Can Jurisdiction Over Infringers Be Manufactured?
It’s 4:30 on a Friday afternoon. Your phone rings. It is your biggest client, a New York company that makes widgets. "Help," your client pleads, "there is a California company that is copying our widgets! You can see them on the company’s website."
You go on the website to check things out. You find the infringing widgets but notice that the website is not interactive. You cannot make a purchase through the website, rather you must call, email, or visit the infringer to purchase the infringing widget. "We want to sue them right away for infringement—and we want to sue them here, in New York," your client says. "Let's think about this," you say. "This is a pretty savvy infringer. By disabling any interactivity on the website, this infringer is clearly trying to avoid getting sued in New York, or any other foreign jurisdiction for that matter." "I don't understand," says the client. "Why should we have to go to California to enforce our rights that this company is clearly infringing?" You put your thinking cap on. "I have an idea," you say. "We will call this California company and order an infringing widget to be shipped to New York." Done! Jurisdiction in New York obtained! Or maybe not….
The New Trend: Deactivate That Website. Today, virtually anything can be purchased from your computer, tablet, smartphone, or personal mobile device. As online shopping has become increasingly popular, companies have expanded their use of the Internet to reach customers located far and wide. Companies can market and sell just about anything online—to customers located just about anywhere—including clothing, household appliances, life insurance, and travel packages. This, unfortunately, also gives infringers or counterfeiters a potentially unlimited geographic reach.
For a time, companies were largely unaware that they could be haled into court in a foreign jurisdiction—where they maintain no physical presence or direct any purposeful activity—based solely on their Internet activities. But questions of personal jurisdiction with respect to internet-related activities have been litigated for over a decade, now. And while the courts continue to diverge on this issue, the general rule remains that courts are most likely to find personal jurisdiction over a foreign company whose website is interactive, meaning that customers can complete transactions through the website.1 With this as their guidepost, potential infringers have found creative ways to minimize their exposure to lawsuits in foreign jurisdictions.
The recent trend, undoubtedly fueled by case law finding jurisdiction based on Internet activity, is for a company to deactivate portions of its website in order make it less apparent that the website is directing itself to customers located in other states. The easiest way to accomplish this is by prohibiting customers from completing transactions through the website. For example, a company's website may provide all the promotional materials and local contact information necessary to consummate a sale, but stop just short of allowing potential customers to purchase the desired goods or services online. In that instance, the customer must call, email, or visit the company to purchase the goods or services. Not only does this effort allow the company to exercise discretion in selling its goods or services, but it removes the company from the "highly interactive" category of Internet activity. Stated differently, if, for example, a California company is selling goods or services that may infringe a New York company's intellectual property, by deleting the interactive portions of its website, the California company will likely be able to avoid any infringing sales—and any resulting lawsuit—in New York.
To counteract this trend, it has become common practice for plaintiffs to "manufacture" a sale in their home states before filing a lawsuit. But assuming there are no other known contacts or transactions in New York, is the single, manufactured sale sufficient to achieve personal jurisdiction over the infringing non-New York defendant? While the law continues to develop on this issue, courts are increasingly wary of plaintiffs' attempts to engineer personal jurisdiction. Practitioners should be aware of the recent case law refusing to recognize manufactured contacts for jurisdictional purposes.
Long-Arm Jurisdiction and Due Process. New York's long-arm statute permits a court to exercise personal jurisdiction over an out-of-state defendant in two circumstances that are relevant to this analysis: (1) where the defendant "transacts any business within the state or contracts anywhere to supply goods or services in the state"2 and the plaintiff's claim "results from that transaction;"3 or (2) where the defendant "commits a tortious act without the state causing injury to person or property within the state" and the defendant "expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce."4
Section 302 is a "single-act statute," which means that one transaction may suffice to confer jurisdiction…. But that transaction must have been purposefully entered into, and there must be a "substantial nexus" between the transacted business and the cause of action.5
Because a website is equally accessible anywhere, a party does not subject itself to jurisdiction simply because it maintains a website that residents of the forum state may access. Courts have thus developed a "sliding scale" or "spectrum of interactivity" analysis where jurisdiction is premised on the use of a website by residents of a forum state:
[a]t one end [of the spectrum] are "passive" websites—i.e., those that merely make information available to viewers. Such websites have been analogized to an advertisement in a nationally-available magazine or newspaper, and [do] not without more justify the exercise of jurisdiction over the defendant. At the other end of the spectrum are "interactive" websites—i.e., those that knowingly transmit goods or services to users in other states. Where an "interactive" website is not only available but also purposefully directs activity into [the] forum state—for example, by making sales of goods or services to New York residents—those activities can be sufficient to trigger jurisdiction under [§302].6