A. New York State Law

In light of International Shoe and its aforementioned progeny, the states promulgated so-called long-arm statutes extending the personal jurisdiction of state courts over non-residents who have committed acts, in-state or out-of-state, which give rise to causes of action. Both state and Federal courts apply state long-arm statutes. While some states' statutory schemes extended jurisdiction to the fullest extent allowed under the constitution, the New York statute is a more limited affair.

The New York Long-Arm Statute subjects a defendant to specific jurisdiction where the defendant: (1) transacts business within the state; (2) commits a tort within the state; (3) commits a tort outside the state causing injury within the state, if the defendant either, "does or solicits business, or engages in any other persistent course of conduct, . . . derives substantial revenue from goods used or consumed or services rendered, in the state or, expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce;" or (4) "owns, uses or possesses any real property situated within the state."

New York courts have adjudicated challenges to personal jurisdiction in cases arising out of Internet activities utilizing "traditional jurisdictional standards." However, it is important to note that state courts have decided a very limited number of cases involving challenges to personal jurisdiction based on Internet contacts and consequently the state of the law with respect to state court application of N.Y.C.P.L.R. § 302 remains relatively uncharted. The New York Court of Appeals has not yet ruled on a case involving jurisdiction and the Internet. Below appear summaries of the only three cases decided in New York state courts involving the Internet and personal jurisdiction as of February 28, 2002.

In People ex rel. Vacco v. Lipsitz, the New York State Attorney general brought an action pursuant to NY Gen. Bus. §§ 349 and 350 against a Staten Island salesman who fraudulently solicited magazine subscriptions over the Internet both in and outside the state. The state filed the action following consumer complaints from New York and other states. The defendant contended that the New York State Attorney General and New York courts lacked jurisdiction over his Internet activities because they took place outside of New York State. In rejecting the jurisdictional challenge as "specious" the New York Supreme Court for New York County determined that, while merely maintaining an Internet site does not yield jurisdiction, the defendant fell under "traditional jurisdictional standards" because he had established physical presence in New York and many of the acts underlying the New York State Attorney General's cause of action occurred instate.

In a second action brought by the New York State Attorney General, the Bronx County Civil Court of the City of New York adjudicated World Interactive Gaming Corp.'s assertion that the court lacked personal jurisdiction under "traditional jurisdictional standards." The court determined that, by maintaining an office in New York, soliciting investments from that office, and mailing prospectuses, World Interactive Gaming Corp. maintained continuous and systematic contacts such that physical presence, and jurisdiction based thereupon, had been established. However, in dicta, the court suggested that "even without physical presence in New York," jurisdiction may have been proper because World Interactive Gaming Corp.'s Internet use was "more than mere transmission of communication." Thus, Internet use, combined with activities - including advertising and receiving toll-free phone calls regarding the provision of gambling services - may have been sufficient to confer jurisdiction under the "doing business" prong of the long-arm statute.

In the third case, Armouth Intern. Inc. v. Haband Co., Inc., 277 A.D.2d 189, (N.Y. App. Div. 2000), the New York Appellate Division ruled on a jurisdictional challenge in a more traditionally commercial context. In Armouth Intern. Inc., a New York wholesaler brought an action for breach of contract against an out-of-state purchaser. The court held personal jurisdiction improper because the only purposeful activity the defendant conducted in New York State was maintenance of a webpage that allowed for retail sales. Jurisdiction was improper under N.Y.C.P.L.R. § 302 (a)(1) because the plaintiff did not demonstrate that a substantial relationship existed between the contract action at bar and the defendant's Internet retail business.

Thus New York courts will decide challenges to personal jurisdiction based on Internet activity through traditional jurisdictional standards. Merely maintaining an Internet site will not likely yield jurisdiction but courts will evaluate maintenance of a website along with traditional contacts to establish the propriety of personal jurisdiction. However, even commercial websites may not yield jurisdiction if the cause of action is unrelated to the business transacted on the website.

B. The Federal Courts and the Internet

As the above cases show, the issue courts face when confronted with jurisdictional challenges arising from Internet contacts often involves assessing the sufficiency of the contacts with the forum state as required by the due process limitations of International Shoe and its progeny. The specific nature of communication on the Internet has presented novel challenges to courts; though no concrete standard has emerged and though the US Supreme Court has not yet addressed the issue, certain trends in Internet activity analysis have developed.

The sliding-scale and Applications: Zippo, Blue Note, and CompuServe

Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F.Supp. 1119 (W.D.Pa. 1997) lays out an approach for applying the minimum contacts standard articulated in International Shoe to challenges to personal jurisdiction in which the minimum contacts with the forum state are, in whole or in part, based on Internet activity.

In Zippo Mfg. a Pennsylvania-based manufacturer sued a California-based Internet company in a Federal District Court in Pennsylvania for trademark infringement and dilution and false designation under the Federal Trademark Act. Personal jurisdiction for the action was based almost exclusively on the defendant's Internet contacts with Pennsylvania. The defendant advertised its Internet news service over the Internet, solicited applications, and accepted credit card payment for membership. Further, the defendant enrolled 3,000 Pennsylvania residents as subscribers - approximately 3 percent of the defendant's worldwide business.

In reaching its conclusion that the defendant was amenable to Pennsylvania jurisdiction, the court found that the "likelihood . . . personal jurisdiction can be constitutionally exercised is directly proportional to the nature and quality of commercial activity that an entity conducts over the Internet. This sliding-scale is consistent with well developed personal jurisdiction principles."

At one end of the sliding-scale are situations in which a defendant clearly conducts business on the Internet through an "active website." Jurisdiction will generally be proper when "the defendant enters into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files over the Internet." On the other end of the sliding-scale are "passive websites," which do not provide for an exchange of information and, standing alone, generally do not yield jurisdiction. The middle ground is made up of so-called "interactive websites," which may or may not yield jurisdiction, depending on the nature and level of activity and other possible contacts.

Active Websites

In CompuServe, Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996), the Sixth Circuit reversed the district court's dismissal for lack of personal jurisdiction in a trademark infringement action brought by an Ohio Internet provider against a Texas software developer. The circuit court found jurisdiction proper based almost wholly on Internet activity, which included the defendant's transmission of software files to the plaintiff's server, and ongoing advertising, which were part of an effort to sell such files to the plaintiff's subscribers. Twelve Ohio residents purchased the defendant's service. In finding specific jurisdiction proper, the court determined that the defendant had "purposefully availed himself" of the forum by transacting business that was "ongoing" in nature. CompuServe Inc. is often cited with the "Blue Note" case (below) by courts utilizing the Zippo Mfg. analytical framework.

Courts have generally found jurisdiction proper under the minimum contacts framework when defendants conducting business purposefully avail themselves of the forum.

Passive Websites

At the other end of the sliding-scale are passive websites, which merely display information and do not provide for interactive exchange. Generally passive websites, such as those merely advertising a good or service, do not give rise to personal jurisdiction in foreign states. In Benusan Restaurant Corp. v. King, 126 F.3d 25 (2d Cir. 1997), (the "Blue Note" case) the Second Circuit provided an example of passive Internet activity that does not give rise to personal jurisdiction. The "Blue Note," a famous New York Jazz club, brought an action for trademark infringement against a Missouri Club of the same name. The sole basis for New York jurisdiction was a "passive" website that advertised the Missouri club and directed potential patrons to call a Missouri phone number to purchase tickets. The court determined that jurisdiction was improper under N.Y.C.P.L.R. § 302 (a)(2) because the alleged infringement had not occurred in New York since the website was created and maintained in Missouri. Additionally, jurisdiction was improper under N.Y.C.P.L.R. § 302 (a)(3) because the plaintiff did not adequately establish that the defendant either engaged in regular business in New York or derived substantial revenues from interstate commerce, given the local nature of his business.

As the "Blue Note" case establishes, contacts based on passive websites generally will not yield jurisdiction to a foreign state.

Interactive Websites

The middle of the sliding-scale is composed of interactive websites - "websites on which a user can exchange information with the host computer." Zippo Mfg. 952 F.Supp. at 1124. When evaluating the sufficiency of contacts in cases in this middle ground, courts often look to the level of interactivity and the nature of the information exchanged. See Maritz v. Cybergold, 947 F.Supp. 1328 (E.D.Mo. 1996). Court decisions involving interactive websites vary greatly. It is clear however, that courts will evaluate traditional contacts with the forum state in addition to the Internet contacts, and that the traditional contacts - however minimal - often tip the balance in favor of jurisdiction.

Maritz v. Cybergold provides a bench mark for analysis of semi-active websites. In Maritz, which involved a trademark infringement action brought by a Missouri plaintiff against a California defendant, the district court found that defendant's Internet activity constituted "tortious conduct" under Missouri long-arm statute, establishing jurisdiction. The defendant's website advertised a forthcoming "subscriber only" mailing list that would forward advertisements to users based on pre-selected criteria. The court emphasized two aspects of the website that yielded jurisdiction: (1) that the website was not completely passive because it allowed the defendant the choice of responding to customers in a specific state; and (2) that the site had been accessed 131 times by instate residents. The court therefor held that a website that does not allow for the transaction of business but does allow a certain level of interactivity may yield jurisdiction.

Both the effects of traditional "contacts" in addition to contacts over the Internet and the general unpredictability of the courts in this intermediate range of activity are evident when contrasting Hasbro Inc. v. Clue Computing Inc. ("interactive website" allowing e-mail communication with defendant combined with more traditional "soliciting business" contacts in forum state yielded jurisdiction), with Amberson Holdings LLC v. Westside Story Newspapers (jurisdiction in New Jersey improper where California defendant's contacts were a "passive" website with a "click through" option that allowed e-mail communication with defendant and where the website was hosted by a New Jersey company). In both cases a website allowing e-mail communication did not establish jurisdiction standing alone; however in Hasbro Inc., additional limited traditional contacts yielded jurisdiction while in Amberson the court deemed the limited traditional contacts insufficient.

Application in Federal Courts

Many Federal courts have accepted and applied the sliding-scale approach articulated in Zippo Mfg.See Christian Science Bd. of Dir. Of The First Church of Christ, Scientist v. Nolan 259 F.3d 209, 218-19 (4th Cir. 2001) (applying Zippo Mfg.'s "sliding-scale" while finding personal jurisdiction valid on independent grounds); Soma Med, Int'l v. Standard Chartered Bank, 196 F.3d 1292, 1296 and 1299 (10th Cir. 1999) (quoting Zippo Mfg. and holding general and specific jurisdiction improper where the only contacts with the forum state were via a passive website); Mink v. AAAA Development LLC., 190 F. 3d 333, 336 (5th Cir.1999) (explicitly adopting the Zippo Mfg. approach in affirming dismissal for lack of personal jurisdiction where a passive website that provided defendant's e-mail address was the only contact); Cyber Sell, Inc. v. Cyber Sell, Inc., 130 F.3d 414, 419 (9th Cir. 1997) (quoting Zippo Mfg. in holding that a passive website was insufficient to establish personal jurisdiction in a trademark infringement action); Amberson Holdings LLC. v. Westside Story Newspapers, 110 F.Supp.2d 332, (D.N.J. 2000) (see above); Roche v. The Worldwide Media, Inc., 90 F.Supp.2d 714, 718-19 (E.D. Va. 2000) (applying the "Zippo Mfg. sliding-scale test analysis" in holding that a passive pornographic website did not render a Florida defendant amenable to personal jurisdiction in Virginia).

Though the Second Circuit Court of Appeals has not formally applied the sliding-scale analysis announced in Zippo Mfg., the Southern District Court used it in deciding Citigroup, Inc. v. City Holding Co.

In Citigroup Inc., a New York bank brought a trademark infringement action against a West Virginia mortgage company that maintained an interactive website. The website provided services similar to those of the plaintiff-bank, allowing customers to apply for loans, print applications, correspond regarding loans through e-mail and "chat" with defendant's representatives. In finding New York jurisdiction proper, the court categorized the website's "interactivity" as falling in the middle range of the Zippo Mfg. framework. The court then examined the defendant's additional contacts, including direct mail solicitations in New York and mortgages secured through a New York Company, to determine that plaintiff had established jurisdiction. Citigroup, Inc. v. City Holding Co.

The Effects Test: Cyber Squatters and Pirates

The sliding-scale approach is not the only method for analyzing jurisdiction in cases with Internet contacts. Some courts have applied the "effects test," set forth in Calder v. Jones. However, this application is generally limited to certain types of intentional torts, including libel and trademark infringement. In such cases, where foreseeable harm from tortious conduct will occur outside the defendant's state, jurisdiction may be proper in the state where the effects were directed. The effects test is especially common in "cyber-squatter" or "cyber-pirate" cases, in which multiple domain names that resemble trademarks are registered and then sold at disproportionate prices.

In Panavision International, L.P., v. Toppen, 141 F.3d 1316, 1321 (9th Cir. 1998), the Ninth Circuit applied the effects test to determine that jurisdiction was proper where an out-of-state defendant registered the plaintiff's trademark, "Panavision.com" (along with hundreds of others including "yankeestadium.com" and "camdenyards.com"), created a website using the trademark as a domain name, and subsequently sent a single letter to Panavision requesting payment of $13,000 for release of the domain name. The court in Panavision explicitly found the defendant's alleged intent, as evidenced by his attempts to "extort" money, was the "something more" necessary to assert personal jurisdiction based on a "passive" website.

The effects test, however, is not universally accepted, as illustrated by K.C.P.L. Inc. v. Nash 1998 WL 826357 (S.D.N.Y. 1998). In that case, a New York district court determined that jurisdiction was improper where an out-of-state defendant registered the plaintiff's trademark, "Reaction.com," along with three unrelated names he intended to use to start an Internet business. The court declined to follow Panavision and rejected the "effects test" on legal and factual grounds; the court held that New York's long-arm statute is more stringent than California's and that the defendant's actions were not focused on stealing and later selling domain names.