This month brings a big “thud” in a long-awaited decision from the United States Court of Appeals for the Ninth Circuit, the federal appeals court that covers California and pretty much everywhere else west of the Rockies but impacts indirectly the whole country. The case involves where you can be hauled into court, a topic more generally covered a couple of years ago (“Gotcha,” Legal Commentary, AVN Online, August, 2003). This, on the other hand, involves a more specific legal question: Where can someone with whom you never have done business sue you?
There are some obvious rules about this. For instance, if you engage in a brick-and-mortar transaction in Montana with someone from Montana, a disgruntled party to the transaction cannot generally bring a lawsuit in California. If the brick-and-mortar transaction is one where the seller in Montana sends goods to a buyer in California, a disgruntled party generally can bring suit in either state, because they each have done business in the other’s state, embroiling themselves in its commerce, and therefore its legal system.
The more complex question, and the one that is the focus of this month’s column, is what happens when you are sued by, or want to sue, someone with whom you have not done business. This is becoming all too common in the Internet world, with the exploding proliferation of lawsuits for copyright and trademark infringement.
As noted above, you are almost always subject to being sued on your home turf. That is simple enough: If you want to sue someone for infringing your copyrights, sue him where he is. But being in your home turf has huge and obvious tactical advantages: You can use your familiar home-turf attorneys and all your witnesses are handy. (If you have ever been involved in a trial, you know what a headache it is to line up witnesses, prepare them and get them to court.)
But what if the culprit who is infringing your copyrights is in Sweden, and you are located in California? It certainly is easier to win the case with the home-court advantage, and then just send the judgment to Sweden to be enforced according to relevant treaties. (America has treaties with most of its friendly countries for enforcing money judgments.)
So, the issue is this: When can you sue a person or company in your home city, when you never have done business with that company?
If the target of your ire is situated in some far-flung jurisdiction and the dispute is not over a transaction in which both you and the target were involved – the most frequent topics of such lawsuits in the Internet realm are for copyright infringement and trademark infringement – then the question is usually whether the target can be the subject of so-called “general jurisdiction.” Take a basic example: Sears, Roebuck & Co., the huge retailer, which is incorporated in New York with home offices in Illinois. Supposing a Californian had a claim that Sears was infringing his trademark. (That is not to say that Sears would do such a thing; this is only for illustration.) Although Sears is not a California company, it has such a considerable presence in California - including dozens of retail outlets, untold numbers of mail order and e-tail customers and thousands of employees - that California courts have jurisdiction over Sears because its commercial activities impact California on a “substantial, continuous and systematic” basis. But Sears is easy because its presence in California is overwhelming.
The central issue with the proliferation of the Internet is, at what point do commercial activities become sufficiently “substantial, continuous and systematic” to give rise to jurisdiction of the local courts? The case that everyone thought would define this arose from a dispute between L.L. Bean, the clothing retailer located in the Maine, and Gator.com, an Internet outfit in California. The procedural history of this case is a classic example of jousting for home-field advantage in litigation.
What got L.L. Bean’s goat was Gator.com’s pop-up program that, in short, would cause a surfer visiting L.L. Bean’s Web page to receive a pop-up with a coupon for Eddie Bauer, one of L.L. Bean’s significant competitors. Understandably perturbed, L.L. Bean fired off a letter to Gator.com, demanding that this practice cease, and threatening – in usual, attorney-saber-rattling style – to “undertake all means available to prevent this activity from continuing.”
In one of the classic, home-court-grabbing legal maneuvers, Gator.com, rather than waiting to be sued in Maine, filed suit on its home turf in San Francisco, seeking a declaratory judgment establishing that its program infringed no rights of L.L. Bean’s. This, by the way, is a reason to think twice before having your lawyer fire off a letter to some far-away place, pounding on his chest and threatening litigation. The opponent just might beat you to the courthouse.
Having done no business with Gator.com, L.L. Bean filed a motion complaining that it could not be sued in California (about as far away from Maine as you can get), and the judge granted it. Gator.com appealed.
The Court of Appeals originally reversed, finding that L.L. Bean – sort of like Sears, but on a smaller scale – had enough presence in California to be sued there. Significantly, the court based its decision on L.L. Bean’s
“extensive marketing and sales in California, its extensive contacts with California vendors, and the fact that, as alleged by Gator, its website is clearly and deliberately structured to operate as a sophisticated virtual store in California. . . . [a] part of a consistent, ongoing, and sophisticated sales effort that has included California for a number of years.”
The court went on to emphasize L.L. Bean’s “millions of dollars in [California] sales, driven by an extensive, ongoing, and sophisticated sales effort involving very large numbers of direct email solicitations and millions of catalog sales.” More significant, however, was the court’s general conclusion, suggesting that webmasters considerably smaller than L.L. Bean could be sued in California:
“It is increasingly clear that modern businesses no longer require an actual physical presence in a state in order to engage in commercial activity there. With the advent of ‘e-commerce,’ businesses may set up shop, so to speak, without ever actually setting foot in the state where they intend to sell their wares. Our conceptions of jurisdiction must be flexible enough to respond to the realities of the modern marketplace. As technological progress ... increases the flow of commerce between States, the need for jurisdiction over nonresidents undergoes a similar increase.... In response to these changes, the requirements for personal jurisdiction over nonresidents evolve. Businesses who structure their activities to take full advantage of the opportunities that virtual commerce offers can reasonably anticipate that these same activities will potentially subject them to suit in the locales that they have targeted.” (emphasis added)
That was all good news for content owners – and there are many in California – wanting to enforce their copyrights on their home turf against webmasters knocking them off in faraway places, but bad news for webmasters worrying about being frivolously sued at the other end of the country. And the case appeared to have done much to settle the issue, at least for the West Coast.
Then the court did something that it doesn’t very often do – granted rehearing en banc, which generally means reconsideration by all of the judges of the court, although only eleven in the huge Ninth Circuit. Granting rehearing trumps the original opinion. So, although the above became all for naught, there was the prospect of an even more definitive ruling.
During the course of the rehearing process, however, the case settled, as a result of which the en banc court held that it was moot, notwithstanding the $10K bounty that the settlement agreement awarded the winner of the rehearing – what the court called a “side bet.” As a result, the hope was dashed that some certainty would be injected into this process – particularly for the slew of California content producers that are being ripped off worldwide. Gator.com Corp. v. L.L. Bean, Inc., 2001 WL 1528393 (N.D. Cal., November 21, 2001), rev’d. 341 F.3d 1072 (9th Cir. 2003) Rehearing en Banc Granted 366 F.3d 789 (9th Cir. 2004) dismissed ___ F.3d ___, 2005 WL 351228 (9th Cir., February 15, 2005).
Clyde DeWitt is a partner in the Los Angeles-based, national law firm of Weston, Garrou & DeWitt. He can be reached through AVN Online’s offices, at his office at 12121 Wilshire Boulevard, Suite 900, Los Angeles, CA 90025, or at [email protected]. This column does not constitute legal advice but, rather, serves to inform readers of legal news, developments in cases, and editorial comment about legal developments and trends. Readers who believe anything reported in this column might impact them should contact their personal attorneys.