Jurisdiction in the Cyberspace

“There was no more a Law of Cyberspace than there was a Law of the Horse” [1]

Judge Frank Easterbrook

In the present Internet World the e-commerce ventures have multiplied tremendously bringing forth cross-border internet disputes. The question of which law is applicable to the borderless world of Cyberspace always arises before the Governments, Judiciaries and Legislatures. [2] In the normal trend the authority of the Sovereign power is limited in a sphere and termed as Jurisdiction to enable it exercise its power within that sphere. The Legislative Authority has power to exercise its rules according to the law of the land to regulate the conduct of the masses. The Executive by its enforcement jurisdiction has the power to implement the laws within its territory. When a court claims to have jurisdiction over a dispute, it is affirming the authority to adjudicate the issue at hand. [3]

The Global network of internet is transnational in nature [4] and defies the territoriality concept of jurisdiction. Hence the concept of Transnational Jurisdiction has been evolved in the Cyberspace. In the global internet world the issues pertaining to, which country’s law is applicable to resolve a dispute; which court has jurisdiction; and how far a court can enforce a foreign judgment; exists since its advent.

Many countries have begun to apply internet content regulations to websites outside their territories. A country should be able to control the offensive contents in a website accessed by its citizens, even if their origin is in some other part of the world. If the country’s doesn’t have the jurisdiction to regulate the content, they may be forced to block the website. This can create a barrier for free flow of information, if only some portion or part of the informative website had offensive contents. In similar circumstances if the content of the website is defaming a person, then also blocking the website is not the solution. Even in

E-commerce transactions, there can arise issues relating to jurisdiction if it is not mentioned in the agreement. Jurisdictional grounds in contractual disputes often point to the court in one of the contractual parties home state, the same relating to torts are extremely wide when applied Internet context. Thus it is the need of the hour that a solution should be ascertained to the issues relating to jurisdiction in the e-commerce world.

Thus there are different issues in different areas of law in the electronic market. Let us take a look how the private international law is applicable in the e-commerce world.

Internet Jurisdiction Under the Private International Law

Private International Law supplies the competence rules for transnational disputes between private parties. [5] Jurisdiction in the International legal arena consists of three different components [6] . They are

Jurisdiction to prescribe which enables a country to apply its legal norms to conduct.

Jurisdiction to adjudicate means the tribunals of a given country may resolve the dispute in respect to a person or thing where the country has jurisdiction to prescribe the law that is sought to be enforced.

Jurisdiction to enforce deals with the State’s authority to induce or compel compliance or to punish non compliance with its laws or regulations. [7]

Rules on Jurisdiction are part of the domestic laws of civil procedure in each national legal system. [8] The Personal Jurisdiction, Choice of law and the recognition and enforcement of judgments are the areas of conflict under the international law applicable to the internet world. [9]

UNITED STATES

Personal Jurisdiction evolved by Case Laws

The concept of Personal Jurisdiction exercised by the U.S Courts over a period of time, pre-internet and post-internet era is discussed below.

Initially, personal jurisdiction means the court can apply its law on the party who is present within its territory. In Pennoyer v. Neff [10] , U. S Supreme Court held that the due process clause of the Constitution constrains the states in the exercise of personal jurisdiction over non- residents, further observed that (1) “Every State possess exclusive jurisdiction and sovereignty over persons and property within its territory”; (2) “no State can exercise direct jurisdiction and authority over persons or property without its territory.”

These traditional notions have varied while applying the law in the internet world. The U.S Court has evolved a “minimum contacts” [11] formula to allow jurisdiction over non-residents and entities outside the state. [12] This rule include the criterion that in order to subject a defendant to a “judgement in personam”, if he is not present within the territory of the forum, he have “certain minimum contacts” with it such that “the maintenance of the suit does not offend traditional notions of fair play and substantial justice. [13]

Recently in Attaway v. Omega No. 11A01-0712-CV-608 [14] , the Court applied the ‘minimum contacts’ rule and established personal jurisdiction against the defendants who purchased a used car from the plaintiffs through eBay. The defendant rescinded the payment alleging that the car was not as described after the transaction was completed, and took the defence of lack of personal jurisdiction when the plaintiff brought suit for damages.

Where the defendant is out of the State, for the U.S court to exercise personal jurisdiction, there is a two step enquiry [15] . They are

Legislative Sanction – This step inquires whether there is any statutory authority granting the court jurisdiction over the defendant.

Constitutional Limitations – Even if there is a statutory basis, it must satisfy the due process of the Constitution. [16]

In Burger King Corp. v. Rudzewicz [17] the defendant had entered into a franchise contract with Florida based, Burger King. Although the defendant argued that his contacts had been with the Michigan District office and that he never had been to Florida, the Supreme Court found that he had intentionally affiliated himself with a Florida entity in a way that satisfied the requirements of minimum contacts.

Later in Calder v. Jones [18] , “the effects test” was formulated which can be used in the internet context. This test requires (a) an intentional action, that was (b) expressly aimed at the forum state, (c) anticipating that the brunt of the injury would be felt in the forum state. This “effects test” was applied in the case of Dudnikov v.Chalk &Vermilion [19] which involved interaction via internet services on a copyright dispute over an eBay auction. The personal jurisdiction was applied as the “effects test” conditions were satisfied.

In Zippo Mfg. Co. v. Zippo Dot Com [20] , the defendant operates a website and internet news service and holds rights to the domain names ZIPPO.COM, ZIPPO.NET and ZIPPONEWS.COM. The Plaintiff holder of the trademark “Zippo” for tobacco lighters alleges trademark infringement. The Court applied the Sliding Scale test. The test brings out a distinction between different types of websites and categorized internet interaction in three ways. They are

If a Website provides “two-way online communication” there is active interaction, ie repeated transaction of files over the internet, between the parties fostering the business, the personal jurisdiction can be applied.

When the website provides just information which can be available to interested viewers, there is passive usage and the personal jurisdiction cannot be exercised.

The middle position is occupied by interactive websites where a user can exchange information with the host computer. In these cases, the exercise of jurisdiction is determined by examining the level of interactivity and commercial nature of the exchange. [21]

It was held it is appropriate to exercise personal jurisdiction over the Defendant. The Sliding Scale test evolved is an important turning point in the case of online activities.

In Contract cases, the US courts has usually upheld the choice of forum clauses. In Caspi v. Microsoft Network L.L.C [22] ,a case that involved ‘click- wrap’ contracts. The ‘click wrap’ contract mentioned that the agreement was governed by the laws of the state of Washington and the Washington courts had exclusive jurisdiction. It was held that

“The issue of reasonable notice regarding a forum selection clause is a question of law for the court to determine. We agree with the trial court that, in the absence of a better showing than has been made, plaintiffs must be seen to have had adequate notice of the forum selection clause. The resolution of this notice issue, at this stage of the litigation between plaintiffs and defendants must, of course, be seen to be without prejudice to any showing either party may have the opportunity to make in another jurisdiction in a plenary proceeding on the contract regarding issues apart from the validity and enforceability of the forum selection clause.”

Further in Scarcella v. America Online Inc. [23] the Court held ISP AOL’s choice of forum clause requiring litigation in Virginia invalid. The Appellate Court affirmed the lower court’s decision that the choice of forum clause is unenforceable noting that Plaintiff will be deprived of his preferred choice of forum, the New York Small Claims Courts which can award up to $5000, when Virginia allows only $2000.

Thus it can be seen that United States adopt a very flexible approach towards jurisdiction in internet contract disputes.

Defamation

The first case, Keeton v. Hustler Magazine [24] , involved a libel suit brought in New Hampshire

against Hustler Magazine, with its principal place of business in California. The Court held that Hustler could be sued in New Hampshire based on the fact that it sold between 10,000 and 15,000 copies of the magazine in that state each month. The Court reasoned that “regular monthly sales of thousands of magazines cannot by any stretch of the imagination be characterized as random, isolated or fortuitous.” Because Hustler had “continuously and deliberately exploited the New Hampshire market, it must reasonably anticipate being haled into court there in a libel action.”

The Effects test was formulated to determine the jurisdiction in the defamation case of Calder v. Jones. [25] In Maritz, Inc. v. Cybergold, Inc [26] , a United States District Court case in

which the court held that a forum state could properly exercise jurisdiction over a defendant who had advertised over the Internet.

The issue of international Internet jurisdiction was dealt in the case of Dow Jones & Company v. Gutnik. [27] The US Internet publication posted potentially damaging information regarding an Australian citizen. The High Court of Australia determined that, if information is viewable within Australia, that information and its publishers are subject to the legal jurisdiction of Australia. The court cited the International Covenant on Civil and Political Rights, a covenant which, among other things, protects individuals from international attack on their honor or reputation, as a basis for upholding individual rights. It was held that the material published on the Internet by the American website, however, was not in violation of any US laws. Further it was pointed out that “ jurisdiction refers both to ‘ amenability of a defendant to process in such a way as will give a court authority to decide the controversy which that process seeks to agitate and, second, as referring to a particular territorial law area or law district. [28]

European Union

The governing laws in the internet contract and internet tort areas of the European Union are Brussels Regulation Rules [29] , Rome I [30] and Rome II [31] .

According to the conservatives in England traditional rules of jurisdiction can be applied to the online disputes. On the other hand revolutionists are asking for a new set of laws for the resolution of internet cross- border disputes.

“In UK, there are two quite different sets of rules as to jurisdiction of the English courts. In many cases, jurisdiction is till governed by what may be called the ‘traditional rules’ though in a growing proportion of cases, they are replaced by the ‘Convention rules’.” [32]

Brussels Regulation

In the European Union the fundamentals of jurisdiction are based on Statute or regulation. [33]

The Brussels Regulation [34] is the controlling document for jurisdictional issues within the European Union. [35] It has provided general and specific grounds of jurisdiction for civil and commercial matters, including provisions for consumer contracts. [36] The Regulation provides specific grounds of jurisdiction in Articles 5, and in particular for consumers, Article 13-15 inclusive.

The Article 2 of the Regulation enables a person domiciled in a Member States to be sued in that State. The special grounds of jurisdiction in Article 5 includes that a person residing in the contracting states can be sued:

In matters relating to a contract, in the courts for the place of performance of the obligation in question;

In matters relating to tort, delict or quasi- delict, in the courts for the place where the harmful event occurred.

Article 17 of the Regulation states that a consumer may be sued only in a consumer’s country of domicile, while a consumer may elect to bring an action in either his domicile or in the other party’s domicile, so long as the consumer was subject to a specific solicitation or advertising in the consumer’s domicile. In Business Contracts (B-B), the parties can agree on a forum for disputes.

The Brussels Regulation does not alter the main structure of the earlier Convention; it effectuates certain changes to cope with the e-commerce technological developments. It is provided that the courts of the consumer’s domicile have jurisdiction over a foreign defendant, if the foreign defendant engage in commercial or professional activities and directs such activities to the member state of the consumer’s domicile. [37]

The European Union took initiative in several areas of electronic commerce. The Directive on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market’ and the Directive on the Protection of Consumers in respect of Distance Contracts are the recent initiatives. The European Union has also formulated E-commerce Directive 2000/31/EC [38] and the EC Directive Regulations 2002 [39] specifically to deal with e- commerce transactions.

The Brussels Regulation amendment made the provision for rules of jurisdiction in electronic consumer contracts. Usually in e-commerce contracts the choice of forum must have been provided in the agreement.

Rome I The Article 6(1) of the Rome I Regulation provides that the mandatory laws in the State of the consumer’s habitual residence apply, even if there is a choice- of- law clause stipulating a different applicable law. [40]

Rome II

The Rome II Green Paper was introduced at the European Commission to govern non- contractual liability in cross-border disputes. The regulation applies universally. The general rule for torts is that the law of the country where the damage occurs will be applicable. [41]

In the European Union Rome I and II Regulations harmonize the rules of choice of law in contracts and tort areas respectively. [42]

Case Laws

In Shevill v. Press Alliance [43] , in an international defamation case, France, in relation to the entire circulation of the publication, or in any place where the allegedly defamatory publication is distributed, including England but solely in relation to the damage to reputation caused by the distribution of the publication in that jurisdiction. The Court gave an autonomous interpretation of the ‘place of the event giving rise to the damage’ for the purpose of a libel by a newspaper article distributed in several Contracting States. The European Court of Justice held that an English domiciliary was able to sue a French domiciled newspaper either in the place where the defendant is established.

In Lucasfilm v Ainsworth [44] the Court of Appeal held the English courts could not entertain an action of infringement of a foreign copyright. The Court detailed about jurisdiction that

Extra-territorial jurisdiction will involve restraint on actions in another country, which a foreign judge should avoid.

If national courts of different countries all assume jurisdiction there is too much room for forum-shopping.

Those concerned with international agreements about copyright have refrained from putting in place a regime for the international litigation of copyrights by the courts of a single state.

The considerations which have lead the courts to decline jurisdiction over foreign patent claims apply equally to enforcement of a foreign copyright.

The Court of Appeal concluded that:

“For sound policy reasons the supposed international jurisdiction over copyright infringement claims does not exist. If it is ever to be created it should be by Treaty with all the necessary rules about mutual recognition, lis pendens and so on. It is not for judges to arrogate to themselves such a jurisdiction.”

In Crosstown Music Co v Rive Droite Music [45] , the Court of Appeal had to consider whether the issue of ownership of foreign copyrights was justiciable in the circumstances of that case. The court said that it did have jurisdiction stating,

“The present case turned on the construction and application of a term in a contract which dealt with copyright throughout the universe and which had an express English law clause and exclusive English court’s jurisdiction clause. As between the parties and their successors in title, that was binding on the question of the appropriate jurisdiction and the applicable law.”

In SkypeTechnologies v. Joltid Ltd. [46] there existed a contract between the parties. The contract between Skype Technologies and Jolid contained an exclusive jurisdiction clause in the following terms: “Any claim arising under or relating to the Agreement shall be governed by [English law] and the parties submit to the exclusive agreement of the English courts.”’

On breach of contract Joltid intended to terminate the contract. The Skype Technologies initiated legal proceedings in the UK against them. Later on, eBay in U.S which owned the Skype group, declared the selling of its shares in Skype Technologies to various investors. After registering its copyright in US Joltid commenced proceedings against various parties including Skype Technologies.

Judgment was made in favour of Skype Technologies, and even an Order that the US action against it be discontinued. The outcome of the US proceedings would depend on whether or not the licence had terminated; the dispute in relation to that was before the English Courts. It was held that Joltid should not be allowed to avoid the consequences of the exclusive jurisdiction clause and further “the standard considerations [relating to] forum non conveniens should be given little weight in the face of an exclusive jurisdiction clause where the parties have chosen the courts of a neutral territory in the context of an agreement with world-wide application.”

In Football DataCo Ltd & Othrs v. Sportradar GmbH & Anr [47] the Court had to consider a jurisdiction application of defendants relating to webservers. The Jugde “came to a conclusion that the act of making available to the public by online transmission is committed and committed only where the transmission takes place. It is true that the placing of data on a server in one state can make the data available to the public of another state but that does not mean that the party who has made the data available has committed the act of making available by transmission in the State of reception. I consider that the better construction of the provisions is that the act only occurs in the state of transmission.” It was held that the Court has jurisdiction over the claim of authorizing and other matters.

It is understood that in the US and in the European Union, the Courts rely on existing national laws, international laws and Conventions to tackle the issue of jurisdiction on internet disputes. Apart from that, the Courts could formulate new test and principles for determining jurisdiction from various Case laws. Thus in every new case arising with the issue to determine the Cyberspace jurisdiction is evolving a new rule. The important points to be noted is that its always safe to include jurisdiction clauses and to specify the governing law of their online contracts.

Above we have discussed how the United States and the European Union are dealing the internet disputes across- borders. Now let us focus on other novel resolution systems and new modes of resolution existing like the Alternative Dispute Resolution (ADR) system and Online Dispute Resolution (ODR) system.

Alternative Dispute Resolution (ADR)

‘In this age of cyberspace and global connectivity, reliance on statues and stare decisis simply cannot keep up with a rapidly evolving technological environment. Traditional Law, (such as lex mercatoria), then, might condemn rules regulating conduct in cyberspace to perpetual obsolescence.’ [48]

“ADR is a collective expression for all disputes resolution mechanisms that interpose a neutral third party but which are outside the courts, and is a synonym for extra- judicial or ‘out- of court’ dispute resolution.” [49] The two forms of ADR that exist Mediation and Arbitration.

Mediation

Mediation is a form of negotiation whereby a third- party mediates brokers a settlement between the parties. The parties agree the terms of the settlement. They can discontinue the process at any stage and walk away. Mediation if attempted before adjudication as a preliminary process, is effective. It will help to filter those disputes that lend themselves to a compromise, removing those disputes and thereby making adjudication unnecessary. [50]

Arbitration

Arbitration is a form of private adjudication whereby a neutral third party, the arbitrator, chosen and paid by the parties, makes a binding and enforceable award as to how the dispute should be resolved. [51] The arbitration agreement is the basis of arbitration. Arbitration award is enforceable like a judgment. An arbitration award is bound by the principle of res-judicata.

Thus Arbitration is the true alternative to the litigation due to its binding and enforceable nature to redress the internet disputes.

Applicable Law in case of arbitration online disputes

Parties are free to select a national law to determine their rights and obligations under the e-commerce contract and/or to be applicable to any dispute that may arise under this contract. In the absence of choice by the parties, the arbitrators are free to apply a national law either indirectly pursuant to a conflict of laws method, or directly if they deem that law to be appropriate for the particular dispute. [52] The selection of a national law is stable as it is already well developed and provides answer for the legal problems. Then another applicable law can be the general principles of international law or international conventions. Further the applicable law maybe transnational law, such as the UNDROIT [53] Principles, the Lando Principles [54] , CISG [55] , or Lex Maercatoria.

It is understood that compared to normal litigation, in which courts are bound to apply a law of a particular jurisdiction, the arbitration gives wider options, including international and transnational law, providing the tribunal greater discretion and flexibility.

However, a strong argument can be put forward regarding the need for development of a set of flexible transnational legal standards applicable by arbitrators to cross-border e-business

disputes.

Online Dispute Resolution (ODR)

ODR shows that internet technology is not only the cause of disputes, but can also be a means of dispute resolution. It constitutes a single transnational legal framework for e-business

contracts and pertinent online arbitration. Beyond that it benefit providers and recipients of cross-border e-business the system of ODR, by reducing legal uncertainty and by minimising transactional and dispute resolution costs. Online mediation, Online juries, Online Arbitration are the different form of ODR to resolve online disputes. [56]

The application of transnational legal criteria not only to the merits, but also to the agreement and procedure, would constitute the formation of an autonomous, delocalized and denationalized arbitration