D. JEAN VETA
DEPUTY ASSOCIATE ATTORNEY GENERAL
UNITED STATES DEPARTMENT OF JUSTICE
SUBCOMMITTEE ON THE COURTS AND INTELLECTUAL PROPERTY
COMMITTEE ON THE JUDICIARY
UNITED STATES HOUSE OF REPRESENTATIVES
JUNE 29, 2000
Good morning, Mr. Chairman and Members of the Subcommittee. On behalf of the Department of Justice, I appreciate this opportunity to appear before this Subcommittee and to share with you our thoughts on how the Internet is changing the way in which federal and state courts and regulatory agencies conceive of their jurisdiction in civil lawsuits involving private litigants.
"Jurisdiction" is a broad concept and can be used to refer to four separate concepts. First and most commonly, jurisdiction refers to whether a court has the power to adjudicate claims against a litigant - in legal parlance, whether the court has "personal jurisdiction" over the litigant. Second, jurisdiction may loosely refer to whether a court proceeding is being held in the proper location, or venue. A court that possesses personal jurisdiction over a defendant, but which is not the proper venue for the action, might be said not to have "jurisdiction" over the lawsuit. Third, jurisdiction has sometimes been used to refer to the decision of a court to apply one state's law over another's, when the law of two or more states are relevant to a dispute. This is often referred to as "choice of law." Lastly, jurisdiction can refer to the statutory grant of authority a state or federal regulatory agency possesses. For example, when a court holds that an agency does not have "jurisdiction" to regulate a certain activity, it is expressing its view that the legislature did not invest that agency with substantive authority over that activity. 1
Although all four concepts are longstanding and well-developed, their application to the Internet raises new and difficult questions. As a starting point in addressing these issues, we believe the principle articulated in the Report of the President's Working Group on Unlawful Conduct on the Internet, which was chaired by the Attorney General, applies with equal force in the civil context - online conduct should be treated the same as offline conduct, to the extent feasible. Additionally, we do not believe that it is necessary or appropriate to develop an entirely new body of federal statutory law to address cyber-jurisdiction issues. Rather, and for the reasons explained more fully below, we believe that the courts are adequately developing jurisdictional jurisprudence under applicable state and federal law, and should continue to take the lead on these issues.
We have narrowed the focus of this testimony in two ways we believe that the Subcommittee will find helpful. First, we will concentrate on how these jurisdictional issues affect litigation and regulation in the civil context. Second, we will focus on how these issues play out within the boundaries of the United States, leaving most of the international jurisdictional issues for the State Department to discuss in its testimony. We will therefore give the most attention to how jurisdictional issues among the states and within the United States are being addressed. Not surprisingly, most of these issues involve application of state long-arm statutes and other state laws, and are not appropriate subjects of federal regulation. We nevertheless agree with the Subcommittee that these issues warrant careful thought and discussion by policymakers and other interested parties.
On behalf of the Department, I commend this Subcommittee for its foresight in holding this hearing to assess the current state of the law regarding jurisdiction and the Internet. We believe that we can best contribute to this dialogue by identifying the issues we think will likely present the greatest challenges in the coming years in this difficult area.
As the Supreme Court noted in its first major decision to grapple with Internet issues, the Internet is "an international network of interconnected computers."2 Cyberspace renders geographical boundaries between states and nations less meaningful. Information placed on the Internet is instantly available to anyone else who accesses the data, no matter where they are on the globe. Indeed, while current Internet architecture allows Web site operators to restrict access to their sites through the use of passwords or credit card numbers, such screening mechanisms do not usually operate to screen people based on where they live and can be subverted by persons "posing" as someone else using their credit card or password.
As the Commerce Department has stated, the Internet is now a driving force in our economy, generating more than $5.3 billion in retail sales in the first quarter of 2000 alone.3 The federal government and the states have largely opted not to regulate this fledgling new medium at this time, and businesses and individuals have taken advantage of this faster, less-capital-intensive means of transacting business. Other individuals have availed themselves of the Internet's ability to "broadcast" around the world to sell their products or speak their minds.
Some of these activities, as one might expect, have resulted in lawsuits. Businesses have sued one another for breach of contract, based on contracts entered into over the Internet or involving Internet-based services. Other companies have sued for infringement of their trademarks or under statutes prohibiting "cybersquatting" (the practice of reserving a "Web address," such as www.mtv.com, in order to force MTV to purchase that name for its own use) or "spamming" (the practice of sending unsolicited commercial electronic mail, or e-mail). Individuals maligned in Internet publications have sued for defamation.
Because jurisdiction historically has been tied to physical location - whereby the key to jurisdictional questions was determining where, geographically, an activity took place - the advent of cyberspace and the Internet has predictably required policymakers, litigants, and academics to step back and re-evaluate how jurisdiction is to apply in this new medium. We will now address these jurisdictional issues.
One of the most vexing issues raised in litigation involving the Internet is this: When a person engages in wrongful behavior in cyberspace, where can he or she be sued?
The answer to this question generally depends, first and foremost, on state law. State long-arm statutes govern the reach of a state's courts. Most states, however, define their long-arm statutes to reach as far as the federal Due Process Clause will constitutionally permit.
The definition of permissible personal jurisdiction under the Due Process Clause has changed over time. Until the 1940s, a court's jurisdiction depended upon a defendant's physical presence (or the presence of her property) within the geographical boundaries of a state. In other words, a person residing in State B could only be sued in a court in State A if she were served with process while traveling in State A or if she owned property in State A and the lawsuit dealt with the property.4
Since 1945, the Court has interpreted the Due Process Clause more flexibly.5 Under current law, a state may exercise jurisdiction over an out-of-state resident if the court finds that "there exist minimum contacts between the defendant and the forum state" and the state's exercise of personal jurisdiction over the defendant would not offend "traditional notions of fair play and substantial justice."6
A person is said to have "minimum contacts" with a state if she purposefully directs her activities toward that state.7 The existence of minimum contacts confers "specific" personal jurisdiction over her and empowers a state to hale her into that state's court with respect to a lawsuit "aris[ing] out of or relat[ing] to those" contacts.8 If she has "continuous and systematic" interaction with the state, the state has "general" personal jurisdiction over her and may exert its jurisdiction over her with respect to any valid cause of action.9
Whether the exertion of personal jurisdiction is reasonable - that is, whether it adheres to "traditional notions of fair play and substantial justice" - depends upon five factors: (i) the burden of the out-of-state lawsuit on the defendant; (ii) the forum state's interest in resolving the dispute; (iii) the plaintiff's interest in receiving convenient and effective relief; (iv) the interstate judicial system's interest in obtaining the most efficient resolution of controversies; and (v) the shared interest of the several states in furthering fundamental substantive social policies.10
The Court adopted this more flexible standard in recognition of the "fundamental transformation of . . . [the] national economy over the years" and "the increasing nationalization of commerce."11 Under these circumstances, requiring a company that conducted business in several states to be sued in those states was not unreasonable; most companies able to engage in interstate activities were financially well-off enough to be able to defend themselves in legal actions in those distant jurisdictions. The Internet arguably works another "fundamental transformation of . . . [the] national economy" if the financial indicators are to be given any weight. Moreover, this transformation may affect one of the principle assumptions of the "minimum contacts" rule. The barriers to entering the Internet market - and offering goods on an interstate and international basis - are low, which arguably makes it less reasonable to expect Internet start-up companies to defend themselves in lawsuits throughout the United States.
The federal and state courts grappling with how personal jurisdiction applies on the Internet have not questioned the "minimum contacts" framework.12 Instead, they have devoted time to analogizing Internet phenomena (Web pages, e-mail, the use of Internet equipment, and interactive online activity) to "real-world" phenomena (national print or broadcast advertisements, telemarketing, and physical distribution of goods).
Surveying these opinions reveals four primary approaches to determining whether a state court may exert personal jurisdiction over a person based on her Internet activities consistent with the constraints of the Due Process Clause. First, and most easy to analogize to the "real" world, a court may ask whether the defendant specifically availed herself of Internet machinery located in a particular state. Just recently, for example, the 10th Circuit Court of Appeals held that Oklahoma had personal jurisdiction over Bell Atlantic because Bell Atlantic knowingly used an Oklahoma Internet service provider's server equipment located in Oklahoma.13 This rationale may also apply when a person enters into a contract to use such services or equipment in a known jurisdiction.14
Second, and most useful for persons who post Web pages, a court may look to the level of interactivity between the person's Web site and the users he is reaching in a particular state. The leading case on the "interactivity" standard is Zippo Manuf. Co. v. Zippo Dot Com, Inc.15 There, the District Court defined a three-point, "sliding-scale" spectrum of interactivity. At one end of the spectrum is the defendant who "clearly does business over the Internet."16 Over him, personal jurisdiction is appropriately exercised. At the other end is the defendant who has "simply posted information on an Internet Web site which is accessible to users in foreign jurisdictions."17 This sort of "passive" activity, under the Zippo test, is insufficient to warrant the exercise of personal jurisdiction.18 The "middle ground" of the spectrum - which, admittedly, accounts for most of the spectrum - is left to "interactive Web sites where a user can exchange information with the host computer" and where "the exercise of jurisdiction is determined by examining the level of interactivity and commercial nature of the exchange of information that occurs on the Web site."19 In this last context, jurisdiction may hinge on whether the party simply exchanged information from the Web site or entered into a full-fledged contract for goods or services on that site.
Third, a court may look to the volume of business that an Internet company conducts with the residents of the forum state.20 Under such a test, companies doing substantial business with residents of a state would be subject to jurisdiction, while companies engaged in a few small transactions could not be hauled into that state's court. This test may, to some extent, take into account the relatively small size of many Internet start-up companies; on the other hand, such an approach may also disadvantage consumers.
Fourth, a court may examine the "effects" that a particular person's behavior has in a specific state. In a trademark case alleging that a party's use of "nissan.com" and "nissan.net" infringed on Nissan Motor Company's trademark, the District Court held that the defendant's collection of advertising revenue from a state where the effects of its deception were felt was sufficient to confer specific jurisdiction.21 Similarly, the New Jersey Supreme Court recently held that a person sued for defamation could be sued in New Jersey because the effects in New Jersey of his use of an electronic bulletin board physically located elsewhere was sufficient to confer jurisdiction over him in the New Jersey courts.22
These approaches, while seemingly different, actually dovetail nicely and will often yield the same outcome when applied to the same facts. If, for example, a Web site operator "targets" residents of a certain state - or, more broadly, residents living in the United States - the courts of that state (or the United States, in the latter example) will likely be able to assert personal jurisdiction over the site operator under any of the tests: such an operator is likely to have used machinery or entered into contracts in that state, is likely to have a highly interactive site designed to reach customers of the targeted jurisdiction, is likely to generate a substantial volume of business, and is likely to have some effect in the target jurisdiction. This is not surprising, as this sort of purposeful direction at a jurisdiction is part of the very definition of what amounts to "minimum contacts" under the Court's post-1940s due process jurisprudence.23
As this brief survey of leading cases indicates, the courts are busy grafting the uniqueness of the Internet onto the already-existing framework set out by the Supreme Court's due process jurisprudence. At this point in time, they seem to be handling the task well, which counsels strongly in favoring of allowing this precedent to develop without legislative intervention.
We observe that persons transacting business on the Internet are not entirely powerless to influence whether another state's courts will have personal jurisdiction over them. In many cases, the parties enter into contracts. One of the terms the parties may negotiate is a "forum selection clause" that dictates where jurisdiction is appropriate. Such clauses may present unique problems where Internet transactions are concerned; nonetheless, in appropriate circumstances they may encourage the parties to reach a "meeting of the minds" in advance and simply resolve disputes in the agreed-upon forum.
Internet users may also be able to take some unilateral actions to indicate that they do not wish to "purposefully direct" their business to a certain forum. For example, a company could place a banner on its Web site that stated that it intended to do business solely with New York residents (and back that up by listing a 1-800 number that only worked from within New York, or requiring purchasers to enter New York mailing addresses). As the Internet architecture evolves, Web site operators may also be able to "screen out" users who do not claim to be from only those states with which they want to do business. While these actions are no guarantee against the exertion of authority, they would be relevant to a court's inquiry into intent.
The next "jurisdictional" topic is venue - that is, assuming that the state or federal court has personal and subject matter jurisdiction over the lawsuit, where should the suit be litigated?
Like personal jurisdiction, venue has traditionally been pegged to geographic location. The federal venue rule for diversity cases, for example, provides that venue is proper in one of three possible judicial districts: a judicial district where any defendant resides if they all reside in the same state; one where a substantial part of the events or omissions giving rise to the claim occurred; or, if venue is not otherwise available, in a judicial district where any of the defendants is subject to personal jurisdiction at the time the action is commenced.24
Because Internet communications and the attendant online activities "occur" somewhere, but not necessarily in an easily identified judicial district, courts must address how these rules are to be applied when an Internet transaction is implicated in a lawsuit. Of course, the parties can designate by agreement where the suit is to be litigated. If the parties have not provided for venue by agreement, the three traditional venue possibilities prescribed by federal statute will still provide the full range of appropriate venues in most cases. Courts sitting in districts in which either of the parties reside or in which significant parts of the disputed transactions occurred each have a sufficient connection to the lawsuit to hear and decide it. One can also imagine disputes in the online world in which, for example, courts in the district where one of the party's Internet service provider maintains its equipment (and possibly evidence relating to the suit) may be a proper site for the lawsuit. These situations may occur so infrequently that no special rules are necessary, and resolution of them can be left to the courts on a case-by-case basis as they arise.
Choice of Law
A third question that courts adjudicating Internet disputes involving residents from different state are forced to address is this: Which state's substantive law applies?
When the parties have entered into a contract, the answer is usually straight-forward - look to the contract to see whether the parties have agreed upon which state's law is to govern any disagreements involving the contract. As a general rule, as long as the contractual provision is reasonable, courts will honor it.25 Thus, as with personal jurisdiction and venue, parties entering into business transactions can avoid some of the uncertainty in the law by including such clauses in their negotiated documents.26
When a person commits a tort or does not enter into a contract with an enforceable forum selection clause, the "default" choice of law controls. It is important to keep in mind that the state court deciding the choice of law issue applies its own state's "choice of law" rule to render its decision.27 The states are currently split in using one of three "choice of law" rules.
Some states apply the rule from Restatement (First) of Conflict of Laws, which hinges its selection of law on the state where the right to be asserted vested. This often translates into a requirement that a state court apply the law of the state where the "last act" necessary to complete the tort occurred.28 Other states follow the Restatement (Second), which looks to the law of the state with the "most significant relationship" to the action, and lists several factors to be considered in making this assessment.29 A last group of states follows an "interest" test and will apply the substantive law of the state having the greatest policy interest in its law to the case.30
Choice of law issues are largely subject to debate in the "real world," and the complications attendant to the doctrine are multiplied when the doctrine is applied to cyberspace. If, for instance, a person posts defamatory language on a Web site, a court following the First Restatement choice of law rule might apply the law of the states where the defamatory statements are read, if reading the defamatory material is deemed to be the "last act" of the tort. There is no evidence, however, that the choice of law principles currently applied by the courts are inadequate to apply to lawsuits involving the Internet. Thus, although choice of law issues are often difficult - in both the physical world and the cyberspace cases - we again believe that the state and federal courts are best suited to addressing these issues at this time.
Substantive Authority to Regulate
Unlike personal jurisdiction, venue, and choice of law, which are defined largely by constitutional constraints and decisional law, jurisdiction as it refers to the substantive authority of a state or federal agency is largely a creature of legislative design.
The substantive authority of federal agencies to regulate companies and individuals domestically - that is, within the boundaries of the United States - is plenary once the terms of the authorizing statute are satisfied. Likewise, the authority of a federal court to review such action is typically set forth by statute. For example, the Administrative Procedure Act generally provides for the court's review of final agency action.
Federal authority to regulate extraterritorially is less certain. The Restatement (Third) of Foreign Relations provides a set of default rules that tie authority to regulate to one of several sovereign interests. More specifically, § 402 the Restatement provides that a nation has jurisdiction to prescribe law with respect to: (i) conduct that takes place within its geographic borders; (ii) the status of persons within its geographic borders; (iii) conduct outside its territory that has or is intended to have a substantive effect within its geographic borders; (iv) the activities, interest, status, or relations of its citizens regardless of where they are in the world; and (v) certain conduct outside its territory by any other person that is directly against the security of the state or against a limited class of other state interests.31
Nations are also in the process of further clarifying and developing this area of law through treaty negotiation. For example, as the State Department discusses in its written testimony, a Hague convention on Jurisdiction and the Recognition and Enforcement of Foreign Civil Judgements is currently under negotiation.
States, within the United States, are currently grappling with similar issues - namely, when it is permissible to regulate the activity of companies that do business with its residents over the Internet, but are physically located outside its boundaries. The reach of permissible state regulation, like the reach of nations, is constrained. In the case of individual states, the constraint is imposed by the state's authorizing statutes and the prohibitions of the so- called "dormant Commerce Clause," which in essence prohibits a state from discriminating against out-of-state businesses.
Through this brief overview of the four major "jurisdictional" issues involving the Internet today, we hope we have aided this Subcommittee in its thinking about the challenges that lie ahead and which are most appropriate for federal oversight and involvement.
Thank you for the opportunity to testify today. I will be pleased to respond to your questions.
1 Jurisdiction can also refer to subject matter jurisdiction, which is prescribed to the federal courts by statute.
2 ACLU v. Reno, 521 U.S. 844, 849 (1997).
3 See http://www.census.gov/mrts/www/current.html (visited June 24, 2000). Business to business commerce may be even greater than this. According to a summary prepared by The Industry Standard, forecasts for 2003 of the dollar value of transactions between U.S. businesses that are conducted electronically range from $634 billion to $2.8 trillion. See Stacy Lawrence, Behind the Numbers: The Mystery of B2B Forecasts Revealed, The Industry Standard, Feb. 21, 2000 http://www.thestandard.com (visited June 28, 2000).
4 See, e.g., Pennoyer v. Neff, 95 U.S. 714 (1877).
5 International Shoe Co. v . Washington, 326 U.S. 310 (1945).
6 See World Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 491 (1980) (quotations omitted); Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476 (1982).
7 Burger King, 471 U.S. at 472.
9 See Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408 (1984).
10 Burger King, 471 U.S. at 477.
11 McGee v. International Life Ins. Co., 355 U.S. 220, 222-23 (1957).
12 We recognize that the courts could not depart from the standard, which is binding Supreme Court precedent. We simply mean to observe that the courts have also not questioned whether the premises of this precedent apply equally in cyberspace.
13 Intercon, Inc. v. Bell Atlantic Internet Solutions, Inc., 205 F.3d 1244 (10th Cir. 2000). Although this case was heard in federal court on diversity jurisdiction grounds, the District Court applied Oklahoma's long-arm statute.
14 See CompuServe, Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996) (finding personal jurisdiction over an Ohio defendant where defendant entered into a contract to distribute software through plaintiff's Ohio Internet server and defendant repeatedly sent his software files to the Ohio server via e-mail).
15 952 F. Supp. 1119 (W.D. Pa. 1997).
16 Id. at 1124.
18 In some respects, this is a rejection of the "stream of commerce" theory, which provides that a defendant should be subject to personal jurisdiction in any state where his product, floating down the "stream of commerce," might foreseeably end up. See Asahi Metal Indus. Co. v. Superior Court of California, 480 U.S. 102 (1987).
19 Zippo, 952 F. Supp. At 1124.
20 See, e.g., Note, Richard A. Rochlin, "Cyberspace, International Shoe, and the Changing Context for Personal Jurisdiction," 32 Conn. L. Rev. 653, 671-72 (2000).
21 See Nissan Motor Co., Ltd. v. Nissan Computer Corp., 89 F. Supp. 2d 1154 (C.D. Cal. 2000).
22 See Blakey v. Continental Airlines, Inc., 164 N.J. 38 (N.J. 2000).
23 See supra note 6 and accompanying text.
24 See 28 U.S.C. § 1391(a). A defendant also has the right to ask the court to move venue to a different, appropriately authorized venue, "[f]or the convenience of parties and witnesses [and] in the interest of justice." See 28 U.S.C. § 1404(a).
25 See Gary B. Born, International Civil Litigation in the United States Courts: Commentary and Materials 655 (1996).
26 On the other hand, courts may question whether the parties have come to a meeting of the minds with regard to choice of law when a consumer has simply clicked "I agree" to a website operator's extensive boilerplate as a condition to proceeding further into the website.
27 See Restatement (Second) of Conflict of Laws § 6(1) ("A court, subject to constitutional restrictions, will follow a statutory directive of its own state on choice of law.").
28 See Restatement (First) of Conflict of Laws § 377 (1934).
29 See Restatement (Second) of Conflict of Laws § 145 (1971). Factors to be considered in assessing which jurisdiction has the "most significant relationship" include: (i) the place where the injury occurred; (ii) the place where the conduct causing the injury occurred; (iii) the domicile, residence, nationality, place of incorporation and place of business of the parties; and (iv) the place where the relationship, if any, between the parties is centered. Id. at § 145(2).
30 See generally Kermit Roosevelt III, "The Myth of Choice of Law: Rethinking Conflicts," 97 Mich. L. Rev. 2448, 2461-65 (1999).
31 See Restatement (Third) of Foreign Relations § 402 (1986).