Court Rules Operation of Website Does Not Create Personal Jurisdiction Over Out of State Defendant, 7/2/03.

Court Rules Operation of Website Does Not Create Personal Jurisdiction Over Out of State Defendant

July 2, 2003. The U.S. Court of Appeals (4thCir) issued its opinion [PDF] in Carefirst Maryland v. CPC, a case involving whether the operation of a website by a local non profit group can serve as the basis for personal jurisdiction over it by an out of state court in a trademark infringement case. The District Court dismissed for lack of personal jurisdiction. The Appeals Court affirmed.

Carefirst Pregnancy Centers (CPC) is an Illinois corporation, based in the city of Chicago, Illinois. It is a non-profit, evangelical, pro-life advocacy organization, that provides services for Chicago area women. It states that it provides care "in pregnancy-related crisis by meeting their emotional, physical and spiritual needs, enabling them to choose life." It operates a web site. It has no office, employees or operations in the state of Maryland. However, its does have other ties to Maryland. Its web site is accessible from the state of Maryland. It solicits donations online, which includes donations from persons in Maryland. Finally, its web hosting company is in Maryland. However, the servers where the web site resides are in Massachusetts

Carefirst of Maryland, which does business as Carefirst Blue Cross/Blue Shield, is a large healthcare insurance company. It has registered the trademark "Carefirst".

Carefirst Maryland filed a complaint in U.S. District Court for the District of Maryland against CPC alleging trademark infringement, trademark dilution, and unfair competition. However, the District Court did not address the merits of Carefirst's claims. Rather, it dismissed the complaint, without prejudice, for lack of personal jurisdiction over CPC. Instead of filing its complaint in the U.S. District Court for the Northern District of Illinois, Carefirst appealed.

The Court of Appeals affirmed. The Court first addressed the basics of personal jurisdiction. It wrote that "for a district court to assert personal jurisdiction over a nonresident defendant, two conditions must be satisfied: (1) the exercise of jurisdiction must be authorized under the state's long-arm statute; and (2) the exercise of jurisdiction must comport with the due process requirements of the Fourteenth Amendment."

The Court added that "A court's exercise of jurisdiction over a nonresident defendant comports with due process if the defendant has ``minimum contacts´´ with the forum, such that to require the defendant to defend its interests in that state "does not offend traditional notions of fair play and substantial justice." The Court cited the landmark case of International Shoe v. Washington, 326 U.S. 310 (1945).

The Court continued that "The standard for determining the existence of personal jurisdiction over a nonresident defendant varies, depending on whether the defendant's contacts with the forum state also provide the basis for the suit. If those contacts form the basis for the suit, they may establish ``specific jurisdiction.´´ In determining whether specific jurisdiction exists, we consider (1) the extent to which the defendant has purposefully availed itself of the privilege of conducting activities in the state; (2) whether the plaintiffs' claims arise out of those activities directed at the state; and (3) whether the exercise of personal jurisdiction would be constitutionally ``reasonable.´´" The Court cited ALS Scan, Inc. v. Digital Service Consultants, 293 F.3d 707 (4th Cir. 2002), cert. denied, 123 S. Ct. 868 (2003), a case in which the Court found that there was not jurisdiction over an out of state web host in an online copyright infringement action. See also, stories titled "Internet Shoes: Two Appeals Courts Address Internet Based Personal Jurisdiction", "Fourth Circuit Holds No Personal Jurisdiction Over Out of State Web Host", and "DC Circuit Suggests Personal Jurisdiction Over Out of State Online Brokerage" in TLJ Daily E-Mail Alert No. 452, June 17, 2002.

The Court also wrote that "If, however, the defendant's contacts with the state are not also the basis for the suit, then jurisdiction over the defendant must arise from the defendant’s general, more persistent, but unrelated contacts with the state. To establish general jurisdiction, the defendant’s activities in the state must have been ``continuous and systematic.´´"

The Appeals Court then concluded that since there is "no suggestion that CPC engaged in continuous and systematic activities within Maryland, our inquiry must focus on the conduct giving rise to the suit, i.e., CPC’s alleged infringement of Carefirst's trademark. And accordingly, it is only if (1) CPC purposefully availed itself of the privilege of conducting activities in Maryland, (2) Carefirst's claims arise out of those activities, and (3) the exercise of personal jurisdiction would be constitutionally ``reasonable,´´ that CPC can be held subject to specific jurisdiction in Maryland."

In analyzing whether the requisites of specific jurisdiction were met, the Court applied the "effects test" of Calder v. Jones, 465 U.S. 783 (1984), in which the Supreme Court held that a court may exercise specific personal jurisdiction over a nonresident defendant when the defendant intentionally directed tortious conduct toward the forum state, knowing that that conduct would cause harm to a forum resident.

The Appeals Court then reviewed its precedent in ALS Scan and Young v. New Haven Advocate. (On December 13, 2002, the Court its opinion [12 pages in PDF] in Young holding that a court in Virginia does not have jurisdiction over two small newspapers, and their editors and reporters, located in Connecticut, who wrote allegedly defamatory stories about a Virginia prison warden and published them on the internet. The Court held that the web publication did not establish minimum contacts because the newspapers are not directed at a Virginia audience. See, TLJ story titled 4th Circuit Rules in Internet Jurisdiction Case, December 13, 2002.)

Having set forth the applicable law and precedent, the Court then applied this law to the facts of the present case. First, the Court examined whether the CPC website can serve as the basis for jurisdiction. The wrote that "in order for CPC's website to bring CPC within the jurisdiction of the Maryland courts, the company must have done something more than merely place information on the Internet." The Court examined the character of the CPC website.

The Court wrote that "it is relevant that CPC's sites are ``semi-interactive,´´ in that they contain features that make it possible for a user to exchange information with the host computer." The Court added that when a website is "neither merely passive nor highly interactive, the exercise of jurisdiction is determined ``by examining the level of interactivity and commercial nature of the exchange of information that occurs.´´" The Court commented that "the only concrete evidence of online exchanges between CPC and Maryland residents was the single donation initiated by Carefirst’s counsel (and ostensibly made to bolster the position of her client in this litigation)." (Parentheses in original.) The Court also found it "pertinent that the overall content of CPC’s website has a strongly local character, emphasizing that CPC’s mission is to assist Chicago-area women in pregnancy crises." (Emphasis in original.)

Hence, the Court concluded that "when CPC set up its generally accessible, semi-interactive Internet website, it did not thereby direct electronic activity into Maryland with the manifest intent of engaging in business or other interactions within that state in particular. ... Consequently, the website fails to furnish a Maryland contact adequate to support personal jurisdiction over CPC in the Maryland courts."

Second, the Court examined whether the use of a Maryland web hosting company can serve as the basis for jurisdiction. The Court wrote that "NetImpact merely facilitated the purchase of CPC’s domain names and rented CPC space on its servers -- which in fact were located not in Maryland, but in Massachusetts. It is unreasonable to expect that, merely by utilizing servers owned by a Maryland-based company, CPC should have foreseen that it could be haled into a Maryland court and held to account for the contents of its website. Consequently, CPC’s employment of NetImpact as a web host does not ground specific jurisdiction over CPC in Maryland."

Other Cases. In addition to the cases cited by the Court (ALS Scan and Young v. New Haven Advocate), there are several other recent cases that address personal jurisdiction in the context of internet activities.

On December 10, 2002, the High Court of Australia issued its opinion in Dow Jones v. Gutnick. It took a different approach, and reached a different result on the question of personal jurisdiction. This was a case involving three procedural issues -- jurisdiction, choice of law, and convenient forum. It was a tort action brought in Australia for an allegedly defamatory news story published on the internet by Dow Jones, a U.S. publisher. The Court held that because of publication on the internet, the Australian courts have jurisdiction, that Australian law applies, and that the case should proceed in the trial court in the Australian state of Victoria. See, story titled "High Court Rules Australia Has Jurisdiction Over Dow Jones Based on Web Publication", TLJ Daily E-Mail Alert No. 564, December 10, 2002.

In addition, on October 7, 2002, the U.S. Court of Appeals (9thCir) issued its opinion in Healthgrades.com v. Northwest Healthcare Alliance, another case in which jurisdiction was basis upon internet activity. The Court held that the U.S. District Court (WDWash) has personal jurisdiction over an out of state defendant in defamation case, based solely upon publication of its allegedly defamatory statements in its internet web site, which publishes ratings of health care providers. The Supreme Court denied certiorari, without opinion, on April 28, 2003.

Finally, on January 9, 2003 the U.S. District Court (CDCal) denied Sharman Network's motion to dismiss for lack of personal jurisdiction in the Kazaa copyright infringement litigation. In that case, Sharman's free software, the Kazaa Media Desktop, had been downloaded millions of times in the forum state, and Sharman had been organized offshore largely for the purpose of attempting to avoid personal jurisdiction. See, TLJ story titled "District Court Squeezes Sharman on Internet Based Personal Jurisdiction", January 9, 2003.