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Internet Business Can Bring Faraway Suits
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Business New Haven
1/11/1999
By: Arthur G. Schaier
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You just started a computer software company. You cannot afford the overhead of an office, so you start the company out of your home. You set up a Web site to offer your products over the Internet. You choose a clever Web site name, get a toll-free phone number, and design a home page that grabs attention and keeps people coming back. You sit back while the orders roll in.
But there's one unhappy customer in Oregon. She believes your domain name infringes on her trademark. She sues you - in Oregon. Do out-of-state-courts have jurisdiction over you? Can the Oregon court force you to travel there to defend yourself? The answer is: It could.
Traditional Jurisdiction
A state court can “reach out and grab” a nonresident if it believes the person or business has taken advantage of the privileges of doing business in that state. This “purposeful availment” is interpreted to mean that a person has taken deliberate action in the state or has created continuing obligations to the state's residents.
The courts use this as a threshold to be sure that a suit is “substantially just.” They want to be sure that the suit is not based on chance, casual or informal contact with the state's residents.
Cyberspace Jurisdiction
Internet jurisdiction is a new area; so new that courts are still struggling to define the limits of their jurisdiction. However, a pattern has emerged. Jurisdictional decisions to date hinge on two issues:
• How passive or interactive a Web site is;
• And whether this, in conjunction with other marketing activities, constitutes a persistent course of action in the state in question.
The courts will most likely assert jurisdiction if the defendant - whether a business, individual or organization - has repeated contact with residents of that state. The courts probably won't if the defendant merely posts information on the Web. But there's a large gray area in between.
Consider:
• A court in California forced an Ohio company to defend itself there, ruling the defendant had purposefully availed itself toward California. Why? Because it had national advertisements, a toll-free number, a Web page that advertised its products, and $20,000 per year in California sales.
• A court in North Carolina forced an Illinois resident to defend himself there on a trademark-infringement claim. Why? Because the court decided that the number of hits on the defendant's Web site from North Carolina residents should have told him he could be hauled into court.
• A court in Massachusetts forced a California man to defend a charge of trademark infringement there. Why? He advertised cigar humidors with an infringing name to Massachusetts residents via the Internet. The defendant's only Massachusetts contacts were the sale of 12 humidors to a Massachusetts retailer and desire to sell humidors to a Massachusetts pharmacy chain.
Connecticut residents - and businesses - are as vulnerable as any of those discussed above.
Due Caution
What can you do to protect yourself in such a climate? In today's litigious climate, you can be sued for almost anything. So, as with any non-Internet business, you have to be sure your product does what it is supposed to do and does it safely.
Beyond this, keeping an eye on why Internet marketers are being sued and how the courts are deciding these “cybersuits” can give you an indication of what you should guard against. For example, many of the cybersuits to date involve trademark infringement. Through the expanded marketing and sales territory permitted by the Internet, people are continually straying onto other people's “turf.” And the other people often don't like it. BNH
One practice is to have an attorney familiar with the major litigation areas - such as trademark searches and jurisdictional factors in general - consult with you before you create the final version of your Web site and other cyberspace accouterments. The time and expense involved with this pro-active approach will be a welcome alternative to the time, money and business hours lost while defending yourself in a faraway place.
Arthur G. Schaier is an intellectual property attorney with Carmody & Torrance, with offices in New Haven, Waterbury and Southbury.
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