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Attorneys weigh online jurisdiction

Under an emerging body of law, jurisdictional defenses may be eroding for companies with Internet sites that are sued in states where they don't operate.

    When the single-employee consulting firm Clue Computing got dragged into a legal battle with multibillion-dollar gamemaker Hasbro over use of the domain name "clue.com," the Colorado start-up argued that Hasbro lacked legal standing to bring the suit in its home state of Massachusetts, thousands of miles away.

    Nevertheless, the argument was thrown out by a federal judge in Boston. He held that Clue Computing's Web site advertised the company's services to Massachusetts residents, constituting grounds to be sued in that state.

    Under an emerging body of law, such jurisdictional defenses--among the oldest in the books--may be eroding for companies with sites on the Internet. The consequences of the ruling, and a dozen or so like it, could be dramatic.

    Jurisdictional defenses--which have their roots in the Constitution's due process protections, as well as in "long-arm" statutes penned by each state--help insure companies against the exorbitant expense of being hauled into foreign territories every time a competitor there has a legal gripe.

    Essentially, the plaintiff is required to show that the defendant has some connection to the state that is hearing the case. Without showing such evidence, the court is said to lack jurisdiction and the case is dismissed outright.

    The Hasbro decision is one of three released since August holding that a company's Internet presence is sufficient contact with an outside state to land it in court there. Another three decisions released during the same period, though, swing the other way, demonstrating that the rule is not cast in stone. (A number of the decisions are available at the Bureau of National Affairs' document library.)

    Attorneys specializing in Internet law say the mixed results are partly due to idiosyncrasies in the particular cases, but they note that the lack of precedent-setting rulings from appellate courts give judges wide latitude when deciding jurisdictional issues in cases involving the Net. Even so, legal experts say, companies with Web sites should take heed.

    "At this point, there is a significant risk every time you put up a Web page that you could be sued anywhere in the world," said Mark Lemley, an associate professor specializing in Internet issues at the University of Texas School of Law. "There are enough courts that now take that position that I don't think that fear can be discounted."

    Despite the widely diverging views on Internet jurisdiction, some Internet attorneys say courts are beginning to make distinctions among different types of Web sites that can have a profound effect on whether it will land its owner in court halfway across the world.

    "The trend in the court decisions is to find jurisdiction where the Web site is more interactive, where it actively seeks to encourage viewers to interact with the site, or [where it] indicates a willingness to reach out to the viewers in some way," said James Jordan, a lawyer at Alston & Bird in Atlanta.

    Jordan distinguishes Web sites such as the one owned by Clue Computing, which advertise a service and invite users to call a phone number or email the company, with those that are more passive in nature. An example of passive sites, added Jordan, are those that merely provide information.

    Jordan pointed to a recent decision involving two competing jazz clubs both named The Blue Note. As recently reported, a federal appeals court last month upheld a lower court decision throwing out the case, in which the Manhattan club claimed that the Web page of its Missouri counterpart committed trademark infringement. The ruling held that The Blue Note Cyberspot merely provided information to New Yorkers about the Missouri club and therefore the case could not be heard in that state.

    "Passive Web sites are less likely to create jurisdictional contact than active sites," said Jordan.

    Not all attorneys subscribe to the distinction between interactive and passive sites, however. As the Hasbro case and about a half-dozen others make clear, the mere advertising of a good or service on the Net may be enough to require a business to answer to courts anywhere in the world.

    "There is no magic bullet solution that I can tell a client [to] keep them out of the courts," said Eric Schlachter, an attorney at Cooley Godward in Palo Alto, California. Schlachter did add that a Web site has a better chance of constituting a contact with a foreign territory if it is directly related to the injury the plaintiff is complaining about in the suit.

    Schlachter supports his belief on another recent decision that involved a New Jersey resident's suit against an Italian hotel chain over an accident she had while a guest abroad. She had argued that the company's Web page was sufficient grounds for a New Jersey court to hear the case. The judge disagreed, saying the Internet site was incidental.

    Internet attorneys stress that courts differ widely on the question of jurisdiction and add that online jurisdiction case law is likely to remain in flux for some time. Of the two dozen or so opinions covering Internet jurisdiction, only the Blue Note ruling has come from an appellate court.

    If the controversy continues, the University of Texas's Lemley said, "this is an issue that conceivably could wind up in the Supreme Court."