JURISDICTION OVER DISPUTES ARISING FROM E-COMMERCE ACTIVITIES DENIS T. RICE, Esq. San Francisco,...

JURISDICTION OVER DISPUTES JURISDICTION OVER DISPUTES ARISING FROM E-COMMERCE ARISING FROM E-COMMERCE

ACTIVITIES ACTIVITIES

DENIS T. RICE, Esq.San Francisco, California

Law Seminars International

San Francisco-November 13-14, 2006

DENIS T. RICEDENIS 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 HOW AND WHERE CAN YOU ENFORCE INTERNET VIOLATION ENFORCE INTERNET VIOLATION

OF PRIVACY RIGHTS?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---HYPOTHETICAL---THE FACTS: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: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, UNDER INTERNATIONAL LAW, JURISDICTION TO PRESCRIBE JURISDICTION TO PRESCRIBE

LAW EXISTS AS TO: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 JURISDICTION TO PRESCRIBE LAW EXISTS AS TO: LAW EXISTS AS TO: (cont.)(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, UNDER INTERNATIONAL LAW, JURISDICTION TO ADJUDICATE JURISDICTION TO ADJUDICATE DISPUTES CAN BE BASED UPON: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 INTERNATIONAL LAW: PRINCIPLES OF JURISDICTIONJURISDICTION

• General principle of reasonableness: can produce results similar to those under U.S. Constitutional due process

• Tension between users’ fear of extra-territoriality and governments’ fear that Internet will make their laws impotent

• 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

GENERAL JURISDICTION IN U.S.GENERAL JURISDICTION IN U.S.

SPECIFIC JURISDICTIONSPECIFIC 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: GENERAL JURISDICTION: WHETHER IT CAN BE BASED ON WHETHER IT CAN BE BASED ON

WEBSITE ACTIVITY ALONE IS WEBSITE ACTIVITY ALONE IS STILL UNDECIDEDSTILL 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 SPECIAL JURISDICTION IN CYBERSPACE: U.S. RULESCYBERSPACE: 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 U.S. RULES ON JURISDICTION IN CYBERSPACE CYBERSPACE (cont.)(cont.)

• Zippo and “Effects” tests have been adopted in other countries, including Asia-Pacific area and U.K

• Nonetheless, some countries still base jurisdiction over an online operator simply on the accessibility of the website

SPECIAL JURISDICTION BASED SPECIAL JURISDICTION BASED SOLELY ON ACCESSIBILITY OF SOLELY ON ACCESSIBILITY OF

SITESITE

• 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

• 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)

ZIPPO MFG.CO v. ZIPPO DOT COM, INC. ZIPPO MFG.CO v. ZIPPO DOT COM, INC. (“ZIPPO”)(“ZIPPO”)

THE “EFFECTS TEST”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. STRICT’ EFFECTS TEST v. “SOFT” EFFECTS TEST“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 HOW THE TYPE OF CLAIM INVOLVED RELATES TO INVOLVED RELATES TO

EFFECTS TESTEFFECTS 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 KEY E.U. RULES ON ADJUDICATIVE JURISDICTIONADJUDICATIVE 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 KEY E.U. RULES ON ADJUDICATIVE JURISDICTION ADJUDICATIVE JURISDICTION

(cont.)(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 PRIVACY DISPUTES: EUROPEAN CONSUMER HAS JURISDICTION CONSUMER HAS JURISDICTION

IN HIS RESIDENCEIN 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. PRIVACY DISPUTES: U.S. CONSUMER HAS JURISDICTION CONSUMER HAS JURISDICTION

IN HIS RESIDENCEIN 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 PRIVACY: ACESSIBILITY OF A WEBSITE AS SUFFICIENT FOR WEBSITE AS SUFFICIENT FOR JURISDICTION IN THE FORUMJURISDICTION 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, anti-Nazi, etc.)

• Privacy violations can fall within the doctrine of these cases

PRIVACY AND THE “PRIVACY AND THE “ZIPPO”ZIPPO” TEST 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 PRIVACY AND THE “EFFECTS TEST”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?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 RULESE.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 ROME II REGULATION ON LAW APPLICABLE TO TORTS (Absent APPLICABLE TO TORTS (Absent

Agreement of the Parties)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, QUESTION POSED BY ARTICLE 5, PARAGRAPH 3 OF ROME II: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: CLICK-WRAPS AND BROWSE-WRAPS: TO WHAT EXTENT CAN AN ONLINE TO WHAT EXTENT CAN AN ONLINE PRE-DISPUTE AGREEMENT TO THE PRE-DISPUTE AGREEMENT TO THE

WEBSITE OPERATOR’S FORUM WEBSITE OPERATOR’S FORUM CONTROL?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

• 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 DISALLOWING ONLINE CONSUMER AGREEMENTS IN THE U.S.AGREEMENTS IN THE U.S.

DISALLOWING ONLINE DISALLOWING ONLINE CONSUMER AGREEMENTS IN CONSUMER AGREEMENTS IN

THE E.U.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. DIFFERENCES BETWEEN E.U. AND U.S. ON STANDARD-FORM AND U.S. ON STANDARD-FORM

CONTRACTSCONTRACTS

• 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. FRENCH CASES INVOLVING I.S.P. TERMS AND CONDITIONSTERMS 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 ENFORCEMENT OF FOREIGN JUDGMENTS : U.S. 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 ENFORCEMENT OF FOREIGN JUDGMENTS IN INDIAJUDGMENTS 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 ARBITRATION AWARDS IN INDIA AND 174 OTHER COUNTRIESAND 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 WHAT AN ONLINE BUSINESSES SHOULD DO: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 DOWHAT 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 JURISDICTION OVER PRIVACY VIOLATIONS ON THE INTERNET VIOLATIONS ON THE INTERNET

DENIS T. RICE, Esq.San Francisco, California

Law Seminars International

San Francisco-November 13-14, 2006