continued

[hotlip]

E-Commerce: Who Has Jurisdiction?
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The stream of commerce doctrine has also been cited by some courts in the Internet jurisdictional context. An example is the early decision of Bensusan Restaurant Corp. v. King.(45) The Southern District of New York held that a defendant's mere operation of a web site, without more, was insufficient to confer jurisdiction. The court focused on the web site location (which the district court concluded was either in cyberspace or Missouri, where the defendant resided) and the nature, purpose and intended audience of the site, which was directed almost exclusively to residents of Missouri. None of the information on the website was targeted to residents of New York, although they could readily access the site. The court relied on Asahi Metal Industry Co. v. Superior Court(46) for the analogy of placing a "product" into the stream of commerce, concluding that even though a web site may be accessed from anywhere in the world, its mere operation, without more, could not satisfy the requirement for purposeful direction toward the forum state.(47)

On the other hand, web site operator who intends to affect persons within the forum state by means of a Web posting arguably avails himself of the privilege of doing business there. In one case, for example, a non-resident of California allegedly operated a "cybersquatting" scheme consisting of registering exclusive Internet domain names for his own use that contained well-known, registered trademarks.(48) Specifically, the non-resident registered "panavision.com" and used it as the web address for aerial views of the town of Pana, Illinois (a "vision" of "Pana").(49) When Panavision International L.P., which owned the "Panavision" trademark, demanded that the defendant stop using the trademark or panavision.com name, he responded with an offer to sell the Panavision domain name. Panavision refused, so the defendant registered panaflex.com which Panavision also owned as a trademark. Panavision sued in California, alleging that by registering these domain names, the defendant prevented it from using them and that his sole purpose for doing so was to extract money.

The district court found jurisdiction appropriate under the test of Calder v. Jones, because the defendant intentionally directed his conduct towards California, knowing that the effects of his actions-in registering plaintiff's trademarks as his domain names-would be felt in that state.(50) In affirming, the Ninth Circuit observed that the defendant had "purposefully registered Panavision's trademarks as his domain names on the Internet to force Panavision to pay him money.(51) It found that the brunt of the harm to Panavision was felt in California and the defendant knew Panavision would likely suffer harm there, because its principal place of business was in California along with the "heart of the theatrical motion picture and television industry."(52)

When a seller has targeted an advertising forum, it connects itself to that forum in a way that is at least marginally related to any claim caused by the purchase of the advertised product. On the other hand, the liability of the seller for defects in is product is in no way dependent upon the advertising, as would be a claim, for example, for false advertising. In addition, no economic benefit, direct or indirect, accrues to the seller in the forum where the advertising occurred; the benefit accrues when the product is purchased at the seller's home.

Constitutional due process allows potential defendants to structure their conduct in a way to avoid the forum state.(53) However, to assume that a web site operator can entirely avoid a given jurisdiction is unrealistic. Because the Web overflows all boundaries, the only way to avoid any contact whatsoever with a specific jurisdiction would be to stay off the Internet.(54) For that reason, mere accessibility of a web site should not properly be deemed to satisfy the Fourteenth Amendment minimum contacts requirements. Site operators should be able to structure their site use to avoid a given state's jurisdiction. As described below, this reality has been recognized by regulators in the United States under both state blue-sky statutes and federal securities laws.



45. 937 F. Supp. 295 (S.D.N.Y. 1996), aff'd, 126 F.3d 25 (2d Cir. 1997). A major difficulty in applying the stream of commerce analysis to the Internet is that the theory was designed to deal with jurisdictional issues in a very particularized context, i.e., claims of injury caused by the negligence of a parts manufacturer. It depends on the notion that the defendant receives an economic benefit when a product is sold in the consumer's forum and thus benefits from the forum's laws in a way related to the claim brought there against it.
46. 480 U.S. 102 (1987).
47. CompuServe, Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996), likewise observed that the "stream of commerce" doctrine would have not been a sufficient basis for jurisdiction even though jurisdiction on other grounds exists.
48. Panavision Int'l, L.P. v. Toeppen, 938 F. Supp. 616 (C.D. Cal. 1996), aff'd 141 F.3d 1316 (9th Cir. 1998). ("Panavision")
49. Id.
50. 938 F. Supp. 616, 621 (C.D. Cal. 1996), aff'd, 141 F.3d 1316 (9th Cir. 1998).
51. 141 F.3d 1316, 1321 (9th Cir. 1998).
52. Id. In Blumenthal v. Drudge and America Online, 992 F. Supp. 44 (D.C. 1998) a White House official was allegedly defamed by a non-District of Columbia resident whose "Drudge Report" was "circulated" in the District. In addition to being posted on the defendant's web site, the offending column was sent to subscribers via e-mail. Although an analogy to Calder v. Jones would have been more apt, the Court analyzed the facts based on the "interactive" nature of the web site.
53. World-Wide Volkswagen, supra note 16, 444 U.S. at 296.
54. The use of filtering devices is possible, but these devices have not yet been proven infallible. See American Civil Liberties Union v. Reno, supra note 25, 929 F. Supp. at 844-46 (age filtering devices for sexually explicit materials under Community Decency Act); CompuServe Inc. v. Cyber Promotions, Inc., 1997 WL 109303 (S.D. Ohio 1997) (CompuServe's attempts to set up filters to keep defendant from "spamming," i.e., sending bulk junk e-mails, thwarted by defendant's falsifying the point of origin information on its e-mail and by configuring its network servers to conceal its actual domain name); see also Bensusan Restaurant Corp. v. King, 937 F. Supp 295, 300 (S.D.N.Y. 1996). Nonetheless, good faith efforts to block access from a forum should be a factor tending to defeating the forum's jurisdiction.



E-Commerce: Who Has Jurisdiction?
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III. Future Directions and Recommendations.

Because the World Wide Web is a borderless new medium, it is too early to predict a logical worldwide regulatory scheme. Assumably, regulators in the economically advanced nations will try to augment existing coordination agreements and establish new ones to help enforce antifraud laws. Moreover, they may try to use the Internet as a tool against its abusers by posting and publicizing on the Web the identities of suspected abusers. It is also conceivable that sophisticated electronic screening mechanisms will be developed which would allow the regulatory agencies of each jurisdiction to block or impede the transfer into, or access from, its territory of offering materials that avoid compliance with local registration requirements.

A. Possible Approaches to Jurisdictional Criteria.

It is important to promote Internet use in e-commerce to gain all the benefits of individual empowerment, broader markets, speed price transparency and other efficiencies that it can offer. In the future, we may find that our jurisdictional models are inadequate for the dramatic changes in how business is and will be done. Traditional tests should therefore be reexamined.

1. The Direction Test.

One trend in jurisdiction cases has been to focus on the place where information on securities is directed. The question is whether this approach will fit the Internet down the line, where highly sophisticated robots will be moving through a wholly non-geographic virtual "space" to both communicate and transact business, frequently with other robots, and without human intervention.

For a purchaser (or seller) an investor to engage in the use of robots and other non-geographically grounded intermediaries is somewhat like sending a note in a bottle out to sea: it becomes harder to argue that the note writer's home jurisdiction should control in preference to the residence of whoever picks up the note or the place where it is picked up. By like token, a web participant who unleashes a 'bot into a digital environment awash with other robots and virtual proxies has voluntarily "left" his or her geographical and elected to travel and transact in a wholly different environment. It is harder to argue that such a person can have a reasonable belief that the laws or the courts of the home jurisdiction will apply.

Perhaps the Zippo horizontal continuum will need another dimension in the future.(55) The test might not be based solely on the "passive-interactive" gradations of Zippo, but might also include a vertical component, based on how far the entire process is removed from direct human involvement. For example, processes involving cyber-robots are more likely to be removed from direct human involvement and arguably should be scrutinized differently. Because of the sophistication of the environment in which the 'bots operate, jurisdiction should be highly consensual, i.e., affected by any and all click-wrap terms or conditions imposed or accepted by the 'bots. In the absence of click-wrap acceptance, an activity by a 'bot representing someone in Forum A should not necessarily establish jurisdiction in Forum A when the 'bot deals with another 'bot in Forum B. This would, in a way, be the obverse of the stream of commerce theory: a person who sends a 'bot into the Internet world can be deemed to foresee that, absent understandings to the contrary, it would be engaging in transactions that subject the person to the laws and courts of foreign jurisdictions.

E-Commerce: Who Has Jurisdiction?
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Applying traditional principles of securities jurisdiction, jurisdiction is being extended to persons who use the Internet to "target" residents of a given jurisdiction. Along with access to information, other factors that may apply include:

(a) Specific Transactions Directed to the Jurisdiction. Under current cases, when a person located outside a given jurisdiction uses a Website to conduct transactions with residents of that jurisdiction, the web site operator has "availed" itself of the jurisdiction and should reasonably expect to be subject to its courts in matters relating to the transactions. However, the intercession of a 'bot dealing with other 'bots and avatars in cyberspace is not necessarily "availing" itself of a jurisdiction.

(b) Push Technology. The conscious "pushing" of information into a given jurisdiction, whether by a 'bot or any other complex of agents, should probably still be viewed as targeting activity that warrants specific jurisdiction in the location of the "pushee."

(c) Language. The selection of language on which information is cast can also be relevant to the "targeting" issue. At present, approximately 80% of Internet communication is conducted in English (even though that may be expected to decrease over time).(56) This, together with the fact that English is the standard commercial language, make its use on a web site insufficient ordinarily to establish jurisdiction of an English-speaking country. However, an Internet offering in Tagalog may reasonably be considered to be targeted at Philippines investors, just as offerings in Dutch are considered in the Netherlands to be offered to its residents.

Again, 'bots alter the equation. A robot need not communicate in any human language, and indeed could be programmed to communicate in every principal language. Thus, languages other than English become less evidence of targeting.

(d) Currency. When the offering price of securities is quoted in a currency other than that of the issuer's place of incorporation, this is arguably some evidence of "targeting." Currencies such as the EU are intended to be generic and should not be evidence, taken alone, of targeting any jurisdiction. Nor should widely-used currencies be seen, taken alone, as evidence of targeting. For example, U.S. dollars are almost akin in their pervasiveness to the use of English on the Internet. Pounds Sterling and Swiss Francs are likewise universal currencies. If an offer is expressed in Spanish Pesetas and available in Spain, Spanish law should arguably apply. On the other hand, an offering expressed in Spanish Pesetas and accessed in Italy would probably not be deemed directed to Italian offerees.

However, as robots and agents can change the significance of this factor as well. They will be able to translate one currency into another in a nanosecond, making currency identification less of a significant factor.

(e) Tax and Special Laws. If Internet securities information which goes into detail on the tax laws or other laws of a particular nation could be deemed targeted to that particular audience. . . . by pointing out that, regardless of the precautions adopted, if the content appeared to be targeted to the U.S. (e.g., by a statement emphasizing the investor's ability to avoid U.S. income tax on the investments) then it would view the web site as targeted at the U.S. Arguably, the intervention of robots and agents would not affect this factor.

(f) Pictorial Suggestions. A French Franc denominated offering made on a background of the Eiffel Tower might be said to be aimed at French investors. But can they be said to be aimed at a French investor's multilingual robot? The answer would depend on how nearly the 'bot's information system was programmed to include the principal's patriotic sensibilities.

(g) Disclaimers and Screening. Disclaimers are already a regular part of international paper-based securities offerings. While typically lengthy with respect to U.S. securities laws, disclaimers are often much shorter and less specific for other jurisdictions and may amount to no more than a statement that an offer is not made in any jurisdiction in which it would be illegal to make an offer unless registered.

(h) Disclaimers coupled with screening out residents of a jurisdiction in which the site operator does not want to engage in activities should shield the operator from specific jurisdiction there. An SEC release on offshore jurisdiction comments: "The disclaimer would have to be meaningful. For example, the disclaimer could state, "This offering is intended only to be available to residents of countries within the European Union." Because of the global reach of the Internet, a disclaimer that simply states, "The offer is not being made in any jurisdiction in which the offer would or could be illegal," however, would not be meaningful. In addition, if the disclaimer is not on the same screen as the offering material, or is not on a screen that must be viewed before a person can view the offering materials, it would not be "meaningful."(57)

The proliferation of robots could actually make the use of disclaimers even more meaningful. Common types of software protocols could efficiently screen out properly-programmed 'bots before they even accessed a screen. Acting sort of like a long-range radar, the disclaimers would deter certain 'bots from even approaching certain areas of cyberspace.

3. The "Effects" Test.

Courts have applied the "effects" test in cyberjurisdictional cases. They have invoked forum jurisdiction when the conduct can be found designed to have an impact in the forum (e.g., Panavision). Perhaps in the future, as the use of 'bots and other agents increases, courts should require clear and convincing evidence of an intended impact before making a foreign entity subject to forum jurisdiction. Just because there is an effect does not mean the effect was actually intended, when a piece of data can be circulated millions of times over in a matter of seconds.