In legal terms, the issue is this -- can the local court exercise "jurisdiction" over a foreign business not physically present locally? Slowly, a body of Internet law on this important topic is evolving. We'll look at some of the more recent cases on the topic to see the how the courts are handling the matter.
"Zippo Dot Com" is the domain name for a California newsgroup Web site. Some of the messages in their newsgroups contain adult oriented, sexually explicit subject matter.
They were sued in Pennsylvania for trademark infringement by the owners of the famous trademark ZIPPO (as in Zippo lighters) whose head office is in that State.
Zippo Dot Com's Web site contains information about their news service, advertisements and an application form to subscribe to the service. Subscription payments are made, on-line, by credit card. The subscriber is then issued a password. Newsgroup messages are stored in the California-based server.
Zippo Dot Com's only connection with Pennsylvania is their 3,000 local subscribers, which represents only 2% of their 140,000 worldwide subscribers. They maintain no offices or employees in Pennsylvania. The question the Pennsylvania court had to first come to grips with is whether they could exercise jurisdiction over them.
The court reviewed "jurisdiction" cases and it seemed to the court that the likelihood of a local court being able to exercise jurisdiction over a non-resident was "directly proportionate to the nature and quality of commercial activity that an entity conducts (locally) over the Internet."
The Pennsylvania court said that a clear example of not doing business locally was like that which involved the famous New York City jazz club, "The Blue Note." A Missouri business operated a small jazz club, also under the name "The Blue Note," and when the Missouri club opened a Web site with the domain name "The Blue Note," the New York company sued for trademark infringement in the State of New York.
Could the New York courts exercise jurisdiction over the Missouri business? The New York courts said, "no" since the Missouri Web site was a "passive" Web site -- that is, one "that does little more than make information available to those who are interested in it," and they therefore were not active within the State of New York.
This is why the New York court felt that the Missouri Web site was passive --
"If the user wished to attend a show (in the Missouri jazz club), he or she would have to telephone the box office in Missouri and reserve tickets...(the) user would need to pick up the tickets in Missouri because the (Missouri) club does not mail or otherwise transmit tickets to the user. ...the act of infringement would have occurred in Missouri and not New York. The mere fact that a person can gain information on the allegedly infringing product is not the (same as) a person advertising, promoting, selling or...making an effort to target its product in New York."
The Pennsylvania court then looked at the exact opposite end of the spectrum, which was a situation that involves "the knowing and repeated transmission of computer files over the Internet"-- in such a situation the Pennsylvania court could exercise jurisdiction.
The Pennsylvania court then looked at what it called the middle ground in this spectrum. "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... the level of interactivity and commercial nature of the exchange of information that occurs on the Web site."
In the end, the Pennsylvania court concluded that it did have jurisdiction over Zippo Dot Com.
"This is a 'doing business over the Internet' case...(in which) Dot Com's conducting of electronic commerce with Pennsylvania residents constitutes...doing business in Pennsylvania (in line with the middle ground). ...Dot Com has contracted with approximately 3,000 individuals and seven Internet access providers in Pennsylvania...Dot Com has done more than advertise on the Internet in Pennsylvania. (They) have sold passwords...and entered into seven contracts...to furnish its services (here)."