web sites are probably safe; however, businesses operating active or interactive Web sites, especially successful ones, need to be aware that they risk out-of-state litigation. This risk may have the biggest impact on expanding businesses with interactive Web sites, because although the mere presence of a Web site is not enough, as few as five sales through a Web site to residents of a forum state could be enough to confer personal jurisdiction. As the business expands, then, so does the risk of out-of-state litigation.

Endnotes

¹International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (cited in Michael S. Neustel, Personal Jurisdiction, Internet L. Today, at www.internetlawtoday.com/personaljurisdiction.htm).

²Id.

³Steven P. Means, Personal Jurisdiction and the Internet, 71 Wis. Law. 10 (April 1998).

⁴952 F. Supp. 1119 (W.D. Pa. 1997).

⁵The Wisconsin Court of Appeals did briefly address the issue in a footnote of an unpublished opinion. Catalytic Combustion Corp. v. Vapor Extraction Tech. Inc., No. 00-0450-FT, *11 n.6 (Wis. Ct. App. Aug. 8, 2000) (unpublished opinion) (rejecting the argument that because defendant's Web site is not interactive, defendant may not be subjected to personal jurisdiction in Wisconsin and noting "[a]lthough the mere existence of [the defendant's] web site is not dispositive of the jurisdiction issue, we conclude that the web site in conjunction with the various correspondence surrounding the three contracts evidences the sufficiency of [the defendant's] contacts with Wisconsin for jurisdictional purposes.").

⁶E.g., Infosys Inc. v. Billingnetwork, 2003 U.S. Dist. LEXIS 14808 (N.D. Ill. Aug. 26, 2003); David White Instruments LLC v. TLZ Inc., 2003 U.S. Dist. LEXIS 8375 (N.D. Ill. May 14, 2003); Caterpillar Inc. v. Miskin Scraper Works Inc., 256 F. Supp. 2d 849 (C.D. Ill. 2003); Aero Prods. Int'l v. Intex Corp., 2002 U.S. Dist. LEXIS 17948, 64 U.S.P.Q.2d (BNA) 1772 (N.D. Ill. Sept. 19, 2002).

⁷Zippo, 952 F. Supp. at 1124.

⁸Id.

⁹Id.

¹⁰Id.

¹¹Caterpillar, 256 F. Supp. 2d at 853.

¹²Zippo, 952 F. Supp. at 1124.

¹³Id.

¹⁴Id. at 1125-26.

¹⁵Hartoy Inc. v. Thompson, Copyright L. Rep. (CCH) ¶ 28611, 2003 U.S. Dist. LEXIS 3185, *14 (S.D. Fla. Jan. 29, 2003).

¹⁶Zippo, 952 F. Supp. at 1124.

¹⁷Id.

¹⁸33 F. Supp. 2d 907 (D. Ore. 1999).

¹⁹Id. at 921-23.

²⁰Quality Improvement Consultants Inc. v. Williams, 2003 U.S. Dist. LEXIS 2705, *16, 17-19 (D. Minn. Feb. 24, 2003).

²¹318 F.3d 446 (3d Cir. 2003).

²²Id. at 456.

²³Id. at 456, 458.

²⁴2002 U.S. Dist. LEXIS 23387 (N.D. Ill. Dec. 6, 2002).

²⁵Id. at *23.

²⁶241 F. Supp. 2d 589 (E.D. Va. 2003).

²⁷Id.

²⁸In addition to the "effects" test discussed infra, it has been noted that courts also are applying a similar principle called "purposeful availment." Dee McAree, Award for Libel Upheld: A Student's Web Site Raises Jurisdictional Issues in a State Appeal, Nat'l L.J., May 19, 2003, at 5. Because the Zippo approach itself is an attempt to satisfy the traditional principle of "purposeful availment," it is not discussed separately here. See Zippo, 952 F. Supp. at 1125-26 (stating that "[w]e are being asked to determine whether [the defendant's] conducting of electronic commerce with [forum state] residents constitutes the purposeful availment of doing business in [the forum state].").

²⁹Wagner v. Miskin, 660 N.W.2d 593 (N.D. 2003).

³⁰465 U.S. 783 (1984).

³¹Wagner, 660 N.W.2d at 598.

³²Id. at 598-99.

³³ALS Scan Inc. v. Digital Servs. Consultants Inc., 293 F.3d 707, 714 (4th Cir. 2002).

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