Editor’s Note: The Campbell Law Observer has partnered with Judge Paul C. Ridgeway, Resident Superior Court Judge of the 10th Judicial District, to provide students from his International Business Litigation and Arbitration seminar the opportunity to have their research papers published with the CLO. The following article is one of many guest contributions from Campbell Law students to be published in the Spring 2016 semester.
BY: Elijah VanKuren, Guest Contributor
We live in a technological world where essentially everything can be done online. The increase in Internet usage has truncated our once vast world of commerce and the exchange of ideas to the swipe and click of a mouse. Consumers and readers have benefitted by gaining access to goods and information with the convenience and privacy of home shopping while companies are able to increase brand recognition and reach a greater consumer base leading to more revenue.
But where do the territorial limits of personal jurisdiction begin and where do they end in the instance of a lawsuit? At what point does a party purposefully avail itself to a particular forum in which they have no physical presence or intentional contact?
United States court decisions have provided guidance in answering these and other questions that arise out of lawsuits based on Internet activity. However, these answers have been all but consistent. These inconsistent answers to questions arising out of Internet activity are largely in part to varying approaches of lower courts in analyzing personal jurisdiction.
The Traditional Approach
Most courts follow the tradition three-pronged test when determining whether they have personal jurisdiction over a particular defendant: (1) the defendant must have sufficient minimum contacts; (2) the claim asserted against the defendant must arise out of those contacts; and (3) the exercise of jurisdiction must be reasonable. Courts also consistently have held that either specific or general personal jurisdiction is necessary. Specific jurisdiction allows a forum to entertain actions arising out of or relating to the limited contacts that the defendant may have had within forum. Distinguishably, general jurisdiction is a real or constructive presence through nationality, residence, incorporation, or through a pattern of ongoing and continuous activities in the form, such as maintaining an office or representative or advertising in the forum.
While courts are relatively consistent in their analysis of the second and third prongs, courts diverge in the application of the first prong involving the defendant’s minimum contacts. While some courts analyze minimum contacts under the Calder effects test, others apply the Zippo sliding scale test.
The Calder Effects Test
The Calder effects test focuses on harm caused by the defendant. In order for a defendant to be subject to personal jurisdiction under Calder, a defendant must (1) commit an intentional act (2) that is expressly aimed at the forum state and (3) causes actual harm that the defendant knows is likely to be suffered in the forum state.
Personal jurisdiction in Calder turned on whether the distribution of an article libeling actress Shirley Jones was sufficient to hail the defendant, The National Enquirer, into a California court. Here, the court found that personal jurisdiction was proper. In making this determination, the Court focused on the fact that the article concerned the California activities of Jones and drew upon California sources, the article caused harm because it challenged Jones’ professionalism in the forum where her career was centered, and that The National Enquirer knew that the libelous article would have a devastating impact on Jones because the magazine’s largest circulation was in California.
The Zippo “Sliding Scale” Test
By 1997, thirteen years after the Calder decision, the Internet had become a pervasive aspect of American culture. The Internet’s broad reach and ability to cross borders created even more difficulty for courts determining personal jurisdiction. The need for a new test that fit with the increase in Internet activity and commerce became apparent to courts.
The resulting test stemmed from an action for alleged trademark infringement brought by ZIPPO lighters in Pennsylvania against Zippo Dot Com, Inc. (“Dot Com”), an online computer news service using the names zippo.com, zippo.net, and zipponews.com. Dot Com, a California corporation, moved to dismiss on the basis that personal jurisdiction was lacking in Pennsylvania, as only two percent of the news service’s subscribers were Pennsylvania residents.
Noting the long-standing principle that a defendant cannot avoid jurisdiction merely because he never physically entered the forum, the court prudently evaluated the due process concerns associated with such a defendant. The court resolved that personal jurisdiction is directly proportionate to the nature and quality of a defendant’s online commercial activity. As all websites are inherently different in purpose and approach, the Zippo sliding scale was born and for quite some time remained the dominant test for Internet jurisdiction.
On one end of the scale are active websites in which personal jurisdiction is proper because the defendant clearly does business over the Internet (e.g., entering into contracts with the forum state). At the other end of the scale are passive websites where the defendant simply posts information that is accessible in the forum state. For these sites, personal jurisdiction is not proper. In the middle of the sliding scale are interactive sites through which users can exchange information. The commercial nature of the exchange on these interactive sites must be examined carefully when determining if there are minimum contacts.
The court found in Zippo that the news service’s sites fell on the “active websites” end of the sliding scale. The court held that the website was actively doing business in the forum state because nearly 3,000 Pennsylvania residents applied for subscriptions, executed contracts, and received electronically transmitted news services in Pennsylvania. Thus, personal jurisdiction was proper.
A Return to Calder
The Zippo sliding scale test quickly became the dominant test for Internet personal jurisdiction. However, thirteen years after Zippo was decided, Calder began to re-surface within the federal district courts. One notable example of Calder resurfacing came in 2010 when the Seventh Circuit decided UBid, Inc. v. GoDaddy. Applying the Calder effects test, the court reversed the Northern District of Illinois’ determination that the lower court lacked personal jurisdiction.
UBid, Inc., an Illinois corporation, brought a suit against GoDaddy, an Arizona corporation, under the Anticybersquatting Consumer Protection Act against domain name registration and web hosting. UBid, Inc. alleged that GoDaddy allowed its customers to register domain names confusingly similar to UBid’s. Applying the Calder effects test, the district court found that GoDaddy’s contacts with Illinois were minimal largely because they only had two domain names registered in Illinois. Furthermore, because those contacts were created unilaterally at the Illinois residents’ initiative, GoDaddy did not expressly aim its conduct at Illinois, nor did it know harm would be suffered in Illinois.
The Seventh Circuit saw things a bit differently. Rather than focusing on the fact that GoDaddy only had two domain names in Illinois, the Seventh Circuit noted that GoDaddy had engaged in extensive marketing in Illinois through television commercials, including six consecutive years of Super Bowl Ads that yielded hundreds of thousands of customers. The Seventh Circuit was also unconvinced that GoDaddy merely sat by idly as customers “unilaterally” created and registered domain-names as the service was created to operate this way. Putting these two together, the court was unable to reconcile how GoDaddy could point to hundreds of thousands of customers in Illinois and simultaneously assert that their sales were all at the behest of the user. Thus, the Seventh Circuit reversed the district court and found that personal jurisdiction existed under the Calder effects test because GoDaddy has intentionally conducted business in the forum, resulting the UBid’s harm.
In 2014, the Court found it was lacking personal jurisdiction over the defendant in Daimler AG v. Bauman. In Daimler, twenty-two Argentinian residents filed a complaint against DaimlerChrysler Aktiengesellschaft, a German corporation, in the Northern District of California. The plaintiffs’ basis for personal jurisdiction over Daimler rested in their California contacts with a Daimler subsidiary. After the Supreme Court granted certiorari, the Court was unable to find that the lower court has general jurisdiction over the defendant, reiterating that a corporation’s contacts with the forum state must be “so ‘continuous and systematic’ as to render it essentially at home.”
Two months after the Daimler decision, the Court redefined the Calder effects test, shifting the focus from the plaintiff’s relation to the forum to an emphasis on the defendant’s intended contact with the forum. In Walden v. Fiore, an Atlanta DEA agent seized a large amount of cash from two professional gamblers, both citizens of Nevada. The gamblers filed suit against Walden in the United States District Court of Nevada, with Walden subsequently moving to quash, arguing that the court lacked personal jurisdiction. The district court granted the motion and dismissed the complaint. The Ninth Circuit reversed, and The Supreme Court granted certiorari. The Court unanimously agreed that the district court could not exercise personal jurisdiction over Walden because “a plaintiff’s contacts with the forum State cannot be ‘decisive in determining whether defendants’ due process rights are violated.” As noted above, the primary basis for finding personal jurisdiction in Calder was the injury to the plaintiff. While Calder has not been reversed, it is likely that if Calder were decided today, the Court would have focused more of the defendant’s specific actions relative to the forum as opposed to the plaintiff’s relation to the forum.
Earlier this year, a California court of appeals reviewed a ruling on personal jurisdiction in Burdick v. Superior Court. The court determined that the California district court could not assert personal jurisdiction over an Illinois citizen, Burdick, for several Facebook postings allegedly defaming two California scientists. The scientists had published several articles relaying their skepticism of some of the products manufactured of Burdick’s company. In response, Burdick proceeded to post several postings on Facebook, referring the scientists as “[b]logging scorpion, liar, terrorist, pretender, amateur, wanna-be, con-artist.” There were additional posts alleging that one of the scientists lost his medical license and had been charged with domestic violence.
After the district court denied Burdick’s motion to quash, the appeals court reviewed the motion under Walden. Applying Walden, the court held that Burdick’s knowledge that the harm from his post would likely be principally felt in California was insufficient. The court found that evidence was lacking that the defendant “expressly aimed or intentionally targeted his or her intentional conduct at the forum state.” The court remanded for further findings regarding the defendant’s intentional conduct towards the forum.
The trouble here is determining what exactly “express aiming” is. The Burdick court sought evidence that either “the Facebook page or the posting had a California audience, that any significant number of Facebook ‘friends’, who might see the posting, lived in California”; or that the Facebook page had advertisements targeting Californians.”
The larger issue here is finding the actual act(s) that can demonstrate this express aiming. Using websites that utilize targeted ads based on search history creates difficulties, as the advertisements are different for each viewer and dependent on the user/administrator of the page. Additionally, it is difficult to determine whether a particular user is aware of any Facebook ‘friends’ that may or may not view an individual posting, especially if the user does not have any restrictive privacy settings. In that scenario, anyone who has a Facebook account can view the postings.
While the courts’ recent invocations of the Calder seem to indicate a weakening use for the Zippo sliding scale test, the Court did note in Walden that “this case does not present the very different questions whether and how a defendant’s virtual ‘presence’ and conduct translate into ‘contacts’ with a particular state,” leaving room for Zippo under a different fact pattern.
It appears that the both tests are equally powerful but are more practically applied in different types of actions. While the Zippo analysis may be useful in Internet commerce suits, its practical application practical does not seem to fit with Internet defamation cases. Conversely, the Court seems to be indicating the Calder analysis is more effective and applicable in Internet defamation cases as long as that relationship arises out of contacts that the “defendant himself” creates with the forum.”
While it useful to understand where courts are headed in their analysis of personal jurisdiction, there are still outstanding issues in Internet subject matter jurisdiction. Issues arise because the Internet is cross-border communication medium with no single governing authority. Different countries have different views on Internet control, largely due to cultural and societal differences and concerns. Legal uncertainty can adversely affect either side of a dispute. Such effects include wasting resources facing international legal disputes in a forum that is later determined to lack subject matter jurisdiction, as well the challenge of defending against claims that are legal in the defendant’s country.
Elijah VanKuren is a current 3L student at Campbell Law School. He can be reached at ejvankuren0529