ITMM 4405 Legal implications of ECommerce

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ITMM 4405 -- Legal implications of E-Commerce

• Internet Jurisdiction and Venue

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What is Jurisdiction?

• Personal Jurisdiction
• Means that the court has power over the person or
  entity
• Subject Matter Jurisdiction
• Means that the court has authority over the
  subject matter of the case

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What gives jurisdiction its bite?

• The Full Faith and Credit Clause of the U.S.
  Constitution allows a successful Plaintiff to
  take a judgment in one state into a second state
  and execute it against the out-of-state Defendant
• So, even if the Defendant has no assets in the
  state where the suit is brought, the successful
  Plaintiff may attach the Defendants property in
  other states to satisfy the judgment

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So, how does a court gain jurisdiction over a
person or entity?

• Three-part analysis to determine if jurisdiction
  is proper over an out-of-state Defendant
• 1) Does the Long-Arm Statute Authorize
  Jurisdiction?
• 2) Does the Defendant have Minimum Contacts
  with State?
• 3) Is the exercise of jurisdiction over the
  Defendant fair?

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Long-Arm Statutes

• Definition State statutes that define the
  circumstances under which courts located in the
  state can exercise jurisdiction over out-of-state
  Defendants.
• Caveat Long-arm statutes cannot authorize
  assertion of jurisdiction over an out-of-state
  Defendant in a manner that exceeds the boundaries
  of jurisdiction authorized by the U.S.
  Constitution

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Georgia Long-Arm Statute

• Section 9-10-91. Grounds for exercise of personal
  jurisdiction over nonresident
• A court of this state may exercise personal
  jurisdiction over any nonresident or his executor
  or administrator, as to a cause of action arising
  from any of the acts, omissions, ownership, use,
  or possession enumerated in this Code section, in
  the same manner as if he were a resident of the
  state, if in person or through an agent, he
• (1) Transacts any business within this state
• (2) Commits a tortious act or omission within
  this state, except as to a cause of action for
  defamation of character arising from the act
• (3) Commits a tortious injury in this state
  caused by an act or omission outside this state
  if the tort-feasor 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 this state
• (4) Owns, uses, or possesses any real property
  situated within this state or
• (5) With respect to proceedings for alimony,
  child support, or division of property in
  connection with an action for divorce or with
  respect to an independent action for support of
  dependents, maintains a matrimonial domicile in
  this state at the time of the commencement of
  this action or, if the defendant resided in this
  state preceding the commencement of the action,
  whether cohabiting during that time or

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What are minimum contacts?

• Minimum contacts describes the minimal level of
  contact between the forum attempting to assert
  jurisdiction and the Defendant that allows
  jurisdiction to be asserted over the Defendant
  without running afoul of the Constitution (Due
  Process Clause of 14th Amendment).
• For instance, minimum contacts may be found if
  a business has an office in a state, employees
  people there, advertises there, etc.

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How do courts decide if minimum contacts are
present?

• General Jurisdiction v. Specific Jurisdiction
• General Jurisdiction is the easy case When the
  Defendant has engaged in systematic and
  continuous activities within the forum state.
• Jurisdiction can be asserted when systematic and
  continuous activities have taken place even when
  the lawsuit is unrelated to the activities.

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How do courts decide if minimum contacts are
present?

• Specific jurisdiction is the difficult analysis
• Three prong test
• Defendant must have minimum contacts w/ the state
• The claim asserted against the Defendant must
  arise out of the contacts AND
• The exercise of jurisdiction must be reasonable

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How do courts decide if minimum contacts are
present?

• In Internet cases, Courts quantify the minimum
  contacts by examining the level of interactivity
  and the commercial nature of the exchange of
  information that occurs on the Web site at issue.
• Typically, mere advertising not enough to have
  minimum contacts.
• In the Zippo case, the fact that the Defendant
  had 3000 customers in Pennsylvania and had
  contracted w/ 7 ISPs was dispositive.

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How do courts decide if minimum contacts are
present?

• The court in Zippo also found that the claim
  asserted against the Defendant was related to the
  contacts.
• The newsgroup messages containing ews.zippo.com
  were a big part of what the Plaintiff was
  complaining about.

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How do courts decide if minimum contacts are
present?

• Consider when determining whether the exercise of
  jurisdiction is reasonable
• Burden on the Defendant
• States interest in adjudicating the dispute
• Plaintiffs interest in obtaining convenient and
  effective relief
• Judicial systems interest in obtaining a swift
  and economic resolution, etc.

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Venue

• The judicial district in which the case is
  brought.
• Like personal jurisdiction, Venue is governed by
  statute.
• Typically where 1) defendants reside 2) where
  events took place that give rise to the claim
  and 3) where personal jurisdiction is proper (for
  corporate defendants).
• Court in Zippo found that venue proper in Penn.
  Dist. Ct. because personal jurisdiction was
  proper there.

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So, what does this all mean for e-commerce?

• If you do not want your company hailed into court
  in an out-of-state jurisdiction, do not avail
  yourself of that jurisdiction.
• Do not solicit or accept customers in the
  jurisdiction, do not own property there, etc.

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So, what does this all mean for e-commerce?

• Moreover, to avoid getting hailed into court in
  states in which you do avail yourself, include an
  arbitration provision in your contracts,
  terms-of-use, etc.
• The arbitration provision should subject all
  suits to arbitration and include choice of forum
  and law clauses.

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Sample from

• DISPUTES
• Any dispute relating in any way to your visit to
  Amazon.com or to products you purchase through
  Amazon.com shall be submitted to confidential
  arbitration in Seattle, Washington, except that,
  to the extent you have in any manner violated or
  threatened to violate Amazon.com's intellectual
  property rights, Amazon.com may seek injunctive
  or other appropriate relief in any state or
  federal court in the state of Washington, and you
  consent to exclusive jurisdiction and venue in
  such courts. Arbitration under this agreement
  shall be conducted under the rules then
  prevailing of the American Arbitration
  Association. The arbitrator's award shall be
  binding and may be entered as a judgment in any
  court of competent jurisdiction. To the fullest
  extent permitted by applicable law, no
  arbitration under this Agreement shall be joined
  to an arbitration involving any other party
  subject to this Agreement, whether through class
  arbitration proceedings or otherwise.

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Sample from

• APPLICABLE LAW
• By visiting Amazon.com, you agree that the laws
  of the state of Washington, without regard to
  principles of conflict of laws, will govern these
  Conditions of Use and any dispute of any sort
  that might arise between you and Amazon.com or
  its affiliates.

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Taxes

• Web sites typically treated like mail-order
  businesses.
• Therefore, if no physical place of business in a
  state, then no need to pay state taxes.
• Internet Tax Freedom Act extended to November 1,
  2003.
• A big battle is most likely looming in this area.

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Application of U.S. Laws to Extraterritorial
Activity

• Q Cant I just set up an off-shore server and
  run my Internet gambling site/business/whatever?
• A Maybe. Maybe not.

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Application of U.S. Laws to Extraterritorial
Activity

• Courts will look at
• Can personal jurisdiction be exercised (look at
  contacts w/ U.S. not w/ an individual state)
• Does law apply to conduct of a foreign entity?
  (presumption against extraterritorial reach, but
  if substantial impact in U.S. or some illegal
  activity occurring in the U.S., then presumption
  may be overturned)
• International Comity must not be offended (court
  may refuse to apply if application will violate
  the right of the foreign nation to regulate the
  conduct of its own people)

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Application of Foreign Laws to U.S. Companies

• Foreign laws may apply to your e-commerce
  business if you seek and serve customers in those
  countries.
• Consider
• Developing a list of countries in which your
  company is likely to do business or receive
  visitors
• Consider setting up separate web sites for each
  country and having specific terms of
  use/conditions for each reviewed by legal counsel
• Do not like foreign and U.S. sites until U.S.
  activities are reviewed for compliance with
  foreign laws (see Yahoo case)