Technology Law Column

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Published in the Chicago Daily Law Bulletin, August 8, 1996, at page 6.

Long Arm of the Law Reaches Far Into Cyberspace.

Copyright 1996 by David Loundy

Growth in electronic commerce is producing growth in lawsuits resulting from electronic commerce. The result of conducting business in "Cyberspace" may be lawsuits in the "real world," or "Meatspace" as some people now call it. Just where are you subjecting yourself to suit as a result of your on-line activities? Two recent cases have addressed this issue.

The first such case is CompuServe v. Patterson, 1996 WL 405356 (6th Cir.(Ohio)), No. 95-3452, July 22, 1996. This case involved Richard Patterson, a Texas attorney and software author. Mr. Patterson is a CompuServe subscriber. CompuServe is an Ohio-based company. When Mr. Patterson connects to CompuServe, he connects, presumably through a local Texas phone number, to CompuServe's computers, which happen to be located it Ohio.

One of the reasons Patterson uses CompuServe is to distribute his software. He entered into an electronic agreement with CompuServe to distribute software he uploads to CompuServe's computers to other CompuServe subscribers. Subscribers who download the software and pay the "shareware" fee send their money to CompuServe, which then deducts a percentage and sends the rest to Patterson. The standard electronic distribution agreement "was first manifested at [Patterson's] own computer in Texas, then transmitted to the CompuServe computer system in Ohio" (opinion at *2). The contract and the terms of service to which the agreement referred both stated that they were entered into in Ohio, and the terms of service stated that it is to be governed by Ohio law.

Mr. Patterson got into a dispute with CompuServe over some software that CompuServe is now distributing with a name and function similar to his software. After Patterson asked for a $100,000 settlement, CompuServe filed suit for a declaratory judgment that it had not infringed on Patterson's trademarks or competed unfairly with him. CompuServe filed suit in an Ohio court, and Patterson objected to the court's jurisdiction.

A lower court ruled in favor of Patterson, but the Sixth Circuit reversed. On appeal, the Sixth Circuit was asked to answer whether predominantly "electronic contacts" are sufficient to give a state personal jurisdiction over someone conducting such an on-line business. The Sixth Circuit's answer was yes.

The Ohio long-arm statute allows an Ohio court to exercise jurisdiction over a non-resident "transacting business" in the state to the full extent allowed by the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution.

In finding it had jurisdiction the court looked to see whether the following tests were met:

First, the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state. Second, the cause of action must arise from the defendant's activities there. Finally, the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum to make the exercise of jurisdiction over the defendant reasonable. (Opinion at *5)
The court considered the fact that Patterson had entered into the agreements by connecting to Ohio computers, that he sent his software and communications with CompuServe to computers in Ohio, that he advertised his software on CompuServe's Ohio computers, and that he had, in effect, used Ohio-based CompuServe to distribute his wares in an on-going business relationship-- even though there was no "physical" contact with Ohio. The court found particularly important the fact that Patterson had "originated and maintained" the relationship, and that he had "contacted" CompuServe in Ohio in order to settle his dispute.

In looking to see whether Patterson's activities had occurred in Ohio, the court found that the answer to this question was also "yes." The court held that, because Patterson was using Ohio-based CompuServe as his advertising and distribution channel, all of the proceeds were funneled through Ohio, and any common-law trademark would have been created in Ohio, there were clearly sufficient contacts with Ohio to satisfy this second prong. The court again held it relevant that Patterson had sent his demand letters to Ohio. In satisfying the "reasonableness" prong, the court held that Patterson's entering into the shareware distribution agreement, as well as CompuServe's potential $10 million liability, made Ohio jurisdiction over Patterson's dispute reasonable.

The second case, Playboy Enterprises, Inc. v. Chuckleberry Publishing, Inc., S.D.N.Y., No. 79. Civ. 3525 (SAS), June 19, 1996, involves an Italian web site which violated a 1981 U.S. injunction against distributing certain material in the United States

One of the defendants, Tattilo Editrice, S.p.A, publishes an Italian-language magazine called "PLAYMEN." In 1979, when Tattilo planned on selling its magazine in the U.S., Playboy Enterprises succeeded in obtaining an injunction against the sale of PLAYMEN in the U.S. under the claim that, among other things, the Italian magazine infringes on Playboy's trademark rights. Playboy was not, however, successful in enjoining the sale of PLAYMEN in Italy. The U.S. injunction prohibits the use of the word "PLAYMEN" "on the cover of a male sophisticate magazine, published, distributed or sold in the United States;" the "publishing, printing, distributing or selling in the United States and importing into or exporting from the United States an English language magazine which uses the word 'PLAYMEN' [...] on the cover; "and "publishing, printing, distributing or selling in the United States and importing into or exporting from the United States an English language male sophisticate magazine which uses the word 'PLAYMEN' [...] on the cover of such magazine."

Early in 1996, Playboy discovered that Tattilo had established two services on a World Wide Web site-- a free service and a subscription service. Although the site is located on a machine in Italy, it is accessible world-wide. Through the free site, users can call up web pages and see the cover of PLAYMEN magazine, see images from the magazine, see ads for and receive discounts on other PLAYMEN products, and, of course, see ads for the pay service containing more of the magazine's content. To gain access to the pay site, a user must fill out and fax a form to Tattilo, which then sends back a password and I.D by e-mail.

The court began its analysis by holding that, just because the parties did not contemplate Internet distribution mechanisms in the 1981 injunction, that does not mean that the injunction cannot be applied to this form of distribution. The court then looked to see if the injunction was violated as a result of the word PLAYMEN being used as a commercial designation on an English language publication (or related project) sold or distributed in the U.S. The court had jurisdiction over the defendant under the original 1981 injunction.

The court found the word "PLAYMEN" was clearly used as a commercial designation because of the "" Internet address (URL) appearing with each page, as well as the more obvious PLAYMEN name and logo on the pages themselves. The court found the "publication" element met, stating that even if the Internet site was not a "publication" it was clearly a related product, and although much of the site's text is written in Italian, there was enough English to allow easy navigation of the site (and prices were offered in U.S. dollars).

The last element-- whether the materials were distributed in the U.S.-- the court admitted was a more difficult issue to resolve. The court rejected the defendant's view that the web site was analogous to flying to Italy to receive the material. Rather, the court held that Tattilo's soliciting of U.S. customers over the Italian web site, receiving their faxes, and e-mailing them passwords, constituted distribution in the United States.

In holding that the injunction was violated, the court acknowledged the international nature of the Internet, yet stated "[w]hile this Court has neither the jurisdiction nor the desire to prohibit the creation of Internet sites around the globe, it may prohibit access to those sites in this country."

Both the Playboyand the CompuServe cases raise some interesting jurisdictional issues. In the CompuServe case, the computers through which Patterson's software, advertising, and e-mail were distributed-- all important factors in the court's decision-- could have been located anywhere. In fact, the service (or parts of it) could have been "mirrored" in various locations without Patterson knowing in which state or country the machines to which he was connected were located. Thus, these important factors in the court's decision are essentially coincidental. Such "coincidences" are becoming commonplace in the on-line world.

In the Playboy case, the court expressly allowed that an Italian customer who received a password to the PLAYMEN service and then moved to the U.S. could maintain his or her subscription, yet did not address the issue as to whether a U.S. visitor to Italy could obtain a password and maintain the subscription upon return home. In both of these instances the actions on the part of the defendant would be identical; only the passport of the user would differ.

In a world of "virtual corporations" with business being conducted from wherever computer services can be had at the best terms, unfortunately neither of these cases provide much clarity to the jurisdiction question.

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