Transcript No Slide Title

JURISDICTION OVER DISPUTES
ARISING FROM E-COMMERCE
ACTIVITIES
DENIS T. RICE, Esq.
San Francisco, California
Law Seminars International
San Francisco-November 13-14, 2006
DENIS T. RICE
Listed in BEST LAWYERS IN AMERICA under:
Information Technology
Corporate Law
Securities
Commercial litigation
Named by SAN FRANCISCO MAGAZINE as a
“Northern California Superlawyer” 2004-2006
Selected as one of the “Top 100 Lawyers” in the
San Francisco Bay Area
HOW AND WHERE CAN YOU
ENFORCE INTERNET VIOLATION
OF PRIVACY RIGHTS?
• Premise: A data subject must be entitled to
enforce compliance with privacy
requirements by lodging a complaint before
a competent legal authority
• What legal tribunal is competent? What
law will it apply? How can its judgments
be enforced?
HYPOTHETICAL--THE FACTS:
• Potential defendant is a website operator in
India. It uses cookies to extract information
concerning each viewer’s online viewing
habits
• Potential plaintiff resides in California which
prohibits use of cookies without a viewer’s
prior specific consent
-1-
QUESTIONS POSED:
• Can the potential California plaintiff gain
personal jurisdiction over the Indian firm in
the country where plaintiff resides?
• What law will apply?
• Would it make a difference if the California
plaintiff had agreed online to terms and
conditions requiring all disputes to be
litigated in Bangalore, India?
• Will an Indian court enforce a California
judgment? Arbitration award?
UNDER INTERNATIONAL LAW,
JURISDICTION TO PRESCRIBE
LAW EXISTS AS TO:
• Conduct that, wholly or in substantial part,
takes place within a country’s territory;
• Status of persons, or interests in things,
present within a country’s territory;
• Conduct outside a country’s territory that
has or is intended to have substantial effect
within its territory;
JURISDICTION TO PRESCRIBE
LAW EXISTS AS TO: (cont.)
• Activities, interests, status, or relations of a
country’s nationals outside as well as within
its territory; and
• Certain conduct outside a country’s territory
by persons who are not its nationals,
directed against the security of the country
or against a limited class of other national
interests.
UNDER INTERNATIONAL LAW,
JURISDICTION TO ADJUDICATE
DISPUTES CAN BE BASED UPON:
• Defendant’s presence, conduct, or, in some
cases, ownership of property within the
country;
• Conduct outside the country having a
“substantial, direct and foreseeable effect”
within the country; or
• Defendant’s nationality, domicile, or
residence in the country
INTERNATIONAL LAW: PRINCIPLES OF
JURISDICTION
• General principle of reasonableness: can
produce results similar to those under U.S.
Constitutional due process
• Tension between users’ fear of extraterritoriality and governments’ fear that
Internet will make their laws impotent
GENERAL JURISDICTION IN U.S.
• Means defendant can be sued in the forum
on any dispute, whether or not the dispute
relates to the specific act that gave rise to
plaintiff’s claim
• Constitutional due process requirement is
therefore high: defendant must have
“substantial, or continuous and
systematic” contacts with the forum
SPECIFIC JURISDICTION
• Non-Resident defendant can be sued in
forum on a dispute arising from
defendant’s contact with the forum
• Constitutional due process limitations
under International Shoe case:
1) Defendant must have “certain
minimum contacts” with forum
2) Must satisfy “Traditional notions of
fair play and substantial justice”
GENERAL JURISDICTION:
WHETHER IT CAN BE BASED ON
WEBSITE ACTIVITY ALONE IS
STILL UNDECIDED
• 2003 decision of Ninth Circuit in
Gator.Com Corp. v. L.L. Bean, Inc., leaves
doubt on prior, generally accepted view that
website presence alone cannot suffice for
general jurisdiction
• 2005 California case suggests website
activity alone might suffice
SPECIAL JURISDICTION IN
CYBERSPACE: U.S. RULES
• Inset case: jurisdiction was based on mere
accessibility of the website in the forum.
Case largely rejected in U.S., but its theory
still found, especially in defamation cases.
• Zippo Test: sliding scale of website
interactivity with viewers
• “Effects Test”: defendant who specifically
intends to cause an impact in the forum is
subject to jurisdiction in that forum
U.S. RULES ON JURISDICTION IN
CYBERSPACE (cont.)
• Zippo and “Effects” tests have been
adopted in other countries, including AsiaPacific area and U.K
• Nonetheless, some countries still base
jurisdiction over an online operator simply
on the accessibility of the website
SPECIAL JURISDICTION BASED
SOLELY ON ACCESSIBILITY OF
SITE
• Inset Systems, Inc. v. Instruction Set,
Inc., 937 F. Supp. 161 (D. Conn.
1996): rejected or ignored by most
courts in U.S. and U.K.
• Yahoo!Inc. Case (Paris Court 2000):
intersection of public and private
international law
ZIPPO MFG.CO v. ZIPPO DOT COM, INC.
(“ZIPPO”)
• Continuum of Internet Activity: Passive,
Interactive and Integral
• “Passive”: No jurisdiction based simply
on accessibility of website. But few
passive websites in today’s e-commerce
• “Interactive”: Allows viewer limited
forms of communicating back to site
• “Integral”: Site interacts extensively
with viewers(e.g., takes orders, collects
data, sends email)
THE “EFFECTS TEST”
First articulated by U.S, Supreme Court in
Calder v. Jones, 465 U.S. 783 (1984). An
author and editor of article defaming
Hollywood actress were held to have
intended that their actions have special
effect in California entertainment
community, where she lived and in state
where their publication had its largest
circulation
‘STRICT’ EFFECTS TEST v.
“SOFT” EFFECTS TEST
• “Soft” Test would find jurisdiction
based simply on fact that an effect in
the forum was reasonably foreseeable
• “Strict” Test requires that the defendant
specifically intended to have an effect
within the forum on the plaintiff
HOW THE TYPE OF CLAIM
INVOLVED RELATES TO EFFECTS
TEST
• Defamation: Courts often have been
willing to find jurisdiction in the forum
where the plaintiff resides. Why?
• Trademark: Is it logical or reasonable to
presume that there was an intent to cause an
effect in defendant’s residence?
• Copyright: Is this the most tenuous of
claims to argue to be targeted at a given
forum?
KEY E.U. RULES ON
ADJUDICATIVE JURISDICTION
• Consumer’s residence will trump all other
forums
• Brussels Convention:
In tort matters, party may be sued where
harmful event occurred. Where does the
harmful event--such as an invasion of privacy-occur in cyberspace? (Invasion at least
arguably occurs where material is extracted
from a viewer’s computer.)
KEY E.U. RULES ON
ADJUDICATIVE JURISDICTION
(cont.)
• Brussels Regulation broadens the
consumer’s ability to insist on jurisdiction
in his residence
• NOTE that if a firm advertises on the
Internet, the consumer’s residence may
apply in litigation with that firm regardless
of where the transaction occurred
PRIVACY DISPUTES: EUROPEAN
CONSUMER HAS JURISDICTION
IN HIS RESIDENCE
• In E.U., privacy violation is either a
consumer tort or consumer contract dispute
• Result: in E.U., jurisdiction over an
offending Internet business is likely in
consumer’s residence
PRIVACY DISPUTES: U.S.
CONSUMER HAS JURISDICTION
IN HIS RESIDENCE
• In U.S., violation of consumer’s privacy by
using cookies is either a tort or breach of
contract
• Any of the three tests (Inset, Zippo, Effects)
supports jurisdiction in forum of
consumer’s residence (absent enforceable
agreement for a different forum)
• Result: jurisdiction likely in U.S. courts
over Indian website operator misusing
U.S. resident’s personal data
PRIVACY: ACESSIBILITY OF A
WEBSITE AS SUFFICIENT FOR
JURISDICTION IN THE FORUM
• France, Italy, Germany, Australia and even
parts of the U.S. (e.g., Minnesota, New
York) have based jurisdiction on mere
accessibility of a website—notably in cases
of alleged defamation or breach of
important public law (anti-gambling, antiNazi, etc.)
• Privacy violations can fall within the
doctrine of these cases
PRIVACY AND THE “ZIPPO” TEST
• The viewer from whom a website extracts
information—whether knowingly or not—is
probably involved in a high degree of
interactivity such that the forum of his or
her residence has jurisdiction
• The only way for the website operator to
obtain a different forum is an enforceable
click-wrap agreement
• Enforceability itself is another issue!
PRIVACY AND THE “EFFECTS
TEST”
• Can an information-gathering website be
deemed to be “targeting” hundreds of
thousands (or perhaps millions) of viewers?
• Is there evidence that the website operator
knows the geographical location (as
distinguished from Web address) of the
viewer? (Specific intent to cause an impact
in the plaintiff’s forum required under
Calder v. Jones)
WHAT LAW WILL APPLY?
• In tort cases,most states in U.S. generally
follow Restatement of Conflicts (2nd):
applicable law should be that of the state
with the “most significant relationship”
• 10 of 50 states nominally adhere to lex loci
delecti rule
• 1992 study of Professor Borchers: In 800
cases surveyed from 1960s through 1992,
actual results favored application of forum
law, pro-recovery rules and local parties
E.U. CHOICE OF LAW RULES
• “Rome I”: In non-consumer contract cases,
unless parties agree otherwise, applicable
law is that of the Member State with which
the contract is most closely connected,
which is presumed to be the habitual
residence or place of business of the party
furnishing the performance that is deemed
“characteristic of the contract”
• If goods/services furnished to a consumer,
law of the State of the consumer’s
residence or where service furnished
ROME II REGULATION ON LAW
APPLICABLE TO TORTS (Absent
Agreement of the Parties)
• Law of country in which damage arises or is
likely to arise, regardless where event
giving rise to damage occurred
• Exception for law of country in which both
plaintiff and defendant reside
• Further exception for cases in which “the
non-contractual obligation is manifestly
more closely connected with another
country…”
QUESTION POSED BY ARTICLE 5,
PARAGRAPH 3 OF ROME II:
• Will the “closest connection” exception lead
to courts applying the law of the forum, as
has been the result in the U.S. in applying
gthe “most significant relationship” test?
• The most recent version added a sentence to
Section 3 stating that account shall be taken,
inter alia, of parties’ expectations regarding
• the applicable law
CLICK-WRAPS AND BROWSE-WRAPS:
TO WHAT EXTENT CAN AN ONLINE
PRE-DISPUTE AGREEMENT TO THE
WEBSITE OPERATOR’S FORUM
CONTROL?
• U.S. allows pre-dispute agreements on
forum, but the choice must be reasonable
and consumer must have notice
• Recent U.S. cases involving online
browse-wrap and click-wrap choice of
forum have been increasingly strict
DISALLOWING ONLINE CONSUMER
AGREEMENTS IN THE U.S.
• Not sufficiently obvious, e.g., merely a
browse-wrap, not a click-wrap that
requires specific “I Agree” selection by the
consumer
• Unconscionable, overreaching
• Against public policy of the consumer’s
forum, specifically state consumer
protection statutes and statutes authorizing
class actions
DISALLOWING ONLINE
CONSUMER AGREEMENTS IN
THE E.U.
• Pivotal: A consumer cannot waive the right
to have dispute over a commercial
transaction heard in his residence
• The issue of whether the notice was
sufficiently obvious
• The issue of whether the user’s assent was
sufficiently clear
DIFFERENCES BETWEEN E.U.
AND U.S. ON STANDARD-FORM
CONTRACTS
• American courts generally look to
contracting process: if the offeree received
adequate notice of then terms, they will be
upheld
• E.U. evaluates whether substance of forms e
unfair: E.U. Unfair Terms Directive of
1993. A term is unfair, hence invalid, if it
causes a “significant imbalance” in the
parties’ rights and obligations to the
detriment of the consumer
FRENCH CASES INVOLVING I.S.P.
TERMS AND CONDITIONS
• Union Federale des Consommateurs Que
Choisir v. AOL: 31 of 36 clauses in
versions of AOL service agreement
invalidated as unfair or illegal
• UFCC v. Tiscali: 24 clauses in Internet
Service Provider’s online click-wrap
agreement invalidated
ENFORCEMENT OF FOREIGN
JUDGMENTS : U.S.
• In federal courts, enforcement based on
principles of “comity”
• In state courts, enforcement based on
Uniform Enforcement of Foreign Judgments
Act
• Exceptions:
– Basically unfair procedures
– Fundamental U.S. policy would be violated
(e.g., free speech in case of UK defamation
judgments)
ENFORCEMENT OF FOREIGN
JUDGMENTS IN INDIA
• How reliable?
• Depends largely on bilateral treaties
between the forum and India
• Even with treaty, will Indian courts require
re-litigation of underlying claim if
defendant contests entry of judgment?
• If so, unless the Manila firm has assets in
the E.U. or U.S., our hypothetical
California/E.U. consumer’s judgment may
be unenforceable as a practical matter!
ARBITRATION AWARDS IN INDIA
AND 174 OTHER COUNTRIES
• India is one of 175 signatories to the New
York Convention on Arbitration
• An arbitration award can be taken into
courts of any signatory country and
enforced on expedited basis
• Arbitration award is far superior to any
court judgment as far as international
enforcement is concerned
WHAT AN ONLINE BUSINESSES
SHOULD DO:
• Use very clear and specific choice of forum
clauses with discrete assent buttons
• A business doing online business in Europe
should adopt privacy program that will meet
the requirements of (a) Safe Harbor (b)
E.U. Member State such as U.K. or (3)
approved contractual forms.
WHAT BUSINESSES SHOULD DO
• Use arbitration clauses calling for
arbitration of disputes in a forum you can
trust.
• In B2B context, good “neutral” arbitration
forums include Vancouver, Singapore, Hong
Kong, WIPO in Switzerland
• In B2C, obtain consumer’s discrete and
specific consent to choice of forum and
choice of law, and don’t get greedy in
drafting consumer arbitration clause
JURISDICTION OVER PRIVACY
VIOLATIONS ON THE INTERNET
DENIS T. RICE, Esq.
San Francisco, California
Law Seminars International
San Francisco-November 13-14, 2006