E-Commerce: Who Has Jurisdiction?
Denis T. Rice
Chair, Committee on Cyberspace Law Business Law Section of California State Bar
A business that goes online will find itself in a cyberspace "location" capable of being accessed from anywhere in the world in seconds. What kinds of jurisdictional issues does this pose? This summary first describes traditional jurisdictional patterns under international and U.S. law. Second, it outlines how conflicts between the Internet and traditional patterns of jurisdiction have evolved and will evolve in the future. Third, it discusses the extent to which certain existing jurisdictional principles may need reexamination.
I. Background: Basic Jurisdictional Principles.
A. Basic Jurisdictional Principles Under International Law.
International law limits a country's authority to exercise jurisdiction in cases that involve interests or activities of non-residents.(1) First, there must exist "jurisdiction to prescribe." If jurisdiction to prescribe exists, "jurisdiction to adjudicate" and, "jurisdiction to enforce" will be examined. The foregoing three types of jurisdiction are often interdependent and based on similar considerations.(2)
"Jurisdiction to prescribe" means that the substantive laws of the forum country are applicable to the particular persons and circumstances.(3) Simply stated, a country has jurisdiction to prescribe law with respect to: (1) conduct that, wholly or in substantial part, takes place within its territory; (2) the status of persons, or interests in things, present within its territory; (3) conduct outside its territory that has or is intended to have substantial effect within its territory; (4) the activities, interests, status, or relations of its nationals outside as well as within its territory; and (5) certain conduct outside its territory by persons who are not its nationals that is directed against the security of the country or against a limited class of other national interests.(4)
Overarching the foregoing international law criteria is a general requirement of reasonableness. Thus, even when one of the foregoing bases of jurisdiction is present, a country may not exercise jurisdiction to prescribe law with respect to a person or activity having connection with another country if the exercise of jurisdiction is unreasonable.(5) The net effect of the reasonableness standard is to require more close contact between a foreign defendant and the forum country than is required under constitutional due process.(6)
B. Basic Jurisdictional Principles Under the U.S. Constitution.
There are two types of personal jurisdiction which state courts may exert in the U.S.: "general" and "specific." Of these, the more relevant to e-commerce is specific jurisdiction. Non-personal jurisdiction such as "in term" jurisdiction can also be relevant in certain contexts. A separate but related inquiry is when a corporation must qualify to do business in a state other than that of its incorporation.
1. Jurisdiction for Purposes of Having to Qualify to Do Business.
California, like many other states, defines the transaction of "intrastate business" in California by an entity or person to mean "entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce."(7) A foreign corporation that transacts intrastate business in California must qualify with the Secretary of State.(8) Up to now, few e-commerce companies have qualified to do business in states other than the state of their incorporation. Thus, E-Bay, Yahoo, Amazon.com and other large portals and online vendors have yet to qualify in other states, even though their websites are accessed daily thousands of times by residents of such states. Assumably, they take the position that all transactions other than in their home jurisdiction are in interstate commerce or that they are not engaging in business in any other state.(9)
1. RESTATEMENT (3RD) OF THE FOREIGN RELATIONS LAW OF THE U.S. ß401, comment a (1987).
2. Id. 230-31.
3. Id. 236-37.
4. Id. ß402.
5. Id.ß403(1). In addition, ß403(2) enumerates different factors which have to be evaluated in determining the reasonableness of assertion of jurisdiction: (1) the link of the activity to the territory of the regulating state, i.e., the extent to which the activity takes place within the territory, or has substantial, direct, and foreseeable effect upon or in the territory; (2) the connections, such as nationality, residence, or economic activity, between the regulating state and the persons principally responsible for the activity to be regulated, or between that state and those whom the regulation is designed to protect; (3) the character of the activity to be regulated, the importance of regulation to the regulating state, the extent to which other states regulate such activities, and the degree to which the desirability of such regulation is generally accepted; (4) the existence of justified expectations that might be protected or hurt by the regulation; (5) the importance of the regulation to the international political, legal, or economic system; (6) the extent to which the regulation is consistent with the traditions of the international system; (7) the extent to which another state may have an interest in regulating the activity; and (8) the likelihood of conflict with regulation by another state.
6. G. Born, Reflections on Judicial Jurisdiction in International Cases, 17 GA. J. INT. & COMP. LAW 1, 33 (1987); see Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 115 (1987).
7. Cal. Corp. Code ß191.
8. Id. ß2105. Compare ß371, Del. Gen. Corp. Law. Engaging in business for purposes of the qualification requirement usually requires "some permanence and durability."
9. See, e.g., National Union Indemnity Co. v. Bruce Bros., 44 Ariz. 454, 38 P.2d 648 (1934). 10. Merely sending in agents is not enough. Puritan Pie Co. v. Milprint, 494 P.2d 850 (Colo. App. 1971).