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  ari weisbrot, 6 Feb 2003 @ 11:26am

  
  

  Internet Jurisdiction

  Internet Jurisdiction - The Third Circuit Clarifies the Standard By Which Website Owners Can be Subject to Personal Jurisdiction
  
  Introduction
  
  The explosive growth of the Internet has expanded the reach of business into homes across the world. Every day brings new and innovative uses for the World Wide Web; and each new innovation brings new challenges to lawyers who try to match long-standing legal principles with cutting-edge computer technology. In a case important to anyone doing business over the Internet, the Third Circuit recently grappled with the question of whether a business that operates a website can be sued in any state simply because citizens of that state can access the website.
  
  Anyone with a computer can access virtually any commercial website, no matter where it originates. That Internet access, according to traditional principals of law governing personal jurisdiction, might be sufficient for a plaintiff to compel any company with a website to appear in virtually any court in the United States. Thus, conceivably, Mom & Pop Store, located in Florida, might be hauled into court in Alaska just because an Alaskan plaintiff can access Mom & Pop’s website. The standard for determining personal jurisdiction in a business setting hinges on whether the defendant has "minimal contacts" within the forum state and whether the defendant "purposefully availed" itself of doing business in the forum state. In the context of traditional business, the bright lines of commerce usually make the determination relatively easy. But in the computer age, where Internet usage knows no geographic boundaries, the question becomes murkier. The Third Circuit considered these important issues in Toys R Us v. Step Two, SA, and on January 27, 2003, rendered a decision that combines traditional rules of jurisdiction with the modern realities of the Internet.
  
  Background
  
  The Toys R Us case stems from competing uses of the Internet domain name "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 Internet 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’s Imaginarium stores have the same unique facade and logo as those owned by Toys R Us. The critical difference? 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 U.S. or to any U.S. state. Step Two seemingly has no jurisdictional contacts with New Jersey (or the United States, for that matter).
  
  On the other hand, any New Jersey citizen with a computer can access Step Two’s "imaginarium" websites and order Step Two products. The web sites, however, provide a contact phone number within Spain that lacks the country code that a user overseas would need to dial. Moreover, the prices are in Spanish pesetas and Euros, and goods ordered from those sites can be shipped only within Spain. Step Two's Imaginarium web sites are entirely in Spanish. The facts present a unique jurisdictional problem. Does Step Two’s Internet operations constitute sufficient "minimal contacts" with the State of New Jersey to subject it to the personal jurisdiction of federal or state courts in that state?
  
  Showing some clever initiative, 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. 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 Decision
  
  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 Third Circuit began its analysis by considering the standard of Internet jurisdiction articulated by the Western District Court of Pennsylvania in Zippo Manufacturing Co. v. Zippo Dot Com, Inc. In Zippo, the Court held that cases involving websites should logically be viewed in the same manner as other commercial cases; in other words, where a defendant is clearly doing business through its web site in the forum state, and where the claim relates to or arises out of use of the web site, the Zippo court held that personal jurisdiction exists. In reaching this conclusion, the Zippo court found the exercise of personal jurisdiction to be proper where the commercial web site's interactivity reflected specifically intended interaction with residents of the forum state. The court summarized the pivotal importance of intentionality as follows:
  
  
  When a defendant makes a conscious choice to conduct business with the residents of a forum state, `it has clear notice that it is subject to suit there.' . . . If [the defendant] had not wanted to be amenable to jurisdiction in Pennsylvania, . . . it could have chosen not to sell its services to Pennsylvania residents.
  In applying the Zippo standard to the Toys R Us case, the Third Circuit concluded that "[i]n deciding whether to exercise jurisdiction over a cause of action arising from a defendant's operation of a web site, a court may consider the defendant's related non-Internet activities as part of the ‘purposeful availment’ calculus…That determination should be made on a case-by-case basis by assessing the ‘nature and quality’ of the contacts." 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-a-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."
  
  In fact, the Third Circuit held, "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." The Court concluded 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.
  
  Conclusion
  
  The Third Circuit’s decision in the Toys R Us case is significant because it enhances the standard for determining personal jurisdiction in Internet-based cases. In evaluating a defendant’s contacts with the forum jurisdiction, a court will consider the defendants "non-Internet" activities as well as its Internet activities, even where the claims arise solely from Internet activities. Moreover, the "purposeful availament" standard employed in traditional business cases will also be applied in Internet disputes. In other words, simply operating a website that reaches into a particular state will not necessarily subject a defendant to that state’s jurisdiction. Instead, the defendant must "target its website to the state, knowingly interact with residents of the forum state via its website, or have other sufficient [non-Internet] related contacts." Courts will obviously evaluate jurisdictional claims on a case-by-case basis; however, where there is a specific, non-frivolous and logical basis to assert personal jurisdiction over a defendant, the Third Circuit held that a plaintiff should be granted limited jurisdictional discovery to support its jurisdictional claims. Factors which might establish minimal contacts with a particular jurisdiction include direct Internet sales to the state; references in the website to the forum state; marketing or advertising efforts by the defendants within the jurisdiction; and the level of interaction between the defendant and the state’s residents within the website. The factors are by no means restrictive, and each unique case must be carefully scrutinized to determine the jurisdictional ramifications of particular Internet activities.
  
  We would be happy to discuss your website and/or Internet activities insofar as they relate to potential jurisdictional issues or legal exposure in any Internet-based lawsuit. Please contact Ari Weisbrot, Esq. 973.966.8023.
  
  

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