The decision, issued yesterday by a panel from the California Court of Appeal for the Second District, is one of only a handful so far to rule on the thorny issue of Internet jurisdiction.
The ruling could affect companies anywhere in the world that have a presence on the Internet, because it provides further guidance as to when they can be sued in California or elsewhere. The possibility that a company in Maine could be dragged into a court thousands of miles away was a worry early on for companies doing business on the Internet, but it generally has not materialized.
The decision stems from a defamation lawsuit filed against the Jewish Defense Organization (JDO), which in 1997 claimed on its Web site that the plaintiff, Steven Rambam, "secretly admires the Nazis and hates Jews" and "is a dangerous psychopath who tried to kill his mother."
Rambam sued the New York City-based organization and its founder, Mordechai Levy, in state court in Los Angeles. He argued that their contracts with GeoCities and Xoom.com--two Web hosters located in California--gave courts in the state jurisdiction over the matter.
But the three-judge appellate panel unanimously disagreed, saying the use of the California companies did not satisfy the conditions required to give California courts "specific jurisdiction" over the nonresident defendants.
"Defendants' conduct of contracting, via computer, with Internet service providers, which may be California corporations or which may maintain offices or databases in California, is insufficient to constitute 'purposeful availment,'" which is one of the requirements, presiding justice Mildred Lillie wrote. She was joined by justices Earl Johnson and Fred Woods.
The decision overturns a lower-court ruling in January holding that the JDO's contracting of GeoCities and Xoom.com established sufficient contacts in California for the suit to go forward.
Eric Goldman, an attorney at Cooley Godward representing companies doing business on the Net, said the panel appeared to strike the right balance.
"I'd generally agree with the proposition that posting information on a server should not create jurisdiction where the server was located," Goldman said. "One would think that as a user we don't care where the server is located, so it would be stunning if we could get hauled into court wherever we used a server."
Yesterday's decision also continues a trend of companies being dismissed from suits merely for having a Web site that reaches into a court's territory. Instead, Web sites generally must do more, such as solicit business in the particular region or establish significant business relationships.
The U.S. Court of Appeals for the Ninth Circuit in December 1997, for example, said it would violate a Florida company's due process guarantees for it to be sued in Arizona solely because its Web site was available there.