World Wide Web Ads: A Summons Into Court Far Away

By Edward H. Trompke

You've got your web site up. You've done everything the marketers say. Now you are waiting for business on the internet. Instead of an email, you receive a summons into court from another company or a customer who has contacted you via the web. Must you answer in the far away jurisdiction? Or can you ignore the action and wait until a local action is brought against you?

In many cases, the answer will depend upon what state the action is brought by the other company, and what the alleged misdeed of you or your company is.

In any case, you should not ignore the action and should seek competent legal advice about whether the court has jurisdiction over your business. Having said that, there are certain rules that many courts will follow.

First, creating a web site, like placing a product into the stream of commerce, has nationwide effects (or even worldwide effects), but without more is not an act purposefully directed to doing business in any state. In most states a business must engage in more activity than creation of a web site to establish jurisdiction over your company in the other state. However, a few courts have held that the existence of a web site alone is enough to allow for exercise of personal jurisdiction over an out of state company. Unfortunately for those of us on the west coast, most of those jurisdictions appear to be on the east coast. Therefore, an Oregon company advertising on the internet may find itself defending a lawsuit in Connecticut if a Connecticut resident believes that the Oregon company has infringed its trademark or service mark, or has otherwise caused it injury.

One of the most common causes of action is for trademark infringement. For example, a lawyer in Philadelphia established a web site called "esquire.com". Hearst Corp., owner of Esquire magazine, brought an action for trademark infringement in New York. The New York court found that the lawyer was not soliciting clients in New York and therefore should not be sued there. The court did not address the question whether the lawyer did infringe the trademark of Hearst Corp.

In another case, a California company advertised on the internet. More than 100 Missouri residents viewed the advertisement. It is unclear whether any sales were made into Missouri. A Missouri company sued the California company for trademark infringement in Missouri, and the court found that the action was properly brought in Missouri.

Based on these court rulings, it is easy to be forced to defend in distant states for trademark violations. Establishing damages in a trademark or service mark infringement case turns upon whether there is a substantial likelihood of confusion in the mind of the public. In fact, there is no consistent application of the law as both juries and judges seem easily confused in many cases and remarkably able to discern minute differences in other cases.

To avoid the problem, a 50 state (and federal) trademark search should be undertaken prior to choosing a trade name. This can be expensive and will rule out most names, however. When sales are actually made on the internet, a contract is formed and many states find that this activity is sufficient to force the seller to defend a lawsuit in the distant state. There is only one protection for such action. Every contract entered into over the internet, and every internet web site should contain language establishing exclusive court jurisdiction in the state of the seller. However, because consumer protection advocates often challenge choice of jurisdiction provisions as unduly harsh on consumers, the contract should state that the jurisdiction is a material term of the contract, that seller would not enter into the contract but for the provision, and that the contract is not effective until accepted and signed by the seller in the home state. These provisions should protect most businesses from all but the most provincial small town judge (of which there are a few left).

Another safety mechanism is to put on the home page, in type sufficiently large to be visible, language to the effect that "Welcome to our web site. Access to the information in this site is restricted to people who accept the terms of this agreement. Any contract arising out of the information or words and graphics on this site will be construed under the law of Oregon, and any disputes arising from the information on this site will be decided in the courts or arbitral forums in the state of Oregon. Click here to accept these terms and visit our web site."

Even such a disclaimer will not protect against criminal actions or consumer protection actions brought by a state's attorney general or other regulator. Therefore, before raising funds for business purposes franchise or (securities law violations) offering games of chance (gambling) or engaging in other questionable activities, every business owner should check with an attorney to determine that laws are generally not being violated. There are enough laws in enough states that no one can be certain that no law is violated. There is even some confusion about whether state law or federal law should apply, since Congress passed a law in 1996 pre-empting many state laws. The scope of the law will be tested further in the courts.

When obtaining a domain name, the agency which assigns names does not check for trademark violations nor for other proprietary rights. Therefore, unscrupulous "cybersquatters" have obtained such names as "panavision" as a domain name. Use of the name can result in an action for damages in a distant state. It can be very difficult to enforce registered trademarks against companies advertising on the internet, but such actions are necessary to preserve the trademark or service mark.

In summary, the law is unclear. Many states will apply different standards and some states apply different standards for different purposes. Therefore, companies should take steps to protect themselves, as a cost of doing business, but will probably end up passing on the cost of defense of actions on the internet.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

BACK TO TOP | BACK TO ARTICLE INDEX | PRINTER-FRIENDLY PAGE