Slipping and sliding over online jurisdiction

Wednesday, April 26, 2006

Courts frequently steer clear of slippery slopes, where seemingly acceptable decisions teeter precariously on principles that — even if extended only a bit — quickly would produce unfair and unwanted results.

Interestingly, however, many of these same courts happily adopt sliding scales, balances that also rest dangerously on judges’ ability to draw bright lines in gray areas.

One such area is jurisdiction over Web-site providers. While courts initially struggled with determining when they should hear cases against individuals and companies operating Web sites in faraway places, they now seem comfortable using a sliding-scale analysis to answer this question. Within this analysis, however, is the risk that judges will find themselves peering down several slippery slopes.

Consider, for example, U.S. District Judge Charles Norgle’s recent decision in George S. May International Company v. Xcentric Ventures, LLC. In this case, a management consulting firm based in a Chicago suburb sued — in Illinois federal court — an Arizona company operating a Web site known as both and The suit claimed the Arizona company defamed and committed unfair business practices against the Illinois firm when it allowed visitors to the site to post negative comments about the firm and its employees.

The Web-site owner moved to dismiss the suit, on the grounds that the Arizona company did not have sufficient contacts with Illinois to allow the court to hear the case. The company had some support for its position, as in 2002 the 4th U.S. Circuit Court of Appeals held in Young v. New Haven Advocate that a Virginia court could not assert jurisdiction over a Connecticut newspaper that had posted on its Web site allegedly defamatory articles about a Virginia prison warden.

In considering the motion from the Arizona company, Judge Norgle began by examining the site itself. He found that the site — which styled itself a “consumer advocate resource” — could be accessed by anyone. Visitors to the site then could search companies by name, industry or state. Once a company was found, a visitor could read postings from other visitors about how they allegedly had been “ripped off” by the business and post his or her own comments.

Judge Norgle also found visitors to the site could purchase a copy of the Do-It-Yourself Guide: How to Get Rip-Off Revenge for $21.95 and could donate to the site. In addition, some visitors were referred to law firms seeking to file class-action lawsuits against mortgage companies, banks, credit card companies and debt collectors.

Turning then to the operator’s contacts with Illinois, Norgle found “numerous” Illinois residents had posted comments on the site and that site employees posted replies to some of those comments. He also found that at least 13 Illinois residents had purchased the do-it-yourself guide and at least 47 had donated to the site. Finally, the judge found the operator had referred some visitors to a law firm in Wood River, Ill., and had solicited at least one other Illinois law firm to accept such referrals.

Recognizing that the “type of Internet activity that is sufficient to establish personal jurisdiction remains an emerging area of jurisprudence,” Norgle adopted the sliding-scale test announced nine years ago in Zippo Mfg. Co. v. Zippo Dot Com, Inc., a Pennsylvania federal trial court decision Norgle called “the seminal case involving the Internet and personal jurisdiction over nonresident defendants.”

In Zippo, the court held “the likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet.” That proportionality, the court said, is best measured on a sliding scale. At one end of the scale are those cases in which an operator in one state indisputably is doing business in the other state in question. In those cases, personal jurisdiction clearly would be proper.

At the other end of the scale are those cases involving a “passive” Web site “that does little more than make information available to those who are interested.” In those cases, jurisdiction would not be proper. Between these ends, the court said, is a large middle ground “occupied by interactive Web sites where a user can exchange information with the host computer.” In these cases, “the exercise of jurisdiction is determined by examining the level of interactivity and commercial nature of the exchange of information” that occurs on the site.

Applying this analysis, Judge Norgle had little difficulty holding that had sufficient contacts with Illinois to justify the court’s jurisdiction. In addition to having allowed Illinois residents to post messages on the site, the site owners “have clearly transacted business within the State of Illinois, as they have sold books to Illinois residents.” They also have “received donations from Illinois residents and actively attempted to develop business relationships with Illinois law firms.” These activities, the judge held, represented “continuous and systematic” contacts with Illinois that allowed the suit to proceed.

Though Norgle’s decision likely is correct, his analysis and the facts of the case raise questions about the sliding-scale approach. Is interactive posting of comments by itself enough to support jurisdiction? Do the nature or content of the comments factor into this analysis? Are rants by sports fans about their team in another state sufficient to confer jurisdiction? Must the interactivity between site and visitor be in words? Or is it enough if the visitor plays games or downloads information from the site?

Norgle’s reliance on the book sales and donations also is problematic, as many courts have held that minimal sales of books, magazines and newspapers is insufficient to establish jurisdiction in a distant location. Would it have mattered to Norgle if the owner had sold only three books instead of 13? Received five donations rather than 47? If not, what is the relevance of these activities? If so, where is the line?

Undoubtedly, questions like these will continue to be raised as targets of Internet attacks and victims of Internet fraud seek relief in their home courts. While one can understand the willingness of these courts to offer such relief, judges must be careful to observe the limits of their jurisdiction. Otherwise, what began as a sliding scale surely will dissolve into a dangerously slippery slope.

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