The new world of the World Wide Web: Internet liability issues.

• Author: Brady, Michael J.

The Internet has created new means of communication and information distribution. Will the old law keep up with the new technology ?

IN THE brave new world of the Internet, the liability and litigation issues fall under these categories:

* jurisdictional,

* intellectual property,

* defamation,

* privacy, and

* legislation.

1. Jurisdictional Issues

   1. Type of Website

      Rules for establishing jurisdiction over defendants in foreign states or countries based on an Internet presence are finally settled to some degree. As the law currently stands, jurisdiction over website hosts depends in large part on the type of site at issue.

      The first significant case to address personal jurisdiction and the Internet was the 1996 case of CompuServe Inc. v. Patterson.(1) Decided by the Sixth Circuit, CompuServe has become the cornerstone of Internet jurisdictional law regarding "active" websites. In that case, the defendant, based in Texas, specifically targeted and solicited business in the purchaser's state, Ohio. The court determined that the defendant's active conduct toward that state was sufficient to create personal jurisdiction. Numerous courts since then have followed this ruling.(2)

      On the opposite end of the spectrum is Bensusan Restaurant Corp. v. King,(3) in which the Second Circuit determined that an entirely passive Missouri-based website, one that merely advertised goods or services, was not sufficient to impose New York personal jurisdiction on the webmaster residing in Missouri. The limitation for "passive" websites has been followed in Blackburn v. Walker Oriental Rug Galleries(4) and SF Hotel Co. v. Energy Investments Inc.(5)

      Between these two extremes lies a range of cases in which the website was neither solely passive nor solely active. Perhaps the site listed a toll-free number, or visitors to the site could input their addresses to receive more information on the products being sold but could not purchase them through the site. In Cybersell Inc. v. Cybersell Inc.,(6) the Ninth Circuit held that a website that allowed visitors to leave names and contact information was not active enough to warrant imposing personal jurisdiction on the site owner. However, in 1998, a year later, the Ninth Circuit found jurisdiction in Panavision International L.P. v. Toeppen,(7) in which the defendant purposefully registered the plaintiff's trademarked name as a domain name, with the alleged intent to extort money from the plaintiff. The court ruled that while the website itself may not have been active, the webmaster's intent in creating the site was designed specifically to cause harm in California and thus personal jurisdiction over him could be found in that state.

      The significance of toll-free telephone numbers posted on websites apparently depends on whether the numbers are given with the intent to solicit business from users in a specific state or whether they are merely informational. In Shapiro v. Santa Fe Gaming Corp.,(8) an Illinois federal district court refused to allow jurisdiction, finding that the mere existence of a toll-free number on an otherwise completely passive website was not sufficient to warrant imposing the long-arm statute. But in Inset Systems v. Instruction Set Inc.,(9) the Connecticut federal district court determined that imposing jurisdiction was appropriate after the defendant company solicited business in Connecticut using the toll-free number posted on its website.

   2. E-mail

      E-mail can be a contributing factor in finding personal jurisdiction over an out-of-state defendant, but it is unlikely that e-mail alone will be enough if it is used merely as a way of contacting the company operating the website. Even in a case in which a majority of the business was conducted via e-mail, the court did not impose jurisdiction.(10) However, if the number of e-mails sent to a party is large, courts may be more willing to impose jurisdiction.

   3. Actual v. Potential Contact

      Some courts have focused on actual usage of the website to determine jurisdiction, while others have only looked at the potential of their residents to access the website. In Maritz v. CyberGold Inc.,(11) a federal district court in Missouri found that jurisdiction was proper because 131 residents of Missouri actually had accessed the site. On the other hand, in Inset Systems, the Connecticut federal district court granted jurisdiction, at least in part, because 10,000 users in Connecticut potentially could access the site.

      Courts also are looking at what combinations of Internet and non-Internet contacts are made. Sometimes an individual's web presence is not sufficient to warrant imposition of long-arm jurisdiction, but when viewed as only one part of that defendant's contact with a state, there might be sufficient reason to apply jurisdiction. In Blumenthal v. Drudge,(12) the federal district court in the District of Columbia found jurisdiction over a California-based defendant in part because he also sent and received e-mail and solicited information from individuals within the court's jurisdiction. In Hall v. LaRonde,(13) a contract was made via e-mail between two parties in different states, California and New York. The California Court of Appeals determined that the minimum contacts required to assert jurisdiction were met, based on the content of the e-mails and the intent of the parties to create a business relationship.

   4. General Jurisdiction

      Specific jurisdiction is not the only long-arm jurisdiction that can be applied to companies or individuals with a web presence. If a company has sufficient contacts with individuals in a state, the court can find general jurisdiction and subject that defendant to suit in a forum on any cause of action. It is likely that, as more and more companies routinely do the majority of their businesses online, courts may be more attuned to imposing general jurisdiction.(14)

   5. Avoiding Jurisdiction

      It is important that businesses understand that personal jurisdiction can be found based on web presence alone. To protect themselves, companies must include clear choice of law and forum selection clauses in every contract, whether on paper or online. Companies should refuse to do business with, and even install filters to block business from, individuals from states or countries where that business would never want to appear in court.

2. Intellectual Property Issues

   1. Copyrights

      1. Publishing Rights

         Disputes involving online publishing rights involve the competing interests of publishers and authors over content ownership and royalty rights. One common area of dispute pertains to ownership rights when content is subsequently published in electronic format. Addressing this issue, the U.S. District Court for the Southern District of New York in Tasini v. New York Times,(15) held that the word "revise" in the Copyright Act of 1976 permits some electronic publication and databases on CD-ROMs of print publications without the consent of or payment to the original author.

         Tasini did impose some limitations. Publishers are only permitted to reproduce a particular article as part of a revised version of the collective work in which the article originally appeared. They are not allowed to create a new anthology or publish the work in an entirely different magazine. The court was unsympathetic to pleas from the authors claiming the decision would grant the publishers an unfair windfall.

      2. Piracy

         The Software Publishers Association is an industry organization aggressively combating software piracy on the web through litigation and other means. That association and related companies often are accused of bullying tactics and of disseminating misinformation about the state of the law. Beginning in 1996, the SPA also went beyond software "pirates" to target Internet presence providers, such as Geocities, alleging that they were guilty of contributory copyright infringement and demanding that they adopt strict monitoring programs to avoid further alleged violation.

         In 1997, Congress enacted the No Electronic Theft Act (NET Act). It is designed to close the so-called "LaMacchia loophole," a reference to case in which a court ruled that in the absence of a profit motive, the Copyright Act did not impose liability on a college student who ran an online pirated software exchange.(16) The NET Act amends the Copyright Act to provide criminal penalties for significant infringement, even where there is no personal gain.(17)

         Even shareware, which is software distributed free of charge, often over the Internet, may be protected from "piracy" and unauthorized commercial exploitation under copyright law. In Storm Impact Inc. v. Software of the Month Club,(18) a federal district court held, first, that shareware placed on the Internet for intentionally free distribution is protected by the Copyright Act, and second, that an express non-commercial distribution clause contained on shareware distributed for free on the Internet is valid and enforceable.

      3. Audio Rights

         The first case regarding music distribution on the Internet was Frank Music Corp. v. CompuServe Inc.(19) Under a 1995 settlement, CompuServe agreed to pay the full mechanical royalty every time a song was downloaded through its network. Today, however, far more listeners can use audio-streaming to listen to music via the Internet. What ownership rights are being infringed, if any, remains a major issue.

         Music distribution companies contend that every byte of sound played via the Internet is licensable and that every website that distributes it must pay a licensing fee. Stepping away from the traditional mechanical royalty, however, companies streaming music over the Internet have developed percentage-based rates for calculating appropriate licensing fees.

         Compromises were proposed by industry representatives regarding such issues as royalties and what constitutes a sample rather than a full copy. The proposal was registered as a petition with the...