Articles

Internet Jurisdiction: The Global Issue of Liability for Trademark Infringement on the Web

By Baila Celedonia

Nov. 21, 2002

Introduction

More and more companies are using the Internet as a tool for promoting, marketing, advertising and selling goods and services. This widespread use of the Internet for commercial purposes and the potentially limitless ability of the Internet to reach people raises important questions regarding Internet jurisdiction and the extent to which use of the Internet exposes companies to liability for trademark infringement in far away jurisdictions.

Can a U.S. company be sued for trademark infringement in another country if it has a website that is operated and maintained in the U.S.? If a foreign court holds that a U.S. company is liable, will a U.S. court enforce such a judgment? Conversely, can a U.S. company successfully sue a foreign company for trademark infringement based on the foreign company's website, if the foreign company's website is operated outside the U.S.? How can a company limit its exposure to liability in foreign jurisdictions?

As we will see, in the U.S., the answers to such questions depend largely on fundamental constitutional and jurisdictional norms and the principles of comity. Within the framework of these principles and norms, U.S. courts have developed an interactivity test for determining when jurisdiction is proper. While having different intellectual underpinings, a similar test has also been applied by courts in other countries. Section I of this paper provides an overview of the developing law on Internet jurisdiction in the U.S.¹ Section II takes a look at the laws of other jurisdictions and particularly the laws of Canada and England. Section III of this paper addresses U.S. principles of comity. Finally, Section IV discusses strategies for limiting exposure to liability for trademark infringement in foreign jurisdictions.

I.  Jurisdiction and Territoriality in the U.S.

     A.  Constitutional Requirements

In order to exercise jurisdiction over a non-resident defendant, U.S. courts must have subject matter jurisdiction, which in most Internet-related trademark cases, is relatively clear-cut personal jurisdiction over the defendant. Venue must also be proper. Lastly, the court must have constitutional due process limitations control the exercise of personal jurisdiction and vary depending on whether general or specific jurisdiction over the non-resident defendant is sought. Panavision International, L.P. v. Toeppen, 141 F.3d 1316, 1319 (9th Cir. 1988).

Under general jurisdiction, a court may exercise personal jurisdiction over a non-resident defendant, for non-forum related activities, in situations where the defendant has engaged in 'systematic and continuous' activities in the forum state. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-16 (1984). Specific jurisdiction allows a court to exercise personal jurisdiction so long as there are 'minimum contacts' between the defendant and the forum. Int'l Shoe Co. v. Washington, 326 U.S. 310 (1945). Minimum contacts generally exist if the defendant purposefully avails itself of the forum state by conducting business targeted at residents of the forum state, or by establishing contacts that could foreseeably result in liability in the state. Ticketmaster-New York, Inc. v. Alioto, 26 F.3d 201, 203-04 (1st Cir. 1994); see also, Bankcroft & Masters, Inc. v. Augusta National Inc., 223 F.3d 1082 (9th Cir. 2000).

This standard developed when determining whether the citizen of one state should be subject to the jurisdiction of the courts of another state. In determining whether or not to exercise personal jurisdiction over a foreign (non-U.S. resident) defendant, U.S. courts are particularly mindful that 'great care and reserve should be exercised when extending our notions of personal jurisdiction into the international field.' Asahi Metal Industry Co. Ltd. v. Superior Court of California, Solano County, 480 U.S. 102, 115 (quoting United States v. First National City Bank, 379 U.S. 378 (1965) (Harlan, J., dissenting). As a procedural matter, however, personal jurisdiction over a foreign defendant may be obtained in situations that would not otherwise be permissible in cases involving a U.S. resident. Under the Federal Rules of Civil Procedure, in cases involving federal law (such as a suit under the Lanham Act), it is possible to sue foreign defendants who may have inadequate contacts in any single state, based on contacts with the U.S. as a whole and not on contacts with a particular state. Fed. R. Civ. P. 4(k)(2); see also, United States v. International Brotherhood of Teamsters, 945 F. Supp. 609 (S.P.N.Y. 1996). However, most courts examine contacts with the state where the injury has occurred when ruling on whether or not to exercise jurisdiction in cases involving foreign defendants.

  B.  The Zippo Sliding Scale

While no single rule has emerged regarding personal jurisdiction in Internet-related cases, the prevailing trend is to adopt the 'sliding scale' of interactivity analysis developed in Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997).

In Zippo, the plaintiff, cigarette-lighter manufacturer, a Pennsylvania corporation, sued the defendant, Internet service provider, a California corporation with its principal place of business in California, for trademark infringement in Pennsylvania. The Zippo court found that the defendant purposefully availed itself of doing business in Pennsylvania. The court's finding was based largely on the fact that the defendant had over 3,000 customers in Pennsylvania, which was two percent of is 140,000 total customers. The court stated that 'the likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet.' Zippo, 952 F. Supp. 1119 at 1124. The court set forth the following 'sliding scale':

At one end of the spectrum are situations where a defendant clearly does business over the Internet. If the defendant enters into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files over the Internet, personal jurisdiction is proper. At the opposite end are situations where a defendant has simply posted information on an Internet Web site which is accessible to users in foreign jurisdictions. A passive Web site that does little more than make information available to those who are interested in it is not grounds for the exercise of personal jurisdiction. The middle ground is occupied by interactive Web sites where a user can exchange information with the host computer. In these cases, 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.

Id. at 1124 (citations omitted).

In subsequent Internet-related cases, courts have found jurisdiction only when there is sufficient activity (i.e., commercial contacts via an interactive website or through other means) in the forum state to support jurisdiction.

    1.  Passive Website

In Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414 (9th Cir. 1997) the Ninth Circuit affirmed the district court's decision not to assert jurisdiction over the defendant, a Florida corporation in an infringement action brought in Arizona. The defendant's only contact with Arizona was its website, which allowed interested users to submit their name and address and to send e-mails. The court found that, absent additional commercial contacts, such a 'passive' website did not rise to the level of purposeful availment required under the Constitution. Similarly in CFOs 2 Go, Inc. v. CFO 2 Go, Inc., 1998 U.S. Dist. LEXIS 8886 (N.D. Cal. 1998), the court held that jurisdiction was not proper over defendant, a California corporation, in an infringement action brought in Washington, based on the existence of a website which only provided general information and a description of the defendant's business. See also, Mid City Bowling Lanes & Sports Place, Inc. v. Ivercrest, Inc., 35 F. Supp. 2d 507, aff'd without op., 208 F.3d 1006 (5th Cir. 2000) (no jurisdiction when defendant merely advertised its services on a passive website).

    2.  Interactive Websites and/or Commercial Contacts in Forum

In Quokka Sports, Inc. v. Cup Int'l Ltd., 99 F. Supp. 2d 1105 (N.D. Cal. 1999), the court exercised jurisdiction over the defendant, a New Zealand company, in a trademark infringement suit brought in California. The court determined that jurisdiction was constitutionally proper because the defendants' website could be accessed in California, half the traffic on the site had originated in the U.S., and defendants' posted content (including banner ads for U.S. companies which provided services only in the U.S.) aimed at selling goods and services in the U.S. Id.

In Euromarket Designs, Inc. v. Crate & Barrel Ltd., 96 F. Supp. 2d 824 (N.D. Ill. 2000), the court found jurisdiction was proper in an action against the defendant, an Irish company that operated an interactive website using plaintiff's Crate & Barrel trademark as part of its domain name, purchased goods from suppliers in Illinois, participated in trade shows in Illinois, advertised in publications circulated in Illinois and sold goods to an Illinois resident. Similarly, in Quality Solutions v. Zupanc, 993 F. Supp. 621 (N.D. Ohio 1997), the court asserted jurisdiction in Ohio in an infringement action against a Canadian defendant because the defendant operated a website accessible to Ohio residents and solicited business in Ohio through advertisements in trade journals circulated in Ohio.

By contrast, in Desktop Techs., Inc. v. ColorWorks Reprod. & Design, 1999 U.S. Dist LEXIS 1934 (E.D. Pa. 1999), the court held that it could not constitutionally exercise jurisdiction against a Canadian defendant in an infringement suit brought in Pennsylvania. The court found that although the defendant accepted projects over the Internet, and users could exchange information on the website, jurisdiction was improper because the defendant did not have clients in Pennsylvania and its website specifically stated that it only served clients in British Columbia, Alberta and Yukon. The court also noted that defendant's site specifically stated that receiving a file via the Internet is not a business transaction. See also, Ty Inc. v. Clark, 2000 U.S. Dist. LEXIS 383 (N.D. Ill. 2000) (no jurisdiction in Illinois trademark action against English defendants operating beaniebabiesuk.com website because, although server located in California and information offered on website, purchases could not be made on Internet, and were only possible by fax, phone, or mail to England).

  C.  Territoriality

In addition to the Constitutional due process requirements discussed above, it should be noted that trademark law is inherently territorial, and exists in each country solely according to that country's statutory scheme. Fuji Photo Film Co. v. Shiohara Shoji Kabushiki Kaisha, 754 F.2d 591, 599 (5th Cir. 1985). The Lanham Act governs the status, duration and validity of a U.S. trademark only in the U.S. Therefore, the validity of a U.S. trademark whether registered or at common law is completely independent of the validity of the mark abroad. Conversely, U.S. trademark law cannot affect the validity or enforceability of a trademark in another country.

II.  Website Cases Outside the U.S.

Courts in other jurisdictions have used similar interactivity analyses in Internet trademark infringement cases. While in the U.S. infringement cases courts must focus on the constitutional limitations imposed when attempting to assert jurisdiction over a foreign website, in other countries courts use the interactivity analysis in determining whether their has been sufficient trademark 'use' in the forum to cause infringement. While the ultimate result may be the same, in the non-U.S. litigation, the defendant may be forced to defend the case as a whole in order to avoid liability.

  A.  Canada

In a recent Canadian infringement case, the Ontario Court of Appeal set aside a lower court decision against the defendant, a U.S. company that operated a passive website. Pro-C v. Computer City, [2001] Ontario Court of Appeal. The court concluded that the defendants operation of a website to advertise and provide information about its computers, which were not sold in Canada, did not constitute 'use' of the allegedly infringing mark within the meaning of the Canadian Trade-marks Act.

  B.  United Kingdom

One of the first cases in the U.K. on the subject of trademarks and websites is 1-800 Flowers Inc. v. Phonenames Ltd. [2001] EWCA Civ. 721. In that case, which involved an opposition to registration in the U.K. of the mark 800 FLOWERS, the Court of Appeal upheld the lower court's finding that use of the trademark 1-800 FLOWERS on the applicant's website did not constitute use of the mark in the U.K. for purposes of registering the mark in the U.K.

The 1-800 Flowers case paved the way for a leading case regarding liability for trademark infringement based on the existence of a website. In Euromarket Designs Inc. v. Peters and Crate and Barrel Ltd. [2001] FSR 288, the plaintiff, a U.S. company and owner of the chain of Crate & Barrel stores in the U.S., brought an action against an Irish company operating an unrelated Crate & Barrel store in Ireland for infringement of its European Community and U.K. trademark registrations. The action was largely based in on defendants use of the CRATE & BARREL mark on its website. In holding that the defendant was not liable, the court adopted an interactivity analysis comparable to the one developed in Zippo:

In 800-Flowers I rejected the suggestion that the website owner should be regarded as putting a tentacle onto the user's screen. Mr. Miller here used another analogy. He said using the internet was more like the user focussing a super-telescope into the site concerned; he asked me to imagine such a telescope set up on the Welsh hills overlooking the Irish Sea. I think Mr. Miller's analogy is apt in this case. Via the web you can look into the defendants' shop in Dublin. Indeed the very language of the internet conveys the idea of the user going to the site—'visit' is the word. Other cases would be different—a well-known example, for instance, is Amazon.com. Based in the US it has actively gone out to seek world-wide trade, not just by use of the name on the internet but by advertising its business here, and offering and operating a real service of supply of books to this country. These defendants have done none of that.

Since the defendant operated a passive website and had no commercial contacts with the forum, the court reasoned that the defendant did not make use of the mark in the U.K., and therefore, the defendant was not liable for trademark infringement.

While in the U.S., Canada and the U.K. there is a growing body of law on the subject of trademark infringement based on the operation of a website, it should be noted that other countries, such as Australia and New Zealand have not had any cases dealing with this issue. Based on discussions with counsel in Australia and New Zealand, it is likely that courts in those countries will follow Euromarket Designs and 1-800 Flowers in future cases in those countries.

The dearth of law on this subject in other jurisdictions is unsettling for companies that operate websites and are wary of suits in distant countries. However, as we shall see below, there are ways in which companies can structure their websites to lessen their chances of being a defendant in litigations in other countries, and being liable if they are.

III.  Comity

Given the U.S.'s share of international commerce, the widespread use of the Internet in the U.S., and the willingness of U.S. courts to assert jurisdiction over foreign defendants, chances are that a foreign company will be drawn into litigation in the U.S. before a U.S. company will be sued in a foreign court. Let us assume, however, that a court in a foreign country exercises jurisdiction over and rules against a U.S. company in a trademark infringement matter. Will such a judgment be enforceable in the U.S.?

  A.  The Yahoo! case

The U.S. Constitution and implementing legislation require that full faith and credit be given to judgments of sister states, territories, and possessions of the United States. U.S. CONST. Art. IV, §§1, cl. 1; 28 U.S.C. §1738. Comity governs the extent to which the U.S. honors the judicial decrees of foreign nations. Generally, U.S. courts recognize and enforce foreign judgments, unless enforcement would be prejudicial or contrary to U.S. interests. Somportex, Ltd. v. Philadelphia Chewing Gum Corp., 453 F.2d 435, 440 (3d Cir. 1971) cert denied, 405 U.S. 1017 (1972); Laker Airways, Ltd. v. Sabena, Belgian World Airlines, 731 F.2d 909, 931 (D.C. Cir. 1984) ('[The Court] is not required to give effect to foreign judicial proceedings grounded on policies which do violence to its own fundamental interests.')

Recently, in Yahoo! Inc. v. La Ligue Contre Le Racisme Et L'Antisemitisme, 169 F. Supp. 2d 1181, 1192 (N.D. Cal. 2001), the court held that the order of a French court, barring Yahoo! from selling Nazi memorabilia on its website, was unenforceable in the U.S. Noting that the 'Internet in effect allows one to speak in more than one place at the same time,' the court found the French court's order, 'while entitled to great deference as an articulation of French law, clearly would be inconsistent with the First Amendment if mandated by a court in the United States.' Id. at 1192. Therefore, the court concluded that the principle of comity was outweighed by the court's obligation to uphold the First Amendment. Id. at 1193.

  B.  Comity and Trademark Law

As discussed above (Point IC), trademark law is inherently territorial. The territorial nature of trademark law dictates against the application of comity principles to foreign trademark infringement cases. Therefore, U.S. courts have refused to enforce foreign court decisions concerning the trademark rights of particular parties and have held that such decisions are irrelevant in U.S. trademark cases. See Calzaturificio Rangoni S.p.A. v. United States Shoe Corp., 868 F. Supp. 1414, (S.D.N.Y. 1994).

Whether or not a U.S. court would enforce a foreign trademark infringement judgment, based on the operation of a website, against a U.S. company largely depends on the circumstances of the case. If the U.S. company purposefully availed itself of the other country's jurisdiction through continuous sales or other commercial contacts in that country, then the chances are greater. On the other hand, if such a company did not target citizens of the foreign country and took sufficient measures to preclude use of its website by persons in that country, the Yahoo! decision and established precedent regarding comity and trademark territoriality suggests that it is unlikely that a U.S. court would enforce a foreign trademark infringement judgment against the company, especially if such judgment would require the company to change its website in a manner which would negatively impact on its lawful right to use the mark in the U.S.

Indeed, if a U.S. company were to take bona fide and serious measures to avoid contact with non-U.S. residents, a U.S. court should find the exercise of jurisdiction by a foreign court to be antithetical to U.S. principles of due process and repugnant to public policy. Moreover, depending on the content and nature of the company's services, the Yahoo! case suggests that the First Amendment and principles of free speech may also militate against U.S. enforcement of a foreign judgment related to the operation of a U.S. company's website.

IV.  Limiting Exposure

As we have seen, operation of a website exposes companies to potential liability throughout the world. Whether or not a company can be successfully sued for trademark infringement in some foreign jurisdictions and whether a foreign judgment will be enforced in the U.S. depends to a large degree on the level of interactivity of the website and/or if the company has other commercial contacts with the particular country in question. Obviously, to the extent that a website is more interactive, the greater the risk that a foreign court will assert jurisdiction in a trademark infringement action. In view of the above, how does a company limit exposure to trademark infringement liability in foreign jurisdictions based on the operation of a website?

We may draw lessons from Internet securities offerings and the guidelines formulated by certain countries for determining in what situations they will regulate the offering of securities over the Internet For example, in Hong Kong, the Securities and Futures Commission issued Guidance Notes on Internet Regulation that state that it will consider Hong Kong residents as being targeted and subject to its regulation if (1) information is directed or sent (for example, via e-mail) to persons whom the sender knows or should reasonably know to reside in Hong Kong or (2) if the information is available over the Internet and is presented in a form which appears to be targeted at Hong Kong residents (such as use of Chinese or making references to payments in Hong Kong dollars). Similarly, a 1998 U.S. Securities and Exchange Commission interpretive release on the application of federal securities laws to offshore Internet offering to be subject to SEC regulation if (1) the website uses a prominent disclaimer that the offer is directed only to countries other than the U.S., and (2) the website is 'reasonably designed to guard against sales to U.S. persons.'

Overall, companies that operate interactive websites or which have passive websites, but engage in commercial contacts in foreign jurisdictions, may wish to consider taking the following precautionary measures:

1.  Use software which automatically blocks access to and use of the website by persons whose IP addresses are located in jurisdictions where the company does not want to be exposed to litigation. There is, for example, software which blocks access to and use of websites by persons whose IP address are located outside the U.S. It should be noted that such software may not be foolproof. Companies have found that certain non-U.S. subscribers to America Online ('AOL') and other services using anonymous proxy servers, may be able to gain access to websites which employ blocking software. Further, there is always the remote possibility that, due to flaws in a company's system or for other reasons beyond a company's control, persons in other jurisdictions may successfully circumvent a company's controls and access the services on a website. If such software is unavailable or too costly a company can have users of the website affirmatively indicate their country of origin by using a pop-up or pull-down menu.

2.  Restrict use of paid website services to customers who pay with credit cards from, and who have billing addresses in, countries where the company is ready to be exposed to potential litigation.

3.  Decline transactions with persons in jurisdictions where the company does not wish to be exposed to litigation.

4.  Incorporate disclosures and disclaimers on the website which specifically state to whom the website services are available, and which clearly indicate that the website should only be used from within the acceptable jurisdictions. Make sure that such disclosures and disclaimers are prominent and appear throughout the website, not just on the home page or on the terms and conditions page, because a user of the website may have set up a 'bookmark' at a different page on the site or reach a different part of the site via a hyperlink from another website.

5.  Incorporate choice of law and forum clauses in the website terms and conditions of use and require users to scroll through the terms and conditions and expressly agree to be bound by them by clicking on a 'I accept' button.

6.  The website terms and conditions should specifically state that services provided free of charge do not constitute business transactions.

7.  Ensure that content on the website (including banner ads) do not target or offer services to residents of jurisdictions where the company does not want to be exposed to litigation.

8.  Use country-specific domain names names (e.g. .us (United States), .it (Italy), etc.), foreign language text, and/or national flags to show that the website is only available to residents of certain jurisdictions.

Notes

¹This paper does not address Internet jurisdiction in situations where parties have registered domain names that are similar or identical to trademarks in bad faith. Such cases are typically governed by the U.S. Anticybergquatting Protection Act, 15 U.S.C. §1125(d) and the Uniform Dispute Resolution Policy (UDRP).

This article was published in the November 2002 issue of Intellectual Property Counselor, as well as in conjunction with the Practicising Law Institute's Advanced Seminar on Trademark Law.

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