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HAS YOUR CLIENT EXPOSED ITSELF TO A JURISDICTION SMORGASBORD BY RUNNING A WEBSITE ON THE INTERNET?

By: Steven A. Karg, Esq.

Internet business has increased substantially with the surge of computing into everyday life. Businesses now use the Internet as a means of advertising, a means of providing customer service, a conduit for making sales, a source of research, and an important mode of communication. Internet business is big and everyone is jumping on the band wagon.

With increasing frequency, plaintiffs have attempted to gain a litigation advantage by bringing suit in a jurisdiction of their choice by relying upon their defendant’s Internet presence as a means to obtain jurisdiction where it might otherwise not have existed. Plaintiffs generally argue that the defendant’s Internet website is a sufficient contact with the forum because the website can be accessed from the forum. Unfortunately, defending a lawsuit in an unfriendly or foreign jurisdiction can be costly and loaded with unnecessary risk.

With the maturing of the Internet, courts have begun the process of applying traditional principles of jurisdictional law to related issues created by the Internet. In the past few years, New Jersey courts and others have begun to decide when an Internet presence can create personal jurisdiction. Generally, New Jersey courts, like others, have focused the inquiry on whether a website is passive or interactive. Passive websites are those that merely provide information and are the least likely to create jurisdiction. Interactive websites are those that either exchange information with the user or permit business transactions, and are more likely to create jurisdiction, with the latter case creating the most risk. This article will discuss a few selected New Jersey state and federal court decisions (1) that helped to mold the law of Internet jurisdiction, and then will offer one simple strategy for reducing the risk of Internet-related personal jurisdiction.

Weber v. Jolly Hotels (2) was one of the first federal decisions in New Jersey to discuss Internet jurisdiction. In Weber, a New Jersey resident brought suit in New Jersey after being injured while staying at a hotel in Italy. The resident sought general personal jurisdiction based upon the hotel’s use of an Internet website for advertisement. District Judge Wolin held that the District Court lacked jurisdiction because the hotel’s website merely amounted to a national advertisement and was not a means of conducting business in New Jersey.

The District Court mentioned some helpful general guideposts in the Weber decision. First, the Court recognized that the likelihood that personal jurisdiction can be exercised is directly proportionate to the nature and quality of the commercial activity conducted on the website (3). Then the Court observed that, for the purpose of jurisdictional analysis, there are generally three categories of websites: 1) sites where the defendants actively do business on the Internet (usually buying or selling through the website) – here personal jurisdiction exists because the defendants enter into contracts with residents of a foreign jurisdiction that involve knowing and repeated communication over the Internet (4); 2) sites where users can exchange information with the host computer – here the issue of jurisdiction is determined by examining the level of interactivity and commercial nature of the exchange of information that occurs from the website (5); and 3) sites that merely provide information or advertisements (“passive web sites”) – here, without other factors, at least in the Third Circuit (6), jurisdiction is denied since to hold otherwise would have the effect of creating worldwide jurisdiction over anyone who establishes an Internet website (7).

In Osteotech v. Gensci Regeneration Services (8), plaintiff brought suit for patent infringement in New Jersey federal district court against a non-resident defendant. Plaintiff sought personal jurisdiction based upon the defendant’s use of Internet advertising and the provision of a toll free number in its website. District Judge Bissell found that the District Court did not have personal jurisdiction because the defendant’s website was not sufficiently interactive to find that the defendant purposely availed itself of the benefits of the forum state. Similarly in Green v. William Mason & Co. (9), District Judge Walls refused to exercise the District Court of New Jersey’s general jurisdiction over the defendant where its website merely constituted an advertisement that provided a toll free number. (10)

Most recently, in Decker v. Circus Circus Hotel (11), the District Court of New Jersey refused to exercise personal jurisdiction over a Nevada casino because, although the defendant – casino operated an interactive website that invited New Jersey residents to make hotel reservations over the Internet, the website contained a forum selection clause that conditioned the use of the website upon an agreement that all disputes be settled in Nevada. Apparently due to this clause, the District Court refused to exercise its jurisdiction which might otherwise have arisen from the interactive website (12). The Decker case offers one method of reducing the risk of Internet-related personal jurisdiction.

Hopefully, this brief survey of New Jersey’s Internet jurisdiction law will help you as-sist your clients in recognizing when their web-sites might create a potentially worldwide jurisdictional smorgasbord for Plaintiffs. Moreover, with some affirmative action through the implementation of a forum selection condition on the use of their websites, your clients can at least try to avoid the feast.

This article is reprinted with permission from the Volume 16, Issue 4 (1999) of New Jersey Defense, a publication of The New Jersey Defense Association.

Endnotes

1. It should be noted that New Jersey’s long arm statute provides for personal jurisdiction as far as it is permitted by the Fourteenth Amendment of the United States Constitution. Therefore, long arm jurisdictional questions in New Jersey are determined ultimately by federal constitutional law. Decker v. Circus Circus Hotel, 1999 WL 319056; _ F. Supp.2d. _(D.N.J. 1999) (citations omitted).

2. Weber v. Jolly Hotels, 977 F.Supp. 327 (D.N.J. 1997)

3. Id. at 333 (citing Zippo Manuf. Co. v. Zippo Dot Com, Inc., 952 F.Supp. 1119, 1124 (W.D.Pa. 1996).

4. Id. (citations omitted).

5. Id. (citations omitted).

6. Id. (citing Gehling v. St. George’s School of Medicine, 773 F.2d 539, 542 (3rd Cir. 1985); but see Inset Systems Inc. v. Instruction Set, Inc., 937 F.Supp. 161 (D.Conn. 1996).

7. Weber v. Jolly Hotels, supra, 977 F.Supp. at 333 (citations omitted).

8. Osteotech v. Gensci Regeneration Services, 6 F.Supp.2d. 349 (D.Conn. 1996).

9. Green v. William Mason & Co., 996 F.Supp. 394 (D.N.J. 1998).

10. See also Ragonese v. Rosenfeld, 318 N.J.Super. 63 (Law Div. 1998) (discussing the differences between passive and interactive websites).

11. Decker v. Circus Circus Hotel, 1999 WL 319056; ____ F.Supp.2d ____ (D.N.J. 1999).

12. Id.