When 'Web Presence' Creates Jurisdiction

The Web may not be truly worldwide, but it is getting fairly close, and
while this has created enormous opportunities, it is not without its challenges.

Among the thorniest of these have been issues of jurisdiction, which have been a staple of Web jurisprudence since the earliest days of e-commerce (and even before that). This has only gotten more complex as Web business models have diversified: A modern Web site for a company based in Chicago might be designed in New York, coded in California, supported in India, connected via a Virginia Internet service provider and hosted on servers in the Bahamas (offshore hosting being more and more common for both cost and privacy reasons).

More importantly, the company might reasonably expect that site to be viewed by users from Brooklyn to Beijing, and perhaps to be subject to the laws of every jurisdiction in the world.

General v. Specific Jurisdiction

New York serves as a good example of how Internet jurisdiction typically works. The state has had an evolving standard for how much 'Web presence' is required to create personal jurisdiction under the state's long-arm statute. Typically, a simple 'brochure-ware' site offering no services ' the equivalent of a billboard in cyberspace ' has not been sufficient to confer jurisdiction over the Web site owner (assuming no other connection to the state and no other basis for long-arm jurisdiction, such as tortious content). The point at which the site becomes more than that, and begins to cross the line into a commercial enterprise sufficient to support personal jurisdiction, however, is less clear. Two recent cases from the U.S. District Court for the Southern District of New York clarify some of the issues at the margins and reinforce some existing distinctions.

Personal jurisdiction comes in two varieties: general and specific. General jurisdiction is very broad ' a party subject to general personal jurisdiction in New York can be sued in the New York courts whether or not the case actually arises out of its contacts with New York. General jurisdiction in New York is governed by CPLR '301, which confers such jurisdiction 'as might have been exercised heretofore.'

To be subject to general jurisdiction, a party's contacts with New York must be so continuous and systematic that it can be deemed 'present' in the state. Of course, this section applies to corporations and individuals that are citizens of New York or have a physical presence in the state, but it also applies to citizens of other states and countries, even if they have never physically been to New York, if they conduct business in or to New York 'not occasionally or casually, but with a fair measure of permanence and continuity.' Landoil Resources Corp. v. Alexander & Alexander Servs., 77 N.Y.2d 28, 33-34, 563 N.Y.S.2d 739, 741 (1990) (internal quotations omitted).

Specific jurisdiction, on the other hand, is narrow: A non-domiciliary is subject to specific personal jurisdiction only in cases that arise directly from its contacts with the state. Specific jurisdiction in New York is governed by CPLR '302, and two subparagraphs are particularly relevant in the Internet context.

Section 302(a)(1) grants jurisdiction over any non-domiciliary who 'transacts any business within the state or contracts anywhere to supply goods or services in the state.' Section 302(a)(3) grants jurisdiction over any non-domiciliary who commits a tort outside of the state (other than defamation) that causes injury to a person within the state if he or she '(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or (ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.'

As '302 is a specific personal jurisdiction statute, there must be a strong, articulable nexus between the claim and the defendant's contacts with the state ' that is, if jurisdiction under '302 is to be based on a few scattered sales into New York, the case must arise out of those sales, not some unrelated conduct. See, e.g., McGowan v. Smith, 52 N.Y.2d 268, 272, 437 N.Y.S.2d 643, 645 (1981).

Though some early personal jurisdiction cases treated the Internet as a single nationwide jurisdictional nexus, New York never followed that route. In the New York courts, the rule has always been that the mere establishment of a passive Web site, even one accessed by New York residents, is not enough to confer jurisdiction over its author. Bensusan Restaurant Corp. v. King, 126 F.3d 25, 28 (2d Cir. 1997).

The seminal case on this issue in New York is Citigroup Inc. v. City Holding Company, in which the court wrote:

'[T]he courts have identified a spectrum of cases involving a defendant's use of the [I]nternet. At one end are cases where the defendant makes information available on what is essentially a 'passive' Web site. This use of the Internet has been analogized to an advertisement in a nationally available magazine or newspaper, and does not without more justify the exercise of jurisdiction over the defendant. At the other end of the spectrum are cases in which the defendant clearly does business over the Internet, such as where it knowingly and repeatedly transmits computer files to customers in other states. Finally, occupying the middle ground are cases in which the defendant maintains an interactive Web site which permits the exchange of information between users in another state and the defendant, which depending on the level and nature of the exchange may be a basis for jurisdiction.'

97 F.Supp.2d 549, 565 (S.D.N.Y. 2000) (internal citations omitted).

This 'sliding scale' of personal jurisdiction has now been adopted by most of the circuits, but it is not a separate framework for analyzing Internet-based jurisdiction; it is simply a guide to how courts have approached the issue in the recent past, with the caveat that 'traditional statutory and constitutional principles remain the touchstone of the inquiry.' Warner Bros. Entertainment Inc. v. Ideal World Direct, 516 F.Supp.2d 261, 266 (S.D.N.Y. 2007).

As a practical matter, most jurisdictional analysis in the Internet context focuses on specific jurisdiction. A 'Web presence' in New York has not been considered enough, standing alone, to establish broad, general personal jurisdiction; such jurisdiction typically requires a substantial presence, such as an office in New York, New York employees or agents, the systematic solicitation of business in New York, or the presence of bank accounts or other property in the state.

New York is, in fact, a 'solicitation plus' state: Even the systematic solicitation of business in New York, without more, will not justify a finding of corporate 'presence' sufficient to establish general jurisdiction over a nonresident. Laufer v. Ostrow, 55 N.Y.2d 305, 310, 449 N.Y.S.2d 456, 459 (1982). Thus, even if a defendant solicits business in New York and transmits those goods to computers in New York through an interactive Web site (the 'active' side of the Citigroup sliding scale), that activity may not be enough to establish general personal jurisdiction without additional activities of substance within the state.

Specific jurisdiction, however, is another matter. As noted in Citigroup, if a nonresident supplies goods or services into New York over the Internet, and that transaction becomes the basis for an action, that 'single transaction' has typically been seen as enough to satisfy the requirements for specific jurisdiction under '302.

In September 2007, the Southern District found itself in the unique position of clarifying this concept by addressing three different points along the jurisdictional spectrum in a single case.

In Warner Brothers Entertainment Inc. v. Ideal World Direct, 516 F.Supp.2d 261 (S.D.N.Y. 2007), the court addressed the issue of jurisdiction over three different defendants, each the owner of Web sites allegedly involved in the distribution of copyrighted movies.

The first, Ideal World Direct, operated sites from which users could download 'software that can download and display unauthorized copies of copyrighted materials, including films' and, for a membership fee, also provided links to third-party sites that provided the films themselves. Because plaintiffs alleged over 300 specific instances of users in New York downloading the client software, the court held that Ideal World Direct was subject to jurisdiction because it 'knowingly and repeatedly transmitted' computer files to customers in New York.

The second defendant, Molinaro, operated two Web sites that also collected membership fees from customers and provided links to third-party content providers. However, in Molinaro's case, plaintiffs were not able to allege any specific connection to customers in New York. The general allegation that Molinaro had 'continuing and ongoing business contacts with residents of the state of New York' was insufficient to establish jurisdiction in the absence of any allegation that Molinaro had actually supplied anything to anyone in New York.

Finally, the third defendant, Ashworth, operated a passive site that 'did not sell memberships, communicate with customers, or engage in any form of transaction.' It simply acted as a pass-through, redirecting users to another site. The court found this kind of passive Web presence insufficient to support jurisdiction.

Warner Brothers thus presents three points along the spectrum: Passive sites are not a sufficient basis for jurisdiction, nor are those that collect fees, even if those fees are related to the action. But sites that actually transmit information to an identifiable customer in New York may confer jurisdiction in a case related to that particular transaction.

If the 379 software download transactions in Warner Brothers were sufficient to create jurisdiction, then logically one transaction should be as well, provided that the case involves that transaction; but New York courts have not been consistent in that regard. In fact the Southern District has not even been internally consistent within the same fact pattern.

The toy company Mattel has a strategy for its litigations against companies that use the word 'Barbie' in their Web addresses: It has its private investigator order a product from the Web site for delivery to New York and then sues in federal court in the Southern District using the transaction as the jurisdictional predicate. That strategy has had some success in the past, and the court has upheld jurisdiction based on those single sales.

But in 2005, Mattel tried its strategy and Judge Richard C. Casey (while acknowledging that other decisions of the same court had found jurisdiction on precisely the same facts) rejected it, noting that the touchstone of Mattel's trademark-based claims would be customer confusion, and the private investigator could not reasonably claim to have been confused. Compare Mattel v. Adventure Apparel, No. 00 Civ. 4085 (RWS), 2001 WL 286728 (S.D.N.Y. March 22, 2001) and Mattel v. Procount Bus. Servs., No. 03 Civ. 7234 (RWS), 2004 WL 502190 (S.D.N.Y. March 10, 2004) (upholding jurisdiction) with Mattel, Inc. v. Anderson, No. 04 Civ. 5275 (RCC), 2005 WL 1690528 (S.D.N.Y. July 18, 2005) (dismissing for lack of jurisdiction).

Late last year, the court returned to the Mattel issue of individual sales of infringing material in Pearson Education, Inc. v. Yi Shi. No. 06 Civ. 11504 (VM), 2007 WL 4358455 (S.D.N.Y Dec. 11, 2007). In that case, plaintiff was a publisher of textbooks and instructors' manuals printed in both high-quality U.S. editions and cheaper overseas editions not for sale in the United States.

Defendant, a resident of Missouri, allegedly bought the overseas versions of the books and sold them in the United States through www.col legesolutions.tripod.com and www. abebooks.com. The former site was apparently created by defendant; the latter is a large online used book market on which any seller can list books.

Plaintiffs alleged that defendant had made 19 infringing sales of books into New York through the sites, physically shipping one book into New York. Defendant claimed that all but one of the sales were not infringing books at all, but rather were scanned versions of student homework assignments related to the course books and sold in PDF form. The one book defendant admitted to selling he claimed had not been shipped to New York. Defendant noted (correctly) that New York courts have held that the mere ability of a Web site to generate sales that could be shipped to New York is not sufficient to confer jurisdiction without an actual allegation of such sales.

Nonetheless, the Pearson court noted that '302(a)(1) is a 'single act' statute under which proof of even a single transaction is sufficient to confer jurisdiction if the claim asserted arises out of that transaction and defendant's activities were 'purposeful.' Finding that plaintiff had sufficiently alleged those facts with respect to at least one transaction (and separately finding that the defendant's sales into New York satisfied the constitutional 'minimal contacts' requirements of due process), the court denied defendant's motion to dismiss for lack of personal jurisdiction.

Pearson and Warner Brothers are not particularly surprising cases ' they appear to be relatively straightforward applications of the New York rules for Internet 'presence,' and were it not for some less obvious precedents (such as the Mattel cases) they would be fairly predictable. But given the endless variations in e-commerce models that are now beginning to appear, and the legal consequences of fairly small distinctions in defendants' situations, these cases make it clear that careful, case-by-case analysis will be increasingly important in Internet jurisdiction cases in the future.

The Web may not be truly worldwide, but it is getting fairly close, and
while this has created enormous opportunities, it is not without its challenges.

Among the thorniest of these have been issues of jurisdiction, which have been a staple of Web jurisprudence since the earliest days of e-commerce (and even before that). This has only gotten more complex as Web business models have diversified: A modern Web site for a company based in Chicago might be designed in New York, coded in California, supported in India, connected via a Virginia Internet service provider and hosted on servers in the Bahamas (offshore hosting being more and more common for both cost and privacy reasons).

More importantly, the company might reasonably expect that site to be viewed by users from Brooklyn to Beijing, and perhaps to be subject to the laws of every jurisdiction in the world.

General v. Specific Jurisdiction

New York serves as a good example of how Internet jurisdiction typically works. The state has had an evolving standard for how much 'Web presence' is required to create personal jurisdiction under the state's long-arm statute. Typically, a simple 'brochure-ware' site offering no services ' the equivalent of a billboard in cyberspace ' has not been sufficient to confer jurisdiction over the Web site owner (assuming no other connection to the state and no other basis for long-arm jurisdiction, such as tortious content). The point at which the site becomes more than that, and begins to cross the line into a commercial enterprise sufficient to support personal jurisdiction, however, is less clear. Two recent cases from the U.S. District Court for the Southern District of New York clarify some of the issues at the margins and reinforce some existing distinctions.

Personal jurisdiction comes in two varieties: general and specific. General jurisdiction is very broad ' a party subject to general personal jurisdiction in New York can be sued in the New York courts whether or not the case actually arises out of its contacts with New York. General jurisdiction in New York is governed by CPLR '301, which confers such jurisdiction 'as might have been exercised heretofore.'

To be subject to general jurisdiction, a party's contacts with New York must be so continuous and systematic that it can be deemed 'present' in the state. Of course, this section applies to corporations and individuals that are citizens of New York or have a physical presence in the state, but it also applies to citizens of other states and countries, even if they have never physically been to New York, if they conduct business in or to New York 'not occasionally or casually, but with a fair measure of permanence and continuity.' Landoil Resources Corp. v. Alexander & Alexander Servs. , 77 N.Y.2d 28, 33-34, 563 N.Y.S.2d 739, 741 (1990) (internal quotations omitted).

Specific jurisdiction, on the other hand, is narrow: A non-domiciliary is subject to specific personal jurisdiction only in cases that arise directly from its contacts with the state. Specific jurisdiction in New York is governed by CPLR '302, and two subparagraphs are particularly relevant in the Internet context.

Section 302(a)(1) grants jurisdiction over any non-domiciliary who 'transacts any business within the state or contracts anywhere to supply goods or services in the state.' Section 302(a)(3) grants jurisdiction over any non-domiciliary who commits a tort outside of the state (other than defamation) that causes injury to a person within the state if he or she '(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or (ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.'

As '302 is a specific personal jurisdiction statute, there must be a strong, articulable nexus between the claim and the defendant's contacts with the state ' that is, if jurisdiction under '302 is to be based on a few scattered sales into New York, the case must arise out of those sales, not some unrelated conduct. See , e.g. , McGowan v. Smith , 52 N.Y.2d 268, 272, 437 N.Y.S.2d 643, 645 (1981).

Though some early personal jurisdiction cases treated the Internet as a single nationwide jurisdictional nexus, New York never followed that route. In the New York courts, the rule has always been that the mere establishment of a passive Web site, even one accessed by New York residents, is not enough to confer jurisdiction over its author. Bensusan Restaurant Corp. v. King , 126 F.3d 25, 28 (2d Cir. 1997).

The seminal case on this issue in New York is Citigroup Inc. v. City Holding Company, in which the court wrote:

'[T]he courts have identified a spectrum of cases involving a defendant's use of the [I]nternet. At one end are cases where the defendant makes information available on what is essentially a 'passive' Web site. This use of the Internet has been analogized to an advertisement in a nationally available magazine or newspaper, and does not without more justify the exercise of jurisdiction over the defendant. At the other end of the spectrum are cases in which the defendant clearly does business over the Internet, such as where it knowingly and repeatedly transmits computer files to customers in other states. Finally, occupying the middle ground are cases in which the defendant maintains an interactive Web site which permits the exchange of information between users in another state and the defendant, which depending on the level and nature of the exchange may be a basis for jurisdiction.'

97 F.Supp.2d 549, 565 (S.D.N.Y. 2000) (internal citations omitted).

This 'sliding scale' of personal jurisdiction has now been adopted by most of the circuits, but it is not a separate framework for analyzing Internet-based jurisdiction; it is simply a guide to how courts have approached the issue in the recent past, with the caveat that 'traditional statutory and constitutional principles remain the touchstone of the inquiry.' Warner Bros. Entertainment Inc. v. Ideal World Direct , 516 F.Supp.2d 261, 266 (S.D.N.Y. 2007).

As a practical matter, most jurisdictional analysis in the Internet context focuses on specific jurisdiction. A 'Web presence' in New York has not been considered enough, standing alone, to establish broad, general personal jurisdiction; such jurisdiction typically requires a substantial presence, such as an office in New York, New York employees or agents, the systematic solicitation of business in New York, or the presence of bank accounts or other property in the state.

New York is, in fact, a 'solicitation plus' state: Even the systematic solicitation of business in New York, without more, will not justify a finding of corporate 'presence' sufficient to establish general jurisdiction over a nonresident. Laufer v. Ostrow , 55 N.Y.2d 305, 310, 449 N.Y.S.2d 456, 459 (1982). Thus, even if a defendant solicits business in New York and transmits those goods to computers in New York through an interactive Web site (the 'active' side of the Citigroup sliding scale), that activity may not be enough to establish general personal jurisdiction without additional activities of substance within the state.

Specific jurisdiction, however, is another matter. As noted in Citigroup, if a nonresident supplies goods or services into New York over the Internet, and that transaction becomes the basis for an action, that 'single transaction' has typically been seen as enough to satisfy the requirements for specific jurisdiction under '302.

In September 2007, the Southern District found itself in the unique position of clarifying this concept by addressing three different points along the jurisdictional spectrum in a single case.

In Warner Brothers Entertainment Inc. v. Ideal World Direct , 516 F.Supp.2d 261 (S.D.N.Y. 2007), the court addressed the issue of jurisdiction over three different defendants, each the owner of Web sites allegedly involved in the distribution of copyrighted movies.

The first, Ideal World Direct, operated sites from which users could download 'software that can download and display unauthorized copies of copyrighted materials, including films' and, for a membership fee, also provided links to third-party sites that provided the films themselves. Because plaintiffs alleged over 300 specific instances of users in New York downloading the client software, the court held that Ideal World Direct was subject to jurisdiction because it 'knowingly and repeatedly transmitted' computer files to customers in New York.

The second defendant, Molinaro, operated two Web sites that also collected membership fees from customers and provided links to third-party content providers. However, in Molinaro's case, plaintiffs were not able to allege any specific connection to customers in New York. The general allegation that Molinaro had 'continuing and ongoing business contacts with residents of the state of New York' was insufficient to establish jurisdiction in the absence of any allegation that Molinaro had actually supplied anything to anyone in New York.

Finally, the third defendant, Ashworth, operated a passive site that 'did not sell memberships, communicate with customers, or engage in any form of transaction.' It simply acted as a pass-through, redirecting users to another site. The court found this kind of passive Web presence insufficient to support jurisdiction.

Warner Brothers thus presents three points along the spectrum: Passive sites are not a sufficient basis for jurisdiction, nor are those that collect fees, even if those fees are related to the action. But sites that actually transmit information to an identifiable customer in New York may confer jurisdiction in a case related to that particular transaction.

If the 379 software download transactions in Warner Brothers were sufficient to create jurisdiction, then logically one transaction should be as well, provided that the case involves that transaction; but New York courts have not been consistent in that regard. In fact the Southern District has not even been internally consistent within the same fact pattern.

The toy company Mattel has a strategy for its litigations against companies that use the word 'Barbie' in their Web addresses: It has its private investigator order a product from the Web site for delivery to New York and then sues in federal court in the Southern District using the transaction as the jurisdictional predicate. That strategy has had some success in the past, and the court has upheld jurisdiction based on those single sales.

But in 2005, Mattel tried its strategy and Judge Richard C. Casey (while acknowledging that other decisions of the same court had found jurisdiction on precisely the same facts) rejected it, noting that the touchstone of Mattel's trademark-based claims would be customer confusion, and the private investigator could not reasonably claim to have been confused. Compare Mattel v. Adventure Apparel, No. 00 Civ. 4085 (RWS), 2001 WL 286728 (S.D.N.Y. March 22, 2001) and Mattel v. Procount Bus. Servs., No. 03 Civ. 7234 (RWS), 2004 WL 502190 (S.D.N.Y. March 10, 2004) (upholding jurisdiction) with Mattel, Inc. v. Anderson, No. 04 Civ. 5275 (RCC), 2005 WL 1690528 (S.D.N.Y. July 18, 2005) (dismissing for lack of jurisdiction).

Late last year, the court returned to the Mattel issue of individual sales of infringing material in Pearson Education, Inc. v. Yi Shi. No. 06 Civ. 11504 (VM), 2007 WL 4358455 (S.D.N.Y Dec. 11, 2007). In that case, plaintiff was a publisher of textbooks and instructors' manuals printed in both high-quality U.S. editions and cheaper overseas editions not for sale in the United States.

Defendant, a resident of Missouri, allegedly bought the overseas versions of the books and sold them in the United States through www.col legesolutions.tripod.com and www. abebooks.com. The former site was apparently created by defendant; the latter is a large online used book market on which any seller can list books.

Plaintiffs alleged that defendant had made 19 infringing sales of books into New York through the sites, physically shipping one book into New York. Defendant claimed that all but one of the sales were not infringing books at all, but rather were scanned versions of student homework assignments related to the course books and sold in PDF form. The one book defendant admitted to selling he claimed had not been shipped to New York. Defendant noted (correctly) that New York courts have held that the mere ability of a Web site to generate sales that could be shipped to New York is not sufficient to confer jurisdiction without an actual allegation of such sales.

Nonetheless, the Pearson court noted that '302(a)(1) is a 'single act' statute under which proof of even a single transaction is sufficient to confer jurisdiction if the claim asserted arises out of that transaction and defendant's activities were 'purposeful.' Finding that plaintiff had sufficiently alleged those facts with respect to at least one transaction (and separately finding that the defendant's sales into New York satisfied the constitutional 'minimal contacts' requirements of due process), the court denied defendant's motion to dismiss for lack of personal jurisdiction.

Pearson and Warner Brothers are not particularly surprising cases ' they appear to be relatively straightforward applications of the New York rules for Internet 'presence,' and were it not for some less obvious precedents (such as the Mattel cases) they would be fairly predictable. But given the endless variations in e-commerce models that are now beginning to appear, and the legal consequences of fairly small distinctions in defendants' situations, these cases make it clear that careful, case-by-case analysis will be increasingly important in Internet jurisdiction cases in the future.