Personal jurisdiction and the World-Wide Web: bits (and bytes) of minimum contracts.

• Author: Thatch, David

I. INTRODUCTION

[W]hile modern technology has made nationwide commercial

transactions simpler and more feasible, even for small

businesses, it must broaden correspondingly the permissible

scope of jurisdiction exercisable by the courts.(1)

Massive computer networks will change the world. In the past few years, a large segment of American society has been introduced to the Internet.(2) One part of the Internet, the World Wide Web (the "Web"),(3) will support twenty-seven million users by 1997, according to current estimates.(4) Such a large number of users will likely attract many entrepreneurs who see the Web as an additional forum for future commercial transactions.(5) As the number of transactions on the Web increases and the sales figures rise,(6) the probability of disputes arising from these transactions also increases.

This emerging forum of information and commerce will present American courts with many new legal issues.(7) Much has already been written about which authority has jurisdiction over Internet information and commerce.(8) An area that has been largely untouched, however, and which this article addresses, is the issue of personal jurisdiction involving transactions occurring on the Web.(9) Section II briefly explains the doctrine of personal jurisdiction as it has evolved since 1945, focusing primarily upon "stream of commerce" analysis. Section III describes the unique nature of commercial transactions occurring on the Web and details the inadequacies of the current "stream of commerce" jurisprudence to resolve the specific personal jurisdiction issues created as a result of Web transactions.(10) Finally, Section IV proposes a solution to the problem of how to establish personal jurisdiction over Internet activities, especially those relating to Internet commerce.

II: THE EVOLUTION OF PERSONAL JURISDICTION SINCE INTERNATIONAL SHOE CO. V. WASHINGTON

Historically, United States courts exercised personal jurisdiction over a party to a dispute based upon the physical presence of that person within the forum.(11) As many states began passing long-arm statutes authorizing service of process on out-of-state individuals, however, the United States Supreme Court changed direction. In International Shoe Co. v. Washington,(12) the Supreme Court held that, in order for a state to require an out-of-state defendant to submit to its jurisdiction, the defendant must "have certain minimum contacts with [the state] such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'"(13) Due process, therefore, placed a clear constitutional limitation upon the exercise of personal jurisdiction over nonresident defendants.

Following this mandate by the Supreme Court, the exercise of jurisdiction over an out-of-state defendant requires a two part analysis. The threshold inquiry is whether the forum state's long-arm statute permits the court to hale the defendant into the courts of that jurisdiction.(14) The second inquiry is whether the exercise of personal jurisdiction falls within the limits of due process established in International Shoe. Arguably, there is also a third inquiry: the determination of whether the exercise of personal jurisdiction is reasonable.(15)

The Supreme Court has articulated two approaches for determining whether a defendant has established sufficient contacts for a court to exercise personal jurisdiction: one involving minimum contacts and the other involving significant contacts.(16) Specific jurisdiction occurs where the controversy arises out of a defendant's contacts with the forum.(17) Such jurisdiction requires minimum contacts between the defendant and the forum state.(18) General jurisdiction, on the other hand, occurs when the controversy does not arise out of a defendant's contact with the forum.(19) In such cases, obtaining jurisdiction over the defendant requires more significant contacts between the defendant and the forum state.(20)

Since International Shoe Co. v. Washington,(21) courts have struggled to define the limits of personal jurisdiction(22) under the Due Process Clause.(23) In World-Wide Volkswagen Corp. v. Woodson,(24) the United States Supreme Court introduced "stream of commerce" analysis(25) and offered a second reason for limiting the exercise of personal jurisdiction: state sovereignty.(26) In World-Wide Volkswagen, the Court held that the mere placement of a product into the stream of commerce was not sufficient to establish personal jurisdiction in a state the product happened to arrive in even if its arrival was foreseeable.(27) Instead, the Court required that the defendants purposefully avail themselves of the benefits of the forum state.(28) Thus, at a minimum, a product must be placed into the stream of commerce with the expectation that it will arrive in the forum state.(29)

In Helicopteros Nacionales De Colombia v. Hall,(30) the Supreme Court addressed whether random contacts with the forum state were enough to establish general jurisdiction(31) over a nonresident defendant.(32) The Court held that "mere purchases, even if occurring at regular intervals, are not enough to warrant a State's assertion of in personam jurisdiction over a nonresident corporation in a cause of action not related to those purchase transactions."(33)

In Asahi Metal Indus. Co. v. Superior Court,(34) the Supreme Court once again addressed the boundaries of this stream of commerce theory. Justice O'Connor, writing for a plurality of the Court in Asahi,(35) stated that the placement of a product into the stream of commerce, even with the awareness that the product would reach a particular jurisdiction, is insufficient to establish personal jurisdiction.(36) The O'Connor plurality also articulated several factors to be considered in stream of commerce situations when determining whether a defendant purposefully availed herself of the benefits of the forum state, noting that the:

[C]onduct of the defendant may indicate an intent or purpose to

serve the market in the forum State, for example, designing the

product for the market in the forum State, advertising in the forum

State, establishing channels for providing regular advice to

customers in the forum State, or marketing the product through a

distributor who has agreed to serve as the sales agent in the

forum State.(37)

The Court reiterated that a defendant's awareness that a product will reach a forum state does not constitute an act of purposeful availment.(38) The O'Connor opinion made clear, however, that a defendant must intentionally direct a product into the forum state in order to be subjected to the jurisdiction of the state's courts.(39)

III: THE WEB AND ITS UNIQUE JURISDICTIONAL ISSUES

Transactions occurring on the Web take place in cyberspace.(40) Cyberspace, as a newly emerging forum, has no rules for establishing personal jurisdiction. Because it has no geographical boundaries, the very nature of cyberspace may make personal jurisdiction analysis obsolescent.(41)

The common law jurisdictional rules governing commercial transactions are not readily adaptable to transactions in cyberspace because transactors using the Web are most likely unaware of the geographic location of the parties with which they are dealing.(42) Since cyberspace is unlike any other forum of commerce ever known, transactions occurring on the Web will raise unique issues in the well-settled area of personal jurisdiction.

1. The Rise in Commerce on the Web

   Today, millions of consumers use the Web from their homes.(43) As the number of cyberspace consumers increases, entrepreneurs will find new means of transacting in this unique forum.(44) The possibilities for commercial transactions on the Web are endless. Experts predict rapid growth in electronic banking,(45) consumer products,(46) computer software,(47) electronic advertising,(48) and financial investments due to the rapidly expanding nature of Web transactions.(49)

   This author offers several examples of theoretical commercial transactions involving the Web which will likely create unique problems for courts in the United States. The first example involves a bank ("Bank") and a customer ("Customer"). Customer maintains his account with Bank by computer, using Bank's Web site, and performs all his transactions from his home in State A.(50) Bank is located in the city in which Customer works in State B. Bank negligently maintains Customer's account and a computer thief removes all of Customer's funds.(51) Customer sues under the favorable laws of his own state. Bank has no other contact with State A other than access through the Web. Does a court in State A have personal jurisdiction over Bank?(52)

   The second example two involves a client ("Client") in State A and a computer software company ("Company") in State B.(53) Client finds Company on the Web. Client needs a specific program to store important data and sends Company the specifics. Client pays for the program by credit card over the Web. Company transmits the program over the Web using a communication protocol.(54) Client uses the program and it causes Client to lose thousands of dollars worth of data. Client wants to sue Company in his home state, but Company has no other contacts with State A. Does a court in State A have personal jurisdiction over Company?

   The third and final example involves an electronic mall(55) ("EMall") where a customer ("Customer") can browse through the "stores" and make purchases by credit card. Customer finds the EMall using his computer at home in State A. Customer makes a purchase, which is shipped from State B where both the EMall computer and the shipper are located. Is EMall subject to personal jurisdiction in State A for a claim arising out of the one sale? One thousand sales? Is Customer subject to personal jurisdiction by a court in State B for failure to pay?

   There are simply no analogous transactions to those that occur in...