Personal Jurisdiction on the Internet

The “Targeting” Analysis Continued

Toys “R” Us, Inc. v. Step Two, S.A., 318 F.3d 446 (3d Cir. 2003)

The Toys R Us case stems from competing uses of an Internet domain name containing the word "imaginarium." Both Toys R Us, a New Jersey corporation, and Step Two, a Spanish corporation, own and operate stores with the registered trade name "Imaginarium." Toys R Us' brand is registered in the United States, while Step Two's brand is registered in Spain and throughout Europe. Both brands sell educational toys and games, and both Toys R Us and Step Two registered and operate websites to promote and sell merchandise sold at their respective "Imaginarium" stores.

In 1995, Imaginarium Toy Centers, Inc., registered the domain name "imaginarium.com" and launched a website to promote and sell toys and games available at its Imaginarium toy stores located throughout the United States. Toys R Us acquired Imaginarium and its websites in 1999. In 1996, Step Two registered the domain name "imaginarium.es" and, later, registered two additional domain names - - "imanginariumworld.com" and "imaginariumnet.net." All three websites advertise and sell toys and games available at Step Two's "Imaginarium" stores located throughout Europe.

Step Two does not operate any stores, maintain any offices or bank accounts, or have any employees anywhere in the United States, nor does it pay taxes to the United States or to any state in the United States. While it seems Step Two has no minimum contacts with the U.S., any New Jersey citizen with a computer can access Step Two's "imaginarium" websites and order Step Two products. The websites, however, provide a contact phone number within Spain that lacks the country code that a user overseas would need to dial, and the website is entirely in Spanish. Moreover, the prices are in Spanish pesetas and euros, and goods ordered from those sites can be shipped only within Spain.

To emphasize the potential for minimum contacts, Toys R Us, on two occasions, purchased toys from the Step Two Imaginarium website, utilizing the Spanish addresses of two Toys R Us New Jersey-based employees. The toys were shipped to the Spanish addresses and then forwarded to the United States. Step Two confirmed the purchases in e-mails to New Jersey and allowed Toys R Us employees, based in New Jersey, to sign up online for Step Two's newsletter.

Toys R Us thereafter sued Step Two in the United States District Court for the District of New Jersey in February 2001, alleging trademark infringement, unfair competition, misuse of the trademark notice symbol and unlawful "cybersquatting." Toys R Us argued that the facts support its claim that Step Two was conducting sufficient business in New Jersey to justify compelling Step Two to appear in the district court there. At a minimum, Toys R Us argued, it should be allowed to conduct limited jurisdictional discovery to determine exactly how "purposefully" Step Two availed itself of doing business in New Jersey. The district court denied Toys R Us' motion that it be permitted to conduct limited jurisdictional discovery and simultaneously granted Step Two's motion to dismiss for lack of personal jurisdiction. Toys R Us appealed to the Third Circuit.

The Third Circuit summarized the issue as follows: "The precise question raised by this case is whether the operation of a commercially interactive web site accessible in the forum state is sufficient to support specific personal jurisdiction, or whether there must be additional evidence that the defendant has 'purposefully availed' itself of the privilege of engaging in activity in that state." The court specifically mentioned serial business trips to the forum state, telephone and fax communications directed to the forum state, purchase contracts with forum state residents, contracts that apply the law of the forum state, and advertisements in local newspapers, as examples of activities that may form part of the "something more" needed to establish personal jurisdiction.

Confirming the limits of Internet-jurisdiction, the Third Circuit noted that "the mere operation of a commercially interactive web site should not subject the operator to jurisdiction anywhere in the world. Rather, there must be evidence that the defendant 'purposefully availed' itself of conducting activity in the forum state, by directly targeting its web site to the state, knowingly interacting with residents of the forum state via its web site, or through sufficient other related contacts." Applying its conclusions to the Toys R Us case, the Third Circuit determined that, based on the facts, Toys R Us was unable to establish jurisdiction over Step Two.

However, the Third Circuit held that Toys R Us should have been given the opportunity to conduct limited jurisdiction discovery to determine the "nature and quality" of Step Two's contact with the forum jurisdiction. The court noted that "any information regarding Step Two's intent vis-à-vis its Internet business and regarding other related contacts is known by Step Two, and can be learned by Toys only through discovery." The court concluded that "[t]he District Court's denial of jurisdictional discovery is thus a critical issue, insofar as it may have prevented Toys from obtaining the information needed to establish personal jurisdiction."

The court concluded in stating, “the two documented sales to residents of New Jersey -- and the subsequent e-mails sent from Step Two to the two purchasers -- also speak 'with reasonable particularity' to the possible existence of contacts needed to support jurisdiction. Although affiliates of Toys orchestrated the two sales, the facts raise the possibility that additional sales to U.S. residents may have been conducted via the web sites.” Thus, the court found that Toys R Us' request for jurisdictional discovery was specific, non-frivolous, and a logical follow-up based on the information known to Toys R Us. For that reason, the Third Circuit reversed the District Court's denial of Toys R Us' motion to conduct jurisdictional discovery and remanded the case back to the District Court for that purpose.

Notes:

- The 3^rd Circuit enhances the personal jurisdiction standard, considering the defendants "non-Internet" activities as well as its Internet activities, even where the claims arise solely from Internet activities.

- The Circuit also moves the purposeful availment requirement from traditional business to Internet claims.

- The targeting approach generally has become the favorite analysis of circuit courts and other organizations including the Securities and Exchange Committee, the ABA Internet Jurisdiction Project, and the Hague Conference on Private International Law’s Draft Convention on Jurisdiction and Foreign Judgments.

“Decidedly Local” Websites

Young v. New Haven Advocate, 315 F.3d 256 (2002)

Stanley Young, a Virginia warden, sued The New Haven Advocate, the Hartford Courant, two of their editors and reporters for libel in his home state after alleging that they posted articles on the newspapers' website implying that he is a racist who encourages abuse of inmates by prison guards. The newspaper defendants filed motions to dismiss the complaint under FRCP 12(b)(2), claiming lack of personal jurisdiction in the Western District of VA. The Advocate was a free newspaper that was published once a week in New Haven, CT. Its distribution is limited to the immediate area, and some of its content is published on the web.

The Advocate has no subscribers in VA, but the Courant had 8 mail subscribers in VA. Neither newspaper solicited subscriptions from VA residents.

The circuit court reversed the district court’s ruling of proper jurisdiction, finding that the newspaper did not intend to target VA readers. Young had argued that the newspapers, knowing that he was a Virginia resident, intentionally discussed and defamed him in their articles, that the newspapers posted the articles on their websites, which were accessible in Virginia, and that the primary effects of the defamatory statements on Young's reputation were felt in Virginia.

The Circuit Court reversed the ruling of proper jurisdiction by the District Court, concluding that the articles were not aimed at a Virginia audience and that the thrust of the newspapers' websites was local (Connecticut). The three-judge panel ruled that an Internet presence, by itself, is not a sufficient basis to subject a newspaper to personal jurisdiction in every forum state where that Internet content is accessible. The court found that the articles in question were clearly aimed at a Connecticut audience. The newspapers did not post materials on the Internet with the intent of targeting Virginia readers.

Notes:

- The Court distinguished these newspapers from the National Enquirer in Calder because the nature of the publication necessarily showed the intent of the authors in Calder to reach residents in the forum state.

- Is this distinction a realistic one – isn’t it the goal of newspapers to reach as large an audience as possible? Does this case allow entities that are geographically regional in a physical sense to hide behind that regionality despite a larger audience on the web?

- What about the fact that the Courant had a definite VA audience, albeit a small one? Is the fact that they did not solicit such business tantamount to non-targeting?

- In a subsequent case, the Fourth Circuit similarly refused to permit jurisdiction in Maryland over a Chicago-based company with a “generally accessible, semi-interactive website” in Carefirst of Maryland v. Carefirst Pregnancy Centers, 334 F.3d 390 (2003). The site was deemed local since it served women and families in the Chicago area.

State Courts Get in the Mix

Pavlovich v. Superior Court, 29 Cal. 4th 262 (Cal. 2002)

In the instant case, Matthew Pavlovich and his company (Livid) posted on an Internet Web site the source code of a computer program that allegedly misappropriated DVD Copy Control Association’s trade secrets. Pavlovich, who was a Texas resident and a prior student in Indiana, had created the program to defeat the copy protection system employed to encrypt and protect the copyrighted motion pictures contained on digital versatile discs (DVD's).

In its complaint, DVD CCA alleged that Pavlovich misappropriated its trade secrets by posting the DeCSS program on his company’s LiVid Web site because the "DeCSS program . . . embodies, uses, and/or is a substantial derivation of confidential proprietary information which DVD CCA licenses . . . ." The complaint sought injunctive relief but did not seek monetary damages. In response, Pavlovich filed a motion to quash service of process, contending that California lacked jurisdiction over his person. DVD CCA opposed, contending that jurisdiction was proper because Pavlovich "misappropriated DVD CCA's trade secrets knowing that such actions would adversely impact an array of substantial California business enterprises--including the motion picture industry, the consumer electronics industry, and the computer industry." In a brief order, the trial court denied Pavlovich's motion, primarily citing the “effects test” of Calder v. Jones.

Pavlovich then petitioned the Court of Appeal for a writ of mandate, which was denied. The CA Supreme Court granted review and transferred the matter back to the Court of Appeal with directions to vacate its denial order and issue an order to show cause. The Court of Appeal then issued a published opinion denying the petition, reasoning that because Pavlovich knew that posting DeCSS on the LiVid Web site would harm the movie and computer industries in California and because "the reach of the Internet is also the reach of the extension of the poster's presence," the court found that he purposefully availed himself of forum benefits under the Calder effects test. The court also concluded that the exercise of jurisdiction over Pavlovich was reasonable.

The CA Supreme Court again granted review and reversed the judgment of the Court of Appeal and remanded for further proceedings. The court held that defendant's contacts with California did not meet the effects test for asserting jurisdiction, which measures the effects of the conduct in California, since the evidence failed to show that defendant expressly aimed his tortious conduct at or intentionally targeted California. Pavlovich never worked in California, and he had no property, bank accounts, or telephone listings there. Neither Pavlovich nor his company solicited or transacted any business in California. The company’s Web site merely posted information and had no interactive features. Defendant's knowledge that his conduct might harm certain industries centered in California, by itself, could not establish purposeful availment under the effects test. Since nothing in the record suggested that defendant encouraged Web site visitors to use the program to illegally use copyrighted motion pictures, his mere awareness that they might do so did not show purposeful availment. In conclusion, the court opined that Pavlovich’s mere foreseeability of injury in CA is not sufficient for jurisdiction.

Notes:

- The decision was purely jurisdictional: As the majority stated, "Pavlovich may still face the music -- just not in California." Still, the ruling is an obvious setback for the DVD industry.

- For the last three years, the industry has been fighting a legal battle to try to block Internet distribution of the DeCSS code. It now may have to sue alleged infringers wherever they reside, and may not be able to seek consolidation of numerous suits even if they raise the same issues.

- Previous to this case, it seemed that the DVD industry would be able to sue any Web publisher in California (after all, websites can be accessed in every state), and force the individual to litigate there.

- The dissenters in this case pointed out that Pavlovich's site was intended to defeat the CSS technology and allow people to decrypt DVDs nationwide -- including in California. To them, then, it was hardly "passive" as was the determination of the majority.

- Dissent points out that that the majority's opinion could allow lawbreakers to hide behind the Internet, knowingly causing harm in a particular state but still escaping being sued there.