Introduction

While companies and individuals around the globe struggle to identify and understand the various regulations and laws that can be brought into play due to the international nature of the Internet, courts are also struggling with new and complex issues of personal jurisdiction raised by Internet activity. When contacts and activities in cyberspace give rise to disputes, it is often difficult to identify the proper venue for the dispute as well as what law will apply. Often, litigants have only a tangential connection to a particular jurisdiction but may find themselves brought into court in a foreign jurisdiction based on a pattern of conduct over the Internet. As global regulations increase, it may become more even difficult to discern which jurisdictions and which laws will apply to any particular situation. Texas courts, as well as courts in other states, are sending mixed signals regarding when Internet contacts are sufficient to confer personal jurisdiction. Due to the complexity and uncertainty of the issues raised, however, a party should carefully consider how to respond to a suit when that party believes personal jurisdiction may be lacking.

Internet Contacts Used to Establish Jurisdiction

Texas courts have struggled with personal jurisdiction issues raised by Internet contacts. Often, this issue arises based on the defendant’s operation of an Internet website, and courts are confronted with the question of whether a website can constitute the purposeful availment of the privilege of acting in a forum state for purposes of establishing personal jurisdiction over a nonresident defendant. Texas courts have been reluctant to premise personal jurisdiction solely on that basis. For instance, the court in Double Eagle Resorts, Inc. v. Mott, 2007 WL 473736 (Tex. App. – Beaumont 2007, n.p.h.) held that “the mere fact that a website permits customers to make reservations does not show continuous and systematic contacts between” the website owner and Texas.

Some Texas courts, as well as other state and federal courts, have fashioned complex tests for determining whether Internet contacts are sufficient to establish personal jurisdiction. A leading case on the issue is Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997), where the court created a sliding scale analysis to be applied when dealing with a defendant’s website. Under this test, where the website is not interactive but instead does little more than make information available to those who are interested in it, there will usually not be personal jurisdiction. But when a user is able to exchange information with the host computer, a court will examine the level of interactivity and the commercial nature of the exchange of information that occurs on the website. A court will then assess whether the website’s interactivity reflects commercial activity demonstrating purposeful targeting of the forum state’s residents or purposeful availment of the benefits and privileges of doing business in the forum state. Texas courts applying the sliding-scale analysis have focused on this portion of the analysis in determining whether a defendant’s web presence provides a basis for exercising personal jurisdiction. See Reiff v. Roy, 115 S.W.3d 700, 706 (Tex. App. -- Dallas 2003, pet. denied) (continuous contacts not demonstrated by hotel website providing directions and allowing customers to make reservations); AmQuip Corp. v. Cloud, 73 S.W.3d 380, 388 (Tex. App. -- Houston [1st Dist.] 2002, no pet.) (internet website is not sufficient, by itself, to support a finding favoring jurisdiction by a Texas court).

The Fifth Circuit has adopted the Zippo framework for assessing whether the defendant’s operation of a website is sufficient to establish minimum contacts with the forum state. See Mink v. AAAA Development LLC, 190 F.3d 333, 336 (5th Cir. 1999). The California Supreme Court has also approved this sliding-scale analysis. In Snowney v. Harrah’s Entertainment, Inc., 29 Cal.Rptr.3d 33 (2005), the court held that Las Vegas hotels purposefully availed themselves of the privilege of doing business in California by quoting room rates to visitors, permitting visitors to make reservations, and by targeting California consumers by touting their hotels’ proximity to California.

The New York Court of Appeals has also taken an expansive view of personal jurisdiction premised on internet contacts, going so far as to hold that out-of-state entities entering into agreements with New York citizens using instant messaging or e-mail can be subject to personal jurisdiction in New York. See Deutsche Bank Securities, Inc. v. Montana Board of Investments, 818 N.Y.S.2d 164 (N.Y. 2006) (out-of-state party that negotiated contract to sell bonds to
New York entity solely using instant messaging could be sued in state court). Despite this broad view of jurisdiction, a New York trial court recently held that a single eBay transaction between a New York buyer and an out-of-state seller did not satisfy
the minimum contacts requirement for personal jurisdiction. See Sayeedi v. Walsher, 2007 WL 623521 (N.Y. City Civ. Ct. 2007).

These various state decisions indicate that it is still not clear what Internet activities are and are not sufficient to establish personal jurisdiction.

Jurisdiction Over Foreign Defendants

These jurisdictional issues become even more complex and potentially hazardous when parties based outside the United States are involved. In these cases, defendants, rather than appearing and challenging jurisdiction, will often ignore a case brought in a foreign jurisdiction in the belief that a judgment would not be enforceable. This approach, however, has become increasingly dangerous as courts have indicated a willingness to exercise jurisdiction over foreign parties based on Internet contacts and activities.

For example, other countries have exercised jurisdiction over foreign defendants in hacking cases. In one highly publicized case, a British company and a Russian company were embroiled in a legal battle with a state-owned company in Tajikistan. When the British company’s computers were hacked, the British company made a claim against the Russian company under Sections 1 and 2 of the British Computer Misuse Act of 1990. See Out-Law News: Russian Hacking Case Can be Heard in England, Says Judge located at www.out-law.com/page-7434. The court rejected the assertion that a British court could not exercise jurisdiction and that the case should have been brought in Russia. Instead, the court concluded that because the server which was hacked was located in the U.K., the most significant elements of the offense occurred there. The court also noted that the principal witnesses were in the U.K. and that there were some technical difficulties that would make a conviction difficult to obtain under Russian law.

When faced with a foreign lawsuit, it is rarely good advice to suggest that a defendant simply ignore the proceedings and allow the plaintiff to receive an award by default in the hope that any resulting judgment might not be enforceable. A recent decision in Illinois highlights the dangers that might arise from presuming that a judgment in a foreign jurisdiction might not be enforceable. Spamhaus, a British company that maintains a spammer blacklist, was sued in Illinois state court by e360 Insight. e360 Insight claimed that after it was listed as a spammer by Spamhaus, it lost several customers and suppliers. Spamhaus believed that the Illinois court did not have jurisdiction over it, claiming that it could only be sued in a British court, and Spamhaus refused to appear or defend itself in the action. See Out-Law News: Spamhaus decides to fight first US court Action located at http://www.out-law.com/page-7404. The Illinois court entered a default judgment in favor of e360 Insight, awarded $11.7 million in damages, and ordered Spamhaus to cease its operations in the United States if it did not pay the award. The court also instructed the Internet Corporation for Assigned Names and Numbers (ICANN), an international organization that oversees the distribution of IP addresses and domain names, to suspend the spamhaus.org domain. While ICANN claimed it did not have the power to suspend the domain, it did advise Spamhaus’ hosting company to do so. While Spamhaus admitted that it normally ignored foreign lawsuits, the attack on its Internet domain definitely got the company’s attention. After its domain was threatened, Spamhaus filed an appeal, which is now pending in Illinois. The Spamhaus situation serves as a reminder that when faced with a foreign lawsuit, instead of ignoring the suit as a matter of course, a better strategy would be to consult with legal counsel in both jurisdictions and formulate an approach that minimizes risks without jeopardizing a party’s legal position.

For international disputes, practitioners should also consider alternative forms of dispute resolution that may avoid a jurisdictional quandary. There are some international trade groups that specialize in assisting companies that need to protect their intellectual property rights. For instance, if a company wants to pursue a claim for cyber-squatting, the company has several choices. The company can attempt to file a lawsuit in a court of competent jurisdiction, which may be in a country foreign to the plaintiff. Or, the company can contact ICANN. ICANN-accredited domain name registrars have all agreed to follow a uniform dispute resolution policy to expedite disputes over domain names.

Conclusion

The state of the law with respect to Internet activities continues to be in flux, as courts attempt to sort out the jurisdictional issues. With courts more and more willing to use Internet activities as a basis for personal jurisdiction, a party should never be entirely confident that it can avoid being haled into court in an unforeseen forum. Given the potential complexities raised by Internet activities, it is particularly important, whether bringing a suit or responding to one, to carefully consider the jurisdictional issues as a critical part of your client’s overall strategy.