1. (c) West Legal Studies in Business A Division of Thomson Learning 1 Federal and State Jurisdiction Question: –My offline business or my online business has a website that may be accessed from any where in the world; where may my business be sued? Answer: –In any court in the U.S., and perhaps the world, that has jurisdiction.

2. (c) West Legal Studies in Business A Division of Thomson Learning 2 What is Jurisdiction? Jurisdiction is the authority of a court to hear a case and resolve a dispute. How does a court (state or federal) get jurisdiction? –From the U.S. Constitution & federal statutes –From state constitutions & state statues These constitutions and statutes allow each court to have jurisdiction only over –Particular subject matter ( the kind of law involved) –Particular people

3. (c) West Legal Studies in Business A Division of Thomson Learning 3 Federal Court System and State Court System Exist Side-by-Side Federal Courts –U.S. District Courts, number in each state determined by population. –13 U.S. Courts of Appeal –One U.S. Supreme Court State Courts – State District Courts – Courts of Appeal – State Supreme Court

4. (c) West Legal Studies in Business A Division of Thomson Learning 4 Personal Jurisdiction Federal and State Courts in State A Have jurisdiction over a person when: The person being sued (defendant) –(1) has contacts with State A, either contractual or tortious –(2) And the defendant is served with process

5. (c) West Legal Studies in Business A Division of Thomson Learning 5 Contacts Needed for Personal Jurisdiction are: Lives in the State A “Caught” in the State A Meets contact requirements of State A’s Long Arm Statute

6. (c) West Legal Studies in Business A Division of Thomson Learning 6 Subject Matter Jurisdiction Federal Courts in State A Cases involving federal law and the U.S. Constitution Cases involving state law where there is –diversity of citizenship and a certain amount of money is involved (>$75,000), or –states suing each other or –states suing citizens or a citizen suing a state In these cases the federal court would generally apply the state law of the state in which it sits or that of another state

7. (c) West Legal Studies in Business A Division of Thomson Learning 7 Subject Matter Jurisdiction State Courts in State A Cases involving that state’s law or that state’s constitution Some cases involving federal statutes or the U.S. Constitution, if the defendant doesn’t care to remove the case to federal court

8. (c) West Legal Studies in Business A Division of Thomson Learning 8 In Rem Jurisdiction This is jurisdiction that is limited to specific property –The court may render a judgment only having to do with the property itself. –If the court finds for the plaintiff, it may only award the plaintiff as much money as the property will bring when sold.

9. (c) West Legal Studies in Business A Division of Thomson Learning 9 Traditional Principles of Personal Jurisdiction The 5 th and 14 th U.S. Constitutional Amendments require the federal and state governments, including their courts, to give people “Due Process” (fairness)

10. (c) West Legal Studies in Business A Division of Thomson Learning 10 Due Process or “Fairness” means –(1) the person who is being sued must have availed himself or herself of the benefits in that state, in order for it to be “fair” for that state to make the person come to court in that state. If you take from a state, it is fair that the state has authority over you. –(2) the person being sued must have been served with “process” Process is notice to the defendant of the reason he is being sued and to which court he or she should go in order to be heard or give his or her defense

11. (c) West Legal Studies in Business A Division of Thomson Learning 11 How does a person avail himself of the benefits of a state? (1) Living there (2) Passing through (3) Meeting Requirements of State A’s “Long-Arm Statute”

12. (c) West Legal Studies in Business A Division of Thomson Learning 12 Living in the state and “Passing Through” 1878 Pennoyer v. Neff: U.S. Supreme court held that a court can obtain personal jurisdiction over a defendant who is present in the state in which the court sits – “presence “ was construed to mean that the defendant had to be physically present within the boundaries of the state »whether he lives there and is served with process or »is just passing through and is served with process: “Capture the defendant”

13. (c) West Legal Studies in Business A Division of Thomson Learning 13 Interstate Travel and Communication Became Easier The need arose to be able to sue people who lived outside of the state. –States began to pass laws “long-arm statutes” which would allow a federal and state court within a state to reach outside of the state and serve certain defendants, who would then have to come back into the state to stand before that state’s federal or state courts. –At first, these laws were held to be unconstitutional as a violation of due process in the 5 th and 14 th amendments because the defendant was not present in the state or caught passing through the state where the court was sitting

14. (c) West Legal Studies in Business A Division of Thomson Learning 14 1945 International Shoe Co. v. Washington Supreme Court held that “long arm statutes were constitutional if the out-of- state defendant had enough “contacts” with the forum state to justify the state reaching outside its borders and bringing the defendant into its courts If the defendant had “availed” himself or herself of the benefits of the state, the state could make him or her come back.

15. (c) West Legal Studies in Business A Division of Thomson Learning 15 Long-Arm Statutes were Constitutional If the out-of-state defendant had enough contacts with the forum state to satisfy the state’s long-arm statute, AND –if it was “fair” under the U.S. Constitution Then the courts in the forum state could demand that the out-of-state person submit to its jurisdiction, even though the defendant may never have physically been in the state!

16. (c) West Legal Studies in Business A Division of Thomson Learning 16 A two prong test for a state’s long-arm statute to be constitutional –defendant must fulfill the requirements of that state’s long-arm statute (have “minimum contacts” with the forum state), and –Allowing the defendant to be sued in the state must not offend the U.S. Constitution’s due process clause“traditional notions of fair play and substantial justice” International Shoe’s analysis

17. (c) West Legal Studies in Business A Division of Thomson Learning 17 These minimum contacts can be either: General or Specific But either way, the defendant must have “availed himself of the privileges available in the forum state.”

18. (c) West Legal Studies in Business A Division of Thomson Learning 18 General jurisdiction: Defendant’s contacts with the state are substantial and continuous and systematic but may not be related to the underlying cause of action –The suit may be about something else not related to the defendant’s substantial and continuous contacts with the state. California defendant owns property (warehouse, land, building) within Louisiana, and thereby uses the state’s fire department, police department and other privileges and the suit arises out of an endeavor of the defendant that has nothing to do with the warehouse, land, or building. Or defendant derives substantial revenue from the state residents from some other endeavor than the endeavor associated with the cause of action

19. (c) West Legal Studies in Business A Division of Thomson Learning 19 Specific jurisdiction: Defendant’s contacts contacts may be sporadic or isolated, but they do relate to the underlying cause of action - the cause of actions arises out of those sporadic contacts –The suit must be about something related to the defendant’s contact with the state California defendant has no continuous contacts with the state, but has phoned a Louisiana resident and sold a crane ($250,000) to the Louisiana resident and the suit is about this crane.

20. (c) West Legal Studies in Business A Division of Thomson Learning 20 Using Interstate Commerce is Not Enough Simply using interstate commerce may not be enough contact, the defendant must direct his action toward the forum state.

21. (c) West Legal Studies in Business A Division of Thomson Learning 21 Motion to Dismiss for Lack of Personal Jurisdiction When sued under the long-arm statute, the defendant will usually make a motion to dismiss for lack of personal jurisdiction There will be a hearing on this matter to determine if the court has personal jurisdiction over the defendant

22. (c) West Legal Studies in Business A Division of Thomson Learning 22 States’ Long-Arm Statutes List Their “Minimum Contacts.” Doing business in the state Committing a tort within the state Owning property within the state Having a child who is living in the state

23. (c) West Legal Studies in Business A Division of Thomson Learning 23 Some States Do Not List Their “Minimum Contacts” They have just said that whatever contact is needed to satisfy the Due Process clause of the U.S. Constitution is what they require – in other words, whatever is “fair.”

24. (c) West Legal Studies in Business A Division of Thomson Learning 24 After Minimum Contacts Found, Ask “Is it Fair?” Do this by looking at the interests of the forum state, and how hard it is for the defendant to come to the state, in order to see if it is reasonable to ask the defendant to come there.

25. (c) West Legal Studies in Business A Division of Thomson Learning 25 “Fairness” in Personal Jurisdiction has changed “Increasing nationalization of commerce” and modern “transportation and communication” has made it easier for people to travel across state lines Therefore, the requirements of the due process clauses in the 5 th and 14 th amendments have been relaxed.

26. (c) West Legal Studies in Business A Division of Thomson Learning 26 Especially with the birth and growth of the Internet A user of the internet may communicate or do business with others in a remote location without any of the traditional physical acts that were necessary before –Example: selling computer software on- line, with no people and no paper

27. (c) West Legal Studies in Business A Division of Thomson Learning 27 Personal Jurisdiction in the Online Environment Question: Does having a website - or having a website and communicating with people in a state over the website - establish minimum contacts and fairness and thereby satisfy due process? Communication by wire or fax, by its nature, is intentional – a person has to intentionally send a wire or fax or telephone call The owner of an Internet site is not in control of who accesses the site or how wide the distribution of information will be

28. (c) West Legal Studies in Business A Division of Thomson Learning 28 Websites are used to: give information advertise interact with visitors: 800 numbers, fax numbers, e-mail actually execute commercial transactions sellers of info and software are using internet to deliver their goods

29. (c) West Legal Studies in Business A Division of Thomson Learning 29 Courts had to decide if they had jurisdiction For a while, there was confusion in the courts as to whether having a website made the website owner “purposefully avail himself of the privileges available in the forum state.” Courts began to come to a consensus very early on because there were so many cases Trademark Infringement cases Tort of Defamation cases Consumer Protection Cases Breach of Contract cases

30. (c) West Legal Studies in Business A Division of Thomson Learning 30 Offline Case: Calder v. Jones Jurisdiction found where defendant knew its defamation of Shirley Jones in a newspaper printed in Florida “would have its effect” in California where Shirley Jones lived

31. (c) West Legal Studies in Business A Division of Thomson Learning 31 Online Case: Digital Equipment Corp. v. AltaVista Technology, Inc. The defendant contracted with digital not to use the AltaVista trademark and then used it. The court said the defendant should have anticipated being haled into a Mass. court because the defendant “knows that Digital is located here” = and they knew their actions would “have an effect” in Massachusetts The purposeful availment prong was met

32. (c) West Legal Studies in Business A Division of Thomson Learning 32 “Had Effects” Test for Jurisdiction “Effects test” also followed in Panavision International, L.P. v. Toeppen (C.D. Cal. 1996) – Toeppen “expressly aimed his conduct at California” because he allegedly had registered the domain name knowing that it belonged to Panavision and with the intent to interfere with Panavision’s business in California – Pavlovich v. the Superior Court of Santa Clara County and DVD Copy control Assn. Inc.

33. (c) West Legal Studies in Business A Division of Thomson Learning 33 The vast majority of internet cases involve specific jurisdiction CompuServ Inc. v. Patterson (Sixth Circuit 1996) –Patterson, resident of Texas, transacting business under the business name “FlashPoint Development, subscribed to the internet service provider (ISP CompuServe) and placed items of shareware on the CompuServ’s Ohio-based system for others to use and purchase. –He had purposefully availed himself of doing business in Ohio.

34. (c) West Legal Studies in Business A Division of Thomson Learning 34 Another specific jurisdiction case Verizon Online Services, Inc. v. Ralsky (E.D. Va. 2002)

35. (c) West Legal Studies in Business A Division of Thomson Learning 35 “Sliding Scale” Test for Jurisdiction Measure the amount of commercial activity that an entity conducts over the Internet? Zippo Manuf. Co. v. Zippo dot com –Plaintiff Zippo, manufacturer of lighters in Pennsylvania, sued Zippo Internet news service for trademark infringement based on defendant’s use of the domain name “zippo.com.” –Defendant had enough online interactivity and commercial nature in its exchange of information

36. (c) West Legal Studies in Business A Division of Thomson Learning 36 Sliding scale looks like this: –At one end: Defendant has simply posted information which is accessible to users everywhere Bensusan Restaurant Corp., v. King: only advertised –In the middle: interactive websites where a user can exchange info with the host computer - look to level of interaction and commercial nature of the exchange of information –At the other end: Defendant clearly does business such as entering into contracts Compuserve, Inc. v. Patterson : knowing and repeated transmission of computer files

37. (c) West Legal Studies in Business A Division of Thomson Learning 37 Forum Selection and Choice of Law Clause Supreme Court in The Bremen v. Zapata Off Shore Co., (1972) said these clauses are enforceable if they are –“Freely negotiated” and not “unreasonably unjust” Am. Online, Inc. V. Superior Court (Mendoza) (4 th Cir. 2001)

38. (c) West Legal Studies in Business A Division of Thomson Learning 38 International Jurisdiction in Cyberspace Not certain Some principles of national enforcement: –Territoriality principle –Nationality principle –Effects principle Yahoo!, Inc. v. La. Ligue Contre Le Racisme et L’Antisemitisme

39. (c) West Legal Studies in Business A Division of Thomson Learning 39 Limit offer to specific state where you wouldn’t mind being sued Incorporate one’s Internet business separately from the rest of the business operation - as a selling agent or licensee of the operating business Be aware of your potential for being haled into court anywhere –soliciting insurance by mail, –transmitting radio broadcasts into a state, –sending magazine or newspapers into a state to be sold by independent contractors Preventive Measures