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Cyberspace - Here, There or Everywhere: A Study of Jurisdiction

Cyberspace. For most, the term conjures up Captain Kirk travelling aboard the Starship Enterprise to places no man has ever gone before. For lawyers, it raises the question of jurisdiction: Where can the various players in cyberspace sue and be sued?

Four recent federal decisions in trademark infringement actions -- Playboy Enterprises Inc. v. Chuckleberry Publishing Inc. (1), CompuServe, Inc. v. Patterson (2), Maritz Inc. v. CyberGold, Inc.(3) and Inset Systems Inc. v. Instruction Set Inc. (4) -- indicate that a non-resident commercial entity accused of trademark infringement will be subject to jurisdiction in a given forum based solely on its contacts with that forum via the Internet.

Bensusan Restaurant Corp. v. King points the other way, however. There, a New York court refused to exercise jurisdiction over an allegedly infringing commercial Web site hosted on a server in Missouri, notwithstanding the site's accessibility to New Yorkers.

Playboy

In Playboy, Playboy sought to have defendant Tattilo held in contempt for violating a permanent injunction issued in a 1981 trademark infringement action which enjoined Tattilo from "distributing in the United States ... publications and related products" bearing the name "Playmen."

Tattilo owns the Italian trademark in the mark "Playmen," and has published and distributed in Italy a male sophisticate magazine of the same name continuously since 1967. In April 1995, Tattilo uploaded a Web site containing covers of its "Playmen" magazine and photographs onto a World Wide Web server, a computer accessible to individuals anywhere around the globe who posses the appropriate technology to connect to the Web. Significantly, this server was in Italy.

These pictorial images were available on the most heavily visited section of the site, a free service called Playmen Lite, which could be accessed without a password. To view Playmen Lite, a U. S. resident needed a computer, modem and Web browser. A Web browser is a software program that enables a computer to "read" the text, images and codes in which Web sites are written. The resident must also hire a commercial on-line service or other Internet access provider to give him access to the Web.

With these tools in place, the computer operator typed http://www.playmen.it, the uniform resource locator or URL for Tattilo's Web site. A URL is the address of the Web site and indicates where it is located. The ".it" in Tattilo's URL signifies the site is stored on a server physically present in Italy.

After the site's URL is typed, the operator's computer communicates with this Italian server, from which it captures or pulls the requested images and associated text of Tattilo's site. This information is read by the operator's browser and presented for viewing on his U. S. computer.

In this exchange, the U. S.-based computer is the active participant -- the Italian-based server is passive, merely responding to commands supplied by the user. If no U.S. resident attempted to contact the site, Tattilo's images would not appear on any computer screen here, as Tattilo does not initiate contact with users. Consequently, Tattilo argued that its conduct only occurred in Italy. United States residents, by taking the steps described above, effectively boarded a plane, landed in Italy and purchased a copy of the magazine there.

The court disagreed, finding instead that Tattilo was impermissibly distributing infringing product in the United States in violation of the court's 1981 injunction. As a result, the court directed Tattilo to either cease operating the site, or prevent U.S. users from accessing it.

The court did recognize limits on its jurisdiction, holding that it has "neither the jurisdiction nor desire to prohibit the creation of Internet sites around the globe ..."(7) Nor, determined the court, could it prohibit Tattilo from operating its Italian Web site, even if the site infringed a valid U.S. trademark.

Tattilo may of course maintain its Italian Internet site. The Internet is a world-wide phenomenon, accessible from every corner of the globe. Tattilo cannot be prohibited from operating its [Italian] Internet site merely because the site is accessible from within one country in which its product is banned. To hold other-wise 'would be tantamount to a declaration that this Court, and every other court throughout the world, may assert jurisdiction over all information providers on the global World Wide Web.' Def. Mem. at 2. Such a holding would have a devastating impact on those who use this global service.(8)

Nonetheless, the court determined that it had the power to deny a Web site hosted on a server located abroad which infringed a U.S. trademark access to U.S. citizens. Said the court, "Cyberspace is not a 'safe haven' from which Tattilo may flout the Court's injunction"(9) or the trademark laws of the United States. "In the absence of enforcement, intellectual property laws could be easily circumvented through the creation of Internet sites that permit the very distribution that has been enjoined."(10)

The court further found that operation of Playmen Lite constituted distribution in the United States because Tattilo's images appeared on U.S. computer screens.(11) The court held:

That the local user "pulls" these images from Tattilo's computer in Italy, as opposed to Tattilo "sending" them to this country is irrelevant. By inviting United States users to download these images, Tattilo is causing and contributing to their distribution within the United States. Moreover, the availability of Playmen Lite within the United States violates the Injunction even if the user could not download these images.(12)

Technically, this case does not directly address the issue of jurisdiction, holding only that an Italian-based Web site distributes product in the United States if it permits U.S. users to access its site over the Web. The court's reliance solely on such computer contacts in reaching its conclusion as to the situs of Tattilo's acts, however, is a strong indication of the court's views on their sufficiency to support jurisdiction. The jurisdictional issue was squarely addressed by the Sixth Circuit in CompuServe v. Patterson. 'CompuServe'

In CompuServe Inc. v. Patterson (13), CompuServe sought a declaratory judgment in Ohio that its product, CompuServe Navigator, did not infringe defendants' trademark in "Windows Navigator."

Defendants were Texas residents who had entered into two separate agreements with Ohio-based CompuServe. The first, a "user" agreement, granted defendants access to the CompuServe system. The second, a shareware agreement, permitted defendants to advertise and sell their "Windows Navigator" software to other CompuServe users. The software was uploaded from defendants' Texas offices onto a CompuServe computer located in Ohio. A buyer wishing to purchase the software downloaded it from this Ohio computer. CompuServe then billed the buyer for the purchase, who sent his payment to Ohio. From this payment, an agreed percentage was forwarded to defendants in Texas.

The Sixth Circuit, reversing the district court, found that by entering into the shareware agreement and uploading, via electronic links, software on CompuServe's Ohio-based computers, defendants had sufficient contacts with Ohio to be subject to jurisdiction there. Said the court:

It is Patterson's relationship with CompuServe as a software provider and marketer that is crucial to this case. Patterson chose to tranmit his software from Texas to CompuServe's system in Ohio, myriad others gained access to Patterson's software via that system and Patterson advertised and sold his product through that system .... [T]here can be no doubt that Patterson purposefully transacted business in Ohio.(14)

Other Recent Cases

Two recent cases have extended the court's reach even further, holding a commercial Web site's accessibility to forum residents, standing alone, sufficient to sustain jurisdiction.

In Inset Systems Inc. v. Instruction Set, Inc (15). plaintiff contended that its "Inset" trademark was infringed by defendant's use of the mark in its domain name (inset.com) and 800 telephone number (1-800-US-Inset).

Defendant was a Massachusetts-based corporation with neither offices, employees nor regular sales in Connecticut. To promote its products, however, defendant created a Web site, accessible to anyone on the Web, including Connecticut residents.

The court held that by this activity, defendant had solicited business in Connecticut within the meaning of that state's long-arm statute. The court further held that exercising jurisdiction over the non-resident defendant solely on the accessibility of the defendant's Web site to Connecticut residents comported with the Constitution's Due Process Clause. The court stated:

[Defendant] Instruction has directed its advertising activities via the Internet ... toward not only the State of Connecticut, but to all States....Advertisement on the Internet can reach as many as 10,000 Internet users within Connecticut alone. [Instruction] has therefore purposefully availed itself of the privileges of doing business within Connecticut ... [and] could reasonably anticipate the possibility of being hailed into court here.(16)

The court equated the creation of a Web site with the placement of print ads in publications circulated in Connecticut. It did not address the fact that, unlike print publications, defendant's Web site only appeared on Connecticut computer screens if accessed by a Connecticut resident.

That question was squarely addressed in Maritz, Inc. v. CyberGold, Inc. (17)Maritz, a Missouri corporation, contended that CyberGold's Internet activities violated the Lanham Act.

CyberGold, a California corporation, had neither offices nor employees in Missouri. The only contact it had with that forum was via its Web site, which, while hosted on a California server, was accessible worldwide and advertised CyberGold's products.

The court held such contact sufficient to subject CyberGold to suit under Missouri's long-arm statute. The court reasoned that CyberGold's actions, wherever they occurred, caused injury to a Missouri resident, and hence constituted a tortious act within the state.

The court further found that asserting jurisdiction over CyberGold comported with due process notwithstanding CyberGold's argument that absent use by a Missouri resident, CyberGold would have no presence in Missouri at all. In rejecting this argument, the court stated:

Although CyberGold characterizes its activity as merely maintaining a "passive web site" its interest is to reach all Internet users, regardless of geographic location .... CyberGold automatically and indiscriminately responds to each and every Internet user who accesses it web site. Through its web site, CyberGold has consciously decided to transmit advertising information to all Internet users .... Thus, CyberGold's contacts ... favor the exercise of personal jurisdiction over defendant. (18)

Bensusan

The Court in Bensusan Restaurant Corp. v. King (19) reached a different result. There, the court held that uploading a Web site on a server located outside the forum that was accessible to forum residents was insufficient, without more, to support jurisdiction.

To promote a small jazz club in Missouri named the Blue Note, defendant created a Web site hosted on a server located in Missouri. The Web site offered information on upcoming club events and ticket sales. Also included was a phone number for ordering tickets, which had to be picked up at the club's Missouri offices -- no tickets were mailed out of state.

Plaintiff, owner of the trademark "The Blue Note," under which name it operated a famous club in New York, commenced a trademark infringement action in New York. Jurisdiction was premised on the accessibility of the site to New York computer operators via the Web.

"[T]he issue ... is whether the existence of a 'site' on the World Wide Web ... without anything more, is sufficient to vest this Court with personal jurisdiction over defendant...."(20) The court answered the question in the negative, holding that the exercise of jurisdiction in such circumstances would run afoul of the Due Process Clause of the U.S. Constitution. Said the court, "[defendant] has done nothing to purposefully avail himself of the benefits of New York. [Defendant], like numerous others, simply created a Web site and permitted anyone who could find it to access it. Creating a site, like placing a product into the stream of commerce, may be felt nationwide - or even worldwide - but without more, it is not an act purposefully directed toward the forum state."(21)

Surfers May Only Be Present Where Their Computers Are

In CompuServe v. Patterson, the Sixth Circuit made clear that it did not decide whether "CompuServe may sue any regular, non-resident subscriber to its service for non-payment in Ohio."(22) Nor did it determine whether Patterson could be sued "in any state where his software was purchased or used."(23)

The Patterson(24) lower court addressed the first of these questions, holding that "if this were simply a suit brought by CompuServe to collect a small amount of user fees from a Texas resident who, while seated at his computer terminal, became a member of the CompuServe network [and accessed its Ohio-based computers], the Court would have a very difficult time concluding that the exercise of jurisdiction over that customer in the State of Ohio was proper."(25)

Of similar import is the court's decision in Pres-Kap, Inc. v. System One Direct Access(26). New York-based Pres-Kap repeatedly accessed System One's Florida computers, which stored its airline reservation database. Nonetheless, the Florida District Court of Appeals held that it lacked personal jurisdiction over Pres-Kap.

[A] contrary decision would, we think, have far-reaching implications for business and professional people who use "on-line" computer services for which payments are made to out-of-state companies where the database is located .... Lawyers, journalists, teachers, physicians, courts, universities, and business people throughout the country daily conduct various types of computer-assisted research over telephone lines linked to supplier data-bases located in other states. Based on the trial court's decision below, users of such 'on-line' services could be hailed into court in the state in which supplier's billing office and database happen to be located, even if such users, as here, are solicited, engaged, and serviced entirely instate by the supplier's local representatives. Such a result ... is wildly beyond the reasonable expectations of such computer information users and ... offends traditional notions of fair play and substantial justice.(27)

Gambling On The Net

The next developments in this area are likely to come in suits brought to halt in-state residents from accessing gambling Web sites hosted abroad.

The Minnesota Attorney General asserts that Web masters who grant Minnesotans access to gambling sites are subject to jurisdiction in Minnesota. The validity of this view will be tested in State of Minnesota v. Granite Gate Resorts Inc. Defendants operated a Web site named "Wagernet," hosted on an out-of-state server, which solicited the user's participation in gambling. After establishing an account by sending an application and at least $1,000 to a Caribbean island, the U.S. resident was permitted, via telephone modem, to place wagers on sporting events. The Attorney General commenced an action in Minnesota charging that this solicitation violated a host of Minnesota statutes. Defendants moved to dismiss for want of personal jurisdiction. To date, no decision has been rendered.

Practical Solutions

The case law discussed above indicates that commercial Web sites are increasingly likely to be subject to jurisdiction wherever their sites are accessible. Such expanded jurisdiction may have the salutary effect of deterring potential infringers from attempting to reach the U.S. market.

Those doing business with surfers or other "information purchasers," however, face greater uncertainty as to where their litigations will proceed. These Internet businessmen are well advised to insert "forum selection clauses" in their contractual arrangements which designate the forum in which suits arising out of the parties' relationship will proceed.(29)

END NOTES

1. 1996 WL 337276 (SDNY June 19, 1996), aff'd on reconsideration, 1996 WL 396128 (SDNY July 12, 1996).
2. 89 F3d 1257 (6th Cir. 1996).
3. 1996 U.S. Dist. Lexis 14978 (D. Mo. August 19, 1996).
4. 1996 U.S. Dist. Lexis 7160 (D. Conn. April 17, 1996).
5. 1996 WL 509716 (SDNY Sept. 9, 1996).
6. 1996 WL 337276, at *1-2.
7. Id. at *8.
8. Id.
9. Id.
10. Id.
11. Tattilo also operated a pay service on its site, Playmen Pro. To gain access to Playmen Pro, a U.S. resident sent a subscription and fee to Italy and received back from Tattilo a password. The court found that this exchange of information constituted prohibited distribution in the United States.
12. 1996 WL 337276, at *10.
13. 89 F 3d 1257 (6th Cir. 1996).
14. 89 F 3d at 1264.
15. 1996 U.S. Dist. Lexis 7160 (D. Conn. April 17, 1996).
16. Id. at 13.
17. 1996 U.S. Dist. Lexis 14978 (D. Mo. August 19, 1996).
18. Id. at 6, 7. See also United States v. Thomas, 74 F 3d 701 (6th Cir. 1996) (interstate computer transmission of obscene material originated by in-state resident sufficient for purpose of venue over out-of-state resident).
19. 1996 WL 509716 (SDNY Sept. 9, 1996).
20. 1996 WL 509716, at *1.
21. 1996 WL 509716, at *5.
22. 89 F 3d at 1268.
23. Id.
24. 1994 U.S. Dist. Lexis 2035 (S.D. Ohio Aug. 11, 1994).
25. Id., at *20.
26. 636 So.2d 1351 (Fla. App. 1994).
27. 636 So.2d at 1353. See also Gibons v. Schwartz-Nobel, 1996 WL 39336 (Tenn. Ct. App. Jan. 31, 1996)
28. Memorandum of the Minnesota Attorney General on Internet Jurisdiction, (July 1995).
29. As to the enforceability, generally, of forum selection clauses, see 2 "Moore's Federal Practice and Procedure," par. 4.16 [3.-9]; The Breman v. Zapata Off-Shore Co., 407 U.S. 1 (1972).

Reprinted with permission from The New York Law Journal, © 1996, all rights reserved.