What state the Internet?

Despite the popularity of e-commerce, its regulation is ambiguous, writes David Flint. David Flint is the partner in charge of intellectual property at MacRoberts.

Over the last few months, I have attempted to give clients an overview of some of the jurisdictional cases emanating from the US courts relating to the Internet.

I would like to say that the position is becoming clearer, or more logical – but it is not. Just as it appears that one court has reached what appears to be a sensible approach to the problem of jurisdiction, another will issue a judgment at odds with the first.

Perhaps that is one of the inevitable features of a federal system with jurisdiction delegated to individual states, each of which has its own legislation, courts and agenda. Perhaps it is just because this area of law is truly undecided. But whichever it is, the end result for business is that we are little clearer now than we were a year ago.

This situation is bad enough for a US attorney immersed in the intricacies of inter-state commerce, long arm jurisdiction and the vagaries of the Uniform Commercial Code. For the UK lawyer, the position is nigh impossible.

Whatever the niceties of jurisdictional imperatives and sovereign rights of the individual states, the basic fact is that business requires certainty above all else in this, as in so many other areas of law.

Whether the position is one of jurisdiction or no-jurisdiction is, to a great extent, a business management factor. If business knows what the position is likely to be, it can factor this into its decisions on business strategy. With uncertainty, business may not be conducted at all.

It is against this background that I would like to look at several recent jurisdiction cases in the US courts. In Cybersell (Arizona) v Cybersell (Florida), the Ninth Circuit ruled that a passive Web site was insufficient to found jurisdiction in Arizona over a Florida company, and that some form of targeting was required.

More importantly, the court stated that: "We decline to go further solely on the footing that Cybersell (AZ) has alleged trademark infringement over the Internet by Cybersell (FL)'s use of the registered name "Cybersell' on an essentially passive Web page advertisement. Otherwise, every complaint arising out of alleged trademark infringement on the Internet would automatically result in personal jurisdiction wherever the plaintiff's principal place of business is located. That would not comport with the traditional notion of what qualifies as purposeful activity invoking the benefits and protections of the forum state."

Whilst the judgment of the Ninth Circuit follows the line of earlier cases, including CompuServe v Patterson and Bensusan Restaurant Corp v King, and a number of district court decisions, the importance of this case is that the court made its views far clearer than the previous cases did.

In Gary Scott International v Baroudi, the Massachusetts district court decided that an individual who advertised cigar humidors on the Internet and marketed and sold them to Massachusetts residents was subject to the jurisdiction of that state's courts.

The reasoning of the court seems to suggest that it believed that a party who marketed goods nationwide on the Internet made himself subject to the jurisdiction of all the states. This seems to go against other previous cases in other states.

In IA v Thermacell Technologies, a Michigan district court ruled that it had jurisdiction over a company who made misleading statements on its Web site which injured a Michigan company.

The court stated that the site was "interactive" because computer users could request more information about the company or request a salesman to call, through the Web site.

Whilst seemingly in line with the Massachusetts cases and some of the earlier district court judgements, Thermacell is perhaps in a group of its own in that injury did appear to take place within Michigan and the statements on the Web site were the direct cause of that. It therefore does appear to have had the necessary causal connection for a finding of liability.

In a decision which seems more in line with the very early cases on jurisdiction, the district court for Northern Ohio ruled in Quality Solution Inc. v Henry Zupanc (DC NOhio, 12/23/97) that the mere maintenance of a Web site and advertisements placed in an international trade directory was sufficient contact with Ohio to establish jurisdiction. The court saw both these activities as an attempt to solicit business in the state.

This appears to go against not only the earlier court decisions in relation to the extent of interactivity necessary to found jurisdiction, but also against a number of older US cases, which had decided that a party did not make itself subject to the jurisdiction of the courts in a particular state, merely because it advertised in a magazine which happened to find its way into the state – some positive action was required.

Finally, in this review, a case which seems to confirm Quality Solution – that of Rubbercraft Corp of California v Rubbercraft Inc. This case seems very similar to Cybersell and indeed the defendant argued that the court should follow Cybersell. The two companies had co-existed, with the knowledge of the other, for over 20 years, doing business on opposite coasts. The dispute only arose when Rubbercraft Inc (an Ohio company with its sole place of business in Florida) started selling through Web pages, advertised in a national journal and maintained an "800" telephone number. Rubbercraft Inc admitted annual sales in California amounting to approximately $20,000 in 1997 but did not directly target advertising to California, had no offices or employees in California and only sold to California customers in response to contacts initiated by those customers – no sales had resulted from the Web pages.

The curious thing about the Rubbercraft case was that the court specifically referred to the tests established by the Ninth Circuit in Cybersell before distinguishing the cases. According to the district court the differences were that Rubbercraft Inc engaged in sales into California (in response to contacts from California), maintained an "800" telephone number, derived a "significant" percentage (0.5 per cent ($20,000)) of its yearly sales from California, and advertised on both the Internet and other nationally-circulated media.

These factors, the court stated, entitled it to reach a finding of purposeful availment (that Rubbercraft Inc had knowingly intended to be subjected to the jurisdiction) in Rubbercraft. In addition, had Rubbercraft Inc not carried out these activities, Rubbercraft Corp would not have suffered injury in California.

The Rubbercraft decision is, one must hope, an aberration. As against the other cases which have emerged from the US courts, it goes much further along the road of territorial trademark rights protection against the rights of third parties legitimately using the same trademark in e-commerce.

Indeed, it goes against much of the pre-Internet jurisprudence in relation to national advertising, toll-free telephone access and media distribution.

The safe course of action must be to use as few trademarks as possible on Web pages and ascertain wherever possible whether there are conflicting rights in any of your clients' major markets.