Online-Transactions can trigger Specific Jurisdiction of U.S. Courts
Last October, a federal district court in Maine asserted personal, or specific,jurisdiction over a German information-technology company under what is known as the U.S.’ federal long-arm statute (or Federal Rule of Civil Procedure 4(k)(2)), see Plixer International, Inc. v. Scrutinizer GmbH (2017 U.S. Dist. LEXIS 172355). This took place despite the fact that the German company offered its services exclusively via its internet platform as opposed to delivering physical goods into the U.S. and had only a few transactions each year with U.S.-based clients.
There are different ways in which a court can establish or assert jurisdiction over a non-U.S. party or claim. General jurisdiction exists where a court in a given state has jurisdiction over a defendant in that state irrespective of the nature of the claim, when, for example, a corporation is incorporated in a particular state; but if the state is alleged to have jurisdiction over a defendant because the defendant's activities in that state gave rise to the claim itself, this would be specific jurisdiction. In the latter scenario, where general jurisdiction is lacking, the court must determine whether specific jurisdiction exists, typically by assessing the party’s so-called “minimum contacts” with the forum. This latter question was the decisive issue in Plixer International, Inc. v. Scrutinizer GmbH.
No physical presence, but transactions in the U.S.
Maine company Plixer International, Inc., which owns a U.S. registered trademark in the name “Scrutinizer”, filed suit against German Scrutinizer GmbH for trademark infringement. The German company filed a motion to dismiss and the court allowed the parties to conduct limited discovery on the issue of specific jurisdiction.
In support of its motion to dismiss, Scrutinizer GmbH stated that they had no physical presence in the U.S.: no offices in Maine or in any other U.S. state; no ownership of property; no direct advertising to the U.S. market; no employee of the defendant had ever been in the U.S.; no U.S. phone numbers or agent for service of process; it maintains no servers in the U.S.; and it only accepts payments in Euros.
Plaintiff Plixer International, Inc. countered that: the defendant had two customers in Maine; its website was in English; the defendant offers users the option for a 14-day free trial which, for that period, does not require payment in Euros; its website boasts customers “all around the world”; that over a 3 ½ year period the defendant had 156 transactions in the U.S. with sales totaling Euro 165,212.07 (about $195,477.54); and, in January 2017, defendant filed an application for a U.S. trademark for the “Scrutinizer” name.
Activities in the U.S. establish minimum contacts
In applying the test to determine specific jurisdiction, U.S. courts consider three factors: (i) “relatedness” meaning the “claim at issue arises out of or is related to a defendant’s conduct in the forum”; (ii) “purposeful availment” meaning that the defendant’s conduct and contacts “represent a purposeful availment of the privilege of conducting activities in the forum state, thereby invoking the benefits and protections of that state’s laws”; and (iii) “reasonableness” meaning that, “even where purposefully generated contacts exist, courts must consider […] the fairness [or reasonableness] of subjecting a nonresident to the authority of a foreign tribunal.”
Disposing of the undisputed issue of relatedness (a U.S. trademark infringement claim poses a potential harm which occurred in the United States), the court focused on the element of purposeful availment, finding that the facts supported plaintiff’s claim. The court noted, for example, that the defendant’s insertion of a forum selection and a choice of law clause evidenced that the defendant intended to reach customers outside of Germany, including those located in the U.S. Furthermore, the defendant operated an interactive website that accepted business, unrestricted, from customers outside of Germany, including customers in the U.S. and in Maine. Even though the defendant had not expressly targeted the United States, it was clear that the company would take business from anywhere. Perhaps the biggest factor which undercut the defendant’s claim that it was not specifically targeting customers in the U.S. was its filing of a U.S. trademark application to register the “Scrutinizer” name. The court found that this confirmed the defendant’s desire to operate in, or “purposefully avail” itself of, the U.S. market.
As for the last element, reasonableness, U.S. courts consider five factors: (i) the defendant’s burden in appearing in the forum; (ii) the forum state’s interest in adjudicating the dispute; (iii) the plaintiff’s interest in obtaining convenient and effective relief; (iv) the judicial system’s interest in obtaining the most effective resolution of the controversy; and (v) the common interest of all sovereigns in promoting substantive social policies. The court found that the physical burden – meaning the distance between the U.S. and Germany – "in today’s world was no longer severe." Moreover, the defendant’s possible discomfort with the U.S. court customs and practices was not enough to avoid the court’s assertion of jurisdiction.
Appeal to Circuit Court
The court did concede that its determination was a “close call” and found certain factors weighed against a finding of jurisdiction, for example, the defendant’s insistence on payment in euros. The court also considered the use of English on defendant’s web-site, which, as the international lingua franca, did not necessarily demonstrate that the German company was specifically targeting customers in the U.S.
In light of these considerations, the court in January granted Scrutinizer GmbH’s motion to take an interlocutory appeal to the Court of Appeals for the First Circuit. If the First Circuit overrules the District Court’s decision, then the lawsuit cannot proceed.
What does all this mean for on-line-only businesses? It means that as the world economy becomes more global and increasingly conducted on the internet, U.S. courts will adjust their thinking as to what constitutes “minimum contacts” with the forum. It may no longer just be about whether or not you have stores or employees in the U.S., but more about where your customers are and where your profits are coming from. Avoiding being hailed before a U.S. court will require a company to carefully consider and identify where in the world, and with whom, it wishes to conduct business.
Any Questions? Please Contact: Dr Kathrin Nordmeier, Kynya V. Jacobus
Practice Group: Litigation, Arbitration & ADR