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Blue Note Web suit loses appeal

The mere establishment of a Web site in one state--without engaging in activities such as Internet commerce--does not expose the host to lawsuits filed in other states, an appeals court rules.

The mere establishment of a Web site in one state--without engaging in activities such as Internet commerce--does not expose the host to lawsuits filed in other states, a New York federal appeals court has ruled.

The ruling follows a separate decision in Minnesota last Friday, which stated that the state's attorney general has legal standing to sue the owner of a Nevada Web site that allows Minnesota residents to gamble online. (See related story)

Attorneys watched the New York case closely because it was the first to test whether the mere presence of Web site in one state is grounds for being sued in another. As demonstrated by the Minnesota ruling, however, the New York decision, handed down yesterday by the U.S. Court of Appeals for the Second Circuit, is not the last word on the matter.

Yesterday's opinion upholds a lower court's ruling, tossing out a trademark lawsuit brought by a popular jazz nightclub in Manhattan called the Blue Note. The establishment objected to a Missouri man's Web site that advertised a separate jazz spot by the same name.

The Internet and electronic commerce subject companies to increased liability for trademark infringement. In the physical world, such liability is often limited by geographical boundaries. Hence, a restaurant called Joe's may exist in many different locations. Because litigation is so expensive, Internet companies have feared that their mere presence on the Web may expose them to lawsuits filed anywhere in the world.

The Blue Note in New York sued the Missouri club of the same name for trademark infringement. But because the Web site didn't engage in "interstate commerce," the case was rightfully dismissed, the appellate court ruled yesterday.

"The acts giving rise to [the plaintiff's] lawsuit--including the authorization and creation of [the defendant's] Web site, the use of the words 'Blue Note' and the Blue Note logo on the site...were performed by persons physically present in Missouri and not in New York," the three-judge panel held. "Even if [plaintiff] suffered injury in New York, that does not establish a tortious act in the state of New York."

Before the decision, "there was uncertainty as to whether people could be sued just about anywhere if they put up a Web site that somebody somewhere else objected to," said Bob Bourque, an attorney at Simpson Thacher & Bartlett, who represented the defendant in the case. "What this opinion does is lay that concern to rest a great deal."

But he and other attorneys were quick to add that it was unlikely it would apply to the vast majority of jurisdictional disputes that arise on the Internet.

The Blue Note Cyberspot merely provides information about the Missouri club and even requires patrons reserving tickets to pick them up in person. Most Web sites peddling wares on the Internet, on the other hand, attempt to bridge geographical boundaries by distributing their goods over the Net, U.S. mail, or other means.

"What our clients are wanting to do is sell over the Internet to anyone," said Eric Schlachter, an attorney at Cooley Godward who counsels Internet companies. He added there was a sharp difference between the Blue Note case and the case involving the online gambling service, known as Wager Net. In that case, the Web site allowed visitors to gamble wherever they happened to be.

"[Wager Net] would have been a lot more like Blue Note if they had said, 'We are advertising our casino. However, you can only gamble if you come to our territory,'" Schlachter said.

Alex Gigante, an in-house attorney with publisher Penguin Putnam, agreed that the ruling would have minimal impact on Internet disputes. "It's one circuit involving one case that had very specific facts, and it doesn't necessarily set a rule in those cases where it can be shown that the defendant's Web site had a more direct impact in the jurisdiction the plaintiff is trying to choose," said Gigante, who writes about Internet law.

At least one attorney specializing in Internet issues called the ruling "very important" because it is one of the only appellate court decisions dealing with Internet jurisdiction.

"We have a whole bunch of lower court opinions [on Net jurisdiction], most of which say that jurisdiction is very widespread, and you can be hauled into court almost anywhere for your activity on the Web," said Dan Burk, a professor at Seton Hall University School of Law. "Some people may try to dismiss it on the facts and say it's very narrow, but the authority of the higher court is going to be very compelling."