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Comparing Internet Jurisdiction in the U.S. and the E.U.:
A California Federal Case Illustrates the Contrast


Wednesday, May. 19, 2004

On April 29, the U.S. Court of Appeals for the Ninth Circuit decided to rehear the case of Corp. v. L.L. Bean, Inc. -- which deals with the increasingly important question of how to determine internet jurisdiction in the era of e-commerce. (The rehearing will be "en banc," which means, in the Ninth Circuit, that eleven random-drawn judges will sit on the rehearing panel.)

L.L. Bean argued that it could not be sued in California because it is a Maine corporation with its principal place of business in Maine, and it does not have any stores or agents in California.

But pointed out that L.L. Bean sells millions of dollars' worth of products in California, through its online catalog, and argued that for this reason, L.L. Bean could be sued in California.

Initially, the trial court held for L.L. Bean. But then a three-judge panel of the Circuit held for Now the en banc panel will weigh in.

The case illustrates the interesting contrast between the U.S. and the E.U. approaches to Internet jurisdiction. As long as this contrast continues, it will continue to create risks for those engaged in international e-commerce, and to raise difficulty in enforcing U.S. judgments in the E.U., and vice-versa.

The Personal Jurisdiction Issue in The Case

The case raised an issue of personal jurisdiction. ("Subject matter" jurisdiction asks whether a court can hear a case on a particular topic; in contrast, "personal jurisdiction" asks whether a court can assert jurisdiction over a particular defendant.)

In the United States, it is well established that a corporation usually can be sued in the state of incorporation, or at its principal place of business. (For L.L. Bean, both were in Maine -- not California.)

In addition, a corporation can be sued in a state when it "purposefully avails" itself of that state's market. In order to do so, it must have "substantial" or "systematic and continuous" contacts with that state.

What does this test mean in the context of Internet jurisdiction? Generally, cases have held that interactive websites are more likely to satisfy the text. Putting one's logo up on a website that can be viewed in California is not enough for personal jurisdiction. But offering on-line ordering of good, and on-line customer service through email or instant message, may suffice.

In the case of L.L. Bean, the appellate court held that it had sufficient contacts with California because California customers could order goods through L.L. Bean's website, to be delivered to them in California -- and because of the multimillion dollar figure for L.L. Bean's California sales.

The U.S.'s Unresolved Question, and How the E.U. Has Resolved It

The U.S.'s case-specific evaluation of a corporations contacts leaves a lingering question: When exactly will online sales be significant enough to provide a basis for personal jurisdiction?

Obviously, a corporation can't be sued in Montana courts merely because it sold two shirts to Montana through its website. But where does the line between two shirts and two million shirts fall? What if L.L. Bean had only sold a few thousand dollars' worth of goods to California, rather than a few million? Or, what if it was a luxury car maker that had only sold a few cars, but they were exorbitantly expensive?

The E.U.'s Approach: Suit Can Be Brought in the Country of Destination

The E.U. has mooted this question by dealing with Internet jurisdiction very differently.

First, it addressed the question by statute -- not by case-by-case court decisions. An agreement entered into by the member states of the European Union created directly binding law in this regard.

Second, it created a clear, pro-consumer "bright line" jurisdictional rule. The agreement allows the consumer to sue in the courts of the country for which the goods were destined (which is usually his or her home country).

Thus, according to the agreement, if a seller - from any location worldwide - directs its activities toward a EU-member state, then the seller subjects itself to that state's jurisdiction. Put another way, if L.L. Bean had sent its goods to France, not California, there would be no question it could be sued there.

This bright line rule -- the place of destination can be the place of suit -- is good for the E.U. Traditionally, consumers in European countries lack confidence in internet transactions and thus e-commerce has yet to develop and thrive as in the United States.

Hopefully, the "country of destination" rule will increase consumer confidence, assuring E.U. consumers that if they buy and are not satisfied, there will be recourse.

The Contrast Between U.S. and E.U. Internet Jurisdiction Standards Is a Problem

The difference between the U.S. and E.U.'s standards comes from a difference in perspective.

The American standard worries about due process: Is it fair to ask this seller to appear in court to defend a suit in this state? Did the seller have sufficient notice that this outcome might occur? But the European standard has consumer protection at its heart: How can consumers be convinced they can trust e-commerce?

It's debatable which perspective is better. But what's indisputable is that it's inefficient for the U.S. and the E.U. to have different standards -- and that as long as this inefficiency persists, e-commerce cannot be maximized.

The U.S.'s standard also suffers from uncertainty -- it's so fact-specific, it's hard to predict outcomes. (For instance, notice how the L.L. Bean case has divided California federal judges.) The E.U. standard, in contrast, is clear to all.

In the end, the U.S. and the E.U. ought to agree on a clear, mutual standard by which both will abide. If not, then some of the e-commerce possibilities of the Internet will remain unrealized.

Lars Peterson is a second-year law student at the University of Cincinnati College of Law. He is also eligible to practice law in Germany; he received his German JD in 2000.

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