Internet Contacts Insufficient to Confer Personal Jurisdiction

In a case of first impression in the District of Oregon, Judge Aiken ruled that defendants' interactive Internet Web site did not provide sufficient minimum contacts for the assertion of personal jurisdiction over them, and granted defendants' motion to dismiss under Fed.R.Civ.P. 12(b)(2). (Millennium Enterprises, Inc. et al. v. Millennium Music, LP and Millennium Music, Inc., Civ.  98-1058-AA).

Plaintiff is the owner of two retail music stores operating in Portland under the name "Music Millennium." Defendants own two music stores in Charleston, S.C. called "Millennium Music" as well as a federal trademark registration for the mark. Plaintiff sued for trademark infringement under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), alleging there was a likelihood of confusion arising from the parties' use of similar names for similar goods. Plaintiff's complaint also included supplemental state law claims for unlawful trade practices, trademark infringement and trademark dilution.

Defendants' moved to dismiss for lack of personal jurisdiction, asserting that they had no physical presence in Oregon, they neither owned nor leased property in the state, they were not registered to do business in Oregon, and that their principals had literally never set foot in the state. Defendants' only contacts with Oregon were: 1) a single sale of one double compact disc to an Oregon resident; 2) extremely small purchases of specialized classical CDs from an Oregon supplier; and 3) an interactive Internet site available to anyone in the world with Web access. Defendants argued that these very limited contacts fell far short of the minimum contacts necessary for the exercise of personal jurisdiction under well established precedent.

Plaintiff argued that the sale of a compact disc to an Oregon resident over the Internet constituted "purposeful availment" of the Oregon forum. Plaintiff also claimed that the purchases by defendants of compact discs from an Oregon supplier provided sufficient minimum contacts, and that defendants' activities harmed plaintiff in Oregon, thereby satisfying the "effects test" for personal jurisdiction articulated in Indianapolis Colts, Inc. v. Metropolitan Baltimore Football Club.[2] Finally, plaintiff asserted that defendants' interactive Internet Web site created sufficient contacts with Oregon to permit the exercise of personal jurisdiction.

Judge Aiken began by distinguishing between general and specific jurisdiction, as outlined by the Supreme Court in Helicopteros Nacionales de Colombia S.A. v. Hall.[3] She quickly dismissed any notion that general jurisdiction was available, since defendants' contacts with Oregon fell far short of the "systematic and continuous" level necessary. She stated that she was "aware of no case in which a court asserted general jurisdiction based on the existence of an Internet Web site[.]," and cited a California case which declined to do so.[4]

Judge Aiken then turned to the trickier question of whether the court could assert specific jurisdiction over defendants. She reviewed relevant Supreme Court and Ninth Circuit authority[5] and pointed out that specific jurisdiction requires three elements: (1) purposeful availment, i.e., "the defendant must perform some act or consummate some transaction within the forum by which it 'purposefully avails' itself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of the forum and having 'fair warning' that a particular activity may subject it to jurisdiction"; (2) the claim must be one which arises out of or results from the defendant's forum related activities; and (3) the court's exercise of jurisdiction must be reasonable.

Judge Aiken rejected any reliance on the Internet sale to a Lake Oswego resident, since plaintiff had manufactured that sale one week before the complaint was filed and the single sale therefore could not be considered a "purposeful availment" by defendants in Oregon.[6] Judge Aiken ruled that defendants' small scale purchases from an Oregon supplier were insufficient to confer personal jurisdiction since plaintiff's cause of action did not arise from or relate to those purchases. Plaintiff's "effects" test was likewise rejected, as plaintiff could offer no evidence that defendants intentionally directed activities in Oregon knowing that plaintiff would be harmed.

The judge then turned to the central question raised by the case: Was defendants' Internet Web site sufficient to establish personal jurisdiction in Oregon? She thoroughly reviewed the growing body of law in this area and pointed out that most of the decisions rested on the level of defendant's contacts with the forum through the Web, or a combination of Internet and other business-related contacts. Where the defendant had a very active Web site and could be said to be conducting business with residents of the forum through the Web, personal jurisdiction was almost always proper.[7] On the other hand, where the defendant's Web site was passive and merely advertised and provided information on line, courts had generally declined to exercise jurisdiction.[8]

Judge Aiken noted that the Ninth Circuit was "one of the few circuits which has jumped into the fray of Internet contacts and personal jurisdiction." In Cybersell, Inc. v. Cybersell, Inc.,[9] the court cited with approval the "sliding scale" approach of Zippo Mfg.,[10] where the court reasoned that the constitutionality of the exercise of jurisdiction is directly proportional to the nature and quality of defendant's Internet activity.[11] The Ninth Circuit affirmed a dismissal for lack of personal jurisdiction over a company with a passive Web site that had virtually no contacts with the Arizona forum. However, in Panavision Int'l. L.P. v. Toeppen,[12] the court permitted the exercise of personal jurisdiction where the defendant had registered established trademarks as domain names for his Web sites and then attempted to sell the names back to the trademark owners. Since this intentional conduct was likely to injure plaintiff in California, where it had its principal place of business, the Ninth Circuit permitted the exercise of personal jurisdiction there.

Turning to her analysis of defendants' Internet activity, Judge Aiken noted that it fell into a middle area. Defendants' Web site was admittedly interactive, but they were not "doing business" over the Internet because their Internet sales were infinitesimal.[13] Defendants' Web site was not, however, strictly passive, since it permitted an exchange of information between users and defendants.

Judge Aiken refined the "sliding scale" of Zippo Mfg.[14] to require, as a "fundamental requirement" of personal jurisdiction, some deliberate action by defendants within the forum state. In the instant case, defendants had neither consummated any transactions nor made deliberate and repeated contacts with Oregon through the Web. While it was foreseeable that such contacts could occur in Oregon or elsewhere, foreseeability alone was insufficient to establish jurisdiction under World-Wide Volkswagen Corp. v. Woodson.[15] Judge Aiken concluded that defendants' Web site was not "purposefully direct[ed]" towards Oregon and did not create any "substantial connection" with the state. Therefore, since defendants did not have "fair warning" that they could be haled into a distant forum, the assertion of personal jurisdiction over them was not constitutionally permissible.

[1] The author gratefully acknowledges the assistance of David S. Fine, Senior Law Clerk at Chernoff, Vilhauer, McClung & Stenzel LLP, in the preparation of this article.
[2] 34 F.3d 410 (7th Cir. 1994).
[3] 466 U.S. 408, 414 (1984).
[4] McDonough v. Fallon McElligott, Inc., 1996 WL 753991, 40 U.S.P.Q. 2d 1826 (S.D. Cal. 1996).
[5] Burger King Corp. v. Rudzewic, 471 U.S. 462, 472 (1985); Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1994); Roth v. Garcia Marquez, 942 F.2d 617, 620 (9th Cir. 1991).
[6] See e.g., Edberg v. Neogen Corp., 17 F.Supp 2d 104, 112 (D.Conn. 1998).
[7] See e.g., CompuServe, Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996); Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F.Supp 1119 (W.D. Penn. 1997).
[8] See e.g., Bensusan Restaurant Corp. v. King, 937 F.Supp. 295 (S.D.N.Y. 1996), aff'd, 126 F.3d 25 (2nd Cir. 1997): Edberg v. Neogen, supra n. 6.
[9] 130 F.3d 414 (9th Cir. 1997).
[10] Supra n. 7.
[11] 952 F.Supp at 1124.
[12] 141 F.3d 1316 (9th Cir. 1998).
[13] It was undisputed that defendants' total CD sales through their Web site were only $225.
[14] Supra n. 7.
[15] 444 U.S. 286, 297 (1980).