Newspaper Articles

This collection of articles was published in the Detroit Legal News from 1995-1997. All were written in the infancy of the modern Internet, before the landscape surrounding Internet legal and business issues began to develop. Access to the Internet largely consisted of dial-up connections on a 14.4 kbs modem or slower. Both the technology and state of the law have evolved considerably since these were first published.

Determing the Venue in Iternet Litigation

Originally published August 21, 1996

Purveyors of electronic commerce, beware. You inadvertently may be subjecting yourself to litigation in more states than you ever imagined. Especially if the 6th U.S. Circuit Court of Appeals has its way.

A few weeks ago, the 6th Circuit rendered its second major decision involving Internet and electronic-related jurisdictional issues.

In CompuServe v. Patterson, the 6th Circuit held that a provider of shareware sold through the CompuServe network was subject to personal jurisdiction in Ohio, even though his contacts with Ohio were almost entirely electronic.

Last year, the 6th Circuit rocked the digital world with its decision in U.S. vs. Thomas. There the court held that a California couple that operated an adult bulletin board resident in California but accessible in Tennessee (and every other state) could be prosecuted under Tennessee obscenity standards.

Jurisdiction and choice of law are among the most problematic aspects of the Internet and electronic commerce. The law in this area is truly novel: CompuServe and Thomas are literally the first federal decisions in the area. While the decisions involve unique factual settings, they highlight the growing importance of jurisdictional issues in the electronic arena.

Many goods and services can be sold electronically via bulletin board services and the Internet. Software licensing, subscriber- or fees-based services, and direct mail-type sales initiated electronically are increasingly common.

The whole notion of electronic commerce, electronic contracting and digital payments envisions a world-wide marketplace where customers, merchants and third party networks engage in a variety of activities, all by electronic means in lieu of face-to-face or traditional mail-order transactions.

Against this background lies the issue of where suit can be brought in the case of an electronic-based dispute. The answer is of critical importance to businesses and individuals considering venturing onto the Internet.

In the CompuServe case, Patterson, a Texas resident who allegedly had never been to Ohio, developed a software utility that was marketed and sold through the CompuServe on-line service. CompuServe is headquartered in Ohio and the software was transferred electronically by the Patterson to CompuServe's computers in Ohio.

Patterson also electronically entered into a boilerplate CompuServe "Shareware Registration Agreement" containing terms providing for Ohio law. Like many electronic contracts, Patterson indicated his assent by typing or clicking on "Agree" at various points in the document.

A dispute arose between CompuServe and Patterson over CompuServe's alleged violation of proprietary rights. Patterson wrote several threatening e-mail messages and accused CompuServe of unfair trade practices. CompuServe then filed a declaratory judgment action in Ohio, apparently to preempt litigation in Patterson's resident state of Texas.

The district court determined that the electronic links between Patterson and CompuServe were "too tenuous to support exercise of personal jurisdiction." The 6th Circuit reversed, holding that Patterson was indeed subject to personal jurisdiction in Ohio.

Under long-standing precedent, personal jurisdiction is appropriate where:

• The defendant purposefully avails himself to the privilege of acting in the foreign state.
• The cause of action arises from the defendant's activities there; and
  There is a substantial enough connection with the state to make the exercise of jurisdiction over the defendant reasonable.
• In rendering its decision the 6th Circuit specifically found Patterson purposefully availed himself to Ohio jurisdiction by contracting with CompuServe to sell and market his services under agreements governed by Ohio law, electronically submitting software to CompuServe for sale over a period of several years. and using the CompuServe network to market his products. The court also found that the other due process requirements were met.

According to the court. "Someone like Patterson who employs a computer network service like CompuServe to market a product can reasonably expect disputes with that service to yield lawsuits in the service's home state."

The 6th Circuit took it upon itself to note what it was not holding. According to the court, it was not deciding:

• Whether Patterson would be subject to jurisdiction in any state where his software was purchased or used.
• Whether Patterson could be sued in Ohio for a computer virus caused by his software.
  Whether CompuServe could sue any subscriber to its service for nonpayment in Ohio - such as the native Alaskan who never left home.
• The CompuServe opinion raises a number of jurisdictional questions. For example, the practice of mirroring sites is becoming quite common to overcome system overload. A mirrored site is another computer network where a particular electronic file can be accessed and downloaded.

Indeed, the location of a file is more a function of convenience than necessity. Files resident in Malaysia can be accessed the same way as files on a computer in Ohio.

Would the result in Patterson be different if the software resided in CompuServe computers in California rather than Ohio?

The CompuServe electronic contract (undoubtedly a boilerplate agreement that is rarely negotiated by small vendors) provided for Ohio law. Would the same result hold true if the agreement didn't contain a choice of law provision?

Also, what if the CompuServe shareware licensing services were operated out of a state other than CompuServe's home state. After all, the court felt it necessary to note Ohio has a strong interest in resolving a dispute involving an Ohio company.

In many respects, the CompuServe decision raises as many questions as it answers. While CompuServe may be one of the first cases addressing jurisdictional issues surrounding the Internet, it certainly won't be the last.