| Jurisdiction
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Purposeful availment required for US jurisdiction
by Laura Seeto, Freehills
Laura Seeto, solicitor in Freehills' Corporate Group, comments on the case Toys "R" Us Inc v Step Two SA, in which Toys "R" Us alleged that Step Two, a Spanish company, had used their websites to engage in trademark infringement. The US Court of Appeals ruled that a court cannot exercise personal jurisdiction over a website operator outside its jurisdiction unless the website operator has purposefully availed itself of conducting activity in the forum state, reaffirming existing law relating to personal injury.
Laura Seeto is a solicitor in Freehills' Corporate group.
On 27 January 2003, the United States Court of Appeals for the Third Circuit ruled that a court may not exercise specific personal jurisdiction over a website operator outside the jurisdiction unless there is evidence that the operator purposely availed itself of conducting activity in the forum state. [1]
The US companies, Toys "R" Us Inc and Geoffrey Inc (Toys), claimed that two Spanish companies, Step Two SA and Imaginarium Net SL (Step Two), had used their internet websites to engage in trademark infringement, unfair competition, misuse of the trademark notice symbol and unlawful cybersquatting. Toys owned a network of Imaginarium stores selling educational toys and games, a number of Imaginarium trademarks, and the domain names, www.imaginarium.com, registered in 1995, and www.imaginarium.net, which was registered in April 1999 and offered Imaginarium merchandise for sale.
Step Two owned 165 stores operating under the name Imaginarium in Spain and nine other countries, with the same façade and logo, and similar merchandise, as Toys' stores. Step Two did not operate any stores in the US, nor did it have any US bank accounts or employees. Step Two first registered the Imaginarium mark in Spain in 1991, and subsequently registered the mark in several other countries where its stores were located. In 1996, Step Two registered the domain name www.imaginarium.es. In June 1999, two additional domain names, www.imaginariumworld.com and www.imaginarium-world.com, were registered, followed by www.imaginariumnet.com, www.imaginariumnet.net and www.imaginariumnet.org in May 2000. In February 2001, four of the Step Two websites allowed customers to purchase merchandise online.
The District Court denied Toys' jurisidictional discovery request and dismissed the case for lack of personal jurisdiction. Toys appealed to the Court of Appeals.
In concluding that specific personal jurisdiction could not be exercised over Step Two, the Court, relying on previous decisions [2], stated that the exercise of jurisdiction requires minimum contacts, that is, the defendant must have purposefully availed itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws. The mere operation of a commercially interactive website is insufficient to subject a website operator to jurisdiction anywhere in the world, 'something more' is required. The website operator must have intentionally and directly targeted its website to the forum state and/or knowingly conducted business with forum state residents via its website. The Court also noted that the defendant's non-internet activities may be included as part of the purposeful availment calculus.
Although the exact mix of internet and non-internet contacts required to support an exercise of personal jurisdiction was not considered, the Court commented that determination should be made on a case-by-case basis by assessing the nature and quality of the contacts, and that non-internet contacts such as serial business trips to the forum state, telephone and fax communications directed to the forum state, purchase contracts with forum state residents, contracts that apply the law of the forum state and advertisements in local newspapers, may form part of the 'something more' needed to establish personal jurisdiction.
The Court identified a number of factors demonstrating that Step Two's websites were not designed or intended to reach US customers, and thus failed to satisfy the purposeful availment requirement:
1. The websites were in Spanish;
2. Prices on the websites were listed in pesetas and euros; and
3. Goods ordered on the websites could only be shipped to addresses in Spain. More importantly, the websites were not designed to accommodate addresses within the US.
Toys produced evidence of two sales to US residents conducted via the Step Two websites. These purchases were orchestrated by Toys, and the goods shipped to a Spanish address. The Court concluded that the sales were fortuitous, random, and attenuated contacts, constituting only inconclusive circumstantial evidence that Step Two had targeted its website to US residents, or purposefully availed itself of any effort to conduct activity in the US.
Toys also asserted that the electronic newsletter and 'Club Imaginarium' emails that customers could register to receive on the Step Two websites constituted purposeful availment. The Court disagreed, stating that email correspondence by itself or even in conjunction with a single purchase, does not constitute sufficient minimum contacts.
Finally, Toys argued that personal jurisdiction could also be based on the effects in the forum state of a defendant's tortious actions elsewhere. The Court dismissed this argument on the grounds that Toys had not established that Step Two engaged in tortious behaviour expressly aimed at the US. Ultimately, Toys' inability to show intention on the part of Step Two was the key missing component in its case.
However, the Court of Appeals ruled that the District Court erred in denying Toys' request for jurisdictional discovery. Unless a plaintiff's claim is clearly frivolous or does not suggest with reasonable particularity the possible existence of the requisite contacts between the defendant and the forum state, discovery must be allowed before the District Court dismisses the case for lack of personal jurisdiction. Toys' request for jurisdictional discovery was, in the Court's opinion, a specific and reasonable follow up based on Toys' allegations of Step Two's mimicry of its marketing developments and intellectual property. The District Court's approach of focusing on Step Two's websites and its related activities precluded consideration of other internet and non-internet contacts, which, if explored, might provide the 'something more' required to bring Step Two within jurisdiction. In particular, further discovery into the fact that some of Step Two's merchandise was purchased from US vendors, and that the President of Step Two, Mr Felix Tena, attended the New York Toy Fair once each year, might shed light on Step Two's intentions with respect to the US market or the extent of its US business contacts. Discovery might also indicate whether these contacts directly facilitated Step Two's alleged exploitation of Toys' marketing techniques by supplying it with items identical to Toys' inventory to sell on its websites. The Court therefore ruled that jurisdictional discovery be allowed on the limited issue of Step Two's business activities in the US, including business plans, marketing strategies, sales and other commercial interactions, information exclusively possessed by Step Two and capable of speaking to an essential element of the personal jurisdiction calculus.
Footnotes
1 Toys "R" Us Inc v Step Two SA, 3d Cir., No 01-3390, 27/1/03.
2 Asahi Metal Indus Co Ltd v Superior Court of California 480 US 102 (1987); Zippo Mfg Co v Zippo Dot Com Inc 952 F Supp 1119 (WD Pa 1997); Desktop Technologies Inc v Colorworks Rerpod & Design 1999 WL 98572 (ED Pa Feb 25, 1999); ALS Scan v Digital Service Consultants Inc 293 F 3d 707 (4th Cir 2002); Cybersell Inc v Cybersell Inc 130 F 3d 414 (9th Cir 1997); Euromarket Designs Inc v Crate and Barrel Ltd 96 F Supp 2d 824 (ND Ill 2000).
March 2003 contents
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