Determining jurisdiction for companies that operate over the Internet is a very complicated issue. The question of jurisdiction is whether a particular court has the power to hear a lawsuit, impose sanctions and enforce judgments.
Companies that operate in cyberspace have an international presence and are not restricted by traditional notions of sovereign territories and boundaries. In theory, if a company has an Internet presence in every country, then every country has jurisdiction over the company. But this result is absurd and imposes unreasonable financial strains on companies that operate on the Internet. Hence, the law must evolve to address the jurisdictional question in the cyber age.
Traditional Jurisdiction in the United States
Generally, courts in the United States have two kinds of jurisdiction to hear a case -- personal jurisdiction and subject matter jurisdiction.
Subject matter jurisdiction refers to whether a court can hear a case on a particular subject and is usually pretty clear. For example, a Florida court has subject matter jurisdiction over a case that deals solely with enforcing Florida law.
Personal jurisdiction, on the other hand, refers to whether a court has power over the person or entity being sued or prosecuted. The basic concept behind determining personal jurisdiction is evaluating whether the state's courts have a vested interest in the person or entity. If an individual or entity resides in the state, then the Court has a vested interest.
Being served with a copy of a summons and complaint while physically present in a state is sufficient to give the court jurisdiction.
Not surprisingly, a person or entity can simply consent to a court having personal jurisdiction.
A court can also have personal jurisdiction over a company if it maintains certain "minimum contacts" with the state. The concept of "minimum contacts" is a complex fact-based analysis.
Minimum contacts becomes even more complicated for a company that operates in cyberspace.
A Contract Helps
As a threshold matter, a company operating over the Internet and interacting with consumers in several states, should have a contract that outlines which jurisdiction governs the transaction. Without a contractual provision providing for the proper jurisdiction and venue, the issue of jurisdiction is left to the courts to decide.
Examples of Disputes
Assuming there isn't a contract that provides for jurisdiction, here are some examples of disputes that may create jurisdictional issues:
A Florida company buys goods from a seller in Oregon. As luck would have it, the goods are defective. Where does the Florida company sue the Oregon seller? Does Florida or Oregon have jurisdiction over this matter? The answer depends on several factors.
Does the seller have a website that “reaches out” and solicits business in Florida?
Does the website allow the formation of online contracts with Florida residents?
Does the seller have salespeople in Florida, or a host of other considerations (e.g. whether the seller has sold thousands of goods to Florida residents).
Consider another example:
A multinational company purchases software delivered as a download only. The software corrupts the company's server. The seller does not have a physical store in any particular country. The seller operates exclusively as a web service. Just to complicate matters further, the company was incorporated in Cayman, has operations in most of the world, and bank accounts in Panama. To determine jurisdiction, the courts may have to analyze:
Where the software download was invoiced?
Where the software was downloaded?
The location of the seller's Internet Protocol (IP) address?
In the situation of the software seller, jurisdiction is determined by a "sliding scale" analysis of the activity of the website. If the software seller displays products or services and allows the user to enter into contracts and purchase products to be delivered to residents in a specific state, a U.S. court may determine that the software company is conducting business in that state and therefore that state has jurisdiction.
But then What?In both of the above examples, why does the seller have any incentive to respond to a court action in another state or country. The seller may think "I'm all the way in Oregon or Cayman, why do I care about what happens in a Florida Court." Well, the U.S. Constitution requires all states to give Full Faith and Credit to other states' rulings and laws. This requires courts to recognize out-of-state judgments. This means that a legitimate judgment from another state is enforceable as long as the proper procedures are followed. So, if the Buyer obtains a favorable judgment in Florida, the Oregon court will recognize the judgment and enforce it.
But, what happens if the seller is in another country. Well, that complicates matters even more and depends on bilateral or multilateral treaties or understandings. Some countries are notorious safe havens for scrupulous Internet activities because the country will not recognize nor enforce foreign judgments. Other countries have an interest in recognizing judgments in allied countries.
Moral of the Story
The question of jurisdiction presents complicated issues and the ever growing Internet, e-commerce, and cyberspace have complicated the issues even more.
To save time and money, have a contract with a jurisdiction provision;-)
~ Florida Cyber Lawyer, Robert Stines
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