Articles

Minnesota's Longest Arm: Jurisdiction Over the Internet

By Marshall H. Tanick

Jurisprudence regarding the Internet is moving as rapidly and in as many directions as the medium itself, with Minnesota as one of the leaders in extending the boundaries of jurisdiction.

Use of the Internet is expanding so rapidly that by the time you finish reading this paragraph, the volume of traffic on the medium will have increased substantially. The Internet came into existence in the late 1960s, but it did not reach widespread use until the 1990s. Its development has proceeded much like the 19th century saga of the telephone, which was invented in 1876 but did not reach a sizeable portion of the country until the early 1900s. The recent growth of the Internet has been breathtaking. By mid-1999, there were an estimated 60 million users in the United States and an equal number in the rest of the world, with utilization doubling every 100 days.

The undeniable significance of the Internet is reflected in the decision of the U.S. Commerce Department earlier this year to begin tracking sales on the Internet, which it terms "a major indicator of the nation's economic health."1 The determination was made in the wake of studies showing that American consumers spent $9 billion on the Internet last year.

Meanwhile, use of the Internet causes numerous legal tiffs, as reflected in the recently reported six-fold increase in complaints of online consumer fraud in this past year alone, prompting more governmental scrutiny.2

Use and abuse of the Internet sparks a number of legal issues. One of the foremost questions faced by attorneys concerns jurisdiction over legal claims arising on the Internet. Because of its unusual and unique nature, the Internet raises jurisdictional issues on the outer limits of law, and the boundaries are rapidly expanding.

Minnesota has been among the pioneers in examining and stretching those frontiers. Because of the prevalence of the Internet and the inevitable globalization of communications, attorneys need to familiarize themselves with Internet jurisdictional issues.

Jurisdictional Justice

Jurisdiction over communications, transactions, and other matters conveyed on the Internet and other high-technology media raises new issues at the millennium. But the underlying concerns hearken back more than a century.

The concept of territorial boundaries formed early and long-lasting restrictions on the exercise of judicial power over parties outside the territorial confines of the jurisdiction.3 That principle developed over the years into the requirement that a party outside of a state must have "minimum contacts" with the jurisdiction for a tribunal in that forum to be entitled to exercise judicial power over the foreign party.

The Due Process Clause of the 14th Amendment was viewed as mandating physical presence within the jurisdiction or a sufficient quantity and quality of contact in the forum state to sustain personal jurisdiction. Additionally, the relationship of the contacts, the convenience of the parties, and the interest of the forum state also played roles in determining the stretch of extraterritorial jurisdiction.4

The "minimum contacts" standard led to the broadening of jurisdiction through long-arm statutes, which extend jurisdiction over out-of-state parties. Minnesota has a pair of them, the general long-arm statute for torts, Minn. Stat. §543.19, and a special provision, §303.13 applicable to contracts entered into or performable in Minnesota. Both measures are intended to extend jurisdiction of Minnesota courts to the maximum extent permissible consistent with due process.5

Internet Issues

Application of these traditional tenets to the Internet has proved troublesome. The uneasy effort to fit age-old concepts of territorial jurisdiction to the new medium has led to complex and contentious controversies, characterized by colorful commentary.

In light of the omnipresence of the Internet, jurisdiction over it has been termed an "all or nothing" proposition.6 The penetration of the Internet in all jurisdictions could subject users of the medium to jurisdiction anywhere. At the other extreme, a party could contend that transcendental presence on the Internet means that a party has no physical presence anywhere and, thus, is outside of the scope of any jurisdiction.

Evoking Gertrude Stein's observation about Oakland that "there is no there," one judge has observed the difficulty of imposing jurisdictional requirements on commerce and communications on the Internet: "Not only is there perhaps no 'there,' the there is everywhere where there is Internet access."7

The pace of growth of the Internet compounds the jurisdictional problems. Lamenting the perplexity of decision over such a rapidly progressing medium, another court has found that adjudicating Internet jurisdictional issues "is somewhat like trying to board a moving bus."8

Despite the difficulties, the courts have had no choice but to address these issues and they are doing so with increasing frequency. The Internet "bus" usually has arrived at the destination of upholding jurisdiction over foreign parties in whatever state the litigation is brought.

This tendency springs from trademark infringement and similar intellectual property claims, which have contributed substantially to the development of Internet jurisdictional jurisprudence. In the vast bulk of cases, courts have upheld personal jurisdiction over the parties outside of the forum state transmitting messages into it via the Internet.9 The Federal Communication Commission has followed suit, ruling that calls by computer users to gain access to the Internet constitute interstate communications subject to federal jurisdiction.10

But that view is not universal. A contrary position was expressed recently in a case involving a single sale contrived by the plaintiff in the forum state. In Millennium Enterprises, Inc., v. Millennium Music, Inc., 33 F.Supp.2d 907 (D.Ore. 1999), two music companies with similar names battled over trademark infringement on the Internet in Oregon. An Oregon firm sued a South Carolina company, which held a federal trademark, for violation of the state and common law rights of the Oregon company. The Oregon company staged a single purchase from the South Carolina company over the Internet, which was the only merchandise sold in Oregon by the company. The court rejected this contact as "nothing more than an attempt by plaintiff to manufacture a contact with this forum sufficient to establish personal jurisdiction."11

The court declined to exercise jurisdiction over the South Carolina company, reasoning that it did not avail itself of the Oregon forum or purposefully engage in activities at Oregon. The decision reflects that more than a Web site generating insubstantial sales in the forum state is necessary to establish jurisdiction in that state. But other courts have been reluctant to uphold Internet jurisdiction even if the number of transactions in the forum state has been slight.12

Another species of Internet litigation involves libel. These cases have tended to reach the same conclusion as most commercial cases, generally upholding jurisdiction within any state in which the Internet defamation circulates.

The concept of "targeting" has been at the core of many Internet defamation cases, although the concept predates the Internet. In Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985), a case decided before the Internet became ubiquitous, the Supreme Court upheld long-arm jurisdiction because the foreign defendant purposely was "targeting" the residents of a foreign state.

The same principle was applied in upholding long-arm jurisdiction in a defamation case. In Calder v. Jones, 465 U.S. 783 (1994), personal jurisdiction in California was upheld over two Florida residents who wrote a magazine article that defamed a California resident, even though neither of the Floridians had any physical contact with California. The Court reasoned that the authors knew that the "focal point" of the defamation, an actress, lived and worked in California and would bear the brunt of the injury from the defamation in that state. Therefore, they could "anticipate being haled into court there [California] to answer for the truth of their statements. Since the "alleged wrongdoing intentionally [was] directed at a California resident . . . jurisdiction was proper over them on that basis."13

This rationale has been adopted in Internet cases. In EDIAS Software Int'l. v. Basis Int'l. Ltd., 947 F.Supp. 413 (D. Ariz. 1996), a New Mexico software company communicated libelous remarks about an Arizona distributor on the software company Web site and in e-mail to its customers in Europe. The Arizona "target" sued in Arizona, and the court upheld jurisdiction over the New Mexico company, even though the communications originated outside of the forum state and only were transmitted abroad. The court reasoned that Arizona could assert jurisdiction because it was the place where the "target" of the communication "felt the economic impact" of the defamatory statement.14

The Clinton impeachment imbroglio, which made new law in many contexts, contributed to Internet jurisdictional lore as well. In Blumenthal v. Drudge, 992 F.Supp. 44 (D.D.C. 1998), an Internet political gossip columnist located in California was held subject to jurisdiction in the District of Columbia. White House official Sidney Blumenthal, a central character in the Clinton controversy, sued the gossip columnist who operated from a threadbare apartment in Los Angeles. The court held that the District of Columbia had personal jurisdiction because the distributor "targets readers" there "by virtue of the subject he covers."15 Thus, the subject matter of the communications, rather than the location of the promulgator, was instrumental in upholding jurisdiction.

Other courts have dredged up similar rationales to uphold their own jurisdiction over the Internet. In Telco Comm. v. An Apple A Day, 977 F.Supp. 404 (E.D. Va., 1997), the posting of a defamatory press release on an Internet site was sufficient to confer jurisdiction over an out-of-state party who "should have reasonably known that their press releases would be disseminated" outside the state of origin.16 Similarly, in Panavision International v. Toeppen, California was entitled to assert personal jurisdiction over an Illinois resident who infringed trademark on the Internet. The court found sufficient contact to establish personal jurisdiction over the Illinois defendant because the "brunt of the harm" occurred in California, and the infringer knew that the trademark holder "would likely suffer harm there."17

But some cases have diverged, holding that Internet defamation does not give rise to jurisdiction in the state where the plaintiffs reside or claim harmful effects.18 They have generally reasoned some type of "purposeful" and more selective intrusion into the forum state is required to sustain personal jurisdiction when there is such widespread global transmission.

Minnesota Milestones

The varied aspects of Internet jurisdiction have not bypassed Minnesota. Administrative decisions, case law, and even settlements in this state have addressed the issues of jurisdiction arising from Internet use in the state, country, hemisphere, and world.

In State v. Granite Gate Resorts, Inc., 568 N.W.2d, 715 (Minn. 1997) (aff'd without opinion) (Minn. May 14,1998), jurisdiction in Minnesota was upheld over an offshore gambling operation whose Internet overtures to Minnesotans clashed with Minnesota's legal prohibition against gambling. The Court of Appeals confronted, and rejected, the arguments by the gambling concern that exposing it to jurisdiction in Minnesota would unfairly make it subject to the vagaries of laws throughout the world. The court extended Minnesota's jurisdiction over the offshore Internet operation because the gambling operators had, through its Internet transmission into this state, "purposefully availed themselves of the privilege of doing business in Minnesota."19

The ruling in Granite Gate drew upon an earlier admonition of the Minnesota Attorney General's Office. Several years ago, the Attorney General's Office posted on the Web a "warning to all Internet users and providers." The admonition states that "persons outside of Minnesota who transmit information via the Internet knowing that information will be disseminated in Minnesota are subject to jurisdiction in Minnesota courts for violation of state, criminal, and civil laws."20

Minnesota has flirted with international jurisprudence on the Internet. In a case that may pave the way for developing an international law of the Internet, the University of Minnesota recently settled a libel case arising out of Internet use on campus that landed in a British courtroom.

In Godfrey v. University of Minnesota, 1997 G#1187, a British physicist sued the University and a former student for allegedly libelous statements made about him by a former student on a Usenet Newsgroup, an unregulated online forum similar to a "chat room." The physicist, who had previously settled claims involving Internet services in Austria and Great Britain, contended that the University was responsible for the libel because the student was using a University account to make the offending comments. The University sought to challenge jurisdiction by the English court, but it settled the case earlier this year, issuing an apology to the physicist, who obtained a default judgment against the student.

The settlement prevented an attempt to reconcile two conflicting international laws. Britain's 1996 Defamation Act makes Internet service providers responsible for anything posted on their Web sites or news groups. But the Federal Telecommunications Act, also enacted in 1996, protects Internet providers in the United States from culpability for information posted on their sites.21 Determining which law should be applied is an issue that, like many others involving the Internet, will have to be decided at a later time.

Defamation claims arising on the Internet pose special and different problems in resolving jurisdictional issues in Minnesota. Minn. Stat. §543.19, subd. 1(d)(3), avers that personal jurisdiction does not exist in Minnesota over nonresidents who commit torts outside of Minnesota if the "cause of action lies in defamation or privacy." By virtue of this statute, communications emanating elsewhere and received in Minnesota generally do not support jurisdiction over a defamation claim.22 Under this provision, defamatory Internet communications could be deemed outside the reach of the long-arm statute. But courts elsewhere have held that use of the Internet constitutes conduct occurring within the forum state, even though the communication is posted in a foreign state. In Teko Communications v. An Apple A Day, Inc., 977 F.Supp. 404 (E.D. Va. 1987), press releases that were written in Missouri and placed on the Internet were distributed throughout the United States and were held subject to jurisdiction in Virginia. The court reasoned that posting of Internet messages, which are received by users in Virginia, is "an analogue for physical presence." Other courts take a similar view, holding that a posting on the Internet is equivalent to an act within the jurisdiction, unlike mailing a letter, which may not sustain foreign jurisdiction.

The territorial limitation of Minn. Stat. §543.19 subd. 1(d)(7) has not deterred extension of the reach of Minnesota courts over foreign users of the Internet. Applying Granite Gate, Judge Charles Porter of the Fourth Judicial District has upheld personal jurisdiction over a defamation claim involving a party in Indiana, who allegedly defamed a Minnesota business while participating in an Internet "chat room."25

Jurisdictional Jousts

The traditional "five factors" test for jurisdiction over foreign parties may need to be reevaluated. Under that standard, the number and structure of contacts of the foreign party with Minnesota and their relationship to the claim are of fundamental importance, while the convenience of the parties and the interest of the forum state are of secondary consideration.26 But litigation may elevate the final two factors, making them preeminent. In Internet cases, the consideration of convenience will usually weigh heavily in favor of jurisdiction in Minnesota. The plaintiff generally will be located here, as will most of the witnesses, especially with respect to damages. To refuse to uphold jurisdiction over a foreign party may force a Minnesota plaintiff to go to some other distant forum to pursue claims, which may be unrealistic and inconvenient.

In these circumstances, Minnesota has a long-articulated and strong interest in providing a forum to a local resident.27 Consequently, the Internet may warrant reconsideration of the traditional "five factors" for deciding jurisdictional disputes or, at a minimum, paying more heed to the two secondary ones that conventionally have been given lesser regard.

"The uneasy effort to fit age-old concepts of territorial jurisdiction to the new medium has led to complex and contentious controversies, characterized by colorful commentary."

"In Blumenthal v. Drudge, an Internet political gossip columnist located in California was held subject to jurisdiction in the District of Columbia."

Strategic Suggestions

Litigating jurisdictional Internet issues draws upon both traditional tactics and new strategies.

Whether personal jurisdiction may be exercised over Internet use under the "minimum contacts" concept can be decided based on conventional considerations. Jurisdiction may be sustained by showing a large number of contacts, e.g., through calculating the number of "hits" on a Web site from within the state. While a single transaction may not suffice, a more well-traveled path of commerce may be sufficient. Similarly, the number of in-state participants in a particular "chat room" may be significant in deciding whether there are sufficient in-state "contacts" for jurisdictional purposes.

The Minnesota Supreme Court has saluted the interest of the forum state in protecting Minnesota. Commenting on the long-arm laws, the Court has noted that it is "the most basic interest of our Legislature to afford maximum protection to this state's residents injured by acts of nonresidents who only have indirect contacts with this forum."28 Courts in this state, therefore, are likely to extend jurisdiction as broadly as possible.

But a wide array of jurisdictional issues remain to be resolved regarding the use of the Internet in Minnesota. They include the role of forum selection clauses in adjudicating Internet disputes. The courts are split whether a forum selection overrides traditional concepts and warrants assertion of personal jurisdiction in a distant forum.29 Additionally, arbitration, mediation, and other forms of Alternative Dispute Resolution (ADR) may have to be reexamined in light of the particular and unique features of the Internet.30

The statutory restriction of long-arm jurisdiction over out-of-state defamation may pose a barrier to conventional claims of defamation and the new right of privacy.31 But the Internet is a new and powerful instrument that may not be susceptible to the same type of conventional territorial limitations as existed formerly. Legislative changes may be necessary, coupled with creative judicial decision making to keep up with the rapidly advancing Internet.

Jurisprudence regarding the Internet is moving as rapidly and in as many different directions as the medium itself. Minnesota has been near the forefront in extending the boundaries of jurisdiction over Internet communications. It is likely to continue to do so as the frontiers advance.

Whether that progression will tend to obliterate traditional jurisdictional limitations remains to be seen. Only time -- and the Internet -- will tell.

Notes

1 "Government to Begin Tracking Internet Sales," Finance & Commerce, Feb. 6, 1999, p. 4.