Legally speaking, however, the Internet does not wipe out the borders of states, rather it merely makes them much easier to cross. Indeed, notwithstanding a constantly growing list of international treaties and agreements between a large number of countries (in both a bilateral and unilateral context), the law, for the most part, is still doggedly, stubbornly national in scope.
The tension created by, on the one hand, an intensely global technology, and on the other, an essentially local legal regime, animates an important question for businesses and others active in the online world: namely, when will a court in, say, the US, take jurisdiction over the actions of Canadian business solely on the strength of that business' Internet-related activity? That is, the Canadian company has no physical presence - an office, plant, etc. - in the US, but has an electronic presence courtesy of its Web site being accessed by Americans. Based on these facts, can the Canadian company be taken to court in the US?
As with most novel and thorny Internet-related legal issues, there is useful pre-Internet jurisprudence involving earlier communications technologies that, to a greater or lesser extent, may be drawn upon. For instance, turning the tables briefly in our example, Canadian courts have permitted persons in Canada to bring defamation claims in this country on the basis of television broadcasts beamed into Canada from US television stations. The key question for Canadian judges in these cases (and others involving actions resident outside of Canada) is whether, on all the facts, there is a real and substantial connection between the event complained of and the Canadian jurisdiction.
Attention All Forum Shoppers.
Forum shopping plaintiffs beware. Just because a Web site is accessible from all points around the world does not mean that suits should be brought everywhere indiscriminately. Tactical issues still have to be considered. Notwithstanding that a sufficient connection exists between the foreign defendant and Canada, courts in this country can still refuse to entertain the case if they believe, based on all the facts, that it would be more efficacious and convenient to try the matter on the defendant's home turf.
As well, even if you are successful in obtaining judgment against the foreign defendant in Canada, there is still the sometimes tricky matter of enforcing this judgment in the US. For example, in a case in the early 1990's a plaintiff brought a defamation suit in the UK against an American magazine whose main readership was in the US but also had some circulation in the UK.1 The plaintiff chose the UK forum because in the US the case would likely have failed given the stronger protection of the press' ability to print controversial material in that country. The forum shopping strategy, however, came unstuck when a New York court refused to enforce the UK judgment, concluding that to do so would effectively allow the plaintiff to do indirectly what it could not do directly.
Passive v. Active Web Sites.
Returning to the core substantive jurisdiction question for Canadians active on the Internet, the important query can usually be posed as "when will an American court assert jurisdiction over me or my Web-based behaviour"? In a leading American case2, the court approached this important matter by conceptualizing a continuum of Internet activity. At one end of the spectrum there is the "passive" Web site that simply presents information. In the brief history of the commercial Internet, these would be considered a "first generation" Web site, where a company, for example, merely put its product brochures and other marketing materials on line. Such a passive Web site generally does not lead to a finding of jurisdiction; that is, someone in Texas merely reviewing such material on a Canadian-based Web site should not be able to haul the Canadian Web site operator into a Dallas court room. A recent Canadian case, following the US jurisprudence, made just such a finding.3
By contrast, where the Web site contains features giving it "full interactivity" that facilitates e-commerce, courts will not hesitate to take jurisdiction over the out-of-state Web site operator. For instance, if the Web site permits users to register on the site and order products, the US court will have little difficulty concluding that the Web site operator is carrying on business in the local jurisdiction by means of the Internet, and hence any purchaser of its products or services is entitled to bring it before the local courts, except where - and this is an important exception - the parties have agreed on a different governing law and venue for lawsuits, as was the case in a recent Ontario decision (more on this in next month's column).
Between the passive and fully interactive Web sites are a host of degrees of interactivity where the courts, on a case-by-case basis, will assess whether the Web site's activities are sufficient to constitute connections sufficient for the taking of jurisdiction. In general terms, the trend in the US is for American courts to take a relatively expansive view of their jurisdiction and to find jurisdiction wherever the Web site, however indirectly, leads to a sale of some product or service.
Practical Jurisdiction Considerations.
This conclusion leads to some very practical lessons for Canadian Web site operators. First and foremost, behave as if you are or will be subject to the local courts of those states where your US Internet customers are resident. This is no different than if you had established a subsidiary company in that state. The practical difference, however, is that when you establish a US affiliate, retain a US law firm to assist with this, and enter into a lease for an office, etc., you are invariably going to think through all the issues relevant to doing business in the US. By contrast, it's very easy to forget about these matters when you do business over the Internet.
These issues will include: liability planning, including whether to use a separate subsidiary for US activities; tax planning, both from an income tax and sales tax perspective; intellectual property review, including whether you have the right to use your trade-marks in the US; insurance review, including whether your coverage is sufficient for US purposes; and compliance review (i.e. - can you even carry on the particular business in the US?). In effect, all these issues have to be thought through pro-actively by the Canadian business entering the US market, whether you are doing so physically through a local office, or whether you are doing it electronically over the Internet.
1. Bachan v. India Abroad Publications Incorporated, 585 N.Y.S. 2d 661 (Sup. 1992)
2. Zippo Manufacturing Company v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997)
3. Braintech, Inc. v. John C. Kostiuk, 1999 B.C.C.A. 0169 (B.C.C.A., March 18, 1999)
George S. Takach is a partner in the Toronto office of McCarthy Tétrault, where he is Head of the High Tech Law Group.