PART 3 Transactional Law: Creating Wealth and Managing Risk Chapter 8 Dispute Resolution: Jurisdiction, Litigation, and ADR Chapter 9 Contracts for the Internet and Tech Sectors Chapter 10 The Employment Relationship in the Internet and Tech Sectors 233 Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. CHAPTER 8 Dispute Resolution: Jurisdiction, Litigation, and ADR For their travels into cyberspace, most cybernauts never leave their chair in front of the computer. Nevertheless, cybernauts do surf around the world and may well be caught in a jurisdictional battle just as real as landing a space vehicle in an unintended country. But they are not envoys of mankind. Cybernauts are merely people who have become users of a new and fascinating technology whose early creators passed along a technology that has revolutionized human interaction and rivals inventions like the telegraph and telephone. David S. Weitzel1 LEARNING OUTCOMES After you have read this chapter, you should be able to: Explain jurisdiction Discuss some jurisdictional issues that arise when businesses connect and communicate electronically, not face-to-face, with each other and with individuals Describe several different methods for resolving disputes that arise in business Identify problems that 21st-century businessesespecially high-technology businesses encounter when they resort to the traditional litigation method of resolving disputes Explain online dispute resolution Introduction Many companies with online operations engage in a wide range of transactions with individuals and entities from all over the world. Unfortunately, these transactions do not always go quite as smoothly as one might like and expect when they initially agree to the transaction. When this occurs, and a dispute evolves, adjudicators may determine the appropriate legal outcome. But first, before we can even get to the point of dispute resolution, we must determine the law that will apply to the resolution of the dispute as well as the means and situs of the dispute resolution. Consider, by means of illustration, technology heavyweight Apple, Inc. In addition to a number of products and services, Apple offers its widely popular iTunes service David S. Weitzel, \"Where No Lawyer Has Gone Before? What a Cyberspace Attorney Can Learn from Space Law's Legacy,\" 10 CommLaw Conspectus 191, 201 (2002). 235 1 Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Part 3: Transactional Law: Creating Wealth and Managing Risk Stu's Views Stu All Rights Reserved www.STUS.com 236 to online consumers. Now, consider hypothetically that technical glitches arose with the service such that some users in several different countries (France, several states in the Northwest United States, Brazil, and Korea) suddenly could no longer access and use the music that they had downloaded through Apple's iTunes service. Consider that at the same time, music distributors from Canada suddenly had all their music removed from the service, just as a major new release was ready to hit the market. In this case, Apple would clearly have a major problem on its hands and would also be facing a number of disgruntled consumers and business partners. Assuming Apple is unable to resolve the matters amicably with its various constituents, what next? Jurisdiction Introduction The Fourteenth Amendment to the U.S. Constitution has several parts, the first of which addresses, among other things, due process: All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the state wherein they reside. No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws. The right to procedural due process is the entitlement to certain procedures to be followed before one is deprived of life, liberty, or property. From the Due Process Clause springs the jurisdictional principle that each state has jurisdiction over persons within its territory. Jurisdiction is the authority of a court or arbitration panel to hear a case and resolve a dispute. It is important to note that jurisdiction does not resolve the issue of liability; it just resolves where the case will be tried. Whether a state has in personam, or personal, jurisdiction over a particular individual is determined by application of tests developed by the U.S. Supreme Court. As a general matter, a state has jurisdiction over a person who is present within the state, lives in the state, or has consented to the exercise of Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 8: Dispute Resolution: Jurisdiction, Litigation, and ADR 237 the state's jurisdiction over him or her.2 \"[T]he Due Process Clause 'does not contemplate that a state may make binding a judgment in personam against an individual or corporate defendant with which the state has no contacts, ties, or relations.' \"3 Jurisdiction over the person and over the subject matter are two key elements of any civil lawsuit in the United States. When a person initiates a suit by filing a complaint, the complaint must include basic statements that describe the plaintiff and the defendant and state on what basis the court has personal and subject-matter jurisdiction. For instance, a breach of contract complaint filed in a California trial court might state that the plaintiff is a company residing and doing business in California; the defendant is incorporated in Delaware and does business in California; and the parties entered into a contract on a particular date in a particular location in California. The allegation that the defendant does business in California is a basic statement of in personam jurisdiction over the defendant, and the fact that the complaint asserts a breach of contract in California is an assertion of the California trial court's jurisdiction over the subject matter (i.e., civil contract law). That California court would not have personal jurisdiction over a nonresident who had no connection to California and would not have subject-matter jurisdiction over a contract matter arising in Massachusetts. Given that jurisdiction is critical to any legal action, jurisdiction is often one of the first aspects of the complaint the defendant attacks by way of a motion to dismiss. Dismissal may be sought on various grounds, including lack of jurisdiction. In a motion to dismiss for lack of jurisdiction, the defendant argues that the action should end almost before it starts: that the court should dismiss the complaint without consideration of any of its substantive allegations because it lacks authority to hear the case. In MGM Studios, Inc. v. Grokster, Ltd., a case that would become even more famous after its hearing on the merits (the U.S. Supreme Court held that Grokster's peer-to-peer file-sharing program infringed copyright law4), the defendants' motion to dismiss for lack of personal and subject matter jurisdiction was famously denied by the federal district court.5 The Australian companies were subject to specific personal jurisdiction in the California federal court based on their distribution of file-sharing software to California residents.6 Generally speaking, where the effect of an event takes place, the case should be tried.7 For example, if a plane crashes in New York, the resulting legal case should be tried in New York regardless of the plane's departure location. However, there are a number of reasons why parties involved in litigation and/or their counsel might wish to have a matter adjudicated elsewhere. Many clients and their counsel prefer to pursue their legal claim in their local courts. When the local court has jurisdiction over the matter, local law will apply, attorneys will not need to travel, it will not be necessary to hire attorneys from another state, and the judge may be familiar and even sympathetic to business. A lawyer who is familiar with the local judge and his or her decisions is in a legal comfort zone. Long-arm statutes are an important part of the determination of jurisdiction. In order for the court to have personal jurisdiction over a nonresident defendant, the plaintiff must prove: (1) the state long-arm statute applies; and (2) satisfaction of the Due 2 See Denis T. Rice & Julia Gladstone, An Assessment of the Effects Test in Determining Personal Jurisdiction in Cyberspace, 58 Bus. Law. 601 (Feb. 2003). 3 World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 294 (1980). 4 545 U.S. 913 (2005). 5 243 F. Supp. 2d 1073 (C.D. Cal 2003). 6 Id. 7 An Assessment of the Effects Test, supra, note 2 at 601. Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 238 Part 3: Transactional Law: Creating Wealth and Managing Risk Process Clause. All fifty states have their own version of a long-arm statute. Some are very liberal, as is California's statute. It allows jurisdiction in any case in which the Due Process Clause is not violated. Other states enumerate specific activities that must have occurred in the state in order for its court to have jurisdiction. In Massachusetts, for example, a defendant must have transacted business in Massachusetts, and the plaintiff's claim must have arisen from that transaction. The metaphor of a long arm is useful if you think of a state with a long arm reaching out to grab a defendant from another state and pulling the defendant into the state to stand trial. Traditional Concepts of Jurisdiction As demonstrated in the introductory example, the concept of personal jurisdiction is essential to any analysis of jurisdiction in cyberspace. The Due Process Clause of the Fourteenth Amendment to the U.S. Constitution allows a court to require a nonresident defendant to stand trial only in the state in which the court properly exercises personal jurisdiction over the defendant. A court may exercise general jurisdiction over a nonresident defendant only if the defendant is physically present in the forum state, or maintains continuous and systematic contacts with that forum state.8 Specific jurisdiction may be exercised over a nonresident defendant via the long-arm statute of a forum state if the defendant has minimum contacts with the forum state such that maintenance of a suit against the defendant does not offend the \"traditional notions of fair play and substantial justice\" and that the defendant should have or would reasonably have been able to foresee being haled into court in the forum state.9 Key to finding specific personal jurisdiction is that the defendant has minimum contacts with the forum state.10 The minimum contacts test contains three elements necessary to find personal jurisdiction.11 First, the defendant must have purposefully availed itself of benefits from association with the forum state. \"Purposeful availment\" exists when the defendant purposefully directs its action or actions towards the forum state and shows a substantial connection with the forum state.12 Second, the claim must arise from the defendant's activities with the forum state.13 If the defendant's contacts with the forum state are not related to the incident, then sufficient minimum contacts do not exist and the action against the defendant in that forum cannot stand. Third, the court's exercise of jurisdiction over the defendant must be reasonable.14 Factors used in determining reasonableness include the burden placed on the defendant, the forum state's interest in the outcome, the plaintiff's interests in obtaining relief, the judicial system's interest in a 8 Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-16 (1984). 9 World-Wide Volkswagen, 444 U.S. at 291. 10 See International Shoe v. Washington, 326 U.S. 310, 316 (1945) (establishing the standard for minimum contacts to meet the requirement of personal jurisdiction for due process). 11 See Reynolds v. Int'l Amateur Athletic Fed'n, 23 F.3d 1110, 1116 (6th Cir. 1994). 12 See BurgerKing Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985). 13 Reynolds, 23 F.3d at 1116. 14 See World-Wide Volkswagen, 444 U.S. at 293. Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 8: Dispute Resolution: Jurisdiction, Litigation, and ADR 239 most efficient resolution, and furthering social policies shared by the states.15 When the minimum contacts analysis is satisfied, due process is also satisfied and the court may exercise personal jurisdiction over the out-of-state defendant.16 Personal Jurisdiction and the Internet The Internet has raised questions regarding the \"presence\" of a business in a particular location or jurisdiction because arguably an online business is present wherever the Internet reaches. But despite near-universal accessibility, it is often hard to prove that someone accessed a site in a specific state unless a transaction was made. In the hypothetical scenario described in the Introduction, where did the effect of the event take placeat Apple's headquarters or in all of the countries in which iTunes became unavailable? This problem is further demonstrated in Exhibit 8.1. Notwithstanding these inherent difficulties in determining personal jurisdiction when the Internet was involved, a body of case law has developed addressing personal jurisdiction in the digital age. Courts have exercised personal jurisdiction over defendants who were not physically in the territory of the court based on the traditional concepts of jurisdiction discussed above. E X H IB I T 8. 1 Depiction of Jurisdiction Problem Plays Online Games with a Company based in Holland Young Gamer in San Diego That Operates Using Servers in Greece When a dispute arises, what law should govern? 15 Reynolds, 23 F.3d at 1117. 16 See World-Wide Volkswagen, 444 U.S. at 291-92 (discussing that the minimum contacts requirement protects defendants from litigating in a distant and inconvenient forum). Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 240 Part 3: Transactional Law: Creating Wealth and Managing Risk CALDER v. JONES 465 U.S. 783 (1984) One of the significant early cases that would have significance to the jurisdiction online issue was Calder v. Jones. In this case, the U.S. Supreme Court discussed whether a court has personal jurisdiction over a publisher/reporter in a case in which the contacts that the reporter had with the forum state were nothing but the fact that its newspapers circulated there. FACTS The plaintiff was an entertainer who had a libelous article written about her and published in the National Enquirer (the \"Enquirer\"). The Enquirer was a Florida corporation with its principal place of business in Florida. The article at issue was written and edited in Florida. The plaintiff filed suit for libel in California. JUDICIAL OPINION The California superior court did not allow jurisdiction, but the California court of appeal reversed and the California Supreme Court affirmed the court of appeal. The Supreme Court of the United States affirmed the court of appeal's decision. The issue was whether the circulation of a newspaper creates sufficient contacts to establish personal jurisdiction over a defendant publisher in a libel case in the forum state. The Court determined that the circulation of the paper in the forum state was enough to establish personal jurisdiction there. It reasoned that the tort that was committed (libel) is an intentional tort and the subject of the article was injured by the libelous assertion. The publisher knew that the piece would be widely circulated in California. All of the damage was done in California. Therefore, the Court concluded that the defendants purposefully availed themselves of the forum state. The court observed: The allegedly libelous story concerned the California activities of a California resident. It impugned the professionalism of an entertainer whose television career was centered in California. The article was drawn from California sources, and the brunt of the harm, in terms both of respondent's emotional distress and the injury to her professional reputation, was suffered in California. In sum, California is the focal point both of the story and of the harm suffered. Jurisdiction over petitioners is therefore proper in California based on the \"effects\" of their Florida conduct in California. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297-298, 100 S.Ct. 559, 567-568, 62 L.Ed.2d 490 (1980); Restatement (Second) of Conflicts of Law 37.17 CASE QUESTIONS 1. On what basis did the Court determine that jurisdiction over the defendants was proper in California? 2. This case was decided in 1984. Had it occurred today, when so much of our news is reported and circulated online, do you think that jurisdiction would have been an issue? 3. Ethical Consideration: Could allowing the plaintiff's case to proceed in California have a chilling effect on journalists who might be fearful of being brought into court in a faraway jurisdiction? Should this even be a factor of consideration in the court's determination of jurisdiction? Although Calder did not involve the Internet but distribution of information by traditional methods, the Calder test has become a key test for courts determining personal jurisdiction in the age of cyberlaw. Even if a tort occurs across the Internet rather than by publication in a nonelectronic newspaper or magazine, the court will look to where the injured party was injured when deciding whether to exercise personal jurisdiction. Consider, by means of example, the following recent case. In the Tamburo v. Dworkin case the court examined whether a tort committed against a company over the Internet by sending blast emails and urging customers to boycott another company's products can be a basis for personal jurisdiction in a foreign state. 17 465 U.S. at 788-89. Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 8: Dispute Resolution: Jurisdiction, Litigation, and ADR 241 TAMBURO v. DWORKIN 601 F.3d 693 (7th Cir. 2010) FACTS The plaintiff was an Illinois resident and the owner of a dog pedigree program that, after rightfully taking information from other dog pedigree websites, was the subject of retaliation against him by postings on the other company's websites to boycott plaintiff's program, as well as blast emails to the plaintiff. The defendants were several owners of dog pedigree websites, some from the United States, one from Canada, and one from Australia. None had any ties with Illinois. Plaintiff contended that these actions by the defendant companies were defamatory and tortiously interfered with his business. The United States District Court for the Northern District of Illinois found that the court lacked personal jurisdiction over the defendants and dismissed the case. The plaintiff appealed. JUDICIAL OPINION The Court of Appeals for the Seventh Circuit was asked to determine whether the transmission of blast emails and boycotting messages about another Internet company can subject the defendant to personal jurisdiction in the plaintiff's state of residence. The court used the Calder v. Jones test and held that in this case, the defendants \"defame[d] and tortiously generate[d] a consumer boycott against [plaintiff] knowing that he lived and operated his software business in Illinois and would be injured there.\" On this basis, the court held that the federal district court could exercise personal jurisdiction over the defendants in Illinois. CASE QUESTIONS 1. What test was used in this case to determine that there was jurisdiction over the defendants in Illinois? 2. In the new technological age, there is much litigation on whether one is subject to personal jurisdiction even though he or she had never stepped foot in the jurisdiction where the court was located or, for that matter, even heard of it. What is your opinion on how cases such as this should be decided? 3. Ethical Consideration: The court held in this case that the district court in Illinois had personal jurisdiction over the defendant. Could this result be justified solely on the idea that we want to discourage people from defaming individuals and companies? The Calder and Tamburo cases demonstrate that a court's jurisdiction can extend as far as the tortfeasor's injury, even if that injury was caused by using electronic media. Another way that personal jurisdiction might attach is by operation of a website. In the last decade, the courts have considered various uses of websites and to what extent a website operator's actions or the content of the website can form the basis for the court's personal jurisdiction over the defendant. The seminal case in this area is widely considered to be Yahoo!, Inc. v. La Ligue Contre Le Racisme Et l'Antisemitisme. YAHOO!, INC. v. LA LIGUE CONTRE LE RACISME ET L 'ANTISEMITISME 433 F.3d 1199 (9th Cir. 2006) While there has been debate over the general topic of Internet jurisdiction ever since the Internet came into existence, concern over facing civil or criminal liability in foreign jurisdictions because of the content of one's website is a relatively new issue, fostered in large part by the experiences of Yahoo! in France.18 (Continued ) 18 See Richard Raysman & Peter Brown, Yahoo! decision fuels e-commerce sovereignty debate, New York Law Journal, December 12, 2000, at 3. Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 242 Part 3: Transactional Law: Creating Wealth and Managing Risk FACTS France had enacted a law making it illegal and punishable with both civil and criminal penalties to display or sell Nazi artifacts. Nazi material was being made available through Internet Service Provider Yahoo!'s online auction service hosted out of the United States (although Yahoo! France complied with the French law). In April 2000, La Ligue Contre Le Racisme et L'Antismitisme (\"LICRA\") and L'Union des Etudiants Juifs de France (\"UEJF\")19 filed suit in a French court, claiming that Yahoo! violated the French Penal Code, which prohibits exhibition or sale of racist materials. The French court found it had jurisdiction and found Yahoo! liable. It ordered Yahoo! to use all means necessary to prevent French users from accessing its auction site. It further order Yahoo! \"to remove from 'all browser directories accessible in the territory of the French Republic'\" the \"negationists\" heading, as well as all links \"'bringing together, equating, or presenting directly or indirectly as equivalent' sites about the Holocaust and sites by Holocaust deniers.\"20 Yahoo! then brought suit in a federal district court in California claiming, and seeking a declaration, that the French court's order was unenforceable. The court found that it had jurisdiction over the two French organizations.21 It also decided that there was an actual controversy, which was causing a real and immediate threat to Yahoo!, and that enforcement of the French order in the United States would violate the First Amendment of the U.S. Constitution. This decision was overturned by the Court of Appeals for the Ninth Circuit, which concluded that the district court erred in finding that it had personal jurisdiction over the French organizations.22 Jurisdiction in a U.S. court could only be obtained, and Yahoo!'s First Amendment claim heard, if the French parties sought enforcement of the French judgment in the United States and that had not yet happened. JUDICIAL OPINIONS In the first Ninth Circuit Court of Appeals decision, the three-member court panel stated the familiar test for determining whether jurisdiction existed: Exercise of jurisdiction is consistent with these requirements of \"minimum contacts\" and \"fair play and substantial justice\" where (1) the non-resident defendant has purposefully directed his activities or consummated some transaction with the forum or a resident thereof, or performed some act by which he purposefully availed himself of the privileges of conducting activities in the forum, thereby invoking the benefits and protections of its laws; (2) the claim arises out of or relates to the defendant's forumrelated activities; and (3) the exercise of jurisdiction is reasonable.23 After applying the test, the court concluded: LICRA and UEJF took action to enforce their legal rights under French law. Yahoo! makes no allegation that could lead a court to conclude that there was anything wrongful in the organizations' conduct. As a result, the District Court did not properly exercise personal jurisdiction over LICRA and UEJF.24 Yahoo! sought and was granted a rehearing en banc, that is, by the entire 11-member Ninth Circuit Court of Appeals. Eight judgesa majoritydecided that California did have jurisdiction over the French organizations based on its actions in California, but that the case should be dismissed for other reasons. There were several opinions issued in the appeal. The Majority (Judge W.A. Fletcher, joined by Chief Judge Schroeder and Judges Hawkins, Fisher, Gould, Paez, Clifton, and Bea) A majority of eight judges concluded that the U.S. district court had properly exercised personal jurisdiction over the defendants. They reasoned that personal jurisdiction could be exercised over the defendants because the French court order required Yahoo! to take actions in California (where Yahoo! was headquartered) and the order was under threat of substantial penalty. In a specific jurisdiction inquiry, we consider the extent of the defendant's contacts with the forum and the degree to which the plaintiff's suit is related (Continued ) 19 The International League against Racism and Anti-Semitism, and the Union of French Jewish Students. Cited in 433 F.3d at 1202-03. 20 21 Yahoo!, Inc. v. La Ligue Contre le Racisme et L'Antismitisme, 169 F. Supp. 2d 1181 (N.D. Cal. 2001). 22 379 F.3d 1120 (9th Cir. 2004). Id. at 1123. 23 24 Id. at 1126. Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 8: Dispute Resolution: Jurisdiction, Litigation, and ADR 243 to those contacts. A strong showing on one axis will permit a lesser showing on the other.... The case before us is the classic polar case for specific jurisdiction described in International Shoe, in which there are very few contacts but in which those few contacts are directly related to the suit.25 [C]onsidering the direct relationship between LICRA and UEJF's contacts with the forum and the substance of the suit brought by Yahoo!, as well as the impact and potential impact of the French court's orders on Yahoo!, we hold that there is personal jurisdiction.27 The court reviewed the French organizations' actions under the applicable International Shoe test, holding that a court in California could exercise personal jurisdiction over LICRA based on its sending a cease-and-desist letter to Yahoo! in California, serving process on Yahoo!, and obtaining and serving a French court order. Together, these contacts were enough to confer jurisdiction under Calder v. Jones. Despite the majority's conclusion that jurisdiction existed, the action was dismissed by a majority of sixonly three of whom found jurisdiction. Three judges (Chief Judge Schroeder and Judges W.A. Fletcher and Gould) concluded \"that the suit is unripe,\" that is, not ready for litigation. When their votes were combined with \"those of three dissenting judges who conclude that there is no personal jurisdiction over LICRA and UEJF, there are six votes to dismiss Yahoo!'s suit.\"28 LICRA and UEJF have obtained two interim orders from the French court directing Yahoo! to take actions in California, on threat of a substantial penalty. We agree with LICRA and UEJF that the French court's orders are appropriately analyzed under the Calder effects test. The first two requirements are that LICRA and UEJF \"have '(1) committed an intentional act, [which was] (2) expressly aimed at the forum state[.]'\" It is obvious that both requirements are satisfied. LICRA intentionally filed suit in the French court.... Further, LICRA and UEJF's suit was expressly aimed at California. The suit sought, and the French court granted, orders directing Yahoo! to perform significant acts in California. It is of course true that the effect desired by the French court would be felt in France, but that does not change the fact that significant acts were to be performed in California. The servers that support yahoo.com are located in California, and compliance with the French court's orders necessarily would require Yahoo! to make some changes to those servers. Further, to the extent that any financial penalty might be imposed pursuant to the French court's orders, the impact of that penalty would be felt by Yahoo! at its corporate headquarters in California.26 The majority concluded that the California federal court had jurisdiction over the French organizations. 25 26 The Concurrence (Judges Ferguson, O'Scannlain, and Tashima) Judge Ferguson authored a concurring opinion in which he asserted that dismissal was appropriate because personal jurisdiction was not present. LICRA did not expressly aim its French litigation activities at California as required to find jurisdiction under Calder. LICRA and UEJF's suit was not \"expressly aimed\" at California under the \"effects\" test of [Calder v. Jones], which, I agree with Judge Fletcher, governs this case and may be appropriately applied to the French court orders. An intentional act aimed exclusively at a location other than the forum state, which results in harm to a plaintiff in the forum state, does not satisfy the \"express aiming\" requirement under Calder.29... LICRA and UEJF's suit sought French court orders directing Yahoo! to perform significant acts locally in France, not in California.... To comply with French law, Yahoo! would need \"to prevent surfers calling from France from viewing these [anti-Semitic] services on their computer screen\"; \"to identify the geographical origin of a visiting site from the caller's IP address, which should enable it to prevent surfers calling from France ... from accessing services and sites which[,] when (Continued ) 433 F.3d at 1210. Id. at 1209 (citations omitted). 27 Id. at 1211. 28 Id. at 1224. Id. (citation omitted). 29 Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 244 Part 3: Transactional Law: Creating Wealth and Managing Risk displayed on a screen installed in France[,]... is liable to be deemed an offence in France and/or to constitute a manifestly unlawful trouble [under French law]\"; and \"to take all measures to dissuade and make impossible any access by a surfer calling from France to disputed sites and services of which the title and/or content constitutes a threat to internal public order.\" (emphases added). There is no evidence whatsoever that LICRA and UEJF had any intention to expressly aim their suit at California.30 Judge O'Scannlain's Separate Concurrence (Joined by Judges Ferguson and Tashima) In a separate concurrence, Judge O'Scannlain took issue with the majority's determination that under Calder the relevant forum contacts need not be wrongful. He asserted that under Calder, the rule of jurisdiction applies to intentional tortious actions directed at the forum state. Neither [LICRA nor UEJF] has ever carried on business or any other activity through which they have availed themselves of the benefits and protections of California's laws, nor should either party have reasonably anticipated that it would be haled into court in California to answer for the legitimate exercise of its rights in France.31 He also believed the majority went too far. The personal jurisdiction requirement is not merely a rule of civil procedure; it is a constitutional constraint on the powers of a State, as exercised by its courts, in favor of the due process rights of the individual.... The Supreme Court has never approved such a radical extension of personal jurisdiction as would sanction the majority's holding that, by litigating a bona fide claim in a foreign court and receiving a favorable judgment, a foreign party automatically assents to being haled into court in the other litigant's home forum.32 Judge Tashima's Separate Concurrence (Joined by Judges O'Scannlain and Ferguson) Finally, Judge Tashima also wrote a separate concurrence and was joined by the other two dissenting judges. He criticized the majority's application of Calder: [No prior case] based a finding of specific jurisdiction on conduct expressly aimed at the forum state which conduct was not also a contact with the forum state. Here, for the first time, the majority completely divorces the expressly-aimed conduct from the requirement that that conduct also be a contact with the forum state. Thus, I submit that the finding of personal jurisdiction on the basis of Calder's \"effects\" test in the circumstances of this case is a radical extension of that doctrine.33... Whatever other conduct Calder's \"effects\" test was intended to encompass, it surely was not intended to include attribution of the effects of an intervening court's order when a citizen does no more [than] petition a court in his own country for relief under domestic law, particularly in a case, such as this, in which defendants have had no contact that would \"provide a sufficient basis for jurisdiction.\"34 CASE QUESTIONS 1. Does a U.S. court have jurisdiction over a foreign organization that obtains a judgment against a U.S. defendant in a foreign court? 2. Ethical Consideration: Yahoo!'s French subsidiary, and eventually Yahoo! itself, took all Nazi paraphernalia from the site, complying with French law what does this say about the foreign court's actual power? Was Yahoo! wise to do so, or should it have defied the French court's order? 3. The litigation took approximately six years and involved multiple appeals and some related criminal proceedingswhat does this tell us about the actual costs of complex cyber-litigation? 30 Id. at 1225. 31 Id. at 1230. 32 Id. at 1229. 33 Id. at 1232. 34 Id. at 1233. Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 8: Dispute Resolution: Jurisdiction, Litigation, and ADR 245 Although the Yahoo! case generated a significant amount of media attention35 and should serve as a wake-up call to many website operators, it is not representative of the kinds of risks with which website operators should be concerned. In fact, website operators may find themselves running afoul of foreign laws for activities much more mundane than offering Nazi materials. There are many examples of how domestic U.S. websites can find that they have violated the law of one country by virtue of the kinds of materials they have placed on their website. In the early days of the Internet, for example, CompuServe decided to deny its subscribers worldwide access to certain sex-related discussion groups because of the potential for liability under German antipornography laws.36 In 1996, a number of German Internet service providers attempted to block out American and Canadian websites that contained neo-Nazi material.37 As national and local governmental authorities continue to enact laws and regulations concerning the Internet, conflicts such as these are likely to continue and even intensify. Whether a state has personal jurisdiction in cases involving the Internet is often unclear. Although decided well before the Internet was widely popularized, the test laid out in Calder v. Jones still currently serves as the starting point for many courts when determining personal jurisdiction when an intentional tort is alleged. Courts first ask whether the party challenging jurisdiction \"purposely availed\" itself of the forum state in order to make the necessary finding to establish jurisdiction. Courts will make this finding if they find that the defendant allegedly \"(1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state.\"38 The other significant test courts currently employ to find personal jurisdiction comes from Zippo Manufacturing Co. v. Zippo Dot Com, Inc.39 The \"sliding scale\" test applies when defendants do business over the Internet and is used in lieu of the Calder-effects test in an unintentional tort case. It is used to determine if a defendant has the requisite \"minimum contacts\" in the forum state sufficient to establish personal jurisdiction. Under Zippo, the decision to find personal jurisdiction is based on a sliding scale, balancing the defendant's Internet presence with \"the nature and quality of commercial activity\" the defendant engages in over the Internet. OLDFIELD v. PUEBLO DE BAHIA LORA 558 F.3d 1210 (11th Cir. 2009) In Oldfield v. Pueblo de Bahia Lora, the court discussed whether a plaintiff who made reservations at a hotel through a website from his home and then was injured near the hotel on a fishing vessel not owned by the hotel, subjects the owners of the hotel to personal jurisdiction in the plaintiff's home state. (Continued ) 35 See, e.g., Randall E. Stoss, Pardon My French. If It's a World Wide Web, Why Is France Censoring Yahoo!? U.S. News & World Report, Feb. 12, 2001, p. 41. 36 See John Markoff, Online Service Block's Access to Topics Called Pornographic, NY Times, Dec. 29, 1995, at A1. Subsequently, CompuServe reinstated all but five of the discussion groups and provided screening software to users. See Peter H. Lewis, An Online Service Halts Restriction on Sex Materials, NY Times, Feb. 14, 1996, at A4. 37 See Nathaniel C. Nash, Germans Again Bar Internet Access, This Time to Neo-Nazism, NY Times, Jan. 29, 1996, at D6. 38 Calder v. Jones, 465 U.S. 783 (1984). 39 952 F. Supp. 1119 (W.D. Pa. 1997). Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 246 Part 3: Transactional Law: Creating Wealth and Managing Risk FACTS Oldfield, a Florida resident, saw an advertisement on the Internet for Parrot Bay Village, a resort located in Costa Rica owned by Pueblo De Bahia Lora (\"Pueblo\"), and reserved a room through the resort's website. He then booked a fishing trip there and was injured on a fishing vessel, which was not owned by defendants. He sued two Costa Rican corporations, the current and former owners of the resort and fisher village, claiming that they were liable for the injuries that he sustained. He claimed that there was personal jurisdiction in Florida because of its long-arm statute or because the defendants established minimum contacts there by operating a website. The defendants contended that it was a passive site under the Zippo test. The U.S. District Court for the Southern District of Florida found that it had personal jurisdiction over the defendants based on minimum contacts. JUDICIAL OPINION The issue before the court on appeal was whether a foreign company running a website that allows people to make reservations for its hotel from one's home is considered conducting business in that state and subjects the company to personal jurisdiction there, in a case arising out of injuries sustained by the plaintiff on a fishing vessel not owned by the hotel but arising only because of his stay at the hotel. The court applied two requirements for personal jurisdiction under the federal rules: first, the defendant must have established minimum contacts with the forum state, and second, the cause of action must be related to the contacts established. The court held that although Pueblo's site might have established contacts with the forum state sufficient to subject it to personal jurisdiction there, the injuries sustained on the shipping vessel were not sufficiently related to the operation of the site. Merely because the plaintiff might not have gone to Costa Rica if not for the advertisement that he saw did not subject Pueblo to liability because of injuries sustained on a fishing trip taken there.40 CASE QUESTIONS 1. On what basis did the court reach its finding on the jurisdictional issue? 2. Owning and operating a website that allows a person to make reservations for a hotel is enough to establish minimum contacts with the state in which the reservation was made. If the court agreed with this proposition, why did it conclude that there was no personal jurisdiction over the defendants in this case? 3. Ethical Consideration: Should the court have ruled differently? Can an argument be made for the idea that a company should be haled into court in the consumer's jurisdiction when the reservation was made there for any injuries that the person sustains while on vacation at that company's hotel? As these personal-jurisdiction-and-the-Internet cases show, there are two competing approaches to dispute resolution in cyberlaw cases: let \"law\" control or let the parties control. When lawthat is, the sovereigncontrols, the very boundaries of authority are stretched because the sovereign is unable to completely control conduct that has a global impact even though it is initiated locally.41 Indeed, Internet activists argue that all online activity is outside the realm of the sovereigns' legal governance. [In the face of claims] that technology justifies the denial of personal jurisdiction, the rejection of an assertion of applicable law by a sovereign state, and the denial of the enforcement of decisions ... legal systems engage in a rather conventional struggle to adapt existing regulatory standards to new technologies and the Internet. Yet, the underlying fight is a profound struggle against the very right of sovereign states to establish rules for online activity.42 40 For an interesting discussion of the Oldfield case, see Judy A. Clausen, Personal Jurisdiction Based on Internet Activities: Oldfield v. Pueblo de Bahia Lora, S.A.the Eleventh Circuit Finally Discusses Zippo but Leaves Lower Courts Needing More Guidance, XI Fla. Coastal L. Rev. 53 (2009). 41 See generally Joel R. Reidenberg, Technology & Internet Jurisdiction, 153 U. Pa. L. Rev. 1951 (2005). 42 Id. at 1954. Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 8: Dispute Resolution: Jurisdiction, Litigation, and ADR 247 Even though the Oldfield court found no jurisdiction, there are plenty of recent examples of cases in which the courts reached the far outer limits of sovereign authority. A case in Italy illustrates what is arguably the outermost reach of sovereign authority. The controversy arose after Italian authorities took issue with a video that showed an autistic child being subjected to cruel bullying. The video, made by four students enrolled at a secondary school in Turin, Italy, was posted to GoogleVideo in September of 2006, where it remained until November 2007, when it was taken down after Google received a complaint by Italian police. Italian authorities contended that Google was negligent for failing to take the content down sooner. An Italian court eventually found three Google executives guilty of privacy violations and they were given six-month suspended sentences. Similarly, the Pirate Bay case demonstrates that the sovereign's arm can reach far to find personal jurisdiction. IN RE PIRATE BAY Case No. 13301-06 (Stockholm District Court, Apr. 17, 2009) FACTS The Pirate Bay trial was a joint criminal and civil prosecution in the Swedish legal system against Fredrik Neij, Gottfrid Svartholm Warg, Peter Sunde Kolmisoppi and Carl Lundstrm. The four men were charged for illegally promoting the copyright infringement of others with their torrent-tracking website, The Pirate Bay. The website carries links to copies of music, television programs, and films, and is the world's most well-known file-sharing site. The prosecution argued that facilitating file-sharing constitutes the crime of accessory to theft, just as a person holding the jacket of someone while he commits battery can and should be held responsible for the battery. The four men were convicted by the Stockholm District Court on April 17, 2009, and sentenced to one year in jail each. Additionally, the defendants were ordered to pay a total of 30 million Swedish krona (equal to approximately $3.5 million) in fines and damages. Both sides appealed. JUDICIAL OPINION (JUDGE TOMAS HORSTRM)43 The Stockholm District Court discussed the defendants' charges: Comments on liability for breach of the Copyright Act The Copyright Act distinguishes between copyright and certain rights associated with copyright. Copyright belongs to the person who has created a literary or artistic work, such as a film or a computer program. A right associated with copyright belongs to a producer of a sound recording or a recording of moving pictures, e.g. a record company (phonogram producer) which records an artist's music on a certain medium, and a film producer who records a film. The indictments for breach of the Copyright Act are based on an allegation of infringement of both associated rights and actual copyright, which belong to certain US film and computer game companies.... Under the Copyright Act, a work or a right is made available to the general public when, inter alia, it is broadcast to the general public. All the charges brought by the District Prosecutor are to the effect that files containing copyright-protected performances have been made available to the general public through Internet transfers. Such a making available occurs when a work or a right, either by way of a wired or wireless connection, is made available to the general public from a place other than where the public can enjoy the work. In addition, broadcasting to the general public includes a transfer which takes place in such a way that individuals can gain access to the work or right from a place and at a time of their own choosing. On the issue of jurisdiction, the Stockholm District Court determined that making content available on the Internet is a crime in Sweden: (Continued ) 43 Quotes are from a translation into English commissioned by the International Federation of the Phonographic Industry (IFPI), which is one of the music trade groups that brought the case against the four defendants. The translation was not endorsed by the Stockholm District Court. Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 248 Part 3: Transactional Law: Creating Wealth and Managing Risk The investigation into the case has revealed that some of The Pirate Bay's users, whose making available is the subject of the action, have been located outside Sweden when they made the works available to the general public. Under Chapter 2, 1 of the Criminal Code, Swedish law applies when an offence has been committed in Sweden. The same applies if it is uncertain where the offence was committed but there is reason to assume that it was committed in Sweden. Under 4, an offence is regarded as having been committed where the criminal act was committed, as well as where the infringement took place. One issue in the case is where the principal offence should be regarded as having taken place. According to the District Court, there is strong reason to regard an offence which involves the making available of something on the Internet as having been committed in a country where the Internet user can obtain the information which has been made available, provided that the making available has legal implications in the country (c.f. Schnning, phavsretsloven with commentary, 3rd edition, p. 686). This applies not least when the informationas in this caseis published in a language spoken in that country. This suggests that all principal offences, even those committed by persons located outside Sweden, should be regarded as having been committed in Sweden. This conclusion is further reinforced by the fact that the servers (computers) hosting The Pirate Bay's website and the tracker were located in Sweden. In conclusion, in consequence of what has been said above, all the principal offences alleged by the District Prosecutor must be regarded as having been committed in Sweden and being offences in Sweden. CASE QUESTIONS 1. On what basis did the Stockholm District Court assert jurisdiction over the four Pirate Bay defendants? 2. What does the Pirate Bay decision tell us about jurisdiction? About the strengths and weaknesses of litigation? 3. Ethical Consideration: Can a company that does business on the Internet escape the reach of a country's domestic laws by simply locating elsewhere? If so, should it be allowed to do so? The Pirate Bay opinion has been deemed the most important European verdict on file sharing, along the lines of the verdict in Napster in the United States. It was the longest sentence a Swedish court ever awarded for a violation of Swedish copyright law, and the damages awarded were considered high. Napster was an online music file-sharing service, which operated between June 1999 and July 2001. It allowed people to share their MP3 files, bypassing the established market for such songs and leading to accusations of copyright violations. It was sued in 2000 for contributory and vicarious copyright infringement under the U.S. Digital Millennium Copyright Act. Napster lost the case, and, ordered to monitor activities on its network, ultimately shut down in 2001. Similarly, Grokster Ltd., the West Indies creator of the P2P file-sharing software, went out of business in 2005 after the U.S. Supreme Court's decision in MGM Studios, Inc. v. Grokster, Ltd.44 The Court ruled that Grokster's peer-to-peer file-sharing program infringed U.S. copyright law. The Pirate Bay decision drew interest from privacy advocates, copyright owners, and Internet criminal prosecutors from around the globe. The U.S. entertainment industry had been trying to quiet Pirate Bay since 2003. Even after the verdict, Pirate Bay refused to shut down its site, boasting that \"0 torrents\" were removed. However, the locale of the site was moved out of Sweden. 44 545 U.S. 913 (2005). Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 8: Dispute Resolution: Jurisdiction, Litigation, and ADR 249 In a Billboard interview45 shortly after the verdict was rendered, Gregor Pryor, a London-based lawyer at Reed Smith, was asked about Pirate Bay's argument \"that offering links is not assisting in copyright infringement.\" He opined: From a European perspective, if you look at the history of anti-piracy actions, there's this trend towards being more inclined to favor the rights holders. Linking seems like one of the more innocuous things, and if that claim [that providing links is assisting copyright infringement] was brought in the U.K., whether it would be successful or notit's probably less likely. The English courts tend to be more conservative than other countries about their ability to claim jurisdiction. There's a question of whether Sweden is hanging it out there and being a bit more controversial and protective than other territories. If you're a record company, would you be better off bringing a claim in Sweden? You probably would. But the entertainment industry also admitted after the landmark decision that its troubles weren't over. Indeed, the Pirate Bay decision could be seen as simply the latest in the technology-legal speed-bump cycle. That is, a technology is invented, and the law follows, confronting the issue that arises and attempting to create a standard and resolve the issue. Perhaps the legal solution suffices; perhaps it does not. But, even if it temporarily addresses the issue, a new technology comes along. Law is constantly adjusting to be relevant to ever-changing technology. In sum, making a finding that a defendant is subject to personal jurisdiction involves a two-step analysis.46 The first step is whether the forum state asserting authority has a long-arm statute, which provides a basis for personal jurisdiction. The second step requires a finding that there were sufficient minimum contacts between the defendants and the forum state. It should be noted that although many courts currently follow the test laid out in Zippo, many district courts are split on whether Zippo is applicable in determining whether an Internet presence establishes the minimum required contacts with the foreign state under due process. When the defendant does business over the Internet, however, contracting with residents of a foreign jurisdiction, personal jurisdiction appears proper. When defendants only post information without user accessibility or interaction, personal jurisdiction appears to be not proper. Limits to Litigation As most business owners and officers know, traditional litigationa plaintiff sues a defendant in the location where the plaintiff wants the hearing to be heldhas its limits. One such drawback is cost. And one of the factors leading to the high cost of litigation is the application of traditional jurisdiction rules. It was estimated in 2008 that the total cost of litigation among Fortune 500 companies was around $210 billion, or around one-third of those companies' after-tax profits. And this cost could be even higher. Although it is easy to calculate litigation defense costs, such costs make up only a portion of a corporation's litigation costs, which include liability costs, or payouts to plaintiffs. The average case takes three years to resolve and almost always ends in settlement, despite the fact that the company prepares to defend most disputes as if they will go to trial. Preparing for trialeven if the case never gets theremeans exhaustive discovery and filing or defending multiple motions, which \"Billboard Q&A: Lawyers Analyze Pirate Bay Case,\" April 24, 2009, Billboard.biz, http://www.billboard.biz/ bbbiz/content_display/industry/e3i55fbb4c9063b301d1651610b4d1bb390. 45 46 See International Shoe v. Washington, 326 U.S. 310, 316 (1945). Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 250 Part 3: Transactional Law: Creating Wealth and Managing Risk adds costs that ultimately are unnecessary. And it is hard to ignore the noneconomic costs of a litigious corporate culture: a combative reputation, which makes plaintiffs less willing to settle early and alienates customers, employees, shareholders, and the larger community. Possible Solutions: Managing the Litigation Risk Forum Selection and Choice of Law Clauses Once a decision is made concerning which jurisdictions, users may access the site, there are a number of methods that businesses can use in an effort to discourage individuals from outside those jurisdictions from entering and using the website. First, the Terms of Use can specify that the website is only intended for use by residents of certain countries. Some website operators might choose to require website users to enter their zip code or country of residence on the home page. If the user enters a location in which the website operator does not intend to submit to jurisdiction, the individual will not be able to proceed onto the website. Another method is to require a user to click on an online box indicating that he or she is not from any of certain prohibited jurisdictions. The main problem with the aforementioned procedures is that they can be easily defeated by most users. If, for example, an American user wanted to access a website in France and was aware that it was off-limits to American users, the user could just type in that he or she resided in another country. Additionally, the legal effect of such methods is not fully certain, especially in jurisdictions outside of the United States. In some circumstances, especially when the content of the website or the conduct of the website operator is viewed as particularly egregious under the national law of the foreign country, the foreign country may attempt to exercise jurisdiction over the website operator regardless of its use of these various methods. When attempting to address jurisdictional issues, some website operators might find that they do not have to prohibit individuals from certain countries from accessing the website altogether but can control access to certain parts of the website. This scenario may arise for operators of online trading services, for instance. Such websites might contain news and other information that can be viewed freely by individuals from all jurisdictions, but enable only individuals who are residents in certain jurisdictions such as the United States to open online trading accounts. Often the best way to proceed in such a situation is to develop a layered website. All individuals would be able to access the public areas of the website and only individuals who reside in the United States and have completed offline account agreements would have access to the trading portions of the website. Such account agreements contain a forum selection clause, a contract provision that is extremely common in traditional, offline contracts. The parties simply agree that if any dispute arises between them, the dispute will be resolved in a particular agreed-upon forum, such as Delaware. Such a clause is critical when business is done in two different states or countries. A forum selection clause must (1) be reasonable, (2) be conspicuous, and (3) not work a hardship on the defendant. Courts generally will enforce them. Typically, the companion to a forum selection clause is a choice of law provision, which states that the law of a particular jurisdiction will apply. Increasingly, forum selection clauses go beyond selecting a particular court system that will have jurisdiction over potential disputes and state that the parties agree to resolve disputes by alternative dispute resolution. Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 8: Dispute Resolution: Jurisdiction, Litigation, and ADR 251 For example, the User Agreement of the popular online auction site eBay provides: Law and Forum for DisputesThis Agreement shall be governed in all respects by the laws of the State of California as they apply to agreements entered into and to be performed entirely within California between California residents, without regard to conflict of law provisions. You agree that any claim or dispute you may have against eBay must be resolved exclusively by a state of federal court located in Santa Clara County, California, except as otherwise agreed by the parties or as described in the Arbitration Option paragraph below. You agree to submit to the personal jurisdiction the courts located within Santa Clara County, California for