Interactive Website Sales Sufficient To Establish General Jurisdiction

Article by Ms Marla Hoehn and Ms Delphine Guerre-Larrouilh

A Maine corporation not registered to do business in California, and with no physical presence or agent for service of process in California, may nonetheless be sued in California courts based on its interactive e-commerce website, sales to California residents, national email and catalog advertising, and contacts with California vendors, the United States Court of Appeals for the Ninth Circuit recently held in Gator.com Corp., v. L.L.Bean, Inc., 03 C.D.O.S. 7986, 2003 U.S. App. LEXIS 18115 (9th Cir. September 2, 2003).

The dispute began when L.L.Bean sent Gator.com a cease and desist letter requesting that Gator.com stop displaying pop-up ads on L.L.Bean’s website. Gator.com responded by filing suit in the District Court for the Northern District of California seeking a declaratory judgment that its activities did not infringe or dilute L.L.Bean trademarks or violate any other applicable laws. The court granted L.L.Bean’s motion to dismiss the case, finding that it did not have general jurisdiction over L.L.Bean. Gator.com appealed to the Ninth Circuit, which reversed the lower court’s decision, concluding that, despite the absence of factors traditionally supporting a finding of physical presence, L.L.Bean could still be sued in California based on its substantial, continuous and systematic contacts with California, including, in particular, through its on-line store.

Focusing on the economic reality of L.L.Bean’s overall activities in, and contacts with, California, the Ninth Circuit concluded that those activities and contacts were not random or attenuated, but had been consistent and substantial over a number of years. Accordingly, the court found that L.L.Bean had purposefully availed itself of the benefit of doing business in California. The court emphasized the following factors in support of its finding of general jurisdiction: (a) L.L.Bean maintains a highly interactive and extensive internet website through which California residents can view and purchase ..L.L.Bean products and interact "live" with L.L.Bean customer service representatives; (b) L.L.Bean’s California sales during 2000 accounted for about 6% of total catalog and website sales; (c) L.L.Bean sends a large number of catalogs to California residents and targets California residents through direct email solicitation; (d) L.L.Bean conducts national print and broadcast marketing efforts that include California; and (e) L.L.Bean maintains ongoing contact with numerous California vendors for the purchase of its products.

After reviewing L.L.Bean’s overall commercial activities, the court focused solely on L.L.Bean’s internet-based activities and found that those activities alone supported a finding of general jurisdiction. The court applied the sliding-scale test first set forth in Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1124 (W.D. PA 1997), which requires courts to review the "nature and quality of commercial activity that an entity conducts over the Internet." Under the Zippo test, the more interactive the website, the likelier it is that a court will assert general jurisdiction.

The Ninth Circuit found that, through its highly interactive and extensive website, L.L.Bean clearly conducts business in California over the internet by generating large numbers of sales, and that such activities alone are sufficient to support a finding of general jurisdiction over L.L.Bean.

For a court to assert general jurisdiction over an out-of state defendant, not only must the defendant maintain sufficient contacts with the forum state, but also the assertion of jurisdiction must be reasonable. The Ninth Circuit focused on three factors – the extent of "purposeful interjection," the burden on L.L.Bean of litigating in California, and the availability of an alternative forum – and found that the assertion of jurisdiction over L.L.Bean was reasonable.

First, the court found that L.L.Bean had purposefully interjected itself in the California market, based on its substantial, continuous and systematic contacts. Second, the court found that L.L.Bean, a multi-million dollar company with agents regularly doing business around the country, would not be unduly burdened by having to defend a suit in California. Lastly, although the court sided with L.L.Bean in finding that there was an alternative forum available (since Gator.com had filed a similar action in the District Court of Oregon), the court concluded that this factor alone did not make assertion of jurisdiction unreasonable.

This decision is significant because no Supreme Court case and only a few Ninth Circuit cases have addressed the extent to which internet business activities may support a finding of general jurisdiction. The application of traditional jurisdictional principles to cyberspace activities is relatively novel, and courts have sought to apply these principles in ways that protect consumers but without unduly impeding the development of internet commerce. Emphasizing the new nature of modern business activities, which may have effects in states in which a company has no physical presence, the Ninth Circuit recommended a flexible approach to jurisdiction to reflect the "realities of the modern marketplace."

Not all circuits have adopted the Zippo test. Some have applied the so-called "effects test," established by the Supreme Court in Calder v. Jones, 465 US 783 (1984), which requires an evaluation of the effects intentionally caused within the forum state by a defendant’s online conduct in another state. Thus, without guidance from the Supreme Court, courts may reach different results on similar facts. With the spread and growing sophistication of internet commerce, this area of the law will continue to evolve.