Back in the days of common law rule, a court could only exercise jurisdiction over a defendant who was physically present in the court’s state. This rule was based on the principle that each state has the right to adjudicate cases for people within its own territory, and involving conduct that occurs within its borders.
This rule falls apart when we consider online conduct, where a simple search can involve 10 to 100 different servers spread across dozens of states and countries. And yet, today we are still shoehorning our jurisdiction questions into the evolution of an 18th century doctrine. It may seem overwhelming to consider, but any business making money online could be hauled into the courts of any state, at any time. Are you ready for a 50-state legal strategy?
Where We Started
In the late 19th century, the Supreme Court began to relax the physical presence requirement for personal jurisdiction. In the case of Pennoyer v. Neff (1878), the Court held that a court could exercise jurisdiction over a defendant who was served with process while physically present in the forum state, even if the defendant had no other contacts with the state. This decision marked a significant departure from the traditional rule, and it opened the door to the development of more modern standards for personal jurisdiction.
In the 20th century, the Supreme Court further expanded the reach of personal jurisdiction. In the case of International Shoe Co. v. Washington (1945), the Court held that a court could exercise jurisdiction over a defendant who had “minimum contacts” with the forum state. The Court half-heartedly defined “minimum contacts” as “such contacts as make it reasonable, in the context of our federal system, to require the defendant to defend the suit in the forum state.”
In the case of Calder v. Jones (1984), the Supreme Court held that those minimum contacts extend beyond physical activities within a state. Calder involved a Florida newspaper editor and reporter who published a libelous article directed at a California citizen, who was outside of the newspaper’s circulation. The Court held that because the newspaper’s actions were directed at a citizen of the state, requiring the newspaper to defend their actions in California did not offend the “traditional notions of fair play and substantial justice.”[1]
Personal Jurisdiction for the Internet Age
Just a few years after AOL started connecting every household in America with 50 hours of free internet shipped on a CD and delivered on the shrill hum of a 14,400 baud modem, the Internet age of Personal Jurisdiction kicked off with a trademark dispute in Zippo Mfg. Co. v. Zippo Dot Com, Inc (1997). In this case, the manufacturer of Zippo lighters sued the Zippo online news service (a California company) in their home state of Pennsylvania and was able to prove that 2% of the paying Zippo News subscribers were from Pennsylvania. The court held that those 2% were enough to consider Zippo News to have “purposefully availed” itself of the laws of Pennsylvania and would have to defend itself there.
The Zippo balancing test for personal jurisdiction on the level of “interactivity” that a website has with users of the website. A merely passive website is generally considered to be insufficient while deriving economic benefits specifically from users is textbook purposeful availment. However, that decision left a vast middle ground that courts have struggled to address. Some courts have determined that merely encouraging users to email the company was sufficient interactivity[2], while others have focused on the intent of the website.[3] In Sportschannel New Eng. L.P. v Fancaster (2010), the Massachusetts District Court denied personal jurisdiction existed for a very interactive sports news website, that had no economic activity, because all its interactivity features were “common,”[4] and the targeting of Massachusetts sports fans with tags like “Boston” and “Red Sox” did not purposefully avail itself of the laws of Massachusetts.
Six years later, the same court in MorphoTrust USA, LLC v. Identrix, LLC (2016) narrowed in on a similar website, and found that the combination of a “Contact us” page and the collection of names, email addresses, company and telephone numbers in exchange for a free video was sufficient to target Massachusetts residents and personal jurisdiction was warranted.
When does the Shoe fit?
You probably already know that a business can face legal action in the state(s) where it’s located, incorporated, or has any physical presence. And you likely already know that a business can face legal action in states where it earns money, or uses resources or physical infrastructure in the course of earning money. This is textbook “purposeful availment” of a state. Even if that activity occurs infrequently with a state, so long as your website is open to collect money and provide goods (digital or otherwise) with residents of a state, you could have to stand trial in that state.
If your product is an informational website accessible from all 50 states, you know that readers could be in all 50 states. Information delivery platforms, even those with some level of “common” interactivity, step over the line as soon as you collect information with the intent to gain some economic benefit.
A closer case still may be SEO targeting and geographic analytics mapping. A purely informational website, with a common level of interactivity, that has tuned its content to ensure residents of a state or region click on search links to the website and tracks the analytics to measure that performance over time, may be over the line.[5]
The case law is still evolving and determining if someone has purposefully availed themselves of a state’s jurisdiction seems to turn on the fine details of how you communicate. In Prolific, the court found that merely communicating with a potential client via phone and text messages was not, by itself, sufficient to create minimum contacts with the state because “all the important aspects of the parties’ relationship occurred in South Carolina, text messages and phone calls to Indiana cannot overcome their significance to establish purposeful availment.”[6] However, in Rewardify, Inc. v. Synvest Canco, Inc the court held that one in-person meeting and 10 zoom calls were sufficient to establish purposeful availment when combined with the collection of documents and records from a prospective client.[7] However, the court also noted that physical presence was not required, but merely tipped the scales further in that direction.
What does a 50-state legal strategy look like?
If your product is a service that operates in a purely virtual way, you may be pulling parts of your business operations from many states simultaneously. Your business may be incorporated in Michigan, while your core team works from home in five different states. You may employ coaches, counselors, trainers, teachers, or other direct service providers to interact virtually with your customers. You may hire them without ever meeting them in person or visiting their home state. Your employees may not know the locations of the customers they meet with, nor the customers theirs. Your website designer may implement a simple contact form, or an interactive landing page that collects marketing leads. All these day-to-day business operations decisions impact your legal footprint.
An attorney that understands your company, your website, and the jurisdictional gymnastics you may face can help to structure a legal risk strategy and implement tools to minimize your exposure. For example:
- Include personal jurisdiction disclaimers in the website’s terms of service for any state where the business does not have a physical presence.
- Use choice of law clauses in your website’s terms of service to establish subject matter jurisdiction for favorable states. This will ensure that even if you are required to defend your company in another state, they will still be applying the favorable law you want.
- Minimize the data collected from visitors to economically beneficial elements by establishing a comprehensive privacy policy and training staff and contractors on your internal strategy.
[1] Calder v. Jones, 465 U.S. 783, 788 (1984) (quoting Milliken v. Meyer, 311 U. S. 457, 463 (1940))
[2] See Hasbro, Inc. v. Clue Computing, Inc., 994 F. Supp. 34, 45 (D. Mass. 1997) (a Colorado company was deemed to have an interactive website because it encouraged page visitors to email the company)
[3] Toys “R” Us, Inc. v. Step Two, 318 F.3d 446, 454 (3d Cir. 2003) (a website entirely in Spanish, with prices in Euros or pesatas, and shipping only offered in Spain, did not purposefully avail itself of the laws of New Jersey despite having two recorded sales with New Jersey residents)
[4] Sportschannel New Eng. L.P. v. Fancaster, 2010 U.S. Dist. LEXIS 106272, *19-20 (“I hold merely that a website with the features that are now common, including a registration page, simple trivia, ability to email the website operators, stream-line video, and “fan” or “share” a page or video, cannot be sufficient to enable the site’s owners to be haled into court in any forum in which it’s accessible.”)
[5] Our research has not uncovered any case where personal jurisdiction has turned on this fact, but search engine optimization is a factor that some courts have already considered as part of its jurisdictional analysis. See Silver v. Brown, 382 F. App’x 723 (10th Cir. 2010)
[6] Prolific, LLC v. Freedom Cent. Holdings, Inc., 2022 U.S. Dist. LEXIS 125494, *7
[7] Rewardify, Inc. v. Synvest Canco, Inc., No. 3:21-cv-00046-H-JLB, 2022 U.S. Dist. LEXIS 43136, at *13 (S.D. Cal. Mar. 10, 2022)
