This is an Internet domain name [FN1] dispute. At this stage of the controversy, we must decide the constitutionally permissible reach of Pennsylvania’s Long Arm Statute, 42 Pa.C.S.A. $ 5322, through cyberspace. Plaintiff Zippo Manufacturing Corporation (“Manufacturing”) has filed a five count complaint against Zippo Dot Com, Inc. (“Dot Com”) alleging trademark dilution, infringement, and false designation under the Federal Trademark Act, 15 U.S.C. $$ 1051-1127. In addition, the Complaint alleges causes of action based on state law trademark dilution under 54 Pa.C.S.A. $ 1124, and seeks equitable accounting and imposition of a constructive trust. Dot Com has moved to dismiss for lack of personal jurisdiction and improper venue pursuant to Fed.R.Civ.P. 12(b)(2) and (3) or, in the alternative, to transfer the case pursuant to 28 U.S.C. $ 1406(a). For the reasons set forth below, Defendant’s motion is denied.

I. BACKGROUND

The facts relevant to this motion are as follows. Manufacturing is a Pennsylvania corporation with its principal place of business in Bradford, Pennsylvania. Manufacturing makes, among other things, well known “Zippo” tobacco lighters. Dot Com is a California corporation with its principal place of business in Sunnyvale, California. Dot Com operates an Internet Web site [FN2] and an Internet news service and has obtained the exclusive right to use the domain names “zippo.com”, “zippo.net” and “zipponews.com” on the Internet. [FN3]

Dot Com’s Web site contains information about the company, advertisements and an application for its Internet news service. The news service itself consists of three levels of membership–public/free, “Original” and “Super.” Each successive level offers access to a greater number of Internet newsgroups. A customer, who wants to subscribe to either the “Original” or “Super” level of service, fills out an on-line application that asks for a variety of information including the person’s name and address. Payment is made by credit card over the Internet or the telephone. The application is then processed and the subscriber is assigned a password which permits the subscriber to view and/or download Internet newsgroup messages that are stored on the Defendant’s server in California.

Dot Com’s contacts with Pennsylvania have occurred almost exclusively over the Internet. Dot Com’s offices, employees and Internet servers are located in California. Dot Com maintains no offices, employees or agents in Pennsylvania. Dot Com’s advertising for its service to Pennsylvania residents involves posting information about its service on its Web page, which is accessible to Pennsylvania residents via the Internet. Defendant has approximately 140,000 paying subscribers worldwide. Approximately two percent (3,000) of those subscribers are Pennsylvania residents. These subscribers have contracted to receive Dot Com’s service by visiting its Web site and filling out the application. Additionally, Dot Com has entered into agreements with seven Internet access providers in Pennsylvania to permit their subscribers to access Dot Com’s news service. Two of these providers are located in the Western District of Pennsylvania.

The basis of the trademark claims is Dot Com’s use of the word “Zippo” in the domain names it holds, in numerous locations in its Web site and in the heading of Internet newsgroup messages that have been posted by Dot Com subscribers. When an Internet user views or downloads a newsgroup message posted by a Dot Com subscriber, the word “Zippo” appears in the “Message-Id” and “Organization” sections of the heading. [FN4] The news message itself, containing text and/or pictures, follows. Manufacturing points out that some of the messages contain adult oriented, sexually explicit subject matter.

III. DISCUSSION

A. Personal Jurisdiction
1. The Traditional Framework
Our authority to exercise personal jurisdiction in this case is conferred by state law. Fed.R.Civ.P. 4(e); Mellon, 960 F.2d at 1221. The extent to which we may exercise that authority is governed by the Due Process Clause of the Fourteenth Amendment to the Federal Constitution. Kulko v. Superior Court of California, 436 U.S. 84, 91, 98 S.Ct. 1690, 1696, 56 L.Ed.2d 132 (1978).

Pennsylvania’s long arm jurisdiction statute is codified at 42 Pa.C.S.A. $ 5322(a). The portion of the statute authorizing us to exercise jurisdiction here permits the exercise of jurisdiction over non-resident defendants upon: (2) Contracting to supply services or things in this Commonwealth. 42 Pa.C.S.A. $ 5322(a). It is undisputed that Dot Com contracted to supply Internet news services to approximately 3,000 Pennsylvania residents and also entered into agreements with seven Internet access providers in Pennsylvania. Moreover, even if Dot Com’s conduct did not satisfy a specific provision of the statute, we would nevertheless be authorized to exercise jurisdiction to the “fullest extent allowed under the Constitution of the United States.” 42 Pa.C.S.A. $ 5322(b).

The Constitutional limitations on the exercise of personal jurisdiction differ depending upon whether a court seeks to exercise general or specific jurisdiction over a non-resident defendant. Mellon, 960 F.2d at 1221. General jurisdiction permits a court to exercise personal jurisdiction over a non-resident defendant for non-forum related activities when the defendant has engaged in “systematic and continuous” activities in the forum state. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-16, 104 S.Ct. 1868, 1872-73, 80 L.Ed.2d 404 (1984). In the absence of general jurisdiction, specific jurisdiction permits a court to exercise personal jurisdiction over a non-resident defendant for forum-related activities where the “relationship between the defendant and the forum falls within the ‘minimum contacts’ framework” of International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945) and its progeny. Mellon, 960 F.2d at 1221. Manufacturing does not contend that we should exercise general personal jurisdiction over Dot Com. Manufacturing concedes that if personal jurisdiction exists in this case, it must be specific.

A three-pronged test has emerged for determining whether the exercise of specific personal jurisdiction over a non-resident defendant is appropriate: (1) the defendant must have sufficient “minimum contacts” with the forum state, (2) the claim asserted against the defendant must arise out of those contacts, and (3) the exercise of jurisdiction must be reasonable. Id. The “Constitutional touchstone” of the minimum contacts analysis is embodied in the first prong, “whether the defendant purposefully established” contacts with the forum state. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S.Ct. 2174, 2183-84, 85 L.Ed.2d 528 (1985) (citing International Shoe Co. v. Washington, 326 U.S. 310, 319, 66 S.Ct. 154, 159- 60, 90 L.Ed. 95 (1945)).

2. The Internet and Jurisdiction

In Hanson v. Denckla, the Supreme Court noted that “[a]s technological progress has increased the flow of commerce between States; the need for jurisdiction has undergone a similar increase.” Hanson v. Denckla, 357 U.S. 235, 250-51, 78 S.Ct. 1228, 1237-39, 2 L.Ed.2d 1283 (1958). Twenty seven years later, the Court observed that jurisdiction could not be avoided “merely because the defendant did not physically enter the forum state.” Burger King, 471 U.S. at 476, 105 S.Ct. at 2184. The Court observed that:

[I]t is an inescapable fact of modern commercial life that a substantial amount of commercial business is transacted solely by mail and wire communications across state lines, thus obviating the need for physical presence within a State in which business is conducted. Id.

Enter the Internet, a global “’super-network’ of over 15,000 computer networks used by over 30 million individuals, corporations, organizations, and educational institutions worldwide.” Panavision Intern., L.P. v. Toeppen, 938 F.Supp. 616 (C.D.Cal.1996) (citing American Civil Liberties Union v. Reno, 929 F.Supp. 824, 830-48 (E.D.Pa.1996)). “In recent years, businesses have begun to use the Internet to provide information and products to consumers and other businesses.” Id. The Internet makes it possible to conduct business throughout the world entirely from a desktop. With this global revolution looming on the horizon, the development of the law concerning the permissible scope of personal jurisdiction based on Internet use is in its infant stages. The cases are scant. Nevertheless, our review of the available cases and materials [FN5] reveals that the likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet. This sliding scale is consistent with well developed personal jurisdiction principles. At one end of the spectrum are situations where a defendant clearly does business over the Internet. If the defendant enters into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files over the Internet, personal jurisdiction is proper. E.g. CompuServe, Inc. v. Patterson, 89 F.3d 1257 (6th Cir.1996). At the opposite end are situations where a defendant has simply posted information on an Internet Web site which is accessible to users in foreign jurisdictions. A passive Web site that does little more than make information available to those who are interested in it is not grounds for the exercise personal jurisdiction. E.g. Bensusan Restaurant Corp., v. King, 937 F.Supp. 295 (S.D.N.Y.1996). The middle ground is occupied by interactive Web sites 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 of information that occurs on the Web site. E.g. Maritz, Inc. v. Cybergold, Inc., 947 F.Supp. 1328 (E.D.Mo.1996).

Traditionally, when an entity intentionally reaches beyond its boundaries to conduct business with foreign residents, the exercise of specific jurisdiction is proper. Burger King, 471 U.S. at 475, 105 S.Ct. at 2183- 84. Different results should not be reached simply because business is conducted over the Internet. In CompuServe, Inc. v. Patterson, 89 F.3d 1257 (6th Cir.1996), the Sixth Circuit addressed the significance of doing business over the Internet. In that case, Patterson, a Texas resident, entered into a contract to distribute shareware [FN6] through CompuServe’s Internet server located in Ohio. CompuServe, 89 F.3d at 1260. From Texas, Patterson electronically uploaded thirty-two master software files to CompuServe’s server in Ohio via the Internet. Id. at 1261. One of Patterson’s software products was designed to help people navigate the Internet. Id. When CompuServe later began to market a product that Patterson believed to be similar to his own, he threatened to sue. Id. CompuServe brought an action in the Southern District of Ohio, seeking a declaratory judgment. Id. The District Court granted Patterson’s motion to dismiss for lack of personal jurisdiction and CompuServe appealed. Id. The Sixth Circuit reversed, reasoning that Patterson had purposefully directed his business activities toward Ohio by knowingly entering into a contract with an Ohio resident and then “deliberately and repeatedly” transmitted files to Ohio. Id. at 1264- 66.

In Maritz, Inc. v. Cybergold, Inc., 947 F.Supp. 1328 (E.D.Mo.1996), the defendant had put up a Web site as a promotion for its upcoming Internet service. The service consisted of assigning users an electronic mailbox and then forwarding advertisements for products and services that matched the users’ interests to those electronic mailboxes. Maritz, 947 F.Supp. at 1330. The defendant planned to charge advertisers and provide users with incentives to view the advertisements. Id. Although the service was not yet operational, users were encouraged to add their address to a mailing list to receive updates about the service. Id. The court rejected the defendant’s contention that it operated a “passive Web site.” Id. at 1333- 34. The court reasoned that the defendant’s conduct amounted to “active solicitations” and “promotional activities” designed to “develop a mailing list of Internet users” and that the defendant “indiscriminately responded to every user” who accessed the site. Id. at 1333-34.

Inset Systems, Inc. v. Instruction Set, 937 F.Supp. 161 (D.Conn.1996) represents the outer limits of the exercise of personal jurisdiction based on the Internet. In Inset Systems, a Connecticut corporation sued a Massachusetts corporation in the District of Connecticut for trademark infringement based on the use of an Internet domain name. Inset Systems, 937 F.Supp. at 162. The defendant’s contacts with Connecticut consisted of posting a Web site that was accessible to approximately 10,000 Connecticut residents and maintaining a toll free number. Id. at 165. The court exercised personal jurisdiction, reasoning that advertising on the Internet constituted the purposeful doing of business in Connecticut because “unlike television and radio advertising, the advertisement is available continuously to any Internet user.” Id. at 165.

Bensusan Restaurant Corp., v. King, 937 F.Supp. 295 (S.D.N.Y.1996) reached a different conclusion based on a similar Web site. In Bensusan, the operator of a New York jazz club sued the operator of a Missouri jazz club for trademark infringement. Bensusan, 937 F.Supp. at 297. The Internet Web site at issue contained general information about the defendant’s club, a calendar of events and ticket information. Id. However, the site was not interactive. Id. If a user wanted to go to the club, she would have to call or visit a ticket outlet and then pick up tickets at the club on the night of the show. Id. The court refused to exercise jurisdiction based on the Web site alone, reasoning that it did not rise to the level of purposeful availment of that jurisdiction’s laws. The court distinguished the case from CompuServe, supra, where the user had “‘reached out’ from Texas to Ohio and ‘originated and maintained’ contacts with Ohio.” Id. at 301.

Pres-Kap, Inc. v. System One, Direct Access, Inc., 636 So.2d 1351 (Fla.App.1994), review denied, 645 So.2d 455 (Fla.1994) is not inconsistent with the above cases. In Pres-Kap, a majority of a three-judge intermediate state appeals court refused to exercise jurisdiction over a consumer of an on- line airline ticketing service. Pres-Kap involved a suit on a contract dispute in a Florida court by a Delaware corporation against its New York customer. Pres-Kap, 636 So.2d at 1351-52. The defendant had leased computer equipment which it used to access an airline ticketing computer located in Florida. Id. The contract was solicited, negotiated, executed and serviced in New York. Id. at 1352. The defendant’s only contact with Florida consisted of logging onto the computer located in Florida and mailing payments for the leased equipment to Florida. Id. at 1353. Pres-Kap is distinguishable from the above cases and the case at bar because it addressed the exercise of jurisdiction over a consumer of on-line services as opposed to a seller. When a consumer logs onto a server in a foreign jurisdiction he is engaging in a fundamentally different type of contact than an entity that is using the Internet to sell or market products or services to residents of foreign jurisdictions. The Pres-Kap court specifically expressed concern over the implications of subjecting users of “on-line” services with contracts with out-of-state networks to suit in foreign jurisdictions. Id. at 1353.

3. Application to this Case

First, we note that this is not an Internet advertising case in the line of Inset Systems and Bensusan, supra. Dot Com has not just posted information on a Web site that is accessible to Pennsylvania residents who are connected to the Internet. This is not even an interactivity case in the line of Maritz, supra. Dot Com has done more than create an interactive Web site through which it exchanges information with Pennsylvania residents in hopes of using that information for commercial gain later. We are not being asked to determine whether Dot Com’s Web site alone constitutes the purposeful availment of doing business in Pennsylvania. This is a “doing business over the Internet” case in the line of CompuServe, supra. We are being asked to determine whether Dot Com’s conducting of electronic commerce with Pennsylvania residents constitutes the purposeful availment of doing business in Pennsylvania. We conclude that it does. Dot Com has contracted with approximately 3,000 individuals and seven Internet access providers in Pennsylvania. The intended object of these transactions has been the downloading of the electronic messages that form the basis of this suit in Pennsylvania.

We find Dot Com’s efforts to characterize its conduct as falling short of purposeful availment of doing business in Pennsylvania wholly unpersuasive. At oral argument, Defendant repeatedly characterized its actions as merely “operating a Web site” or “advertising.” Dot Com also cites to a number of cases from this Circuit which, it claims, stand for the proposition that merely advertising in a forum, without more, is not a sufficient minimal contact. [FN7] This argument is misplaced. Dot Com has done more than advertise on the Internet in Pennsylvania. Defendant has sold passwords to approximately 3,000 subscribers in Pennsylvania and entered into seven contracts with Internet access providers to furnish its services to their customers in Pennsylvania.

Dot Com also contends that its contacts with Pennsylvania residents are “fortuitous” within the meaning of World-Wide Volkswagen, 444 U.S. 286, 100 S.Ct. 559 (1980). Defendant argues that it has not “actively” solicited business in Pennsylvania and that any business it conducts with Pennsylvania residents has resulted from contacts that were initiated by Pennsylvanians who visited the Defendant’s Web site. The fact that Dot Com’s services have been consumed in Pennsylvania is not “fortuitous” within the meaning of World- Wide Volkswagen. In World-Wide Volkswagen, a couple that had purchased a vehicle in New York, while they were New York residents, were injured while driving that vehicle through Oklahoma and brought suit in an Oklahoma state court. World-Wide Volkswagen, 444 U.S. at 288, 100 S.Ct. at 562-63. The manufacturer did not sell its vehicles in Oklahoma and had not made an effort to establish business relationships in Oklahoma. Id. at 295, 100 S.Ct. at 566. The Supreme Court characterized the manufacturer’s ties with Oklahoma as fortuitous because they resulted entirely out the fact that the plaintiffs had driven their car into that state. Id.

Here, Dot Com argues that its contacts with Pennsylvania residents are fortuitous because Pennsylvanians happened to find its Web site or heard about its news service elsewhere and decided to subscribe. This argument misconstrues the concept of fortuitous contacts embodied in World-Wide Volkswagen. Dot Com’s contacts with Pennsylvania would be fortuitous within the meaning of World-Wide Volkswagen if it had no Pennsylvania subscribers and an Ohio subscriber forwarded a copy of a file he obtained from Dot Com to a friend in Pennsylvania or an Ohio subscriber brought his computer along on a trip to Pennsylvania and used it to access Dot Com’s service. That is not the situation here. Dot Com repeatedly and consciously chose to process Pennsylvania residents’ applications and to assign them passwords. Dot Com knew that the result of these contracts would be the transmission of electronic messages into Pennsylvania. The transmission of these files was entirely within its control. Dot Com cannot maintain that these contracts are “fortuitous” or “coincidental” within the meaning of World-Wide Volkswagen. When a defendant makes a conscious choice to conduct business with the residents of a forum state, “it has clear notice that it is subject to suit there.” World-Wide Volkswagen, 444 U.S. at 297, 100 S.Ct. at 567. Dot Com was under no obligation to sell its services to Pennsylvania residents. It freely chose to do so, presumably in order to profit from those transactions. If a corporation determines that the risk of being subject to personal jurisdiction in a particular forum is too great, it can choose to sever its connection to the state. Id. If Dot Com had not wanted to be amenable to jurisdiction in Pennsylvania, the solution would have been simple–it could have chosen not to sell its services to Pennsylvania residents.

Next, Dot Com argues that its forum-related activities are not numerous or significant enough to create a “substantial connection” with Pennsylvania. Defendant points to the fact that only two percent of its subscribers are Pennsylvania residents. However, the Supreme Court has made clear that even a single contact can be sufficient. McGee, 355 U.S. at 223, 78 S.Ct. at 201. The test has always focused on the “nature and quality” of the contacts with the forum and not the quantity of those contacts. International Shoe, 326 U.S. at 320, 66 S.Ct. at 160. The Sixth Circuit also rejected a similar argument in CompuServe when it wrote that the contacts were “deliberate and repeated even if they yielded little revenue.” CompuServe, 89 F.3d at 1265.

In the instant case, both a significant amount of the alleged infringement and dilution, and resulting injury have occurred in Pennsylvania. The object of Dot Com’s contracts with Pennsylvania residents is the transmission of the messages that Plaintiff claims dilute and infringe upon its trademark. When these messages are transmitted into Pennsylvania and viewed by Pennsylvania residents on their computers, there can be no question that the alleged infringement and dilution occur in Pennsylvania. Moreover, since Manufacturing is a Pennsylvania corporation, a substantial amount of the injury from the alleged wrongdoing is likely to occur in Pennsylvania. Thus, we conclude that the cause of action arises out of Dot Com’s forum-related activities under the authority of both Tefal and Indianapolis Colts, supra.

IV. CONCLUSION

We conclude that this Court may appropriately exercise personal jurisdiction over the Defendant and that venue is proper in this judicial district.
FN1. Domain names serve as a primary identifier of an Internet user. Panavision Intern., L.P. v. Toeppen, 938 F.Supp. 616 (C.D.Cal.1996). Businesses using the Internet commonly use their business names as part of the domain name (e.g. IBM.com). Id. The designation “.com” identifies the user as a commercial entity. Id.

FN2. A “site” is an Internet address that permits the exchange of information with a host computer. Bensusan Restaurant Corp. v. King, 937 F.Supp 295 (S.D.N.Y.1996). The “Web” or “World Wide Web” refers to the collection of sites available on the Internet. Id.

FN3. Dot Com has registered these domain names with Network Solutions, Inc. which has contracted with the National Science Foundation to provide registration services for Internet domain names. Once a domain name is registered to one user, it may not be used by another.

FN4. For example, a typical message heading might appear as:

Subject: subject of the message
From: name of person posting message
Date: date posted
Message-Id: identifying#@news.zippo.com
Reference: reference#
Organization: Zippo
Newsgroups: news groups to which sender has subscribed
The italicized text represents a generic description of specific information appearing in the message.

FN5. See, generally, Robert A. Bourque and Kerry L. Konrad, Avoiding Jurisdiction Based on Internet Web Site, New York Law Journal (Dec. 10, 1996); David Bender, Emerging Personal Jurisdiction Issues on the Internet, 453 PLI/Pat 7 (1996); Comment, Richard S. Zembek, Jurisdiction and the Internet: Fundamental Fairness in the Networked World of Cyberspace, 6 Alb.L.J.Sci. & Tech. 339 (1996).

FN6. “Shareware” is software which a user is permitted to download and use for a trial period, after which the user is asked to pay a fee to the author for continued use. CompuServe, 89 F.3d at 1260.

FN7. Defendant has cited to: Gehling v. St. George’s School of Medicine, Ltd., 773 F.2d 539 (3rd Cir.1985); Fields v. Ramada Inn Inc., 816 F.Supp. 1033 (E.D.Pa.1993); and Garofalo v. Praiss, 1990 WL 97800 (E.D.Pa.1990). We note that these cases all involve the issue of whether advertising can rise to the level of “systematic and continuous” contacts for the purpose of general jurisdiction.

v.

O P I N I O N : JOLLY HOTELS, et al.,

LAWRENCE Z. FARBER ESQ.
BRESLIN & BRESLIN
41 Main Street
Hackensack, NJ 07601
(Attorneys for Plaintiff)
JOHN R. ALTIERI ESQ.
25 E. SALEM Street, Box 279
Hackensack, NJ 07602-0279
-and-
PINO & ASSOCIATES
Westchester Financial Center
50 Main Street
White Plains NY 10606
(Attorneys for Defendants)

WOLIN, District Judge

This case arises out of an accident plaintiff, Eileen Weber had while a guest at one of defendant’s, Itajolly Compagnia Italiana Dei Jolly Hotels, hotels in Italy. Defendant moves this Court to dismiss the action for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure. The Court will not grant the motion to dismiss despite concluding that it does not have jurisdiction over defendant. Instead, the Court will grant plaintiff’s request to transfer the case to the Southern District of New York because the statute of limitations governing plaintiff’s claim prevents the Court from dismissing the case without prejudice.

BACKGROUND

Defendant is an Italian corporation and its principal place of business is in Valdagno, Italy. (Zanuso Cert. 2). Defendant owns and operates thirty-two hotels in Italy, and independent subsidiaries own and operate hotels in Holland, France, Belgium, and New York. (Def.’s Resp. to Pl.’s Interrog. No. 2). (Zanuso Cert. 2). Defendant does not conduct any business in New Jersey. (Zanuso Cert. 4). However, it does provide “photographs of hotel rooms, descriptions of hotel facilities, information about numbers of rooms and telephone numbers” on the Internet. (Pl.’s Br. in Opp. at10).

In July 1993, defendant and Grand Circle Travel, a Massachusetts corporation, entered into an agreement whereby one of defendant’s hotels, the Jolly Diodoro Hotel in Taormina, Sicily, Italy, would allot a certain number of rooms per week at the hotel for Grand Circle Travel during the 1994 calendar year. (Def. Ex. C).The agreement provided that defendant would bill Grand Circle Travel for the rooms that it booked. (Def. Ex. C). Defendant also promised not to accept any bookings for the Jolly Diodoro Hotel from five enumerated tour groups or any other company claiming to represent the American Association of Retired Persons “AARP” (Def. Ex. C).

Grand Circle Travel and plaintiff have a relationship that dates back to 1976 when plaintiff embarked on a travel tour arranged by Grand Circle Travel. (Pl. Aff. 5). After the first trip, Grand Circle Travel sent plaintiff information and brochures about trips, tours, and travel attractions. (Pl. Aff. 7). Through the years, plaintiff went on trips arranged by Grand Circle Travel. (Pl, Aff . 8). In late 1993 or early 1994, Grand Circle Travel sent plaintiff a brochure that described a tour of Italy. (Pl. Aff. 3). On February 25, 1994, plaintiff booked a trip to Italy through Grand Circle Travel. (Pl. Aff. 10). Included in the trip was a stay at the Jolly Diodoro Hotel. (Pl. Aff. 10).

On December 7, 1994, plaintiff sustained injuries when she fell at the Jolly Diodoro Hotel. (Pl. Aff. 3). At the time of the accident, plaintiff was a guest of the hotel. Plaintiff is a citizen of New Jersey and a member of AARP. (P1. Aff. 6).
On June 25, 1995, plaintiff filed a Complaint and Jury Demand in the Superior Court of New Jersey Law Division, Bergen County. She alleged that defendant knew or should have known of the dangerous condition on its premises. (P1. Compl. 4). The case was removed to the United States District Court for the District of New Jersey on diversity grounds.
Defendant now moves the Court to dismiss the case for lack of personal jurisdiction.

DISCUSSION

1. Personal Jurisdiction: Standards

Rule 4(e) of the Federal Rules of Civil Procedure allow a district court to exercise persona1 jurisdiction over a non-resident defendant to the extent allowed by the long-arm statute of the state where the court sits. New Jersey’s long-arm statute permits the exercise of personal jurisdiction over a non-resident defendant to the full extent permitted by the Due Process Clause of the Fourteenth Amendment of the Constitution. See N.J. Sup. Ct. R. 4:4-4(c) (1); see also DeJames v. Magnificence Carrier Inc., 654 F.2d 280, 284 (3d Cir.), cert. denied, 454 U.S. 1085 (1981); Doumani v Casino Control Comm’n, 614 F. Supp. 1465, 1471 (D.N.J. 1985).

The purpose of restricting personal jurisdiction is to protect the individual interests of non-resident defendants. See United States v. Morton, 467 U.S. 822, 828 (1984); World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291 (1980). A court may exercise personal jurisdiction over a non-resident defendant only where “minimum contacts” exist such that the exercise of jurisdiction “does not offend ‘traditional notions of fair play and substantial justice.’” International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)). A defendant establishes minimum contacts with a forum state by committing some act by which he purposefully avails himself of the privilege of conducting activities within the forum state, thus invoking the benefits and protection of its laws. See Hanson v. Denckla, 357 U.S. 235, 253 (1958). These contacts must be of the nature such that the individual non-resident defendant “should reasonably anticipate being haled into court there.” Burger King Corp. v. Rudzewicz, 471 US 462, 474 (1985) (citing World-Wide Volkswagen, 444 U.S. at 297). What constitutes minimum contacts varies with the “quality and the nature of defendant’s activity.” Hanson, 357 U.S. at 253.

A defendant can be subject to either specific or general personal jurisdiction in a forum state. To assert “general” jurisdiction, a plaintiff must establish that defendant’s contacts with the forum state are so “continuous and substantial” with the forum state that the defendant should expect to be haled into court on any cause of action. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-16 & 414 n. 9 (1984); Provident Nat’l Bank v. California Fed. Sav. & Loan Ass’n, 819 F.2d 434, 437 (3d Cir. 1987).

To establish specific jurisdiction, a defendant must have purposefully directed his activities at residents of the forum, sufficient to establish minimum contacts under International Shoe. See Henry Heide Inc. v. WRH Prods. Co., 766 F.2d 105, 108 (3d Cir. 1985). Specific personal jurisdiction may arise from particular or sporadic contacts it the “claim is related to or arises out of the defendant’s contacts with the forum.” Mellon Bank (East) PSFS Nat’l Ass’n v. Farino, 960 F.2d 1217, 1221 (3d Cir. 1992) (citations omitted); see also Helicopteros, 466 U.S. at 414 & 414 n. 8.

Once the defendant properly disputes the existence of personal jurisdiction, the plaintiff bears the burden to establish, by a preponderance of the evidence, sufficient facts demonstrating the court’s jurisdiction. See Carteret Sav. Bank FA v. Shushan, 954 F.2d 141, 145 (3d Cir.), cert. denied, 506 U.S. 817 (1992). In doing so, plaintiff must present a prima facie case for the exercise of personal jurisdiction by “establishing with reasonable particularity sufficient contacts between the defendant and the forum state.” Mellon Bank (East) PSFS, 960 F.2d at 1223 (citing Provident Nat’l Bank, 819 F.2d at 437). The court must accept as true the allegations of the complaint, and resolve disputed issues of fact in favor of the plaintiff. See Carteret Sav. Bank, 954 F.2d at 142 n.1.

If the plaintiff establishes a prima facie case supporting personal jurisdiction, the defendant then bear[s] the burden of showing the unreasonableness of an otherwise constitutional assertion of jurisdiction . . . .” Mellon Bank (East) PSFS, 960 F.2d at 1223. In assessing the reasonableness of the court’s assertion of jurisdiction, the court evaluates several factors, including: the burden on the defendant, the forum state’s interest in the litigation, the plaintiff’s interest in pursuing its claims in the state, and the interstate judicial system’s interest in the efficient resolution of claims. Burger King Corp., 471 U.S. at 477.

In examining personal jurisdiction under Rule 12(b)(2), the Court must look beyond the pleadings:

A Rule 12(b)(2) motion . . . is inherently a matter which requires resolution of factual issues outside the pleadings, i.e whether in personam jurisdiction actually lies. Once the defense has been raised, then the plaintiff must sustain its burden of proof in establishing jurisdictional facts through sworn affidavits or other competent evidence . . . [A]t no point may a plaintiff rely on the bare pleadings alone in order to withstand a defendant’s Rule 12(b)(2) motion to dismiss for lack of in personam jurisdiction. Once the motion is made, plaintiff must respond with actual proofs, not mere allegations.

Time Share Vacation Club v. Atlantic Resorts, Ltd., 735 F.2d 61, 67 n. 9 (3d Cir. 1984); See also Mellon Rank (East) PSFS, 960 F.2d at 1223, Carteret Sav. Bank, 954 F.2d at 146.

2. Analysis

Plaintiff asserts that the Court has personal jurisdiction over defendant for two reasons: (1) defendant stands in the shoes of Grand Circle Travel because Grand Circle Travel is defendant’s independent contractor; and (2) defendant’s use of the Internet is equivalent to advertising in New Jersey. The first argument attempts to invoke specific jurisdiction whereas the second argument tries to Invoke general jurisdiction. The Court rejects both arguments.

a. Specific Jurisdiction

Plaintiff asserts that a foreign company is subject to personal jurisdiction of a court that has jurisdiction over the company’s independent contractor when the company has given the independent contractor the exclusive right to solicit and sell its product. She claims that the Court has jurisdiction over defendant because Grand Circle Travel directly solicited her with advertisements and brochures. Plaintiff relies on Van Eeuwen v. Heidelberg Eastern, Inc., 124 N.J. Super. 251 (App. Div. 1973), and Rutherford v. Sherburne Corp., 616 F. Supp. 1456 (D.N.J. 1985), to support her conclusion that jurisdiction is proper in this case. This assertion lacks merit for three reasons.

First, in this case, Grand Circle Travel does not have an exclusive right to solicit and sell defendant’s rooms. The agreement provides that Grand Circle Travel will be allotted a certain number of rooms per week at one of defendant’s hotels, the Jolly Diodoro Hotel, and that defendant would not accept bookings for the Jolly Diadoro Hotel from five enumerated tour groups or any other group claiming to represent the AARP. Moreover, if Grand Circle did not book the given number of rooms, defendant had the option of accepting reservations from other people.

Second, plaintiff’s reliance on Van Eeuwen, supra, is misplaced. In Van Eeuwen, the defendant gave Heidelberg Eastern, Inc., the exclusive right to distribute its printing press in more than seventy percent of the United States. 124 N.J, super. at 254. The plaintiffs filed suit against the defendant and Heidelberg after they were injured while operating the printing press. Id. at 253. The Appellate Division concluded that it had iurisdictlon over the defendant because it gave Heidelberg an exclusive right to sell its printing press in certain parts of the United States, because the defendant prepared advertisements and promotional publications for Heidelberg to distribute, and because a substantial amount of business occurred in New Jersey. Id. at 256-57. The panel reasoned that Heidelberg was an “integral spoke in a wheel in which [the defendant] is the hub” because the defendant created the exclusive distributorship agreement so that its product would be marketed and sold in the United States, including New Jersey. Id. at 258-59.

Van Eeuwen does not support plaintiff’s position for three reasons. First, that case involved a product that was sold in New Jersey whereas this case involves a service that occurred in Italy. Second, Heidelberg had an exclusive distributorship for more than seventy percent of the United States whereas defendant gave Grand Circle Travel the exclusive rights to book rooms for members of the AARP at one of its hotels. Moreover, defendant allotted Grand Circle Travel a limited number of rooms at one of its hotels, and those rooms could be booked to other people if Grand Circle Travel did d not book the rooms. Third, defendant did not supply Grand Circle Travel with advertisements or promotional materials. Thus, Grand Circle Travel is not an integral spoke in a wheel in which defendant is the hub. Moreover, Van Eeuwen is better suited for cases that arise out of the “stream of commerce” as opposed to a case like the one before the Court that deals with a service.

Finally, the facts of Rutherford, supra, substantially differ from those in this case. In Rutherford the plaintiff was injured while skiing in Killington, Vermont. 616 F. Supp. at 1457. The plaintiff was a member of a New Jersey ski club that organized the trip to Killington. Id. The defendant, which owned the ski area where the plaintiff was injured, employed a representative to visit ski shops and clubs in New Jersey in order to solicit business for the ski area in Killington. Id. In addition, the defendant advertised in four New Jersey newspapers and two national magazines, which were distributed in New Jersey. Id. Finally, the defendant estimated how many patrons from New Jersey visited its ski area each year. Id. at 1458. Ultimately, the Court concluded that the plaintiff’s injury was related to the defendant’s forum activities and that the defendant had purposefully directed its activities at New Jersey residents. Id. at 1461.

In this case, defendant did not advertise in newspapers, send an employee into New Jersey to solicit business or calculate how many of its guests were from New Jersey. In addition, this Court would be hard pressed to find that defendant’s affiliation with Grand Circle Travel is tantamount to purposeful availment of New Jersey’s laws and benefits. Therefore, the Court finds that specific jurisdiction does not exist.

b. General Jurisdiction

The Supreme Court has long recognized that personal jurisdiction must adapt to progress in technology. See Hanson, 357 at U.S. 250-51. Litigation involving the Internet has increased as the Internet has developed and expanded. Although the Internet is a new medium that raises new issues for the courts, district courts have successfully applied the principles established by International Shoe and its progeny to cases involving the Internet. See, e.g., Compuserve Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996). The cases that have addressed the relationship between the Internet and personal jurisdiction “reveal that the likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet.” Zippo Manuf. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1124 (W.D. Pa. 1996).

The cases dealing with this issue can be divided into three categories. See Id. The first category includes cases where defendants actively do business on the Internet. See, e.g., Compuserve, 89 F.3d 1257. In those instances, personal jurisdiction is found because defendants “enter [ ] into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files aver the Internet.” See Zippo, 962 F. Supp. at 1124 (citing Compuserve, 89 F.3d 1257). The second category deals with situations “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 of information that occurs on the Web site.” Zippo, 962 F. Supp. at 1124 (citing Maritz Inc. v. Cybergold Inc., 947 F. Supp. 1320 (E.D. Mo. 1996)). The third category involves passive Web sites; i.e., sites that merely provide information or advertisements to users. See Bensusan Restaurant Corp. v King, 937 F. Supp. 295 (S.D.N.Y. 1996). Districts courts do not exercise jurisdiction in the latter cases because “a finding of jurisdiction . . . based on an Internet web site would mean that there would be nationwide (indeed, worldwide) personal jurisdiction over anyone and everyone who establishes an Internet web site. Such nationwide jurisdiction is not consistent with traditional personal jurisdiction case law . . . . ” Hearst Corp. v. Goldberger, 1997 WL 97097, at *1 (S.D.N.Y. Feb. 27, 1997).

Despite plaintiff’s attempts to the contrary, this case clearly belongs in category three. Defendant placed information about its hotels on the Internet as an advertisement, not as a means of conducting business. In the past year, two district courts have refused to exercise jurisdiction over defendants who have a passive connection to the Internet. In Smith. v Hobby Lobby Stores Inc., 968 F. Supp. 1356 (W.D. Ark. 1997), the Court found that an advertisement in a trade publication was an insufficient contact with the forum state because the defendant “did not contract to sell any goods or services to any citizen of Arkansas over the Internet site.” Id. at 1365. In Hearst, supra, the Court concluded that advertising services on the Internet was equivalent to advertising in a national magazine, and that under New York law, such advertisements do not provide the requisite contacts to provide personal jurisdiction. 1997 WL 97097 at *10; See also Bensusan, 937 F. Supp. at 301 (finding that creation of web site is not sufficient to find that defendant purposefully availed himself of forum).

This Court agrees with the finding in Hearst that advertising on the internet falls under the same rubric as advertising in a national magazine. This Circuit has consistently held that advertising in national publications “does not constitute ‘continuous and substantial’ contacts with the forum state.” See, e.g., Gehling v St. George’s School Of Medicine, 773 F.2d 539, 542 (3d Cir. 1985); see also Giangolo v. Walt Disney World Co., 753 F. Supp. 148, 156 (D.N.N.J. 1990) (“In an age of modern advertising and national media publications and markets, plaintiffs’ argument that such conduct would make a defendant amenable to suit wherever the advertisement were aired would substantially undermine the law of personal jurisdiction.”). In addition, advertising on the Internet is not tantamount to directing activity at or to purposefully availing oneself of a particular forum.

Thus, the Court finds that exercising jurisdiction over a defendant who merely advertises its services or product on the Internet would violate the Due Process Clause of the Fourteenth Amendment. Exercising jurisdiction in such a case would be unjust and would disrespect the principles established by International Shoe and its progeny.

3. Plaintiff’s Request to Transfer

Plaintiff requests that the Court transfer the case to the Southern District of New York if it concludes that it does not have jurisdiction. Twenty-eight U.S.C. § 1406(a) provides: “The district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.” Thus, section 1406(a) mandates that a district court can transfer a case to another district only if the other district has personal jurisdiction over the defendant.

In this instance, defendant has a subsidiary, Migdal Madison N.V. that. owns a hotel in New York City. Migdal Madison is a Curacao corporation. (Def. Resp. to Pl.’s Interrog. No. 2). Plaintiff claims that the New York hotel accepts reservations for all of defendant’s hotels in Italy. (Farber Cert. 6). Thus, plaintiff concludes that a New York court would have jurisdiction over defendant.

Courts have consistently found that a subsidiary corporation’s contacts with the forum are not sufficient grounds to exercise jurisdiction over the parent corporation without a showing of something more than ownership. See, e.g., Lucas v. Gulf & Western Indus. Inc., 666 F.2d 800, 805-06 (3d Cir. 1981); Pfundstein v. Omnicon Group, 285 N.J. Super. 245, 253 (App. Div. 1995). “Other factors which may have a bearing on the jurisdictional issue are whether the subsidiary played any part in the transactions at issue, whether the subsidiary was merely the alter ego or agent of the parent, and whether the independence of the separate corporate entities was disregarded.” Lucas, 666 F.2d at 806. In this case, the evidence is far too scant to determine whether Migdal Madison, N.V., is the alter ego or agent of defendant or whether it is independent of defendant. Thus, the Court cannot determine whether a district court in New York has personal jurisdiction over defendant.

The Court normally does not transfer cases to other districts unless it is certain that the other district has personal jurisdiction over the defendant. If the Court is unsure whether the Other district has personal jurisdiction over the defendant, it usually dismisses without prejudice so that the plaintiff does not lose his cause of action. This case, however. presents an unusual situation because if the Court dismisses without prejudice, the statute of limitations will bar plaintiff from bringing a claim. Although the Courts is sensitive to the policies es underlying section 1406(a) and to the dockets in other districts, the interests of justice dictate that this case be transferred to the Southern District of New York. The question of whether personal jurisdiction exists in New York should be decided after the transfer.

CONCLUSION

Thus, the Court finds that it does not have personal jurisdiction over defendant, but will order that the case be transferred to the Southern District of New York. An appropriate Order is attached.
Dated: September 12, 1997
ALFRED M WOLIN, U.S.D.J.

Certiorari to the United States court of appeals for the federal circuit
Argued February 21, 2007–Decided April 30,?No. 05-1056. 2007

It is the general rule under United States patent law that no infringement occurs when a patented product is made and sold in another country. There is an exception. Section 271(f) of the Patent Act, adopted in 1984, provides that infringement does occur when one “suppl[ies] … from the United States,” for “combination” abroad, a patented invention’s “components.” 35 U. S. C. 271(f)(1). This case concerns the applicability of 271(f) to computer software first sent from the United States to a foreign manufacturer on a master disk, or by electronic transmission, then copied by the foreign recipient for installation on computers made and sold abroad.

AT&T holds a patent on a computer used to digitally encode and compress recorded speech. Microsoft’s Windows operating system has the potential to infringe that patent because Windows incorporates software code that, when installed, enables a computer to process speech in the manner claimed by the patent. Microsoft sells Windows to foreign manufacturers who install the software onto the computers they sell. Microsoft sends each manufacturer a master version of Windows, either on a disk or via encrypted electronic transmission, which the manufacturer uses to generate copies. Those copies, not the master version sent by Microsoft, are installed on the foreign manufacturer’s computers. The foreign-made computers are then sold to users abroad.

AT&T filed an infringement suit charging Microsoft with liability for the foreign installations of Windows. By sending Windows to foreign manufacturers, AT&T contended, Microsoft “supplie[d] … from the United States,” for “combination” abroad, “components” of AT&T’s patented speech-processing computer, and, accordingly, was liable under §271(f). Microsoft responded that unincorporated software, because it is intangible information, cannot be typed a “component” of an invention under §271(f). Microsoft also urged that the foreign-generated copies of Windows actually installed abroad were not “supplie[d] … from the United States.” Rejecting these responses, the District Court held Microsoft liable under §271(f), and a divided Federal Circuit panel affirmed.

Held: Because Microsoft does not export from the United States the copies of Windows installed on the foreign-made computers in question, Microsoft does not “suppl[y] … from the United States” “components” of those computers, and therefore is not liable under §271(f) as currently written. Pp. 7-19.

(a) A copy of Windows, not Windows in the abstract, qualifies as a “component” under §271(f). Section 271(f) attaches liability to the supply abroad of the “components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components.” §271(f)(1) (emphasis added). The provision thus applies only to “such components” as are combined to form the “patented invention” at issue–here, AT&T’s speech-processing computer. Until expressed as a computer-readable “copy,” e.g., on a CD-ROM, Windows–indeed any software detached from an activating medium–remains uncombinable. It cannot be inserted into a CD-ROM drive or downloaded from the Internet; it cannot be installed or executed on a computer. Abstract software code is an idea without physical embodiment, and as such, it does not match §271(f)’s categorization: “components” amenable to “combination.” Windows abstracted from a tangible copy no doubt is information–a detailed set of instructions–and thus might be compared to a blueprint (or anything else containing design information). A blueprint may contain precise instructions for the construction and combination of the components of a patented device, but it is not itself a combinable component.
The fact that it is easy to encode software’s instructions onto a computer-readable medium does not counsel a different answer. The copy-producing step is what renders software a usable, combinable part of a computer; easy or not, the extra step is essential. Moreover, many tools may be used easily and inexpensively to generate the parts of a device. Those tools are not, however, “components” of the devices in which the parts are incorporated, at least not under any ordinary understanding of the term “component.” Congress might have included within §271(f)’s compass, for example, not only a patented invention’s combinable “components,” but also “information, instructions, or tools from which those components readily may be generated.” It did not. Pp. 9-12.

(b) Microsoft did not “suppl[y] … from the United States” the foreign-made copies of Windows installed on the computers here involved. Under a conventional reading of §271(f)’s text, those copies were “supplie[d]” from outside the United States. The Federal Circuit majority concluded, however, that for software components, the act of copying is subsumed in the act of supplying. A master sent abroad, the majority observed, differs not at all from exact copies, generated easily, inexpensively, and swiftly from the master. Hence, sending a single copy of software abroad with the intent that it be replicated invokes §271(f) liability for the foreign-made copies. Judge Rader, dissenting, noted that “supplying” is ordinarily understood to mean an activity separate and distinct from any subsequent “copying,” “replicating,” or “reproducing”–in effect, manufacturing. He further observed that the only true difference between software components and physical components of other patented inventions is that copies of software are easier to make and transport. But nothing in §271(f)’s text, Judge Rader maintained, renders ease of copying a relevant, no less decisive, factor in triggering liability for infringement. The Court agrees. Under §271(f)’s text, the very components supplied from the United States, and not foreign-made copies thereof, trigger liability when combined abroad to form the patented invention at issue. While copying software abroad is indeed easy and inexpensive, the same can be said of other items, such as keys copied from a master. Section 271(f) contains no instruction to gauge when duplication is easy and cheap enough to deem a copy in fact made abroad nevertheless “supplie[d] … from the United States.” The absence of anything addressing copying in the statutory text weighs against a judicial determination that replication abroad of a master dispatched from the United States “supplies” the foreign-made copies from this country. Pp. 12-14.

(c) Any doubt that Microsoft’s conduct falls outside §271(f)’s compass would be resolved by the presumption against extraterritoriality. Foreign conduct is generally the domain of foreign law, and in the patent area, that law may embody different policy judgments about the relative rights of inventors, competitors, and the public. Applied here, the presumption tugs strongly against construing §271(f) to encompass as a “component” not only a physical copy of software, but also software’s intangible code, and to render “supplie[d] … from the United States” not only exported copies of software, but also duplicates made abroad. Foreign law alone, not United States law, currently governs the manufacture and sale of components of patented inventions in foreign countries. If AT&T desires to prevent copying abroad, its remedy lies in obtaining and enforcing foreign patents. Pp. 14-16.

(d) While reading 271(f) to exclude from coverage foreign-made copies of software may create a “loophole” in favor of software makers, the Court is not persuaded that dynamic judicial interpretation of §271(f) is in order; the “loophole” is properly left for Congress to consider, and to close if it finds such action warranted. Section 271(f) was a direct response to a gap in U. S. patent law revealed by Deepsouth Packing Co. v. Laitram Corp., 406 U. S. 518, where the items exported were kits containing all the physical, readily assemblable parts of a machine (not an intangible set of instructions), and those parts themselves (not foreign-made copies of them) would be combined abroad by foreign buyers. Having attended to that gap, Congress did not address other arguable gaps, such as the loophole AT&T describes. Given the expanded extraterritorial thrust AT&T’s reading of §271(f) entails, the patent-protective determination AT&T seeks must be left to Congress. Cf. Sony Corp. of America v. Universal City Studios, Inc., 464 U. S. 417, 431. Congress is doubtless aware of the ease with which electronic media such as software can be copied, and has not left the matter untouched. See the Digital Millennium Copyright Act, 17 U. S. C. §1201 et seq. If patent law is to be adjusted better to account for the realities of software distribution, the alteration should be made after focused legislative consideration, not by the Judiciary forecasting Congress’ likely disposition. Pp. 17-19.

414 F. 3d 1366, reversed.

Ginsburg, J., delivered the opinion of the Court, except as to footnote 14. Scalia, Kennedy, and Souter, JJ., joined that opinion in full. Alito, J., filed an opinion concurring as to all but footnote 14, in which Thomas and Breyer, JJ., joined. Stevens, J., filed a dissenting opinion. Roberts, C. J., took no part in the consideration or decision of the case.

MICROSOFT CORPORATION, PETITIONER v.
AT&T CORP.

on writ of certiorari to the united states court of appeals for the federal circuit
[April 30, 2007]

Justice Ginsburg delivered the opinion of the Court, except as to footnote 14.

It is the general rule under United States patent law that no infringement occurs when a patented product is made and sold in another country. There is an exception. Section 271(f) of the Patent Act, adopted in 1984, provides that infringement does occur when one “supplies . . . from the United States,” for “combination” abroad, a patented invention’s “components.” 35 U. S. C. §271(f)(1). This case concerns the applicability of §271(f) to computer software first sent from the United States to a foreign manufacturer on a master disk, or by electronic transmission, then copied by the foreign recipient for installation on computers made and sold abroad.

AT&T holds a patent on an apparatus for digitally encoding and compressing recorded speech. Microsoft’s Windows operating system, it is conceded, has the potential to infringe AT&T’s patent, because Windows incorporates software code that, when installed, enables a computer to process speech in the manner claimed by that patent. It bears emphasis, however, that uninstalled Windows software does not infringe AT&T’s patent any more than a computer standing alone does; instead, the patent is infringed only when a computer is loaded with Windows and is thereby rendered capable of performing as the patented speech processor. The question before us: Does Microsoft’s liability extend to computers made in another country when loaded with Windows software copied abroad from a master disk or electronic transmission dispatched by Microsoft from the United States? Our answer is “No.”

The master disk or electronic transmission Microsoft sends from the United States is never installed on any of the foreign-made computers in question. Instead, copies made abroad are used for installation. Because Microsoft does not export from the United States the copies actually installed, it does not “suppl[y] … from the United States” “components” of the relevant computers, and therefore is not liable under 271(f) as currently written.

Plausible arguments can be made for and against extending 271(f) to the conduct charged in this case as infringing AT&T’s patent. Recognizing that 271(f) is an exception to the general rule that our patent law does not apply extraterritorially, we resist giving the language in which Congress cast 271(f) an expansive interpretation. Our decision leaves to Congress’ informed judgment any adjustment of 271(f) it deems necessary or proper.

I

]]> http://cyberlawsconsultingcentre.com/microsoft-corp-vs-at-t-corp.html/feed 0 http://cyberlawsconsultingcentre.com/united-states-of-america-v-robert-alan-thomas.html http://cyberlawsconsultingcentre.com/united-states-of-america-v-robert-alan-thomas.html#comments Sat, 20 Sep 2008 07:21:25 +0000 admin http://cyberlawsworld.com/?p=996 UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
ROBERT ALAN THOMAS (94-6648)

and CARLEEN THOMAS (94-6649),
Defendants-Appellants.
ON APPEAL from the United States District Court for the Western District of Tennessee
__________________
Decided and Filed January 29, 1996
Before: MARTIN and BATCHELDER, Circuit Judges; EDMUNDS, District Judge.[*]

NANCY G. EDMUNDS, District Judge.

Defendants Robert and Carleen Thomas appeal their convictions and sentences for violating 18 U.S.C. §§ 1462 and 1465, federal obscenity laws, in connection with their operation of an electronic bulletin board. For the following reasons, we AFFIRM Robert and Carleen Thomas’ convictions and sentences.

I.

Robert Thomas and his wife Carleen Thomas began operating the Amateur Action Computer Bulletin Board System (“AABBS”) from their home in Milpitas, California in February 1991. The AABBS was a computer bulletin board system that operated by using telephones, modems, and personal computers. Its features included e-mail, chat lines, public messages, and files that members could access, transfer, and download to their own computers and printers.

Information loaded onto the bulletin board was first converted into binary code, i.e., 0’s and 1’s, through the use of a scanning device. After purchasing sexually-explicit magazines from public adult book stores in California, Defendant Robert Thomas used an electronic device called a scanner to convert pictures from the magazines into computer files called Graphic Interchange Format files or “GIF” files. The AABBS contained approximately 14,000 GIF files. Mr. Thomas also purchased, sold, and delivered sexually-explicit videotapes to AABBS members. Customers ordered the tapes by sending Robert Thomas an e-mail message, and Thomas typically delivered them by use of the United Parcel Service (“U.P.S.”).

Persons calling the AABBS without a password could view the introductory screens of the system which contained brief, sexually-explicit descriptions of the GIF files and adult videotapes that were offered for sale. Access to the GIF files, however, was limited to members who were given a password after they paid a membership fee and submitted a signed application form that Defendant Robert Thomas reviewed. The application form requested the applicant’s age, address, and telephone number and required a signature.

Members accessed the GIF files by using a telephone, modem and personal computer. A modem located in the Defendants’ home answered the calls. After they established membership by typing in a password, members could then select, retrieve, and instantly transport GIF files to their own computer. A caller could then view the GIF file on his computer screen and print the image out using his printer. The GIF files contained the AABBS name and access telephone number; many also had “Distribute Freely” printed on the image itself.

In July 1993, a United States Postal Inspector, Agent David Dirmeyer (“Dirmeyer”), received a complaint regarding the AABBS from an individual who resided in the Western District of Tennessee. Dirmeyer dialed the AABBS’ telephone number. As a non-member, he viewed a screen that read “Welcome to AABBS, the Nastiest Place On Earth,” and was able to select various “menus” and read graphic descriptions of the GIF files and videotapes that were offered for sale.

Subsequently, Dirmeyer used an assumed name and sent in $55 along with an executed application form to the AABBS. Defendant Robert Thomas called Dirmeyer at his undercover telephone number in Memphis, Tennessee, acknowledged receipt of his application, and authorized him to log-on with his personal password. Thereafter, Dirmeyer dialed the AABBS’s telephone number, logged-on and, using his computer/modem in Memphis, downloaded the GIF files listed in counts 2-7 of the Defendants’ indictments. These GIF files depicted images of bestiality, oral sex, incest, sado-masochistic abuse, and sex scenes involving urination. Dirmeyer also ordered six sexually-explicit videotapes from the AABBS and received them via U.P.S. at a Memphis, Tennessee address. Dirmeyer also had several e-mail and chat-mode conversations with Defendant Robert Thomas.

On January 10, 1994, a search warrant was issued by a U.S. Magistrate Judge for the Northern District of California. The AABBS’ location was subsequently searched, and the Defendants’ computer system was seized.

On January 25, 1994, a federal grand jury for the Western District of Tennessee returned a twelve-count indictment charging Defendants Robert and Carleen Thomas with the following criminal violations: one count under 18 U.S.C. § 371 for conspiracy to violate federal obscenity laws–18 U.S.C. §§ 1462, 1465 (Count 1), six counts under 18 U.S.C. § 1465 for knowingly using and causing to be used a facility and means of interstate commerce–a combined computer/telephone system–for the purpose of transporting obscene, computer-generated materials (the GIF files) in interstate commerce (Counts 2-7), three counts under 18 U.S.C. § 1462 for shipping obscene videotapes via U.P.S. (Counts 8-10), one count of causing the transportation of materials depicting minors engaged in sexually explicit conduct in violation of 18 U.S.C. § 2252(a)(1) as to Mr. Thomas only (Count 11), and one count of forfeiture under 18 U.S.C. § 1467 (Count 12).

Both Defendants were represented by the same retained counsel, Mr. Richard Williams of San Jose, California. They appeared twice in federal district court for the Northern District of California, San Jose division, before being arraigned on March 15, 1994, in federal court in Memphis, Tennessee. They did not retain local counsel for the Tennessee criminal prosecution. Both Defendants were tried by a jury in July, 1994. Defendant Robert Thomas was found guilty on all counts except count 11 (child pornography). Defendant Carleen Thomas was found guilty on counts 1-10. The jury also found that the Defendants’ interest in their computer system should be forfeited to the United States. Robert and Carleen Thomas were sentenced on December 2, 1994 to 37 and 30 months of incarceration, respectively. They filed their notices of appeal on December 9, 1994.

II.

A.

Defendants contend that their conduct, as charged in counts 1-7 of their indictments, does not constitute a violation of 18 U.S.C. § 1465. This presents a question of statutory interpretation, a matter of law, and is reviewed by this court under a de novo standard. United States v. Hans, 921 F.2d 81, 82 (6th Cir. 1990).[1]

Defendants’ challenge to their convictions under counts 1-7, rests on two basic premises: 1) Section 1465 does not apply to intangible objects like the computer GIF files at issue here,[2] and 2) Congress did not intend to regulate computer transmissions such as those involved here because 18 U.S.C. § 1465 does not expressly prohibit such conduct.

In support of their first premise, Defendants cite a Tenth Circuit dial-a-porn decision which holds that 18 U.S.C. §§ 1462 and 1465 prohibit the interstate transportation of tangible objects; not intangible articles like pre-recorded telephone messages. See United States v. Carlin Commun., Inc., 815 F.2d 1367, 1371 (10th Cir. 1987). Defendants claim Carlin is controlling because transmission of the GIF files at issue under counts 1-7 involved an intangible string of 0’s and 1’s which became viewable images only after they were decoded by an AABBS member’s computer. We disagree.

The subject matter in Carlin–telephonic communication of pre-recorded sexually suggestive comments or proposals–is inherently different from the obscene computer-generated materials that were electronically transmitted from California to Tennessee in this case. Defendants erroneously conclude that the GIF files are intangible, and thus outside the scope of § 1465, by focusing solely on the manner and form in which the computer-generated images are transmitted from one destination to another. United States v. Gilboe, 684 F.2d 235 (2nd Cir. 1982), cert. denied, 459 U.S. 1201 (1983), illustrates this point.

In Gilboe, the Second Circuit rejected the argument that the defendant’s transmission of electronic impulses could not be prosecuted under a criminal statute prohibiting the transportation of money obtained by fraud. The Gilboe court reasoned that:

electronic signals in this context are the means by which funds are transported. The beginning of the transaction is money in one account and the ending is money in another. The manner in which the funds were moved does not affect the ability to obtain tangible paper dollars or a bank check from the receiving account.
Id. at 238. The same rationale applies here. Defendants focus on the means by which the GIF files were transferred rather than the fact that the transmissions began with computer-generated images in California and ended with the same computer-generated images in Tennessee. The manner in which the images moved does not affect their ability to be viewed on a computer screen in Tennessee or their ability to be printed out in hard copy in that distant location.

The record does not support Defendants’ argument that they had no knowledge, intent or expectation that members of their AABBS would download and print the images contained in their GIF files. They ran a business that advertised and promised its members the availability and transportation of the sexually-explicit GIF files they selected. In light of the overwhelming evidence produced at trial, it is spurious for Defendants to claim now that they did not intend to sell, disseminate, or share the obscene GIF files they advertised on the AABBS with members outside their home and in other states.

We also disagree with Defendants’ corollary position, raised at oral argument, that they were prosecuted under the wrong statute and that their conduct, if criminal at all, falls within the prohibitions under 47 U.S.C. § 223(b)[3] rather than 18 U.S.C. § 1465. As recognized by the Supreme Court, Section 223(b) of the Communications Act of 1934, was drafted and enacted by Congress in 1982 “explicitly to address ‘dial-a-porn.’” Sable Communications of Cal., Inc. v. F.C.C., 492 U.S. 115, 120-121 (1989). Congress amended Section 223(b) in 1988 to impose a total ban “on dial-a-porn, making it illegal for adults, as well as children, to have access to sexually-explicit messages” that are indecent or obscene. Id. at 122-123.[4] 47 U.S.C. § 223(b) addresses commercial dial-a-porn operations that communicate sexually-explicit telephone messages; not commercial computer bulletin boards that use telephone facilities for the purpose of transmitting obscene, computer-generated images to approved members.

Defendants’ second premise, that Congress did not intend to regulate computer transmissions because the statute does not expressly prohibit such conduct, is faulty as well. We have consistently recognized that when construing federal statutes, our duty is to “‘construe the language so as to give effect to the intent of Congress.’” United States v. Underhill, 813 F.2d 105, 111 (6th Cir.), cert. denied, 482 U.S. 906 (1987) (quoting United States v. American Trucking Associations, Inc., 310 U.S. 534, 542-44 (1940)). The Supreme Court observed this principle when it rejected an argument similar to one Defendants raise here, i.e., that Congress could not possibly have intended to include conduct not expressly prohibited in the statute. See United States v. Alpers, 338 U.S. 680 (1950).

In United States v. Alpers, the Supreme Court considered the question whether obscene phonograph records–at the time, a novel means of transmitting obscenity–came within the prohibition of 18 U.S.C. § 1462. Initially, the Court acknowledged that criminal statutes are to be strictly construed and that “no offense may be created except by the words of Congress used in their usual and ordinary way.” Id. at 681. The Court emphasized, however, that Congress’ intent is the most important determination and statutory language is not to be construed in a manner that would defeat that intent.

Applying those principles, the Court held that the rule of ejusdem generis[5] should not be “employed to render general words meaningless” or “be used to defeat the obvious purpose of legislation.” Id. at 681-83. It recognized that “[t]he obvious purpose of [Section 1462] was to prevent the channels of interstate commerce from being used to disseminate” any obscene matter. Id. at 683. The Court further recognized that Section 1462 “is a comprehensive statute, which should not be constricted by a mechanical rule of construction.” Id. at 684. Accordingly, the Court rejected the defendant’s argument that the general words “other matter of indecent character” could not be interpreted to include objects comprehensible by hearing (phonographic recordings) rather than sight; an argument similar to the tangible/intangible one raised here, and held that obscene records fell within the scope of the criminal statute.

In reaching its decision, the Alpers Court found that the legislative history of Section 1462 did not support defendant’s sight/sound distinction. It was not persuaded that Congress’ amendment of Section 1462 to add motion picture films to the list of prohibited materials “evidenced an intent that obscene matter not specifically added was without the prohibition of the statute.” Id. Rather, the Court concluded that the amendment evidenced Congress’ preoccupation “with making doubly sure that motion-picture film was within the Act, and was concerned with nothing more or less.” Id. We are similarly unpersuaded by Defendants’ arguments that the absence of the words “including by computer” in Section 1465, despite Congress’ addition of those words in other legislation, is evidence of its intent not to criminalize conduct, such as Defendants’ that falls within the plain language and intent of Section 1465.

Furthermore, under similar facts, the U.S. Air Force Court of Criminal Appeals recently considered § 1465’s plain language and its intended purpose. In United States v. Maxwell, 42 M.J. 568, 1995 WL 259269 (A.F. Ct. Crim. App. 1995), a defendant was charged with violating Section 1465 because he had transmitted obscene visual images electronically through the use of an on-line computer service. He argued that since the statute is silent concerning computer transmissions, such transmissions were not to be included within the terms “transporting obscene materials in interstate or foreign commerce.” The court observed that well-established principles of statutory construction require a court to look first to the statute’s plain language. Maxwell, 1995 WL 259269 at *10 (citing Rubin v. United States, 449 U.S. 424, 430 (1981)). Applying that principle, the Maxwell court concluded that the defendant’s conduct fell within the plain language of Section 1465. Specifically, the court held:

the use of the terms “transports,” “distribution,” “picture,” “image” and “electrical transcription” leads us to the inescapable conclusion the statute is fully applicable to the activities engaged in by applicant. . . . It is clear Congress intended to stem the transportation of obscene material in interstate commerce regardless of the means used to effect that end.
Maxwell, 1995 WL 259269 at *10.

Likewise, we conclude that Defendants’ conduct here falls within the plain language of Section 1465.[6] Moreover, our interpretation of Section 1465 is consistent with Congress’ intent to legislate comprehensively the interstate distribution of obscene materials. Id.

B.

Defendants also challenge venue in the Western District of Tennessee for counts 2-7 of their indictments. They argue that even if venue was proper under count 1 (conspiracy) and counts 8-10 (videotapes sent via U.P.S.), counts 2-7 (GIF files) should have been severed and transferred to California because Defendants did not cause the GIF files to be transmitted to the Western District of Tennessee. Rather, Defendants assert, it was Dirmeyer, a government agent, who, without their knowledge, accessed and downloaded the GIF files and caused them to enter Tennessee. We disagree. To establish a Section 1465 violation, the Government must prove that a defendant knowingly used a facility or means of interstate commerce for the purpose of distributing obscene materials. Contrary to Defendants’ position, Section 1465 does not require the Government to prove that Defendants had specific knowledge of the destination of each transmittal at the time it occurred.

“Venue lies in any district in which the offense was committed,” and the Government is required to establish venue by a preponderance of the evidence. United States v. Beddow, 957 F.2d 1330, 1335 (6th Cir. 1992) (quoting United States v. Williams, 788 F.2d 1213, 1215 (6th Cir. 1986)). This court examines the propriety of venue by taking “‘into account a number of factors–the site of the defendant’s acts, the elements and nature of the crime, the locus of the effect of the criminal conduct, and the suitability of each district for accurate fact finding . . .’” Id.

ection 1465 is an obscenity statute, and federal obscenity laws, by virtue of their inherent nexus to interstate and foreign commerce, generally involve acts in more than one jurisdiction or state. Furthermore, it is well-established that “there is no constitutional impediment to the government’s power to prosecute pornography dealers in any district into which the material is sent.” United States v. Bagnell, 679 F.2d 826, 830 (11th Cir. 1982), cert. denied, 460 U.S. 1047 (1983); United States v. Peraino, 645 F.2d 548, 551 (6th Cir. 1981). Thus, the question of venue has become one of legislative intent. Bagnell, 679 F.2d at 830.

The Bagnell court examined both §§ 1462 and 1465 and found that each statute established a continuing offense within the venue provisions of 18 U.S.C. § 3237(a) “that occur[s] in every judicial district which the material touches.” Id. at 830. This court likewise recognized that “venue for federal obscenity prosecutions lies ‘in any district from, through, or into which’ the allegedly obscene material moves.” Peraino, 645 F.2d at 551 (citing 18 U.S.C. § 3237).

Substantial evidence introduced at trial demonstrated that the AABBS was set up so members located in other jurisdictions could access and order GIF files which would then be instantaneously transmitted in interstate commerce. Moreover, AABBS materials were distributed to an approved AABBS member known to reside in the Western District of Tennessee. Specifically, Defendant Robert Thomas knew of, approved, and had conversed with an AABBS member in that judicial district who had his permission to access and copy GIF files that ultimately ended up there. Some of these GIF files were clearly marked “Distribute Freely.” In light of the above, the effects of the Defendants’ criminal conduct reached the Western District of Tennessee, and that district was suitable for accurate fact-finding. Accordingly, we conclude venue was proper in that judicial district.

C.

Defendants further argue that their convictions under counts 1-7 of their indictments violate their First Amendment rights to freedom of speech. As the Supreme Court noted in Bose, when constitutional facts[7] are at issue, this court has a duty to conduct an independent review of the record “both to be sure that the speech in question actually falls within the unprotected category and to confine the perimeters of any unprotected category within acceptably narrow limits in an effort to ensure that protected expression will not be inhibited.” Bose Corp. v. Consumers Union of United States, Inc., 466 U.S. 485, 505 (1984).

1. Defendants’ Right to Possess the GIF Files in their Home

Defendants rely on Stanley v. Georgia, 394 U.S. 557 (1969), and argue they have a constitutionally protected right to possess obscene materials in the privacy of their home. They insist that the GIF files containing sexually-explicit material never left their home. Defendants’ reliance on Stanley is misplaced.

The Supreme Court has clarified that Stanley “depended not on any First Amendment Right to purchase or possess obscene materials, but on the right to privacy in the home.” United States v. 12 200-Ft. Reels of Super 8mm. Film, 413 U.S. 123, 126 (1973). It has also recognized that the right to possess obscene materials in the privacy of one’s home does not create “a correlative right to receive it, transport it, or distribute it” in interstate commerce even if it is for private use only. Nor does it create “some zone of constitutionally protected privacy [that] follows such material when it is moved outside the home area.” United States v. Orito, 413 U.S. 139, 141 (1973); seealso 12 200-Ft. Reels, 413 U.S. at 128.

Defendants went beyond merely possessing obscene GIF files in their home. They ran a business that advertised and promised its members the availability and transportation of the sexually-explicit GIF files they selected. In light of the overwhelming evidence produced at trial, it is spurious for Defendants to claim now that they did not intend to sell, disseminate, or share the obscene GIF files they advertised on the AABBS with members outside their home and in other states.

2. The Community Standards to be Applied When Determining Whether the GIF Files Are Obscene

In Miller v. California, 413 U.S. 15 (1973), the Supreme Court set out a three-prong test for obscenity. It inquired whether (1) “‘the average person applying contemporary community standards’ would find that the work, taken as a whole appeals to the prurient interest”; (2) it “depicts or describes, in a patently offensive way, sexual conduct specifically defined by applicable state law”; and (3) “the work, taken as a whole, lacks serious literary, artistic, political, or scientific value.” Id. at 24.

Under the first prong of the Miller obscenity test, the jury is to apply “contemporary community standards.” Defendants acknowledge the general principle that, in cases involving interstate transportation of obscene material, juries are properly instructed to apply the community standards of the geographic area where the materials are sent. Miller, 413 U.S. at 15, 30-34. Nonetheless, Defendants assert that this principle does not apply here for the same reasons they claim venue was improper. As demonstrated above, this argument cannot withstand scrutiny. The computer-generated images described in counts 2-7 were electronically transferred from Defendants’ home in California to the Western District of Tennessee. Accordingly, the community standards of that judicial district were properly applied in this case.

Issues regarding which community’s standards are to be applied are tied to those involving venue. It is well-established that:

]]> http://cyberlawsconsultingcentre.com/united-states-of-america-v-robert-alan-thomas.html/feed 0 http://cyberlawsconsultingcentre.com/united-states-of-america-vmatthew-joseph-kammersell.html http://cyberlawsconsultingcentre.com/united-states-of-america-vmatthew-joseph-kammersell.html#comments Sat, 20 Sep 2008 07:20:05 +0000 admin http://cyberlawsworld.com/?p=994 UNITED STATES OF AMERICA,
Plaintiff,
v.
Matthew Joseph KAMMERSELL,
Defendant.

No. 2:97-CR-84C.
Order, June 3, 1998.

This matter is before the court on the defendant’s motion to dismiss the indictment. The basis for the defendant’s motion is that the transmission of a threat from one Utah resident to another by means of email does not create federal jurisdiction over interstate crimes, even if, as here, the transmission was actually routed from Utah to Virginia and then back again. United States Magistrate Judge Ronald Boyce issued a Report and Recommendation in which he concluded that the defendant’s motion should be denied. The defendant has objected to the Report and Recommendation.

Defendant’s argument is a matter of first impression in this circuit and the court acknowledges that similar arguments have created a split of authority in other jurisdictions. Compare United States v. Paredes, 950 F.Supp. 584, 590 (S.D.N.Y.1996) (defendant’s use of his paging system, which transmitted signals to a tower across state lines, did not satisfy interstate nexus requirement because the sender and the recipient were both located in the same state) with United States v. Stevens, 842 F.Supp. 96, 97 (S.D.N.Y.1994) (use of paging system which transmits interstate signals satisfies interstate nexus for federal jurisdiction, even though paged party was ultimately reached in the same state as the paging party). Nevertheless, after reviewing the Report, the case file, and the applicable law, the court believes that Judge Boyce’s conclusion is entirely correct. Accordingly, the Report and Recommendation is adopted as the order of this court.
SO ORDERED.

REPORT & RECOMMENDATION

The defendant Matthew Joseph Kammersell was indicted on one count of making a threatening communication in violation of 18 U.S.C. § 875(c). The indictment charges that on January 16, 1997, Kammersell did “knowingly transmit in interstate commerce to America Online, Ogden, Utah, a communication to injure the person of another by means of a bomb …” (File Entry # 11).
Thereafter, the defendant made a motion to dismiss the indictment contending the United States “does not have jurisdiction to prosecute the matter”. (File Entry # 28). The defendant contends the offense was not committed by way of interstate or foreign commerce but was committed in the State of Utah. (File Entry # 28). The defendant submitted a memorandum in support of the motion to dismiss. (File Entry # 29). In the motion, the defendant put forth some facts which are not disputed.

The defendant asserts the government’s position is that defendant transmitted the message to America Online. The claim is that the communication was electronically transmitted from Riverdale, Utah, to Ogden, Utah, but that the message was routed outside the State of Utah before the recipient of the threat received it in Ogden, Utah. It is the defendant’s position that the interstate jurisdiction is not established even if the message traveled from Riverdale, Utah, outside of Utah and then back to Ogden, Utah. (File Entry # 29, p. 2).
The United States filed a response to the motion to dismiss (File Entry # 33) contending that the transmissions from defendant’s computer through Virginia and then back to recipient’s computer in Utah was a transmission in interstate commerce under 18 U.S.C. § 857(c).
The defendant has also suggested United States v. Lopez, 514 U.S. 549, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995), is a limitation on the application this court can give to the term “interstate commerce” under 18 U.S.C. § 857(c). (File Entry # 29). The defendant suggests the application of federal interstate commerce jurisdiction to the facts of this case would violate the Lopez standards. (Tr. p. 8).

Discussion

The grand jury’s indictment in this case established probable cause for the conclusion that the defendant’s transmission of the threat to the victim passed in interstate commerce. The United States conceded at hearing on the motion to dismiss that its evidence on this issue is that the defendant logged on to the Internet through America Online in Utah and sent an electronic message from Utah by the server (American Online), through the server’s facility in Virginia and back to Ogden, Utah, where it was received by the victim. (Tr. pp. 6-7). The message was a threat. It was also conceded a different server may have a different transmission system not involving interstate transmission. (Tr. p. 7). Every message from America Online in Utah goes through Virginia to the recipient. (Tr. p. 7). The defendant, for the purposes of this motion, conceded the facts that the transmission by defendant placed through America Online in Utah went to Virginia and was routed back to Utah to the victim. (Tr. pp. 7-8). The transmission was an “insta-message” and the recipient had to have access to the same server as the sender. (Tr. pp. 11-12).

The defendant contends, and it appears undisputed, that no one saw the message in Virginia, although there is no requirement under 18 U.S.C. § 875(c) that the threat actually be received or seen by someone. The threat was seen, in this case, at the victim’s computer. The message was sent to the recipient a distance of thousands of miles but it was about four miles from the initial transmission to the recipient if measured by a straight line.
18 U.S.C. § 875(c)
The statute at issue in this case is 18 U.S.C. § 875(c). It provides:
“Whoever transmits in interstate or foreign commerce any communication containing any demand or request for a ransom or reward for the release of any kidnaped person, shall be fined under this title or imprisoned not more than twenty years, or both.” (Emphasis added).
The actus reus of the offense is the transmission of the threat in interstate commerce. The threat need not be received by the intended recipient. The crime is complete upon the transmission in interstate commerce with the requisite general intent to transmit the threat. No mens rea is specifically mentioned in the statute. In United States v. Bozeman, 495 F.2d 508 (5th Cir.1974), the court said the mens rea was a knowing and intentional state of mind. See United States v. Myers, 104 F.3d 76 (5th Cir.1997) (The court said the offense was a general intent crime). The Ninth Circuit has referred to a general intent, United States v. LeVison, 418 F.2d 624 (9th Cir.1969), but thereafter a specific intent standard was adopted in United States v. Twine, 853 F.2d 676 (9th Cir.1988). It is sufficient to establish the knowing transmission and it is not necessary to prove a specific intent to injure or present ability to carry out the threat. United States v.. Holder, 302 F.Supp. 296 (D.Mont.1969) aff’d, 427 F.2d 715 (9th Cir.).
The Eleventh Circuit has stated the threat to kidnap or injure requires only that defendant acted willfully and knowingly. United States v. Himelwright, 42 F.3d 777 (3rd Cir.1994). It is not necessary to show that defendant knew his transmission crossed a state line. United States v. Darby, 37 F.3d 1059 (4th Cir.1994) (Court acknowledged split in the circuits. Id. p. 1063). See also United States v. DeAndino, 958 F.2d 146 (6th Cir.1993) (Only a general intent rather than a specific intent is required);[1] United States v. Whiffen, 121 F.3d 18 (1st Cir.1997) (Only a general intent is required); United States v. Alkhabaz, 104 F.3d 1492, 1494 (6th Cir.1997).
The mens rea for the offense is not disputed for the purposes of this motion, only whether the actus reus element of interstate commerce is satisfied. The conflict in the circuits on mens rea need not be resolved in this case.

The statute was enacted May 18, 1934, (Ch. 300, 48 Stat. 781, 18 U.S.C. § 408(w). United States v. Heller, 579 F.2d 990 (6th Cir.1978) (Full discussion of legislative history). The provisions of 18 U.S.C. § 875(c), non extortionate threats was added on 1939, 53 Stat. 743 (then 18 U.S.C. § 408(a)). Transmission in interstate commerce is required. United States v. Oxendine, 531 F.2d 957 (9th Cir.1978). It is apparent that when the statute was enacted, Congress intended to encompass “any” threat to injure that is transmitted in interstate commerce regardless of the method used. Heller, infra.[2] The statute is broad and from the language used by Congress the purpose was to make a federal crime of the transmission or a threat in interstate commerce without limitation as to the means employed.

Statutory Construction

Criminal statutes should be construed to effect the intent of Congress. Negonsott v. Samuels, 507 U.S. 99, 113 S.Ct. 1119, 122 L.Ed.2d 457 (1993) ( “Our task is to give effect to the will of Congress, and where its will has been expressed in reasonably plain terms, that language must ordinarily be regarded as conclusive.” Id. p. 104. (Construing jurisdiction to prosecute offenses on a Kansas Indian reservation). In Norfolk Western v. Am. Train Dispatchers, 499 U.S. 117, 111 S.Ct. 1156, 113 L.Ed.2d 95 (1992), the court said, “As always, we begin with the language of the statute and ask whether Congress has spoken… If the intent of Congress is clear, that is the end of the matter; for the court must give effect to the unambiguously expressed intent of Congress.” Id. p. 128.

The plain meaning of the language of the statute should be conclusive of its construction except in rare instances. In United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989), the court said, quoting from Griffen v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 73 L.Ed.2d 973 (1982), “The plain meaning of legislation should be conclusive, except in rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of the drafters.” The court also stated, “Rather as long as the statutory scheme is coherent and consistent, there generally is no need for a court to inquire beyond the plain language of the statute.” Id. pp. 240-41.
“Transmits … in interstate commerce” is not ambiguous. Telephone News System, Inc. v. Illinois Bell Tele. Co., 220 F.Supp. 621, 638 (N.D.Ill., 1963) (Transmission is sending); United States v. Reeder, 614 F.2d 1179, 1184 (8th Cir.1980); see also Pic-A-State PA., Inc. v. Reno, 76 F.3d 1294 (3rd Cir.1996) (Upholding 18 U.S.C. § 1301 which prohibits transmitting in interstate commerce of lottery ticket information cover). Its plain meaning encompasses the conduct in this case. The defendant has not claimed ambiguity but essentially argues that the statute should be given a narrower construction than the charge in the indictment. Without providing significant support, the defendant assumes that either Congress did not intend the result in this case or that Lopez, supra, requires a narrowed construction. The argument essentially admits the interstate connection but contends in this case it is insufficient to violate the statute.

The Lopez Argument

In Lopez v. United States, 514 U.S. 549, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995), the Supreme Court further defined the power of Congress to establish federal crimes in the exercise of its constitutional power under the Commerce Clause. The court on Lopez struck down congressional legislation enacting a “Gun Free School Zone Act.” In the decision, the court noted three categories of criminal laws that may be based on the Commerce Clause. First, is when there is the use of channels of interstate commerce. See, for example, Brooks v. United States, 267 U.S. 432, 436-37, 45 S.Ct. 345, 69 L.Ed. 699 (1925) upholding the prohibition of interstate transportation of stolen vehicles, 18 U.S.C. § 2312 (Dyer Act); Hoke v. United States, 227 U.S. 308, 320-21, 33 S.Ct. 281, 57 L.Ed. 523 (1913) interstate transportation of women for prostitution, 18 U.S.C. 2421 (Mann Act). Second, Congress may impose criminal sanctions in protection of the instrumentalities of interstate commerce. Champion v. Ames, 188 U.S. 321, 23 S.Ct. 321, 47 L.Ed. 492 (1903) (Prohibiting mailing of lottery tickets); wire and mail fraud, Durland v. United States, 161 U.S. 306, 16 S.Ct. 508, 40 L.Ed. 709 (1896). 18 U.S.C. s 1341 and 1343; (railroads); 18 U.S.C. § 1992; (wrecking trains); aircraft (49 U.S.C. § 465). The third category is where there is an activity affecting interstate commerce. The last category requires a showing of a substantial affect on interstate commerce. Id. 514 U.S. at 558-59. It is this latter category to which the Lopez case was addressed.

In this case, the court is not concerned with the “affect” on interstate commerce standard. Rather, the first two categories are applicable. First, Congress, by requiring a transmission in interstate commerce, was focusing on channels of interstate commerce. Second, the use of an Internet server by defendant for the transmission involved in this case was the use of an instrumentality of interstate commerce.[3] The Lopez decision is not directly involved with the commerce power exercised in this case and therefore not a restriction of the application of 18 U.S.C § 375(c) under the facts of this case.

At the same time that Congress enacted the predecessor to 18 U.S.C. § 875(c), it took action in several other areas of federal criminal law where federal intervention had been shown to be necessary. In 1932, the Linbergh Act prohibiting transportation of a kidnaping victim across state lines was adopted, Ch. 271, 47 Stat. 326 (1932) amended in 1934, now 18 U.S.C. § 1201. In that circumstance, a presumption of transportation allows federal involvement. 18 U.S.C. § 1201(b). The Fugitive Felon Act, interstate flight to avoid prosecution for enumerated felonies, Ch. 302, 48 Stat. 782 (1934), now 18 U.S.C. § 1073 was adopted in 1934. The National Firearms Act regulating the sale of guns was adopted by the Act of June 26, 1934, Ch. 757, 48 Stat. 1236. The National Stolen Property Act, prohibiting the transportation of stolen property in interstate commerce was enacted in 1934, Ch. 333, 48 Stat., now 18 U .S.C. § 2314. Robbery of national banks, Ch. 304, 48 Stat. 783, now 18 U.S.C. § 2113, was adopted in 1934 as was 18 U.S.C. § 875 which covered extortion by telephone, telegraph and radio. The statute 18 U.S.C. § 875, was then amended to the form it is currently in to eliminate a reference to a requirement of a particular kind of device. “Any communication” became the standard. Other legislation also was enacted which Congress believed necessary in the national interest. Lawrence M. Friedman, Crime and Punishment in American History, p. 267 (1994). These enactments were to protect the channels and instrumentalities of commerce and demonstrate the fact that the statute involved in this case is not one that was a part of the later expansion of federal jurisdiction under the third criteria “substantial affect on interstate commerce.” See also Andrew St. Laurent, Reconstituting United States v. Lopez: Another Look at Federal Criminal Law, 31 Columbia Jnl. of Law and Social Problems, 61, 71-74 (1997); Nancy E. Marion, A History of Federal Crime Control Initiatives, 1960-1993, pp. 144-213 (1994).

Since the decision in Lopez, its range has been narrowly interpreted by the Tenth Circuit Court of Appeals. In United States v. Carolina, 61 F.3d 917 (10th Cir.1995), the court held the federal carjacking statute had a sufficient “affect” on commerce. The same conclusion was reached as to a Hobbs Act racketeering challenge in United States v. Bruce, 78 F.3d 1506 (10th Cir.1996). The constitutionality of the Child Support Recovery Act of 1992 was upheld in United States v. Hampshire, 95 F.3d 999 (10th Cir.1996). A similar conclusion was reached, United States v. Meacham, 115 F.3d 1488 (10th Cir.1997), as to the Mann Act and the court stated it was not necessary to show a substantial affect on commerce in that instance. The same conclusion was reached as to the circumstance of a felon in possession of a firearm in United States v. Farnsworth, 92 F.3d 1001, 1006 (10th Cir.1996). In United States v. Wacker, 72 F.3d 1453 (10th Cir.1995), the court found no basis under Lopez for a challenge to congressional power to enact the Comprehensive Drug Abuse Prevention and Control Act of 1970, as amended. See also United States v. Kunzman, 125 F.3d 1363, 1365 (10th Cir.1997); United States v. Lampley, 127 F.3d 1231, 1248 (10th Cir.1997). These cases which involve channels of interstate commerce and circumstances where interstate commerce is substantially affected do not support any basis for attacking federal jurisdiction in this case, nor any reason not to construe 18 U.S.C. § 875(c) as the prosecution contends for its application in the indictment.

PRADO, District J.
On this date came on to be considered Defendant’s Motion to Dismiss for Improper Venue and for Lack of Personal Jurisdiction, or in the Alternative, to Transfer the Action to the United States District Court for the Northern District of California for Improper Venue or for the Convenience of the Parties and Witnesses, filed August 22, 1997, and the Plaintiff’s Response, filed September 5, 1997 in the above-styled and numbered cause. After careful consideration, this Court is of the opinion that Defendant’s motion should be denied.

BACKGROUND

Plaintiff Tom Thompson brought this action alleging breach of contract, fraud, and violations of the Texas Deceptive Trade Practices Act by Defendant Handa-Lopez, Inc. Defendant operates an arcade site on the Internet advertised as “Funscape’s Casino Royale,” the “World’s Largest” Internet Casino. Individuals purchase game tokens (“Funbucks”) with a credit card, which are used to play blackjack, poker, keno, slots, craps, easy lotto, and roulette. If the player wins he is entitled to receive $1.00 for each 100 Funbucks, in the form of either cash or prizes. Plaintiff alleges that on or about June 9, 1997, he was in Texas, playing games on Defendant’s Internet casino when he won 19,372,840 Funbucks. He attempted to redeem them for $193,728.40 pursuant to the rules of Defendant’s Internet site, but Defendant refused to pay the owed money. Plaintiff therefore brought this lawsuit.

Plaintiff is a Texas domiciliary while Defendant is a California corporation with its principal place of business in California. It maintains an Internet site on the World Wide Web, which can be accessed at “www.funscape.com” by any Internet user. The server for the Web site is located in California. The Web site is at present continually accessible to every Internet-connected computer in Texas and the world. Plaintiff entered into a contract to play the game on Defendant’s Web site. Buried within the contract was an inconspicuous provision which provided that any disputes:

shall be governed by the laws of the State of California, excluding choice of law principles, and shall be resolved exclusively by final and binding arbitration in the City of San Jose, County of Santa Clara, State of California, USA under the rules of the American Arbitration Association, and, in the event of such arbitration, no punitive, special, incidental, or consequential damages may be recovered by any party and the arbitrator shall not have the power to award any such damages…

PERSONAL JURISDICTION

A court must conduct a two-step analysis to establish personal jurisdiction in a diversity case. First, the court must determine that nonresident defendants can be served under the law of the forum state. Second, the court must examine whether the grant of jurisdiction under state law comports with the due process clause of the fourteenth amendment. Stuart v. Spademan, 772 F.2d 1185, 1189 (5th Cir.1985). In Texas, federal courts must only examine the second step because the Texas long arm statute extends as far as constitutionally permissible. See U-Anchor Advertising, Inc. v. Burt, 553 S.W.2d 760, 762 (Tex.1977), cert. denied 434 U.S. 1063, 98 S.Ct. 1235, 55 L.Ed.2d 763 (1978); Stuart, 772 F.2d at 1189.
Due process analysis for personal jurisdiction also requires a two-step analysis. As the Fifth Circuit stated in Stuart:
(a) the nonresident must have some minimum contact with the forum which results from an affirmative act on his part; (b) it must be fair and reasonable to require the nonresident to defend the suit in the forum state.

Id. To be amenable to suit in a forum, the nonresident defendant must have purposely conducted activities in the state which invoke the benefits and protections of the forum state’s laws. The contacts with the state must put the defendant on notice “that he should reasonably anticipate being haled into court there.” World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980).

Minimum contacts analysis takes two forms. Jurisdiction can be specific or general. Specific jurisdiction focuses the minimum contacts analysis on the relationship between the defendant, the forum, and the litigation. A court has specific jurisdiction when a cause of action arises out of a defendant’s contact with the forum. In such cases, a single act can support jurisdiction. Bearry v. Beech Aircraft Corporation, 818 F.2d 370, 374 (5th Cir.1987). When the cause of action is not predicated on the defendant’s contacts with the forum, the court may exercise general jurisdiction. Unlike specific jurisdiction, general jurisdiction requires more than one contact. General jurisdiction requires a set of continuous and systematic contacts between the defendant and the forum state. Id. Given the nature of general jurisdiction, corporations have a right to structure their affairs to avoid the general jurisdiction of a state’s courts. Id. at 375-76.

When a defendant challenges personal jurisdiction, the plaintiff bears the burden of proof on the issue. D.J. Investments v. Metzeler Motorcycle Tire Agent Gregg, Inc., 754 F.2d 542, 545 (5th Cir.1985). However, The plaintiff does not need to prove personal jurisdiction by a preponderance of the evidence. The plaintiff need only establish a prima facie case for personal jurisdiction. Furthermore, the Court must accept uncontroverted allegations in the plaintiff’s complaint as true and all factual disputes in the parties’ affidavits must be resolved in favor of the plaintiff. Id. at 545-46.

The Internet and Jurisdiction

The Internet is a global communications network which makes it possible to conduct business throughout the world entirely from a desktop. It is currently estimated that there are over 30 million Internet users worldwide. Zippo Manuf. Co. v. Zippo Dot Com, Inc., 952 F.Supp. 1119, 1122 (W.D.Pa.1997) (citing Panavision Intern., L.P. v. Toeppen, 938 F.Supp. 161 (C.D.Cal.1996)). Despite the evolution of a global Internet, the case law concerning the permissible scope of personal jurisdiction based on the Internet is very limited. In a recent opinion from the Western District of Pennsylvania, the Court discussed the “sliding scale” that courts have used to measure jurisdiction. Zippo, 952 F.Supp. at 1124.[1] This sliding scale is consistent with well developed personal jurisdiction principles. At one end are situations where a defendant clearly does business over the Internet by entering into contracts with residents of other states which involve the knowing and repeated transmission of computer files over the Internet. See > CompuServe, Inc. v. Patterson, 89 F.3d 1257 (6th Cir.1996). At the other end are passive Web site situations. A passive Web site that solely makes information available to interested parties is not grounds for the exercise of personal jurisdiction. See Bensusan Restaurant Corp. v. King, 937 F.Supp. 295 (S.D.N.Y.1996), aff’d, 126 F.3d 25 (2nd Cir.1997). Interactive Web sites, where a user can exchange information with the host computer, represent the middle ground. In these cases, the exercise of jurisdiction is determined by examining the level of interactivity between the parties on the Web site. See Maritz, Inc. v. Cybergold, Inc., 947 F.Supp. 1328 (E.D.Mo.1996).
Minimum Contacts
Due process limitations require that a nonresident corporate defendant have minimum contacts with the forum state such that it could “reasonably anticipate being haled into court there.” World-Wide Volkswagen, 444 U.S. at 297. Further, maintenance of the suit in the forum state cannot offend traditional notions of “fair play and substantial justice.” International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945).

The Defendant claims that personal jurisdiction does not exist here because the Defendant does not have sufficient minimum contacts within Texas to satisfy due process. Minimum contacts are lacking, according to the Defendant, because it is a California corporation with its principal place of business in California, and its server is located in California. It does not maintain an office in Texas nor does it have a sales force or employees in the state.

The Plaintiff responds that mimimum contacts comporting with due process have been satisfied because the Defendant has advertised its Casino over the Internet knowing that Texas citizens will see its advertisement. Further, it has conducted business within the state of Texas by entering into contracts with Texas citizens to play those games, which the Texas citizens played while in Texas.

The Court agrees with Plaintiff. In the present case, Defendant Handa-Lopez has directed the advertising of its Casino toward all states. It advertises itself as the “World’s Largest” Internet Casino. Defendant’s argument that it “did not direct any of its advertising specifically towards Texas residents” is unpersuasive. The Internet is designed to communicate with people in every state. Advertisement on the Internet can reach tens of thousands of users within Texas alone. In Inset Sys., Inc. v. Instruction Set, Inc., 937 F.Supp. 161, 163 (D.Conn.1996), the Court exercised personal jurisdiction, reasoning that, unlike newspapers, in which advertisements are often disposed of rapidly, or television and radio, in which advertisements are only broadcast at certain times, advertisements over the Internet are available continually to any Internet user.

In Inset, a Connecticut corporation sued a Massachusetts corporation in the District of Connecticut for trademark infringement based on the use of an Internet domain name. Id. at 162. The Defendant’s contacts with Connecticut consisted of posting a Web site that was accessible to approximately 10,000 Connecticut residents and maintaining a toll free number. Id. at 165.

In Maritz, the Court likewise exercised jurisdiction over a corporation that advertised over the Internet. In Maritz, the Defendant had put up a Web site as a promotion for its forthcoming Internet service. Maritz, 947 F.Supp. at 1330. The service consisted of assigning users an electronic mailbox and then forwarding advertisements for products and services that matched the users’ selected interests. Id. The Defendant planned to provide user incentives for reading the advertisements and to charge advertisers for access to the Internet users on its mailing list. Id. The service was not yet in operation, but users were encouraged to add their address to a mailing list to receive updates about the service. The Court found jurisdiction, reasoning that the Defendant’s conduct consisted of “active solicitations” which were designed to develop a mailing list of Internet users. The Court added that it was significant that the Defendant “indiscriminately responded to every user” who accessed the site. Id. at 1333-34.

No. 93-1440.
636 So.2d 1351

District Court of Appeal of Florida,
Third District.
April 12, 1994.
Rehearing Denied June 21, 1994.
Adams, Quinton & Fuller and Jonathan N. David, Miami, and Barry S. Kantrowitz, Chestnut Ridge, NY, for appellant.
Zarco & Associates and Mark E. Buechele, Miami, for appellee.
Before BARKDULL and HUBBART and BASKIN, JJ.

HUBBART, Judge.

This is an appeal by a nonresident defendant corporation from a non-final order denying its motion to dismiss a breach contract action for lack of in personam jurisdiction over it. We have jurisdiction to entertain this appeal and reverse. Art. V, Section 4(b)(1), Fla. Const.; Fla. R. App. P. 9.130(a)(3)(C)(i).

I

The plaintiff System One Direct Access, Inc. is a Delaware corporation which owns and operates a computerized airline reservation system.[1] The computer base for this system, as well as the plaintiff’s billing and main business office, is located in Miami, Florida; the plaintiff also maintains a branch business office in New York City, New York. The plaintiff extensively markets its reservation system throughout the country and has written lease contracts with travel agencies nationwide. In exchange for a monthly fee, the plaintiff provides the travel agency involved with computer terminals which allow the agency to access through telephone lines the plaintiff’s computer base in Miami so as to book airline, automobile, and hotel reservations essential to a travel agency’s operations. Prior to 1987, the plaintiff was a division of Eastern Airlines; since then, Eastern was purchased by a holding company which converted the plaintiff into a separate corporation.

The defendant Pres-Kap, Inc. d/b/a Prestige Travel of Rockland is a New York corporation which owns and operates a travel agency in Rockland County, New York; its sole place of business is Rockland County, New York, and all its travel business is conducted out of this office. As part of its nationwide marketing effort, the plaintiff, through a representative from its New York office, solicited the defendant’s business at the defendant’s travel agency in Rockland County, New York, where the lease contract sued upon was negotiated; in December 1989, the vice president of the defendant executed the subject lease in New York, which lease was subsequently forwarded to the plaintiff’s Miami office where it was executed by the plaintiff’s representative. Thereafter, the plaintiff delivered and installed computer terminals in the defendant’s travel agency in New York.

Prior to that date, the defendant had entered into three similar lease contracts with the plaintiff’s predecessor at Eastern Airlines from 1982-89, which contracts were likewise solicited by the plaintiff at the defendant’s place of business in New York; however, a provision in past contracts subjecting the defendant to suit in Florida in the event of a dispute was deleted from the present contract. The defendant paid a monthly billing charge on the lease contract by mailing the required fee to the plaintiff’s billing office in Miami; all other business between the parties was conducted by the defendant through the plaintiff’s New York office.

In early 1991, a dispute arose between the parties concerning the alleged malfunctioning of the airline reservation system. The defendant made complaints to the plaintiff’s New York office, but allegedly no effort was made to repair the equipment. As a result, in March 1991, the defendant stopped making its monthly lease payments under the contract, and in July 1991, the plaintiff removed the leased computer terminals at the defendant’s request.

The plaintiff thereafter brought suit below against the defendant for breach of the lease agreement. The defendant moved to dismiss this action for lack of in personam jurisdiction over the defendant; the trial court denied the motion. This appeal follows.

II

The law is well settled that in order for a state court to subject a nonresident defendant to an in personam judgment, due process requires that the nonresident defendant have certain minimum contacts with the forum state such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985); International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945); Venetian Salami Co. v. Parthenais, 554 So.2d 499, 500 (Fla. 1989). In particular, the applicable due process test is whether the conduct of the nonresident defendant in connection with the forum state is such that the defendant could reasonably anticipate being haled into court there. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980); Venetian Salami, 554 So.2d at 500.

In the instant case, the record clearly shows that the defendant is a New York corporation doing business in New York as a travel agency with no offices outside of New York; that the plaintiff, through its New York office, solicited the defendant’s business in the state of New York where the subject contract, as well as prior contracts, were negotiated by the parties and executed by the defendant; that the computer equipment supplied under the contract was delivered to the defendant in New York; and when the defendant experienced difficulties with the computerized equipment, complaints were directed to the New York office of the plaintiff. Moreover, a provision in past contracts, subjecting the defendant to suit in Florida in the event of a dispute between the parties, was deleted from the contract being sued upon. The defendant’s only contact with Florida is twofold: (1) the defendant forwarded all rental payments under the contract to the plaintiff’s billing office in Miami, and (2) the computer database of the plaintiff’s airline reservation system, which the defendant accessed through computer terminals, is located in Miami. Contrary to the trial court’s determination, however, we conclude that these two contacts cannot convert this obviously New York-based transaction into a Florida transaction so that the defendant could reasonably expect to be sued in Florida in the event the transaction soured.

It is settled law that “an individual’s contract with an out-of-state party alone can[not] automatically establish sufficient minimum contacts in the other party’s home forum” to support an assertion of in personam jurisdiction against the out-of-state defendant, even where, as here, the foreign defendant allegedly breaches that contract by failing to make the required payments in Florida. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478, 105 S.Ct. 2174, 2185, 85 L.Ed.2d 528 (1985); Venetian Salami Co. v. Parthenais, 554 So.2d 499 (Fla. 1989). The additional factor in this case that the computer database for the contracted-for information happens to be located in Florida cannot change this result. There is no showing on this record that the defendant was even aware of the exact electronic location of the subject computer database, as this clearly would have been of little importance to it. And even if such knowledge had been shown, this surely would not have altered the defendant’s reasonable expectation that New York courts would be resorted to in the event of a dispute between the parties over this New York-based contract solicited by the plaintiff in New York, negotiated by the parties in New York, executed by the defendant in New York, and serviced by the plaintiff in New York. It is true that the defendant may have benefited financially from the subject contract, as well as prior similar contracts, but this was a financial gain arising from a New York, not a Florida-based business transaction. This being so, we think the trial court erred in denying the defendant’s motion to dismiss this action for lack of in personam jurisdiction over the defendant. The maintenance of the instant suit against the defendant, based on the totality of the circumstances, offends traditional notions of fair play and substantial justice–and therefore does not comply with the minimum-contacts due process requirement which must be met before Florida may assume in personam jurisdiction over a nonresident defendant.

Indeed, a contrary decision would, we think, have far-reaching implications for business and professional people who use “on-line” computer services for which payments are made to out-of-state companies where the database is located. Across the nation, in every state, customers of “on-line” computer information networks have contractual arrangements with out-of-state supplier companies, putting such customers in a situation similar, if not identical, to the defendant in the instant case. Lawyers, journalists, teachers, physicians, courts, universities, and business people throughout the country daily conduct various types of computer-assisted research over telephone lines linked to supplier databases located in other states.[2] Based on the trial court’s decision below, users of such “on-line” services could be haled into court in the state in which supplier’s billing office and database happen to be located, even if such users, as here, are solicited, engaged, and serviced entirely instate by the supplier’s local representatives. Such a result, in our view, is wildly beyond the reasonable expectations of such computer-information users, and, accordingly, the result offends traditional notions of fair play and substantial justice. Burger King Corp.; International Shoe Co.; Venetian Salami Co.

For the above-stated reasons, the non-final order under review is reversed, and the cause is remanded to the trial court with directions to dismiss the action against the defendant for lack of in personam jurisdiction.

Reversed and remanded.
BASKIN, J., concurs.
BARKDULL, Judge, dissenting:

I respectfully dissent. The appellant, for over nine years, availed itself of information supplied by a computer data base located here in Florida.[1D] This information regarding the availability of commercial airline seats, contributed to the financial well being of the appellant as a travel agency located in New York State. It executed a total of four contracts between 1982 and 1989, and made rental payments in Florida for such use from 1982 until 1991. It was certainly on notice that it could reasonably expect to be sued in the courts of Florida. See and compare Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985); Venetian Salami v. Parthenais, 554 So.2d 499 (Fla. 1989); Sorokwasz v. Kaiser, 549 So.2d 1209 (Fla. 3d DCA 1989); Pellerito Foods v. American Conveyors, 542 So.2d 426 (Fla. 3d DCA 1989).

Therefore I find no error in the trial court denying a motion to dismiss for lack of personal jurisdiction, and would affirm.

FOOTNOTES:

FN1. The relevant jurisdictional facts are contained in the affidavits filed by the parties in support of and in opposition to the defendant’s motion to dismiss.

FN2. For example, Westlaw is based in St. Paul, Minnesota, and all bills are generated and paid in St. Paul. (Source: Westlaw Customer Service (800) 937-8529). Lexis is based in Dayton, Ohio, and all bills for use of the Lexis System are generated in and paid in Dayton. (Source: Lexis Customer Service (800) 543-6862).

FN1D. The fact that the ownership of the computer base may have changed over the years is immaterial.

Date Filed 6-19-96
OPINION AND ORDER

SHIRA A. SCHEINDLIN, U.S.D.J.: Plaintiff, Playboy Enterprises, Inc. (“PEI”), has moved for a finding of contempt against Defendant, Tattilo Editrice, S.p.A. (“Tattilo”). PEI alleges that by. operating an Internet site from Italy under the PLAYMEN label, Tattilo has violated a judgment dated June 26, 1981, enjoining it from publishing, printing, distributing or selling in the United States an English language male sophisticate magazine under the name “PLAYMEN” (“Injunction”).

For the reasons enunciated below, the motion is granted. Tattilo must, within two weeks of the date of this Order: (1) either shut down its Internet site completely or refrain from accepting any new subscriptions from customers residing in the United States; (2) invalidate the user names and passwords to the Internet site previously purchased by United States customers; (3) refund to its United States customers the remaining unused portions of their subscriptions; (4) remit to PEI all gross profits earned from subscriptions to its PLAYMEN Pro Internet service by customers in the United States; (5) remit to PEI all gross profits earned from the sale of goods and services advertised on its PLAYMEN Internet service to customers in the United States; (6) revise its Internet site to indicate that all subscription requests from potential United States customers will be denied; and (7) remit to PEI its costs and attorney’s fees incurred in making this application. If these conditions have not been met within the stated two-week period, Tattilo shall pay to PEI a fine of $1,000 per day until it complies with this Order.

I. Facts

In 1967, Tattilo began publishing a male sophisticate magazine in Italy under the name PLAYMEN. Although the magazine carried an English title, it was written entirely in Italian. In July 1979, Tattilo announced plans to publish an English language version of PLAYMEN in the United States. Shortly thereafter, PEI brought suit against Tattilo to enjoin Tattilo’s use of the name PLAYMEN in connection with a male sophisticate magazine and related products. PEI has published the well-known male entertainment magazine “PLAYBOY” since 1953, which is sold throughout the world in a multitude of foreign languages. Plaintiff’s suit for injunctive relief alleged trademark infringement, false designation of origin, unfair competition based on infringement of Plaintiff’s common law trademark rights, and violations of the New York Anti-Dilution Statute.[1]

A permanent injunction was awarded on April 1, 1981, and a judgment subsequently entered on June 26, 1981, permanently enjoining Tattilo from:

a. using the word “PLAYMEN” or any word confusingly similar therewith as or in the title, as or in the subtitle, or anywhere else on the cover of a male sophisticate magazine, published, distributed or sold in the United States;

b. publishing, printing, distributing or selling in the United States and importing into or exporting from the United States an English language male sophisticate magazine which uses the word “PLAYMEN” or any word confusingly similar therewith as or in the title, as or in the subtitle, or anywhere else on the cover of such magazine;

c. using “PLAYBOY”, “PLAYMEN” or any other word confusingly similar with either such word in or as part of any trademark, service mark, brand name, trade name or other business or commercial designation, in connection with the sale, offering for sale or distributing in the United States, importing into or exporting from the United States, English language publications and related products. Declaration of David R. Francescani, Attorney for Playboy, dated February 27, 1996 (“Francescani Decl.”) Ex. 1.
PEI was similarly successful in enjoining the use of the PLAYMEN name in the courts of England, France and West Germany. However, the Italian courts ruled that “lexically” PLAYBOY was a weak mark and not entitled to protection in that country. See Playboy Enters., Inc. v. Chuckleberry Publishing, Inc., 687 F.2d 563, 569 n.3 (2d Cir. 1982) . The publication of PLAYMEN in Italy continues to the present day.

On approximately January 22, 1996, PEI discovered that Tattilo had created an Internet site featuring the PLAYMEN name.[ 2] This Internet site makes available images of the cover of the Italian magazine, as well as its “Women of the Month” feature and several other sexually explicit photographic images. Users of the Internet site also receive “special discounts” on other Tattilo products, such as CD ROMs and Photo CDs. Tattilo created this site by uploading these images onto a World Wide Web server located in Italy. These images can be accessed at the Internet address “http://www.playmen.it.”[3]

Two distinct services are available on the PLAYMEN Internet site. “PLAYMEN Lite” is available without a paid subscription, allowing users of the Internet to view moderately explicit images via computer. It appears that the main (if not sole) purpose of the PLAYMEN Lite service is to allow prospective users to experience a less explicit version of the PLAYMEN product before committing to purchasing a subscription. In addition, the PLAYMEN Internet site offers the more sexually explicit service called “PLAYMEN Pro.” PLAYMEN Pro is available only to users who have paid the subscription price.

In order to access the Lite version of the PLAYMEN Internet service, the prospective user must first contact Tattilo. The user will then receive a temporary user name and password via e-mail. To subscribe to PLAYMEN Pro, the prospective user must fill out a form and send it via fax to Tattilo. Within 24 hours, the user receives by e-mail a unique password and login name that enable the user to browse the PLAYMEN Pro service.

The PLAYMEN Internet site is widely available to patrons living in the United States. More to the point, anyone in the United States with access to the Internet has the capacity to browse the PLAYMEN Internet site, review, and obtain print and electronic copies of sexually explicit pages of PLAYMEN magazine. Francescani Decl. 4. All that is required to establish the account is the brief contact with Tattilo outlined above.

II. The Standard for Holding a Party in Contempt

It is well settled that “[t]he power to punish for contempts is inherent in all courts.’” Chambers v. Nasco, Inc., 501 U.S. 32, 44 (1991) (quoting Ex parte Robinson, 19 Wall. 505, 510 (1874)). This inherent power “reaches both conduct before the court and that beyond the court’s confines, for “[t]he underlying concern that gave rise to the contempt power was not … merely the disruption of court proceedings. Rather, it was disobedience to the orders of the Judiciary, regardless of whether such disobedience interfered with the conduct of trial.’” Id. (quoting Young v. U.S. ex rel Vuitton et Fils S.A., 481 U.S. 787, 798 (1987)); see also In re Weiss, 703 F.2d 653, 660 (2d Cir. 1983) (“acts of willful disobedience to clear and unambiguous orders of the court constitute contempt of court”).

An order of contempt “is a potent weapon, to which courts should not resort where there is a fair ground of doubt as to the wrongfulness of the defendant’s conduct.” King v. Allied Vision, Ltd., 65 F.3d 1051, 1058 (2d Cir. 1995) (citations omitted). A contempt order is warranted only where the moving party establishes by clear and convincing evidence that the alleged contemnor violated the district court’s edict. Id.; see also Hart Schaffner & Marx v. Alexander’s Dep’t Stores, Inc., 341 F.2d 101, 102 (2d Cir. 1965).

Generally, the purpose of holding a party in civil contempt is “to enforce compliance with an order of the court or to compensate for losses or damages.” Powell v. Ward, 643 F.2d 924, 931 (2d Cir. 1981) (citation omitted). A court has the power to hold a party in civil contempt when (1) there is a “clear and unambiguous” court order; (2) there is clear and convincing proof of noncompliance; and (3) the party has not attempted to comply in a reasonably diligent manner. New York State Nat’l Org. for Women v. Terry, 886 F.2d 1339, 1351 (2d Cir. 1989), cert. denied, 495 U.S. 947 (1990); see also McComb v. Jacksonville Paper Co., 336 U.S. 187, 191 (1949). A “clear and unambiguous” order is one “specific and definite enough to apprise those within its scope of the conduct that is being proscribed.” Terry, 886 F.2d at 1352 (citation omitted). The alleged contemnor “must be able to ascertain from the four corners of the order precisely what acts are forbidden.” Dyywall Tapers and Pointers of Greater New York, Local 1974 v. Local 530 of Operative Plasterers and Cement Masons Int’l Ass’n, 889 F.2d 389, 395 (2d Cir. 1989), cert. denied, 494 U.S. 1030 (1990). Finally, failure to comply with the court order need not be willful. Canterbury Belts, Ltd. v. Lane Walker Rudkin, Ltd., 869 F.2d 34, 39 (2d Cir. 1989).

III. Discussion

The primary issue before the Court is whether the Defendant distributed or sold the PLAYMEN magazine in the United States when it established an Internet site containing pictorial images under the PLAYMEN name.[4]

A. Whether the Injunction Could Have Been Violated

As an initial matter, the question arises whether a fifteen-year-old injunction prohibiting certain traditional publishing activities should be applied to the recent development of cyberspace and the Internet. If the dissemination of information over the Internet, in any form, cannot constitute a violation of the Injunction, then the inquiry is over.

Defendant argues that because this case involves the new technology of the Internet and World Wide Web—which purportedly did not exist when the Injunction was issued—the complained of activities cannot be “clearly and unambiguously” barred.

The 1981 Injunction was issued with respect to the publication and distribution in the United States of print magazines bearing on their cover the name P[LAYMEN]. Plainly, it does not bar the conduct at issue, placing pictorial images on the World Wide Web in Italy, which conduct was not contemplated by any of the parties involved in framing the 1981 Injunction, let alone addressed in that judgment. Defendant’s Memorandum in Opposition to the Motion for Contempt (“Def. Mem.”) at 7.

This argument is premised on the belief that the Internet did not exist in 1981. While it is difficult, if not impossible, to establish a definite “birth date” for this new medium, it appears that the Internet did in fact exist in some form when the Injunction was entered fifteen years ago. See, e.g., The Birth of the Internet, Newsweek, August 8, 1994, at 56. The beginnings of the Internet date back to 1969, when the Department of Defense’s Advanced Research Project Agency funded a project called ARPANET for the purpose of developing a computer network which would enable researchers around the country to share ideas. Id. On that date in 1969, four universities were linked by a computer network for the first time. The number of network sites, called “nodes,” gradually increased to nearly two dozen in 1971 and 62 three years later. Id. By 1981, more than 200 network sites had been established. Today, users of publicly available news groups discuss “everything from particle physics to Barney the dinosaur.” Id.; see also American Civil Liberties Union v. Reno, Civ. A. 96-963, 1996 WL 311865, at *5-6 (E.D. Pa. June 11, 1996).

Nevertheless, I agree with the Defendant that the availability of pictorial images on the Internet could not have been contemplated at the time of the Injunction. While the Internet may have existed in some form in 1981, it was undeniably vastly different from today’s extensive montage of data available in multimedia format. In 1981, the Internet was a means to exchange text-based information, primarily by posting messages on public electronic “bulletin boards” and by sending electronic mail. Today, of course, the Internet can be seen as its own thriving city, where citizens meet to exchange thoughts and ideas, where merchants buy and sell their wares, and where visitors take virtual tours of entire cities and buildings such as the White House and the Louvre. Certainly, only the most active imagination could have contemplated the public dissemination of pictorial images over the Internet when the Injunction was entered in 1981.
The key date, then, is the start of the Internet as it exists today. The Internet, defined narrowly, dates from the time that advanced computer technology made it possible to view, manipulate and exchange pictorial images electronically on a home computer. This was no earlier than the late 1980s, when the microprocessor speed and memory capacity of home computers first allowed large quantities of data to be stored and transferred quickly. Regardless of the exact date, this use could not have been contemplated at the time the Injunction was entered.

Defendant argues that because the Internet (as it now exists) could not have been contemplated by the parties in 1981, the distribution of pictorial images over that medium cannot be barred. Specifically, Defendant argues that “as Internet use was not contemplated by any of the participants who had a hand in shaping [the Injunction], … there is ground to doubt the wrongfulness of the defendant’s conduct.” Def. Mem. at 18 (citation omitted).

I disagree. That this use of the images could not have been contemplated by the parties does not prevent the Injunction from applying to the modern technology of the Internet and the World wide Web. The purpose behind the Injunction was to restrict the ability of Defendant to distribute its product in the United States, where it has been found to infringe upon the copyright of Playboy. Allowing the Defendant to contravene the clear intent of the Injunction by permitting it to distribute its pictorial images over the Internet would emasculate the Injunction. The Injunction’s failure to refer to the Internet by name does not limit its applicability to this new medium. Injunctions entered before the recent explosion of computer technology must continue to have meaning.

Finally, Defendant argues that the determination of this issue properly falls under the purview of the legislature. In support of this position, Defendant cites a recent Wisconsin case, It’s In the Cards, Inc. v. Fuschetto, 535 N.W.2d 11 (Wis. Ct. App. 1995). The issue presented there was whether a posting on an electronic bulletin board located on “SportsNet” was a periodical within the meaning of section 895.05(2) of the Wisconsin statutes. In holding that the posting was not a periodical, the court stated:

Subsec. (2) of Section 895.05, STATS., was repealed in 1951 and reenacted in its present form, years before cyberspace was envisioned. The magnitude of computer networks and the consequent communication possibilities were non-existent at the time this statute was enacted. Applying the present libel laws to cyberspace or computer networks entails rewriting statutes that were written to manage physical, printed objects, not computer networks or services. Consequently, it is for the legislature to address the increasingly common phenomenon of libel and defamation on the information superhighway …. Therefore, we conclude that extending the definition of ‘periodical’ under Section 895.05(2), STATS., to include network bulletin board communications on the SportsNet computer service is judicial legislation in which we will not indulge. Id. at 14-15.

This reasoning has no application to the matter now before this Court. Cards dealt solely with the issue of whether a statute could be interpreted to cover the new technology of the Internet. The Cards court declined to address this issue because it correctly concluded that any extension of the scope of a statute is within the sole province of the legislature. The instant situation, however, is distinguishable. While Cards concerned the interpretation of a statute, this matter involves the interpretation of and compliance with an order entered by this Court. The legislature does not have jurisdiction to determine the scope of a court order. This task is assigned to the Court.

In sum, the Injunction controls the activities complained of here, despite the fact that the Internet in its current form did not exist (and, moreover, could not have been contemplated by the parties) when the Injunction was entered. Prohibition of the sale or distribution of the PLAYMEN magazine within the United States thus extends to the Internet.

B. Whether the Injunction Was Violated

Subsection 1(c) of the Injunction permanently enjoined Tattilo from:

using “PLAYBOY”, “PLAYMEN” or any other word confusingly similar with either such word in or as part of any trademark, service mark, brand name, trade name or other business or commercial designation, in connection with the sale, offering for sale or distributing in the United States, importing into or exporting from the United States, English language publications and related products. Three conditions must be met to support a finding of a violation of this provision. First, the word PLAYMEN must have been used as part of any trademark, service mark, brand name, trade name or other business or commercial designation. Second, such use must have been in connection with an English language publication or related product. Third, such use must have been made in connection with a sale or distribution within the United States.

There is ample evidence that the word PLAYMEN has been used as a trade name or business or commercial designation of the Internet site. As mentioned above, the site’s URL, which typically remains displayed on the computer screen once the site is accessed, is “playmen.it.” Moreover, the word PLAYMEN prominently appears (along with the PLAYMEN logo) in oversized font on the site’s “home page,” the electronic equivalent of a magazine cover and table of contents. The PLAYMEN name and logo appear in this same form at the top of each “page” accessed on the site. The site’s address, and the prominence of the PLAYMEN name, demonstrate an association between the PLAYMEN name and the Internet site.

Similarly, the PLAYMEN name has been used in connection with an English language publication or related product. First, although there is an intriguing question as to whether an Internet site consisting of uploaded pictorial images constitutes a “publication,” there is no doubt that the “related product” clause is satisfied by this use. Second, this product appears in the English language. Although a portion of the text is written in Italian, enough sections appear in English to allow an English-speaking user to navigate the site with ease.[5] Paramount among these is the PLAYMEN page purportedly answering frequently asked questions about the Internet site, such as the price of a subscription (“$30 U.S., or 50000 [sic] Italian lire for 6 months, payable by all major credit cards”), benefits of a subscription (“You get a unique password, that can be used only by one person at a time, to browse on Playmen Pro, where you can find about 500 xxx rated pictures always updated, mpeg movies, photo cd images, and many other things”), and a description of the PLAYMEN magazine itself (“The ‘Playmen’ magazine is written in Italian, and is sold in Italy and all the major countries in Europe”). Therefore, the English language publication/related product requirement has been met.

The final condition — for a distribution or sale to have taken place within the United States — is analytically more difficult. The question of whether uploading pictorial images onto a computer which may be accessed by other users constitutes a “distribution” has been addressed by at least two courts. In Playboy Enterprises, Inc. v. Frena, 839 F.Supp. 1552 (M.D. Fla. 1993), Defendant Frena operated a subscription electronic bulletin board service accessible by computer modem. Once logged onto the service, subscribers could browse through different directories and view unauthorized copies of PEI’s copyrighted photographs, as well as download and store these images on their home computers. Id. at 1554. The court held that the unauthorized uploading of copyrighted images with the knowledge that the images would be downloaded by other bulletin board subscribers constituted a distribution. Id. at 1556. Similarly, in Religious Technology Center v. Netcom On-Line Communication Servs., Inc., 907 F.Supp. 1361 (N.D. Cal. 1995), copyright holders brought an infringement action against the operator of an Internet access provider, seeking to hold the defendant liable for copyright infringement committed by a bulletin board subscriber. In that case, the court refused to extend the Frena doctrine to an Internet access provider, because Nettom did not create or control the content of the information available to its subscribers.

Although the Internet consists of many different computers networked together, some of which may contain infringing files, it does not make sense to hold the operator of each computer liable as an infringer merely because his or her computer is linked to a Computer with an infringing file. It would be especially inappropriate to hold liable a service that acts more like a conduit, in other words, one that does not itself keep an archive of files for more than a short duration. Finding such a service liable would involve an unreasonably broad construction of public distribution and display rights. 907 F.Supp. at 1372.

Here, Defendant does more than simply provide access to the Internet. It also provides its own services, PLAYMEN Lite and PLAYMEN Pro, and supplies the content for these services. Moreover, as in Frena, these pictorial images can be downloaded to and stored upon the computers of subscribers to the service. In fact, Defendant actively invites such use: the Internet site allows the user to decide between viewing and downloading the images. Thus this use of Defendant’s Internet site constitutes a distribution.

In order to violate the Injunction, however, Defendant must distribute the pictorial images within the United States. Defendant argues that it is merely posting pictorial images on a computer server in Italy, rather than distributing those images to anyone within the United States. A computer operator wishing to view these images must, in effect, transport himself to Italy to view Tattilo’s pictorial displays. The use of the Internet is akin to boarding a plane, landing in Italy, and purchasing a copy of PLAYMEN magazine, an activity permitted under Italian law. Thus Defendant argues that its publication of pictorial images over the Internet cannot be barred by the Injunction despite the fact that computer operators can view these pictorial images in the United States.

Once more, I disagree. Defendant has actively solicited United States customers to its Internet site, and in doing so has distributed its product within the United States. When a potential subscriber faxes the required form to Tattilo, he receives back via e-mail a password and user name. By this process, Tattilo distributes its product within the United States.

Defendant’s analogy of “flying to Italy” to purchase a copy of the PLAYMEN magazine is inapposite. Tattilo may of course maintain its Italian Internet site. The Internet is a world-wide phenomenon, accessible from every corner of the globe. Tattilo cannot be prohibited from operating its Internet site merely because the site is accessible from within one country in which its product is banned. To hold otherwise “would be tantamount to a declaration that this Court, and every other court throughout the world, may assert jurisdiction over all information providers on the global World Wide Web.” Def. Mem. at 2. Such a holding would have a devastating impact on those who use this global service. The Internet deserves special protection as a place where public discourse may be conducted without regard to nationality, religion, sex, age, or to monitors of community standards of decency. See generally American Civil Liberties Union v. Reno, Civ. A. 96-963, 1996 WL 311865 (E.D. Pa. June 11, 1996).

However, this special protection does not extend to ignoring court orders and injunctions. If it did, injunctions would cease to have meaning and intellectual property would no longer be adequately protected. In the absence of enforcement, intellectual property laws could be easily circumvented through the creation of Internet sites that permit the very distribution that has been enjoined. Our long-standing system of intellectual property protections has encouraged creative minds to be productive. Diluting those protections may discourage that creativity.

While this Court has neither the jurisdiction nor the desire to prohibit the creation of Internet sites around the globe, it may prohibit access to those sites in this country. Therefore, while Tattilo may continue to operate its Internet site, it must refrain from accepting subscriptions from customers living in the United States. In accord with this holding, an Italian customer who subsequently moves to the United States may maintain his or her subscription to the Internet site.

I therefore conclude that Tattilo has violated subsection 1(c) of the Injunction by using its PLAYMEN Internet site to distribute its products in the United States.[6] The clear intent of the Injunction was to prohibit Tattilo from selling its PLAYMEN magazine and related products to United States customers. Tattilo has knowingly attempted to circumvent the Injunction by selling its products over the Internet. Cyberspace is not a “safe haven” from which Tattilo may flout the Court’s Injunction.

C. The $5,000 Past Due Payment

Paragraph 4 of the Injunction required Tattilo to pay PEI $5,000 as partial payment of its attorneys’ fees incurred in the original action.[7] Francescani Decl. Ex. 1. PEI contends that Tattilo never paid this amount, and asks for it now, fifteen years later.

CHARLES EDWARD RAMOS, J.S.C.:

This proceeding is brought by the Attorney General of the State of New York (the “Attorney General” or the “State of New York”), pursuant to New York’s Executive Law ¤ 63(12) and General Business Law Article 23-A, to enjoin the respondents, World Interactive Gaming Corporation (“WIGC”), Golden Chips Casino, Inc. (“GCC”), and their principals, officers, and directors from operating within or offering to residents of the State of New York State gambling over the Internet. The State also seeks to enjoin respondents from selling unregistered securities in violation of New York State’s General Business Law ¤ 352 (also known as “The Martin Act”).

The central issue here is whether the State of New York can enjoin a foreign corporation legally licensed to operate a casino offshore from offering gambling to Internet users in New York. At issue is section 9(1), Article 1 of the New York State Constitution which contains an express prohibition against any kind of gambling not authorized by the state legislature. The prohibition represents a deep-rooted policy of the state against unauthorized gambling (Intercontinental Hotel Corp. v. Golden, 18 AD2d 45 [1st Dept 1963]; revd on other grounds, 15 NY2d 9 [1964]).

WIGC is a Delaware corporation that maintains corporate offices in New York. WIGC wholly owns GCC, an Antiguan subsidiary corporation which acquired a license from the government of Antigua to operate a land-based casino. Through contracts executed by WIGC, GCC developed interactive software, and purchased computer servers which were installed in Antigua to allow users around the world to gamble from their home computers. GCC promoted its casino at its website, advertised on the Internet and in a national gambling magazine. The promotion was targeted nationally and was viewed by New York residents.

In February 1998, the Attorney General commenced an investigation into the practices of WIGC. The investigation was prompted by an inquiry from the Texas State Securities Board which informed the Attorney General that WIGC was making unsolicited telephone calls to the public and disseminating offering materials for WIGC’s securities. The petition alleges that respondents were attempting to sell what they termed a “private subscription offering,” which consisted of 700,000 shares of “convertible preferred stock” at a price of $5.00 per share. The respondent’s primary method of selling units of WIGC stock involved cold-calling prospective investors. The prospective investors were located throughout the United State, including New York. Respondents do not dispute that the calls originated from WIGC’s headquarters in Bohemia, New York. At no time was this offering or the cold-callers registered with New York state as required by law.

During telephone solicitation, respondents claimed that investors would earn twenty percent (20%) annual dividend on their investment, twenty-five percent (25%) profit sharing and an initial public offering (“IPO”) of WIGC’s stock, which would likely take place within one year. Respondents also compared WIGCÕs projected stock price and earnings to that of land-based casinos. Respondents represented the profit margins of other Internet casinos at around eighty to eighty-five percent (80-85%). Respondents told investors that WIGC would earn an estimate of up to $100,000.00 in revenue during the first year. Respondents claimed that the investment was conservative.

Together, respondents sold approximately $1,843,665.00 worth of shares to approximately 114 investors throughout the country, including approximately $125,000.00 worth of shares to 10 New York state residents.

In June 1998, the Attorney General furthered its investigation by logging onto respondentsÕ website, downloading the gambling software, and in July 1998, placed the first of several bets. Users who wished to gamble in the GCC Internet casino were directed to wire money to open a bank account in Antigua and download additional software from GCCÕs website. In opening an account, users were asked to enter their permanent address. A user which submitted a permanent address in a state that permitted land-based gambling, such as Nevada, was granted permission to gamble. Although a user which entered a state such as New York, which does not permit land-based gambling, was denied permission to gamble, because the software does not verify the user’s actual location, a user initially denied access, could easily circumvent the denial by changing the state entered to that of Nevada, while remaining physically in New York State. The user could then log onto the GCC casino and play virtual slots, blackjack or roulette. This raises the question if this constitutes a good faith effort not to engage in gambling in New York.

The Attorney General commenced this action pursuant to Executive Law ¤ 63 (12) and General Business Law Article 23-A. Petitioner seeks: (1) to enjoin respondents from conducting a business within the State of New York until they are properly registered with the Secretary of State to conduct business in New York; (2) to enjoin respondents from running any aspect of their Internet gambling Business within the State of New York; (3) to be awarded restitution and damages to injured investors; and (4) to be awarded penalties and costs to the State of New York for violations of New York State’s Securities Law (GBL ¤ 352 also known as “The Martin Act”), federal and state laws prohibiting gambling, and New York State’s Executive Law.

Respondents move to dismiss the petition on the grounds that (1) the Attorney General lacks the authority to bring a proceeding under executive Law ¤ 63(12), where a pattern of repeated or persistent fraud or illegal conduct is absent; (2) lack of personal jurisdiction over WIGC and GCC; and (3) lack of subject matter jurisdiction to prosecute alleged violations of the Federal Interstate Wire Act 18 USC ¤ 1084 (a) (“The Wire Act”) the Interstate and Foreign Travel or Transportation in Aid of Racketeering Enterprising Act 18 USC ¤ 1952 (“The Travel Act”), and the Wagering and Paraphernalia Act 18 USC ¤ 1953 (“The Paraphernalia Act”).

Respondents contend that the transactions occurred offshore and that no state or federal law regulates Internet gambling. They claim that they were operating a duly licensed legitimate business fully authorized by the government of Antigua and in compliance with that country’s rules and regulations of a land-based casino. They further argue that the federal and state laws upon which the State relies either do not apply to the activities of WIGC or are too vague and ambiguous to criminalize the activity of Internet gambling, when such activity is offshore in Antigua.

Executive Law

Executive Law ¤ 63(12) authorizes the Attorney General to bring a special proceeding against a person or business committing repeated or persistent fraudulent or illegal acts. Any conduct which violates state or federal law or regulation is actionable under this provision (See State v. Ford, 74 NY2d 495 [1989]). Under Executive Law ¤ 63(12), fraud has been interpreted broadly requiring only a showing that the action has a potential to deceive (See People v. Apple Health & Sports Clubs, 206 AD2d 266, 267 [1st Dept 1994]). In order for fraudulent or illegal acts to be actionable under Executive Law ¤ 63(12), respondentsÕ activities must be repeated. (See State v. Princess Prestige Co., Inc., 42 NY2d 104, 107-108 [1977] finding that Executive Law ¤ 63(12) does not require a large number of repeated illegal or fraudulent acts).

In order to defeat the petition, respondent must present facts having probative value “sufficient to demonstrate an unresolved material issue which can be determined only at a plenary trial.” (State v. Waterfine Water Conditioning Co. of New York, Inc., 87 Misc 2d 18, 19 [NY Sup Ct 1975]; Compare, Lafowitz v. McMillan, 57 AD2d 979 [3rd Dept 1977]). Respondents have failed to submit evidence of any probative value to refute the allegation of the petition.

Personal Jurisdiction Over WIGC and GCC

Although at first glance, Internet transactions may appear novel, “traditional jurisdictional standards have proved to be sufficient to resolve all civil Internet jurisdictional issues” (People v. Lipeitz, 174 Misc 2d 571, 578 [Sup Ct New York County 1997).

The Internet is at least a medium through which individuals may obtain and transmit text, sound, pictures, moving video images, and interactive services using various methods. The Internet also allows individuals to trade securities, execute banking transactions, purchase consumer merchandise, and engage in many other types of business and personal dealings not possible using more traditional means. What makes Internet transactions shed their novelty for jurisdictional purposes, is that similar to their traditional counterparts, they are all executed by and between individuals or corporate entities which are subject to a court's jurisdiction.

Whether the exercise of personal jurisdiction comports with due process requirements depends, as in any case, upon a finding that respondent has purposefully engaged in significant activities such that he has "availed himself of the privilege of conducting business [in the forum state].” (Burger King Corp v. Rudzewicz, 472 US 462, 475-76 [1985]). “The test, though not “precise” is a simple pragmatic one [cites omitted]: it’s the aggregate of the corporation’s activities in the State such that it may be said to be “present” in the State, “not occasionally or casually, but with a fair measure of permanence and continuity[.]” (Laufer v. Ostrow, 55 NY2d 305, 310 [1982], citing, Tauza v. Susquehanna Coal Co., 220 NY 259 [1917]; see also, American Dental Co-op v. Attorney General, 127 AD2d 274, 280 (1st Dept 1987).

Respondents in this case are clearly doing business in New York for purposes of acquiring personal jurisdiction. Although WIGC was incorporated in Delaware, WIGC operated its entire business from its corporate headquarters in Bohemia, New York. All administrative and executive decisions as well as the computer research and development of the Internet gambling website were made in New York. The cold-calls to investors to buy WIGC stock were made by WIGC agents employed and operating from this location. Thereafter, respondents sent its prospectus and other solicitation materials about Internet gambling from the Bohemia, New York location. WIGCÕs continuous and systematic contacts with New York established their physical presence in New York. Moreover, even without physical presence in New York, WIGCÕs activities are sufficient to meet the minimum contact requirement of International Shoe Co. v. Washington, 326 US 310, 316 [1945]. The nature and quality of the defendant’s activity must be such that “the defendant purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws” (Agrashell, Inc. v. Bernard Sirotta Co., 344 F2d 583, 591 [2nd Cir 1965]). The use of the Internet is more than the mere transmission of communications between an out-of-state defendant and a plaintiff within the jurisdiction.

WIGC and the other respondents are doing business in New York. They worked from New York in conjunction with another New York-based company Imajix Studios, to design the graphics for their Internet gambling casino. From their New York corporate headquarters, they downloaded, viewed, and edited their Internet casino website. Furthermore, respondents engaged in an advertising campaign all over the country to induce people to visit their website and gamble. Knowing that these ads were reaching thousands of New Yorkers, respondents made no attempt to exclude identifiable New Yorkers from the propaganda. Phone logs from respondents’ toll-free number (available to casino visitors on the GCC Website) indicate that respondents had received phone calls from New Yorkers. Respondents cannot dispute that they do business in New York and that the acts complained of are subject to this courtÕs jurisdiction.

To establish in personam jurisdiction over GCC, the petitioner must show that GCC functioned merely as the alter ago of WIGC. The corporate form will be pierced only if one corporation is so controlled by the other as to be a mere agent, department or alter ago of the other. See, e.g., Frummer v. Hilton Hotels International, 19 NY2d 533, 537 (1967); see also Gonzalez v. Amtek, 50 Misc. 2d 62,65-67 (4th Dept 1966); ABKCO Industries, Inc. v. Lennon, 52 AD2d 435, 440 (1st Dept 1976). There must be some proof that the parent company dominates or controls the daily activities of the subsidiary (Delagi v. Volkswagenwerk, 29 NY2d 426 [1972]; Taca International Airlines, S.A. v. Rolls-Royce of England, Ltd., 15 NY2d 97 [1965]; Billy v. Consolidated Machine Tool Corporation, 51 NY2d 152 [1980]). The evidence indicates that GCC is a Corporation completely dominated by WIGC. Aside from it being a wholly owned subsidiary of WIGC, GCC’s primary asset, the website, was purchased by WIGC pursuant to a corporate decision by WIGCÕs CEO respondent Mr. Burton. The use of the GCC casino website was handled from WIGC’s corporate headquarters. From WIGC’s New York office, respondents also actively solicited investors to buy WIGC shares. Although WIGC was conducting operations from New York, WIGC failed to register with the State as a foreign corporation doing business in New York, the stock offering, the brokers, dealers, issuers, or salespersons for the offering. All GCC top employees were hired by and reported to WIGC. WIGC itself contracted to buy GCC casinos website servers from AIE. Whenever GCCÕs servers required servicing, AIE provided GCC with services pursuant to a contract executed between WIGC and AIE. Furthermore, the licensing agreement with AIE was executed by respondent Burton as CEO of WIGC and GCC. At no time were any formalities observed to maintain a financial distinction between the two entities. GCC did not repay WIGC for the purchase of computer servers, nor did GCC execute any formal documents to commemorate the transfer sale of the servers. Therefore, the corporate form is disregarded and GCC will be deemed an alter ego of WIGC.

Subject Matter Jurisdiction and Application of New York Law

Respondents argue that the Court lacks subject matter jurisdiction, and that Internet gambling falls outside the scope of New York state gambling prohibitions, because the gambling occurs outside of New York state. However, under New York Penal Law, if the person engaged in gambling is located in New York, then New York is the location where the gambling occurred [See, Penal Law ¤ 225.00 (2)] Here, some or all of those funds in an Antiguan bank account are staked every time the New York user enters betting information into the computer. It is irrelevant that Internet gambling is legal in Antigua. The act of entering the bet and transmitting the information from New York via the Internet is adequate to constitute gambling activity within the New York state.

Wide range implications would arise if this Court adopted respondents’ argument that activities or transactions which may be targeted at New York residents are beyond the state’s jurisdiction. Not only would such an approach severely undermine this state’s deep-rooted policy against unauthorized gambling, it also would immunize from liability anyone who engages in any activity over the Internet which is otherwise illegal in this state. A computer server cannot be permitted to function as a shield against liability, particularly in this case where respondents actively targeted New York as the location where they conducted many of their allegedly illegal activities. Even though gambling is legal where the bet was accepted, the activity was transmitted from New York. Contrary to respondentsÕ unsupported allegation of an Antiguan management company managing GCC, the evidence also indicates that the individuals who gave the computer commands operated from WIGCÕs New York office. The respondents enticed Internet users, including New York residents, to play in its casino.

As for respondents’ claim that none of the federal statutes apply to operation of an Internet casino licensed by a foreign government, there in nothing in the record or the law to support their contentions. To the contrary, the Wire Act, Travel Act and Wagering Paraphernalia Act all apply despite the fact that the betting instructions are transmitted from outside the United States over the Internet. The scope of each of these statutes clearly extends to the transmission of betting information to a foreign country (See, the Wire Act which prohibits “use of a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers. . [18 USC ¤ 1084 (a)]; the Travel Act which prohibits the use of “any facility in interstate or foreign commerce” with intent to promote any unlawful activity [18 USC ¤1952]). Nor can it be convincingly argued by respondents that the federal statutes are unconstitutionally vague (See, Turf Center, Inc. v. US, 325 F2d 793, 795 (9th Cir 1963], Katz v. United States, 369 F2d 130, 135 [9th Cir 1966], United States v. Mendelsohn, 896 F2d 1183, 1186 [9th Cir 1989]. Because the Wire act, the Travel Act and the Wagering Paraphernalia Act have all been found to be constitutionally valid, and have been found not to be overly broad or vague, and because respondentsÕ conduct falls within the scope of New York’s prohibition against gambling, all of these statutes apply to respondentsÕ activities.

The evidence demonstrates that respondents have violated New York Penal law which states that “a person is guilty of promoting gambling . . . when he knowingly advances or profits from unlawful gambling activity” (Penal Law ¤ 225.05). By having established the gambling enterprise, advertised, solicited investors to buy its stock, to gamble through its on-line casino, respondents have “engage[d] in conduct which materially aids . . . gambling activity”, in violation of New York law (Penal Law ¤ 225.00 (4) which states “conduct includes but is not limited to conduct directed toward the creation or establishment of a particular game, contest, scheme, device . . . [or] toward the solicitation or inducement of persons to participate therein”). Moreover, this Court rejects respondents’ argument that it unknowingly accepted bets from New York residents. New York users can easily circumvent the casino software in order to play by the simple expedient of entering an out-of-state address. Respondents’ violation of the Penal Law is that they persisted in continuous illegal conduct directed toward the creation, establishment, and advancement of unauthorized gambling. The violation had occurred long before a New York resident ever staked a bet. Because all of respondentsÕ activities illegally advanced gambling, this Court finds that they have knowingly violated Penal Law ¤ 225-05.

Not only are respondents guilty of violating New York stateÕs gambling laws but they have also violated several federal laws. Like the great majority of states, federal law also proscribes gambling. Statutes such as the Wire Act, the Travel Act and the Interstate Transportation of Wagering Paraphernalia Act are just three examples of the federal government’s policy against gambling. As the Wire Act’s legislative history states:

“The purpose of the bill is to assist various States and the District of Columbia in the enforcement of their laws pertaining to gambling, bookmaking, and like offenses and to aid in the suppression of organized gambling activities by prohibiting the use of wire communication facilities which are or will be used for the transmission of bets or wagers and gambling information in interstate and foreign commerce.”
H.R. Rep. No. 967, 87th Cong. 1st Sess. (1961), U.S. Code Congressional and Administrative News 1961, p 2631) see also Telephone News Systems, Inc v. Illinois Bell Tel. Co., 220 F Supp 621 (1963), affirmed 376 US 782.

The Wire Act bars citizens from engaging “[i]n the business of betting or wagering knowingly using a wire communication for the transmission of interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers.” 18 U.S.C. 1084(a). A Wire Act violation occurs when a defendant is in the business of betting or wagering (See U.S. v. Anderson, C.A. Wisconsin, 542 F2d 428 [7th Cir 1976]).

Furthermore, the Travel Act, 18 U.S.C. ¤ 1952, proscribes similar interstate gambling activity by stating;

“…the use of any facility in interstate or foreign commerce, including the mail, with intent to (1) distribute the records of any unlawful activity . . . or (3) otherwise promote, manage, establish carry on or facilitate the promotion, management, establishment or carrying on of any unlawful activity . . . shall be fined not more than $10,000 or imprisoned for not more than five years or both.”
RespondentsÕ interstate use of the Internet to conduct their illegal gambling business violates federal law. As the legislative history behind the Wire Act indicates, the purpose of these federal controls in to aid the states in controlling gambling. Like a prohibited telephone call from a gambling facility, the Internet is accessed by using a telephone wire. When the telephone wire is connected to a modem attached to a userÕs computer, the userÕs phone line actually connects the user to the Internet server and then the user may log onto this illegal gambling website from any location in the United States. After selecting from the multitude of illegal games offered by respondent, the information is transmitted to the server in Antigua. Respondents’ server then transmits betting information back to the user which is against the Wire Act. The Internet site creates a virtual casino within the User’s computer terminal. By hosting this casino and exchanging betting information with the user, an illegal communication in violation of the Wire Act and the Travel Act has occurred.

Respondents attempt to circumvent federal law by asserting that none of these statutes apply to the operation of an Antiguan casino. Moreover, they allege the federal government has not explicitly ruled on Internet gambling therefore it is an unregulated field. Respondents disregard that the Interstate Commerce Clause gives Congress the plenary power to regulate illegal gambling conducted between a U.S. and a foreign location. (See Champion v. Ames, 188 US 321, 334 [1903]). Gambling conducted via the Internet from new York to Antigua is indistinguishable from any other form of gambling since both the Wire and Travel Act apply to the transmission of information into a foreign country. See 18 U.S.C. 1084(a); 18 U.S.C. 1953(a). Therefore, the respondents are culpable for violating the Wire Act and the Travel Act.
Additionally, respondents violated The Interstate Transportation or Wagering Paraphernalia Act. Under this act:

“whoever, except a common carrier in the usual course of business, knowingly carries or sends in interstate or foreign commerce any record, paraphernalia, ticket, certificate, bills slip, token, paper, writing or other device under, or to be used, or adapted, devised, designed for use in (a) bookmaking; or (b) wagering pools with respect to a sporting event or (c) in a numbers, policy, bolita, or similar game shall be fined not more than $10,000 or imprisoned for more than five years, or both.” [18 U.S.C. ¤1953(a)]
The respondents intentionally sent records of gambling activity from the GCC location in Antigua through international and interstate commerce into various United States locations, among them New York. When respondents solicited perspective investors, they sent them a multitude of materials which were specifically to be utilized for the setting up and advancing of the Internet gambling business through U.S. mail. Furthermore, the actual computers which would be used for gambling between the United States and Antigua was bought and delivered through U.S. mail from Florida to GCCÕs location in Antigua.

The respondentÕs total activities unambiguously advance gambling in direct violation of the explicit safeguards that New York and the federal laws have placed against unauthorized gambling activity.

In addition, several of New YorkÕs registration requirements have been violated. For instance, under BCL 1301(a), a “foreign corporation shall not do business in this state until it has been authorized to do so. . .” by submitting an application to the Department of State. WIGC is a foreign corporation, incorporated in Delaware, operating out of offices in Bohemia, New York. Since WIGC failed to apply for approval from the Department of State, the respondents were repeatedly operating illegally in New York State.

Moreover, pursuant to the Martin Act, the issuer, dealer, salesmen of securities must all be registered with the Attorney General prior to the solicitation of investors. GBL ¤359(e) defines a dealer as “a person, firm, association or corporation selling or offering for sale from or to the public within or from this state securities issued by it”. Respondents acted as the issuer, dealer and salesmen when they sold units of WIGC stock from their office in New York without registering. Respondents frivolously claim they are exempt from registering under the Martin Act due to GBL ¤359)f). However, they fail to point to any applicable exception under GBL ¤359(f). Furthermore, although a company failing to register is normally penalized with a fine and subsequently the company is often allowed to file for registration, the violation still constitutes a fraudulent practice under New York law (See, GBL ¤359-e(14)(1)).

This Court further finds that respondent also violated the Martin ActÕs prohibition against the use of deception, misrepresentations, or concealment in the sale of securities (See, GBL ¤352(1)). It is well settled that fraud exists not only where there has been an affirmative misstatement of a material fact, but also where there has been an omission of a material fact (See, GBL ¤352-c(1); TSC Industries, Inc., v. Northway, Inc., 426 US 438 (1976); State of New York v. Rachmani Corp., 71 NY2d 718, 727 [1988]). While the evidence does not conclusively show that respondents misrepresented to investors certain facts about the potential return on their investment, the likelihood of an IPO, or the legality of Internet gambling, respondents did misrepresent and failed to disclose facts regarding the use of proceeds raised in the offering.

It is undisputed that approximately 46% of the investorsÕ funds were used to pay respondentsÕ commissions, salaries, and consulting fees. Without disclosing to investors, individual respondent Jeffery Burton, CEO and Director of WIGC received a personal loan of $84,000 from the corporation. Respondent Cynthia Burton, Jeffery BurtonÕs wife and a secretary at WIGC drew a salary of $93,439 from WIGC over a mere seven month period. Respondent Lawrence Blocker, President and Director at WIGC, received $135,864 in salary, commissions and fees. Respondents Gregory Flemming Sr., Gerald Varland, and Howard Toomer, all Vice Presidents of Marketing, took substantial salaries of $242,260, $109,650, and $71,260 respectively. In addition to the individual respondents created various business entities through which they paid themselves undisclosed consultant fees.

Not only were none of these salaries disclosed to investors, the respondentsÕ offering materials indicted that only 18% of the offering proceeds would be used as working capital and to pay commissions. Had investors known that 46% of the funds raised were being paid to respondents in the form of salaries, commissions and consulting fees, they might well have chosen to forego the investment (Compare, People v. Tellier, 7 Misc 2d 43 [NY County Sup Ct 1956]; Grandon v. Merrill Lynch & Co., 147 F3d 184 [2nd Cir 1998]).

Because of the clear illegality present in respondentsÕ actions, and absence of any triable issue of fact, respondents are found liable under Executive Law ¤63(12) for their state and federal law violations.

Remedies

The Attorney General is entitled to injunctive relief which is routinely granted in special proceedings under Executive Law ¤63(12) (People v. Apple Health Sports Clubs, Ltd., Inc., 206 AD2d 266 [1st Dept. 1994], affÕd, 84 NY2d 1004[1994]). The requirement of a bond to assure future proper behavior on the part of an enjoined party traditionally accompanies such an injunction (see, People v. Empyre Inground Pool, 227 AD2d 731 [3rd Dept 1996]; People v. Helena VIP Personal Introductions Servs, 199 AD2d 186 [1st Dept 1993]). This Court finds the request for an injunction warranted, and directs fixing of the amount be incorporated in an order to be settled.

As for the Attorney GeneralÕs request for restitution, penalties, and cost, which are available under Executive Law ¤ 63(12) and GBL ¤353(3), this Court finds the circumstances warrant awarding them in this case. The manner of the accounting, the mechanism for restitution, and the amount in penalties and costs to be awarded shall be resolved at a hearing.

Because each respondent is individually liable for the actions conducted by both WIGC and GCC WIGCÕs (See, e.g., Matter of State of New York v. Daro Chartours, 72 AD2d 972, 873 [3rd Dept 1979]; see also, Marian Midland Bank v. Russo Products Co., 50 NY2d 31, 44 [1980] finding that corporate veil can be pierced to hold corporate officers liable for a tort regardless of whether they acted in conjunction with the corporation and in the course of their corporate duties), and shall be fined appropriately, all parties including individual respondents are directed to appear for a preliminary conference before this Court on September 9, 1999 at 9:30 a.m., to resolve any issues regarding, the scope of the accounting, discovery, or scheduling of the hearing.

Respondents are further directed not to destroy any personal or business records relating to this matter.
This constitutes the decision and order of this Court.
Settle order on notice.

Dated: July 22, 1999 ENTER

______________________________
J.S.C

ORDER

This matter comes before the court on a number of pending motions. Defendants have moved the court to amend their notice of removal, to dismiss the above-captioned case for lack of jurisdiction, and to dismiss this case for failure to state a claim upon which relief can be granted. Plaintiff has moved the court to remand the present action to state court and to stay plaintiff’s obligation to respond to defendants’ motions to dismiss until the motion to remand is ruled.

Plaintiff has not objected to defendants’ request to amend its notice of removal. Accordingly, defendants’ motion will be granted.

Plaintiff, which initially brought this case in Missouri state court, maintains that this court lacks subject matter jurisdiction over the present case and that, consequently, the case should be remanded to state court. Plaintiff first contends that no diversity jurisdiction exists and that there is no federal question presented on the face of its Complaint. Accordingly, plaintiff argues, the well-pleaded complaint rule precludes removal of this claim to federal court. Defendants, who have attempted to remove this case, contend that the case presents an exception to the well-pleaded complaint rule because plaintiff’s claims are completely preempted by the Indian Gaming Regulatory Act, 25 U.S.C. §2701, et seq. (the Act). The Act, enacted in 1988, is the statutory basis for the operation and regulation of gaming by Indian tribes.

Under the well-pleaded complaint rule, a plaintiff can generally avoid removal to federal court by alleging solely state law claims in its Complaint. Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987). A federal defense, including the defense that plaintiff’s claims are preempted by federal law, cannot provide a basis for removal. Id. at 393. An exception to this rule is the doctrine of “complete preemption.” Under this doctrine, a federal court has jurisdiction over a complaint that alleges only state causes of action if Congress clearly intended that a federal statute completely preempt the field of law at issue. Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58, 65 (1987). Even when complete preemption applies, not all state law claims are necessarily covered and only those claims that fall within the preemptive scope of the particular statute are considered to serve as federal questions. Gaming Corp. of America v. Dorsey & Whitney, 88 F.3d 536, 543 (8th Cir. 1996). Accordingly because plaintiff’s Complaint alleges only violations of state consumer protection law, this court will lack jurisdiction unless plaintiff’s claims are completely preempted.

Defendants, as the parties seeking removal, bear the burden of establishing that this court has jurisdiction over the present action. In re Business Men’s Assurance Co. of America, 992 F.2d 181, 183 (8th Cir. 1993). The court must resolve all doubts about federal jurisdiction in favor of remand. Id.

In Dorsey & Whitney, the Eighth Circuit examined the text and legislative history of the Indian Gaming Regulatory Act and concluded that the Act completely preempts the field in the regulation of gaming activities on Indian lands. Id. at 544-547. In so deciding, the Court looked to traditional notions of Indian sovereignty and the long history of Supreme Court cases affirming that Indian commerce is under the exclusive control of the federal government. Id. at 547-8. In determining the preemptive scope of the Act, the Circuit stated that “[t]he key question is whether a particular claim will interfere with tribal governance of gaming.” Id. at 549. The Court also noted that, due to unique federal and tribal interests, a less stringent test is applied when preemption is asserted as a defense in cases involving Indian affairs. Id. at 548.

The parties have not cited, and the court is not aware of, any cases in which an Indian tribe broadcast its gaming activities beyond the traditional geographical scope of Indian land. Plaintiff argues that the Act is clearly inapplicable to this case, and that its cause of action is consequently not preempted, because the gambling at issue does not take place “on Indian lands.” It is true that the gamblers in Missouri place their bets from locations not on Indian land; it is also the case that the Tribe’s web site for the Internet lottery is maintained on and operated from a computer located on tribal lands. The defendants accordingly contend that the lottery does take place on Indian lands and is thus covered by the Act. Defendants also contend that the Tribe’s authority to engage in the Internet gaming in the first instance arises from the Act. See Oneida Indian Nation of New York State v. County of Oneida, 414 U.S. 661 (1974) (where tribe’s right to possession of land was claimed to arise under federal law in the first instance, construction of federal law was necessary and thus claim concerning land rights presented federal question). Contrary to plaintiff’s contentions, the question of whether the Tribe’s lottery takes place on Indian lands is a question of law-federal law-to be determined by the court. Because the court cannot grant or deny plaintiff the requested relief without reference to the Act, and even assuming defendants are arguing a strained construction of the federal legislation-which may very well not contemplate broadcasting beyond Indian Territory-there is clearly a federal question present warranting federal jurisdiction.

The preemptive scope of the Act, as determined by the Circuit, also indicates that a federal question is present here. Plaintiff seeks a permanent injunction preventing the tribe from continuing to allow Missouri residents access to its lottery web site. Any determination in this case will arguably “interfere with tribal governance of gaming.”

The facts of Dorsey & Whitney additionally indicate that this case is completely preempted by the Act. In Dorsey & Whitney, two casino management corporations brought an action against an Indian tribe’s law firm alleging that the firm had violated state law while representing the tribe during a tribal casino management licensing process. The facts of the case only indirectly implicated the gaming licensing process authorized by the Act. Even though the tribe was not a party to the litigation, the court concluded that the tribe had a recognized interest in connection with parties with whom it deals in relation to gaming and that this indirect connection to the Act was sufficient to completely preempt the claims. It was enough that “[i]nquiry into [the law firm's] performance of its duty to the nation could threaten the tribe’s legitimate interests, question to correctness of its licensing decisions, and risk influencing how counsel could serve tribes in the future.” Id. at 550.

Plaintiff also contends that this case should be remanded because removal violates the Eleventh Amendment. Plaintiff argues that the Eleventh Amendment prohibits removal to federal court of cases where the state is a party without the state’s consent. Plaintiff’s argument is against the weight of established Supreme Court precedent and the language of the Eleventh Amendment itself. See Illinois v. City of Milwaukee, 406 U.S. 91, 100-101 (1972); Ames v. Kansas, 111 U.S. 449, 470 (1884). Where a federal question is presented, as is the case here, the Eleventh Amendment does not bar removal of an action in which a state is the plaintiff.

Plaintiff has additionally moved the court to stay its obligation to respond to defendants’ motions to dismiss until the issue of remand had been ruled. Because plaintiff’s briefs are, at this point, well overdue and because plaintiff should not be penalized for the court’s failure to rule on its motion earlier, plaintiff’s motion to stay will be granted. The court will withhold ruling on defendants’ motions to dismiss until plaintiff has filed its opposition.

For the foregoing reasons, it is hereby

ORDERED that defendants’ Motion to Amend Notice of Removal (Doc. 8 ) is GRANTED. It is further

ORDERED that plaintiff’s Motion to Remand Action to State Court (Doc. 14) is DENIED. It is further

ORDERED that plaintiff’s Motion to Stay Plaintiff’s Obligation to Respond to Defendants’ Motions to Dismiss Until Plaintiff’s Motion to Remand is Ruled (Doc. 16) is GRANTED. Plaintiff should respond to defendants’ motions to dismiss within twelve (12) days from the date of this order.

HOWARD F. SACHS
UNITED STATES DISTRICT JUDGE
Dated: September 29, 1997.

Willis, Judge
Ramsey County District Court
File No. C6957227
Hubert H. Humphrey III, Attorney General, Carolyn P. Ham, Ann Beimdiek Kinsella, Assistant Attorneys General, 1400 NCL Tower, 445 Minnesota Street, St. Paul, MN 55101 (for Respondent)
Ronald I. Meshbesher, Meshbesher & Spence, 1616 Park Avenue, Minneapolis, MN 55404 and Eckley M. Keach, Goodman, Chesnoff & Keach, 520 South Fourth Street, Las Vegas, NV 89101 (for Appellants)
Considered and decided by Willis, Presiding Judge, Crippen, Judge, and Harten, Judge.

SYLLABUS

Appellants, having advertised on the Internet a forthcoming on-line gambling service and having developed from the Internet a mailing list that includes one or more Minnesota residents, are subject to personal jurisdiction in Minnesota because they purposefully availed themselves of the privilege of conducting commercial activities in this state to an extent that maintenance of an action here does not offend traditional notions of fair play and substantial justice.

OPINION

WILLIS, Judge
Respondent State of Minnesota filed a complaint against appellants Granite Gate Resorts, Inc., d/b/a On Ramp Internet Computer Services, and Kerry Rogers, individually and as principal officer of Granite Gate Resorts, Inc., alleging that appellants engaged in deceptive trade practices, false advertising, and consumer fraud on the Internet. Appellants challenge the district court’s denial of their motion to dismiss for lack of personal jurisdiction. We affirm.

FACTS

Rogers, a Nevada resident, is president of Granite Gate, a Nevada corporation that does business as On Ramp. Until August 1995, On Ramp provided Internet advertising on the site located at http://www.vegas.com, which provides Nevada tourist information. Among the sites advertised was WagerNet, an on-line wagering service planned to be available internationally in the fall of 1995, whose page enabled Internet users to subscribe for more information about the service.

The WagerNet site, designed by Rogers, stated:

On-Line sports wagering open to International markets, Fall of 1995
Global Gaming Services Ltd, based in the country of Belize, is pleased to introduce WagerNet, the first and only on-line sports betting site on the Internet. WagerNet will provide sports fans with a legal way to bet on sporting events from anywhere in the world. . . 24 Hours a Day!

How it Works

First, there is a $100 setup fee, for necessary hardware and software. For security and privacy, all members are issued a card system linked to their personal computer to access WagerNet. Once on-line, the bettor selects the team/s and amount/s they wish to wager. WagerNet then matches your bet with an opposing bettor or bettors to cover your wager. B>WagerNet charges each bettor a transaction fee of ONLY 2.5% as opposed to the 10% fee charged by most bookmakers.

The website invited Internet users to put themselves on a mailing list for WagerNet information and included a form for that purpose. It gave a toll-free number for WagerNet and also told Internet users to contact On Ramp at a Nevada telephone number for more information. A note on the page advised users to consult with local authorities regarding restrictions on offshore sports betting by telephone before registering with WagerNet.

A linked web page listed the terms and conditions to which an Internet user assented by applying for the private access card and special hardware and software required to access WagerNet’s services. This page stated that any claim against WagerNet by a customer must be brought before a Belizian court, but that WagerNet could sue the consumer in his or her home state to prevent the consumer “from committing any breach or anticipated breach of this Agreement and for consequential relief.”

On July 5, 1995, Jeff Janacek, a consumer investigator for the Minnesota Attorney General’s office, telephoned the toll-free number shown on an On Ramp site that advertised All Star Sports, a sports handicapping service, and asked how to bet on sports events. An On Ramp employee told Janacek to call Rogers directly. Janacek dialed the number he was given, which was the same number that the WagerNet site directed Internet users to call to receive more information, and spoke with an individual who identified himself as Rogers. Janacek identified himself as a Minnesotan interested in placing bets. Rogers explained how to access WagerNet, told Janacek the betting service was legal, and stated that he hoped the service would be up and running by the 1995 football season.

In July 1995, the attorney general filed a complaint alleging that appellants had engaged in deceptive trade practices, false advertising, and consumer fraud by advertising in Minnesota that gambling on the Internet is lawful. In October 1995, Janacek subscribed to the WagerNet mailing list under a fictitious name and received an on-line confirmation stating that he would be sent updates on the WagerNet service. Appellants filed a motion to dismiss for lack of personal jurisdiction. The district court allowed limited discovery to determine the quantity and quality of appellants’ contacts with the state. Rogers refused to produce the names of the persons on the WagerNet mailing list, claiming that the information is the sole property of a Belizian corporation. As a sanction, the court found that it is established as a fact for this action that the WagerNet mailing list contains the name and address of at least one Minnesota resident. In December 1996, the district court denied appellants’ motion to dismiss for lack of jurisdiction.

ISSUE

Did the district court err in denying appellants’ motion to dismiss for lack of personal jurisdiction?

ANALYSIS

This is the first time a Minnesota court has addressed the issue of personal jurisdiction based on Internet advertising. We are mindful that the Internet is a communication medium that lacks historical parallel in the potential extent of its reach and that regulation across jurisdictions may implicate fundamental First Amendment concerns. It will undoubtedly take some time to determine the precise balance between the rights of those who use the Internet to disseminate information and the powers of the jurisdictions in which receiving computers are located to regulate for the general welfare. But our task here is limited to deciding the question of personal jurisdiction in the instant case, and on the facts before us, we are satisfied that established legal principles provide adequate guidance.

Minnesota’s long-arm statute, Minn. Stat. § 543.19 (1996), “permits courts to assert jurisdiction over defendants to the extent that federal constitutional requirements of due process will allow.” Domtar, Inc. v. Niagara Fire Ins. Co., 533 N.W.2d 25, 29 (Minn.), cert. denied, 116 S. Ct. 583 (1995). To satisfy the Due Process Clause of the Fourteenth Amendment, a plaintiff must show that the defendant has “minimum contacts” with the forum state “such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.’” International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 158 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S. Ct. 339, 343 (1940)). There must be “some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” Hanson v. Denckla, 357 U.S. 235, 253, 78 S. Ct. 1228, 1240 (1958).

Appellants allege that the district court erred in denying their motion to dismiss because a nonresident defendant that places information on the Internet has not purposefully availed itself of the privilege of conducting activities within every state from which that information may be accessed. The assertion of personal jurisdiction in Minnesota, appellants argue, would not comport with the traditional notions of fair play and substantial justice.

A court must consider five factors in determining whether a defendant has established minimum contacts with the forum state: (1) the quantity of the defendant’s contacts; (2) the nature and quality of the defendant’s contacts; (3) the connection between the cause of action and the defendant’s contacts; (4) the state’s interest in providing a forum; and (5) the convenience of the parties. Rostad v. On-Deck, Inc., 372 N.W.2d 719-20 (Minn. 1985). The first three factors are of primary importance. Land-O-Nod Co. v. Bassest Furniture Indus., Inc., 708 F.2d 1338, 1340 (8th Cir. 1983). In close cases, “doubts should be resolved in favor of retention of jurisdiction.” Valspar Corp. v. Lukken Color Corp., 495 N.W.2d 408, 411-12 (Minn. 1992).

1. Quantity of Contacts.

The quantity of contacts here supports the contention that appellants purposefully availed themselves of the privilege of conducting commercial activities in Minnesota. The district court found that (1) computers located throughout the United States, including Minnesota, accessed appellants’ websites, (2) during a two-week period in February and March 1996, at least 248 Minnesota computers accessed and “received transmissions from” appellants’ websites, (3) computers located in Minnesota are among the 500 computers that most often accessed appellants’ websites, (4) persons located throughout the United States, including persons in Minnesota, called appellants at the numbers advertised on its websites, and (5) the WagerNet mailing list includes the name and address of at least one Minnesota resident.

In Maritz, Inc. v. Cybergold, Inc., 947 F. Supp. 1328 (E.D. Mo. 1996), a Missouri federal court exercised personal jurisdiction over the California operator of an Internet site that provided information on a forthcoming service that would charge advertisers for access to a mailing list of Internet users. Id. at 1334. In analyzing the quantity of the defendant’s contacts with Missouri, the Maritz court found that the defendant “has transmitted information into Missouri regarding its services approximately 131 times,” which allowed an inference that the defendant purposefully availed itself of the privilege of conducting activities in Missouri. Id. at 1333. The quantity of contacts here exceeds that in Maritz.

2. Quality of Contacts.

Even where the quantity of contacts with a state is minimal, the nature and quality of the contacts may be dispositive. Trident Enters. Int’l, Inc. v. Kemp & George, Inc., 502 N.W.2d 411, 415 (Minn. App. 1993); see also Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1124 (W.D. Pa. 1997) (concluding “likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the internet”). Advertising in the forum state, or establishing channels for providing regular advice to customers in the forum state, indicates a defendant’s intent to serve the market in that state. Asahi Metal Indus. Co. v. Superior Court of California, 480 U.S. 102, 112, 107 S. Ct. 1026, 1032 (1987).

Appellants argue that they “have not directed their activities at the citizens of Minnesota” because they “only placed information on the internet.” An Internet site, however, can be viewed as

an “advertisement” by which [the foreign corporation] distributes its pictorial images throughout the United States. That the local user “pulls” these images from [the corporation's] computer in [in that case] Italy, as opposed to [the corporation] “sending” them to this country, is irrelevant. By inviting United States users to download these images, [the corporation] is causing and contributing to their distribution within the United States.
Playboy Enters., Inc. v. Chuckleberry Publ’g, Inc., 939 F. Supp. 1032, 1044 (S.D.N.Y. 1996).

The Maritz court also rejected the view that Internet advertising is a passive activity:

Defendant’s posting of information about its new, up-coming service through a website seeks to develop a mailing list of internet users, as such users are essential to the success of its service. Clearly, [the defendant] has obtained the website for the purpose of, and in anticipation that, internet users, searching the internet for websites, will access [the defendant's] website and eventually sign up on [the defendant's] mailing list. Although [the defendant] characterizes its activity as merely maintaining a “passive website,” its intent is to reach all internet users, regardless of geographic location. * * * Through its website, [the defendant] has consciously decided to transmit advertising information to all internet users, knowing that such information will be transmitted globally.

Id. at 1333; see also Inset Sys., Inc. v. Instruction Set, Inc., 937 F. Supp. 161, 165 (D. Conn. 1996) (holding that Massachusetts corporation purposefully availed itself of privilege of doing business in Connecticut by advertising its activities and its toll-free number on Internet because Internet and toll-free numbers are designed to communicate with people in every state).

Minnesota courts have concluded that defendants who know their message will be broadcast in this state are subject to suit here. See, e.g., Tonka Corp. v. TMS Entertainment, Inc., 638 F. Supp. 386, 391 (D. Minn. 1985) (holding that Minnesota can exert personal jurisdiction over California corporation that produced television program it knew would be broadcast nationwide); BLC Ins. Co. v. Westin, Inc., 359 N.W.2d 752, 755 (Minn. App. 1985) (holding that Wisconsin corporation’s purposeful behavior in advertising its Wisconsin bar on Twin Cities radio station is such that it should have reasonably anticipated being haled into Minnesota court), review denied (Minn. Apr. 15, 1985); see also A. Uberti & C. v. Leonardo, 892 P.2d 1354, 1362 (Ariz. 1994) (concluding that defendant intending to sell its products to any and all United States citizens can be held accountable in any jurisdiction where its products cause injury), cert. denied, 116 S. Ct. 273 (1995). Other states have held that direct mail solicitation into the state is sufficient contact to justify personal jurisdiction. See, e.g., State ex rel. Miller v. Baxter Chrysler Plymouth, Inc., 456 N.W.2d 371, 377 (Iowa 1990); Kugler v. Market Dev. Corp., 306 A.2d 489, 491 (N.J. Super. Ct. Ch. Div. 1973); State v. Colorado State Christian College, 346 N.Y.S.2d 482, 485 (N.Y. Sup. Ct. 1973); State v. Reader’s Digest Ass’n, Inc., 501 P.2d 290, 302 (Wash. 1972).

Internet advertisements are similar to broadcast and direct mail solicitation in that advertisers distribute messages to Internet users, and users must take affirmative action to receive the advertised product. Here, the WagerNet site itself stated that it was “open to International markets,” indicating an intent to seek customers from a very broad geographic area. The fact that WagerNet had apparently paid for advertising in English on an American commercial site indicates an intent to reach the American market, and by advertising their services with a toll-free number, appellants indicated their intent to solicit responses from all jurisdictions within that market, including Minnesota. A defendant cannot “hide behind the structuring of its distribution system when [the defendant's] intent was to enter the market [in the forum state] and profit thereby.” Rostad, 372 N.W.2d at 722. The presence of the disclaimer on the site may be relevant to the merits of the consumer fraud action, but appellants’ clear effort to reach and seek potential profit from Minnesota consumers provides minimum contacts of a nature and quality sufficient to support a threshold finding of personal jurisdiction.[1]

3. Connection Between Cause of Action and Contacts.

If the cause of action arises from the nonresident defendant’s contacts with the forum state, even a single transaction can be sufficient to establish personal jurisdiction over the defendant. See McGee v. International Life Ins. Co., 355 U.S. 220, 78 S. Ct. 199 (1957). Advertising contacts justify the exercise of personal jurisdiction where unlawful or misleading advertisements are the basis of the plaintiff’s claims. See Baxter, 456 N.W.2d at 377 (holding that defendants’ acts in advertising within forum state are sufficient to render them amenable to suit there in action alleging the advertising is unlawful); Reader’s Digest, 501 P.2d at 302-03 (concluding that unfair competition cause of action arose from contacts because mailing sweepstakes entry information constituted illegal lottery within state).

In this case, the state alleges violations of Minn. Stat. §§ 325D.44, subd. 1 (1996) (engaging in deceptive trade practices), 325F.67 (1996) (making false statements in advertisements), and 325F.69, subd. 1 (1996) (engaging in fraud, misrepresentation, or deceptive practices), based on appellants’ alleged misrepresentations regarding the legality in Minnesota of the services offered by All Star Sports and WagerNet. Under Minn. Stat. § 8.31, subd. 3 (1996), the attorney general is authorized to seek injunctive relief and civil penalties when satisfied that any of the laws referred to in Minn. Stat. § 8.31, subd. 1 (1996), which include the consumer statutes allegedly violated here, “is about to be violated.” Thus, the causes of action against appellants arise out of the information that appellants posted on their website inviting Internet users to use the on-line gambling service when it becomes operational, which, as discussed, was directed toward Minnesota and received here. See Maritz, 947 F. Supp. at 1333 (concluding that trademark infringement and unfair competition causes of action result from injuries that arise out of or relate to defendant’s website).

4. State’s Interest.

Minnesota’s interest in providing a forum for a resident plaintiff cannot alone establish jurisdiction, but it can support the exercise of jurisdiction over a nonresident defendant when viewed in light of the first three factors for evaluating whether minimum contacts exist. Trident, 502 N.W.2d at 416. The state has an interest in enforcing consumer protection statutes and regulating gambling. See State v. Alpine Air Products, Inc., 490 N.W.2d 888, 892 (Minn. App. 1992) (concluding that consumer fraud statutes were designed to protect and enhance public interests), aff’d, 500 N.W.2d 788 (Minn. 1993); see also State v. Brown, 486 N.W.2d 816, 817 (Minn. App. 1992) (concluding that Minnesota gambling industry “is highly regulated to prevent its commercialization and to ensure that profits generated from gambling are used for lawful purposes”). The state’s interest in providing a forum to enforce its consumer protection laws weighs in favor of exerting jurisdiction over appellants. See Reader’s Digest, 501 P.2d at 303 (holding that Washington court had jurisdiction over foreign defendant that advertised there, noting that “[i]f our courts are not open, the state will be without a remedy in any court and the Consumer Protection Act will be rendered useless”).

5. Convenience of Parties.

The convenience of the parties is “of minor interest in comparison to the first three factors.” Rostad, 372 N.W.2d at 722.

As technological progress has increased the flow of commerce between States, * * * progress in communications and transportation has made defense of a suit in a foreign tribunal less burdensome.

Hanson, 357 U.S. at 250-51, 78 S. Ct. at 1238.

Appellants argue that the district court placed excessive weight on WagerNet’s statement that it reserved the right to sue customers in the customer’s home forum or Belize, at WagerNet’s option, because WagerNet is not a party to this action. The district court’s decision, however, does not rely significantly on WagerNet’s claimed choice of forums. Moreover, appellants do not contest the district court’s finding that appellant Rogers “makes all the decisions regarding WagerNet.” “Foreign” corporations that seek business in Minnesota and reserve the right to sue Minnesota customers in courts here cannot claim inconvenience as an excuse to avoid personal jurisdiction here, particularly in light of the state’s interest in regulating advertising and gambling. Appellants, an American corporation and its officer, who facilitated WagerNet’s solicitation of business in Minnesota, have not shown that the inconvenience of defending themselves in Minnesota would be so great, by itself, as to offend traditional notions of due process.

DECISION

Appellants, through their Internet advertising, have demonstrated a clear intent to solicit business from markets that include Minnesota and, as a result, have had multiple contacts with Minnesota residents, including at least one successful solicitation. The cause of action here arises from the same advertisements that constitute appellants’ contacts with the state and implicates Minnesota’s strong interest in maintaining the enforceability of its consumer protection laws. Appellants have not demonstrated that submission to personal jurisdiction in Minnesota would subject them to any undue inconvenience. For these reasons, we hold that appellants are subject to personal jurisdiction in Minnesota because, through their Internet activities, they purposefully availed themselves of the privilege of doing business in Minnesota to the extent that the maintenance of an action based on consumer protection statutes does not offend traditional notions of fair play and substantial justice.

Affirmed.

FOOTNOTES:

[1] The balance of equities may be different where a defendant disseminates a message on the Internet for a purpose other than the solicitation of business, but we need not decide that issue here.

v.

CYBERGOLD, INC., Defendant.

No. 4:96CV01340 ERW
Dated: Aug. 19, 1996

MEMORANDUM AND ORDER

This matter is before the Court on the motion of defendant to dismiss for lack of personal jurisdiction and improper venue [document #18], on the motion of defendant to dismiss for failure to state a claim and lack of subject matter jurisdiction [document #23], and on the motion of defendant to stay the proceedings [document #24].

Plaintiff Maritz, Inc., has brought this action alleging that defendant Cybergold, Inc., is violating Section 43(a) of the Lanham Act, 15 U.S.C. Section 1125(a), in connection with Cybergold’s internet activities. Plaintiff seeks a preliminary injunction to enjoin Cybergold’s alleged trademark infringement and unfair competition. Plaintiff also seeks an expedited hearing on the preliminary injunction hearing. Because of plaintiff’s requests for an expedited hearing on plaintiff’s motion for a preliminary injunction, the Court ordered expedited briefing on defendant’s motions to dismiss and to stay, in order to resolve threshold jurisdictional questions in this action. See Falkirk Mining Co. v. Japan Steel Works, Ltd. 906 F.2d 369, 372 (8th Cir. 1990) (court must determine threshold matter of whether it possesses personal jurisdiction over defendant before it can reach merits of dispute and enter legally binding orders).

I. PERSONAL JURISDICTION AND VENUE

Defendant has moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(2), asserting that this Court cannot exercise personal jurisdiction over it. Defendant argues that plaintiff’s first amended complaint fails to allege any facts on which personal jurisdiction over defendant can be based.

Whether the Court can exercise personal jurisdiction over defendant requires a two-part inquiry. The Court first examines whether personal jurisdiction exists under Missouri’s long-arm statute.[1] Next, the Court must determine whether the exercise of personal jurisdiction is consistent with due process. Bell Paper Box, Inc. v. U.S. Kids, Inc., 22 F.3d 816, 818-19 (8th Cir. 1994); CPC-Rexcell, Inc., v. La Corona Foods, Inc., 912 F.2d 241, 243 (8th Cir. 1990).

In considering a motion under Rule 12(b)(2), the Court views the facts in a light most favorable to plaintiff, the party opposing the motion. Aaron Ferer & Sons Co. v. Diversified Metals Corp., 564 F.2d 1211, 1215 (8th Cir. 1977). However, the burden remains on plaintiff to establish that jurisdiction exists. Bell Paper Box, Inc., 22 F.3d at 818; Taylor v. Uniden Corp. of Am., 622 F.Supp. 1011, 1012 (E.D. Mo. 1985). Because the Court is ruling on the submissions of the parties, and is not conducting an evidentiary hearing on the matter, plaintiff is required to make a prima facie showing of personal jurisdiction over the defendant at this time. See Dakota Indus. v. Dakota Sportswear, 946 F.2d 1384, 1387 (8th Cir. 1991) (citing CutCo Indus. Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986)).

Viewed in the light most favorable to plaintiff, defendant’s contacts with Missouri are as follows. CyberGold maintains an internet site on the World Wide Web. The server for the website is presumably in Berkeley, California. The website is at present continually accessible to every internet-connected computer in Missouri and the world. CyberGold’s website can be accessed at “www.cybergold.com” by any internet user.

It is estimated that there are 20 to 30 million users of the internet. Inset Systems, Inc. v. Instruction Set, Inc., 1996 U.S. Dist. LEXIS 7160 * 3 (D. Conn. April 17, 1996), Today, there are around 9,400,000 computers that have present capability to access the internet. American Civil Liberties Union v. Janet Reno, 1996 U.S. Dist. LEXIS * 23 (E.D. Pa. June 11, 1996) (to be reported at 929 F.Supp. 824). The “internet” is essentially a term that describes the interconnection of all of these computers to each other. It is also referred to as “the information superhighway,” The connections of these computers are completed through the use of telephone lines, which electronically transmit information from one computer to another. The internet has created a tremendous global means of rapid exchange of information by the government, academic institutions, and commercial entities. Id. at **22-42 (describing the nature of of the internet). There are at least 12,000 persons in Missouri who have internet access, although the number may be much higher. (Pl. Mem. in Opp’n to Def. Mot. to Dismiss at Pl. Ex. A.) Any internet user can access any website, of which there are presumably hundreds of thousands, by entering into the computer the internet address they are seeking. Internet users can also perform searches on the internet to find websites within targeted areas of interest. Via telephone lines, the user is connected to the website, and the user can obtain any information that has been posted at the website for the user. The user can also interact with and send messages to that website. Upon connecting to a website, the information is transmitted electronically to the user’s computer and quickly appears on the users screen. This transmitted information can easily be downloaded to a disk or sent to a printer.

CyberGold’s website, located at “www.cybergold.com,” is operational. The website provides information about CyberGold’s new upcoming service. The website explains that the forthcoming service will maintain a mailing list of internet users, presumably including many residents of Missouri. An internet user who wants to be on CyberGold’s mailing list provides CyberGold with his or her particular areas of interest. CyberGold will then provide the user with a personal electronic mailbox and will forward to the user advertisements that match the users selected interests.[2] GyberGold plans to provide users incentives for reading the advertisements. CyberGold plans to charge advertisers for access to the internet users on its mailing list. CyberGold’s actual service is not yet in operation.

Plaintiff asserts that this website acts as a state-wide advertisement for CyberGold’s forthcoming internet service. Plaintiff asserts that the website “invites Missourians to put their names on CyberGold’s mailing list and get up-to-date information about the company and its forthcoming Internet service.” (Pl. Mem. in Opp’n to Def. Mot. to Dismiss at 4.) Plaintiff also asserts that through this website “CyberGold is also actively soliciting advertising customers” from Missouri. (Id.)

Since CyberGold has set up its website, the website has been accessed through internet users located in Missouri at lest 311 times, although 180 of the 311 times were by Maritz and its employees. CyberGold attests that, other than maintaining the website “www.cybergold.com,” it has no other contacts with the state of Missouri.

Missouri’s long-arm statute allows the exercise of jurisdiction over non-residents to the extent permissible under the due process clause. See Federal Deposit Ins. Corp. v. Malmo, 939 F.2d 535, 537 (8th Cir. 1991); State ex rel. Metal Serv. Ctr. v. Gaertner, 677 S.W.2d 325, 372 (Mo. banc 1984). The Missouri long-arm statute, Mo. Rev. Stat. Section 506.500, provides, in relevant part:

Any person or firm, whether or not a citizen or resident of this state, or any corporation, who in person or through an agent does any of the acts enumerated in this section, thereby submits such person, firm, or corporation, and, if an individual, his personal representative, to the jurisdiction of the courts of this state as to any cause of action arising from the doing of any of such acts:
(1) The transaction of any business within this state …
(2) The commission of a tortious act within this state …

Id.

Plaintiff asserts first that defendant meets the “transaction of any business” within the state test. Plaintiff compares defendant’s activities with those of the defendant in Danforth v. Readers Digest Ass’n, Inc., 527 S.W.2d 355 (Mo. banc 1975). In Danforth, the Missouri supreme court held that the “transaction of any business” requirement was satisfied where defendant conducted promotional activities directed towards recipients located in Missouri. Id. at 358. The defendant in Danforth had mailed into Missouri, on two occasions, thousands of solicitations for magazine subscriptions. Id. at 356-57 n.2.

Missouri courts have not addressed the issue of whether internet transmissions involving advertising meet the “transaction of any business” test. Plaintiff’s comparison of the maintenance of a website to the active solicitation through mass mailings is to some extent unsatisfactory in resolving the question of whether defendant’s internet activities amount to the “transaction of any business.” As discussed below, there are considerable differences in the two mediums of communication and information exchange. Because the Missouri courts construe the Missouri long-arm statute to confer jurisdiction to the extent allowed by the Due Process Clause, this Court will resolve the long-arm statute question in the context of the due process clause. See State ex rel. Metal Serv. Ctr., 677 S.W.2d at 372.

It is unnecessary to decide whether defendant’s activities satisfy the “transaction of any business” test because the Court concludes that defendant is amenable to service under the “commission of a tortious act” provision in Missouri’s long-arm statute. Mo. Rev. Stat. Section 506.500.1(3). Plaintiff argues that CyberGold is infringing on Maritz’s trademark in violation of the Lanham Act, 15 U.S.C. Section 1125(a), and that this infringement is causing economic harm and injury to Maritz. Plaintiff asserts that the injury from infringement is occurring in Missouri, as Maritz is located in Missouri.

A violation of the Lanham Act is tortious in nature. See Dakota Indus., 946 F.2d at 1388. In Peabody Holding Co. Inc., v. Costain Group PL, 808 F.Supp. at 1433-34 (J. Limbaugh), and in May Dep’t Stores Co. v. Wilansky, 900 F.Supp. at 1159-60 (J. Shaw), the courts determined that the “commission of a tortious act” provision of Missouri’s long-arm statute permitted jurisdiction over a defendant corporation where the sole basis for jurisdiction was an extraterritorial act of tortious interference with a contract which produced an effect in the State of Missouri. Based on these decisions, the Court concludes that Missouri’s long-arm statute reaches the defendants, even assuming CyberGold’s allegedly infringing activities were wholly outside of Missouri, because the allegedly infringing activities have produced an effect in Missouri as they have allegedly caused Maritz economic injury.

Both Peabody Holding Co. Inc., 808 F.Supp. at 1436-38, and May Dep’t Stores Co., 900 F.Supp. at 1161, relied upon by plaintiffs, however, concluded that, while Missouri’s long-arm statute extended to the defendants, exercising jurisdiction over the defendant corporations would violate due process. In both cases, the plaintiffs could point to no contacts other than the impact of the defendants’ alleged tortious activity upon plaintiffs in the form of economic damages. Peabody Holding Co., 808 F.Supp. at 1437; May Dep’t Stores, 900 F.Supp. at 1161. Such limited contact alone, was “so attenuated that the maintenance of a suit would offend traditional notions of fair play and substantial justice.” May Dep’t Stores, 900 F.Supp. at 1161 (quoting Peabody Holding Co., 808 F.Supp. at 1437-38). P> Thus, the Court must turn to the issue of whether the Court’s exercise of personal jurisdiction over defendant CyberGold under the facts of this case would violate due process.[3] Due process requires that there be “minimum contacts” between the nonresident defendant and the forum state before a court can exercise personal jurisdiction over the defendant. See World-Wide Volkswagon Corp. v. Woodson, 444 U.S. 286, 291 (1980). The Eighth Circuit has articulated that

Sufficient contacts exist when the defendant’s conduct and connection with the forum state are such that he should reasonably anticipate being haled into court there, and when the maintenance of the suit does not offend traditional notions of fair play and substantial justice. In assessing the defendant’s “reasonable anticipation,” there must be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits of its laws.

Soo Line R.R. Co. v. Hawker Siddeley Canada, Inc., 950 F.2d 526, 528-29 (8th Cir. 1991) (citations and internal quotation marks omitted). The Eighth Circuit has set forth a five-part test for measuring minimum contacts:

(1) the nature and quality of the contacts with the forum state;
(2) the quantity of those contacts:
(3) the relation of the cause of action to the contacts;
(4) the interest of the forum state in providing a forum for its residents;
(5) the convenience of the parties.

Bell Paper Box, Inc., 22 F.3d at 819 (citing Land-O-Nod Co. v. Basset Furniture Indus., Inc., 708 F.2d 1338, 1340 (8th Cir. 1983). The first three factors are the most important. Id.

Whether maintaining a website, such as the one maintained by CyberGold, which can be accessed by any internet user, and which appears to be maintained for the purpose of, and in anticipation of, being accessed and used by any and all internet users, including those residing in Missouri, amounts to promotional activities or active solicitations such as to provide the minimum contacts necessary for exercising personal jurisdiction over a non-resident corporation, presents an issue of first impression to this Court. The internet, a new and rapidly developing means of mass communication and information exchange, raises difficult questions regarding the scope of court’s personal jurisdiction in the context of due process jurisprudence.

Because the internet is an entirely new means of information exchange, analogies to cases involving the use of mail and telephone are less than satisfactory in determining whether defendant has “purposefully availed” itself to this forum. Unlike use of the mail, the internet, with its electronic mail, is a tremendously more efficient, quicker, and vast means of reaching a global audience. By simply setting up, and posting information at, a website in the form of an advertisement or solicitation, one has done everything necessary to reach the global internet audience.

A company’s establishment of a telephone number, such as an 800 number, is not as efficient, quick, or easy way to reach the global audience that the internet has the capability of reaching. While the internet does operate via telephone communications, and requires users to place a “call” to a website via the user’s computer, a telephone number still requires a print media to advertise that telephone number. Such media would likely require the employment of phone books, newspapers, magazines, and television. Even then, an 800 number provides a less rapid and more limited means of information exchange than a computer with information downloading and printing capabilities. With a website, one need only post information at the website. Any internet user can perform a search for selected terms or words and obtain a list of website addresses that contain such terms or words. The user can then access any of those websites.

In analyzing the first factor articulated by the Eighth Circuit — the Court finds that the nature and quality of contacts provided by the maintenance of a website on the internet are clearly of a different nature and quality than other means of contact with a forum such as the mass mailing of solicitations into a forum, see, e.g., Danforth, 527 S.W.2d at 358, or that of advertising an 800 number in a national publication, see, e.g., Dart Int’l, Inc., v. Interactive Target Sys., Inc., 877 F.Supp. 541, 543-45 (D. Colo. 1995); Composite Marine Propellers, Inc., v. Vanderwoulde, 741 F.Supp. 873, 877-78 (D. Kan. 1990).

CyberGold’s posting of information about its new, up-coming service through a website seeks to develop a mailing list of internet users, as such users are essential to the success of its service. Clearly, CyberGold has obtained the website for the purpose of, and in anticipation that, internet users, searching the internet for websites, will access CyberGold’s website and eventually sign up on CyberGold’s mailing list. Although CyberGold characterizes its activity as merely maintaining a “passive website,” its intent is to reach all internet users, regardless of geographic location. Defendant’s characterization of its activity as passive is not completely accurate. By analogy, if a Missouri resident would mail a letter to CyberGold in California requesting information from CyberGold regarding its service, CyberGold would have the option as to whether to mail information to the Missouri resident and would have to take some active measures to respond to the mail. With CyberGold’s website, CyberGold automatically and indiscriminately responds to each and every internet user who accesses its website. Through its website, CyberGold has consciously decided to transmit advertising information to all internet users, knowing that such information will be transmitted globally. Thus, CyberGold’s contacts are of such a quality and nature, albeit a very new quality and nature for personal jurisdiction jurisprudence, that they favor the exercise of personal jurisdiction over defendant.

As to the second factor — the quantity of contacts — the Court finds that defendant has transmitted information into Missouri regarding its services approximately 131 times.[4] The information transmitted is clearly intended as a promotion of CyberGold’s upcoming service and a solicitation for internet users, CyberGold’s potential customers. This factor suggests that defendant is purposefully availing itself to the privilege of conducting activities in Missouri.

As to the third factor articulated by the Eighth Circuit, the litigation in this action against CyberGold results from alleged injuries that, at least in part, arise out of or relate to CyberGold’s website and the information posted at the website. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472-73 (1985) (discussing requirements for specific jurisdiction). The website invites internet users to use CyberGold’s new service when it becomes operational. This service and the promotional efforts that CyberGold is employing by posting the information on its website are allegedly infringing on plaintiff’s alleged trademark. While CyberGold has not yet set up its service of sending advertisements to internet users on its mailing list, CyberGold’s acts of developing a mailing list through its acceptance of addresses on its website are also part of the allegedly infringing activity about which plaintiff complains.

Whether sufficient minimum contacts to obtain personal jurisdiction over a defendant can be established solely through the use of computers and electronic communications is a new issue under due process jurisprudence. Courts addressing the issue have recognized that such communications via computer are of a different nature. In California Software Inc. v. Reliability Research, Inc., 631 F.Supp. 1356, 1363 (C.D. Cal. 1986), the court, in addressing whether a defendant’s communication by posting allegedly false statements about plaintiff on an interstate computer network could create personal jurisdiction, stated:

Not only did defendants act intentionally but, by communicating through the [computer] network, they made their messages available to an audience wider than those requesting the information … Through the use of computers, corporations can now transact business and communicate with individuals in several states simultaneously. Unlike communication by mail or telephone, message sent through computers are available to the recipient and anyone else who may be watching. Thus, while modern technology has made nationwide commercial transactions simpler and more feasible, even for small businesses, it must broaden correspondingly the permissible scope of jurisdiction exercisable by the courts.

Id. Similarly, in Inset Systems, Inc., 1996 U.S. Dist. LEXIS 7160 * 11, the district court found that personal jurisdiction existed over a defendant corporation that made its toll-free 800 number available over the internet to the residents of the forum state. In addressing the issue of “purposeful availment,” the Court stated:

[Defendant] has directed its advertising activities via the Internet and its toll-free number toward not only the state of Connecticut, but to all states. The Internet as well as toll-free numbers are designed to communicate with people and their businesses in every state. Advertisement on the Internet can reach as many as 10,000 Internet users within Connecticut alone. Further, once posted on the Internet, unlike television and radio advertising, the advertisement is available continuously to any Internet user. [Defendant] therefore, purposefully availed itself of the privilege of doing business within Connecticut.

see also Compuserve, Inc. v. Patterson, — – F.3d — – , 1996 WL 405356 * 4 (6th Cir. July 22, 1996) (suggesting that the effect of the internet on commerce, modern transportation, and communication requires a reconsideration of the scope of the personal jurisdictional reach of courts). Similarly, the Court concludes that defendant CyberGold, through its internet activities, has purposefully availed itself of the privilege of doing business with this forum such that it could reasonably anticipate the possibility of being haled into court here.

The Court also concludes that traditional notions of “fair play and substantial justice” do not dictate against exercising personal jurisdiction over defendant in Missouri. See Burger King Corp., 471 U.S at 476-78. Considerations include the burden on defendant, the interest in the forum state in adjudicating type dispute, the plaintiff’s interest in obtaining convenient and effective relief, the interstate judicial system’s interest in obtaining the most efficient resolution of controversies, and the shared interest of the several States in furthering fundamental substantive social policies.” Id. at 477 (citing World-Wide Volkswagen Corp., 444 U.S. at 292. The State of Missouri has an interest in resolving this case and determining whether a Missouri corporation’s trademark is being infringed in violation of a federal statute. Plaintiff likewise has a strong interest in adjudicating this action in Missouri. Defendant, who has availed itself to this forum has not shown that it is so burdened by defending itself in this forum that traditional notions of fair play and substantial justice are implicated.

Defendant’s argument that venue is improper must also be denied. Because the Court has concluded it has personal jurisdiction over defendant, venue is proper in this judicial district. See 28 U.S.C. Section 1391(c).

II. SUBJECT MATTER JURISDICTION

]]> http://cyberlawsconsultingcentre.com/maritz-inc-v-cybergold-inc.html/feed 0 http://cyberlawsconsultingcentre.com/blake-hall-v-brad-laronde.html http://cyberlawsconsultingcentre.com/blake-hall-v-brad-laronde.html#comments Sat, 20 Sep 2008 07:02:01 +0000 admin http://cyberlawsworld.com/?p=978 BLAKE HALL, Plaintiff and Appellant,

v.

BRAD LARONDE, Defendant and Respondent.

2d Civil No. B107423R (Super. Ct. No. 165615)
(Ventura County)

Filed August 7, 1997

Here the long arm of the Internet reaches from California to New York. We hold that the use of electronic mail and the telephone by a party in another state may establish sufficient minimum contacts with California to support personal jurisdiction. We reverse a judgment of dismissal arising from the trial court’s grant of defendant’s motion to quash service.

FACTS

Appellant, Blake Hall alleged in his complaint that in September of 1994 he entered into a contract with Brad LaRonde doing business as LaRonde Technical Consulting. The contract authorized LaRonde to sell licenses for the use of a computer software application to the general public. LaRonde agreed to compensate Hall by paying him $1 for every license sold. Hall received payments for sales through September of 1995 in the amount of $2,633.60. Although LaRonde continued to market the application, Hall has received no further payments.

The complaint further alleged that Hall is a resident and maintains his principal place of business in Manhattan Beach, California. LaRonde, however, maintains his principal place of business in Skaneateles, New York.

LaRonde made a motion to quash service of the summons on the ground that the courts in California have no jurisdiction. LaRonde claimed that sufficient minimum contacts with California were lacking.

Hall submitted an affidavit in opposition to the motion. Hall declared that he originally contacted LaRonde by electronic mail. The contact concerned a software module Hall had written. LaRonde responded with the idea of integrating Hall’s module into LaRonde’s software package. LaRonde suggested various modifications. Hall made the modifications and the module was incorporated into LaRonde’s retail product.

Hall declared that after he furnished the module, he continued to assist LaRonde in upgrading its application to new and existing software. For example, when the new Microsoft Word 6.0 came out, Hall had to make adjustments to his module to work smoothly with that program.

Hall stated that he performed all the work on the module in California; that all negotiations were conducted by electronic mail and telephone; and that he had no other business or personal connections with New York. LaRonde did not contradict the statements made by Hall.

At the hearing on the motion, Hall asked for a continuance to allow discovery into whether LaRonde has other contacts with California that might confer general jurisdiction. The court denied Hall’s request for a continuance. The court granted LaRonde’s motion to quash and ordered the case dismissed.

DISCUSSION

Each person has a liberty interest in not being subject to judgments of a forum with which he or she has no minimum contacts. (Von’s Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 445.) The requirement of minimum contacts ensures that the assertion of jurisdiction does not violate “‘traditional notions of fair play and substantial justice.’” (International Shoe Co. v. Washington (1945) 326 U.S. 310, 316 [90 L.Ed. 95, 102].)

Personal jurisdiction may be either general or specific. Where a nonresident’s contacts with the forum state are “’substantial . . . continuous and systematic,’” a court may assert general jurisdiction over the person of the nonresident. (Von’s Companies, Inc. v. Seabest Foods, Inc., supra, 14 Cal.4th at p. 445.) Such general jurisdiction does not require a connection between the specific transaction at issue and the forum state. (Ibid.)

Hall does not contend there is sufficient evidence to support a finding of general jurisdiction. He attributes the lack of such evidence to the trial court’s error in denying him the right to conduct discovery on the issue. Hall, nevertheless, contends the evidence shows sufficient minimum contacts for specific jurisdiction.

Specific jurisdiction may be asserted where the defendant has purposefully availed himself of forum benefits and the controversy is related to or arises out of the defendant’s contacts with the forum. (Von’s Companies, Inc. v. Seabest Foods, Inc., supra, 14 Cal.4th at p. 446.) Sufficient minimum contacts for specific jurisdiction exist where a nonresident “‘deliberately’ has engaged in significant activities within a state [citation] or has created ‘continuing obligations’ between himself and residents of the forum. [Citation.]” (Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 475-476 [85 L.Ed.2d 528, 543].)

Where, as here, there is no conflict in the evidence, the question of personal jurisdiction is one of law. (Great-Western Life Assurance Co. v. Guarantee Co. of North America (1988) 205 Cal.App.3d 199, 204.) In such a case, the lower court’s determination is not binding on the reviewing court. (Ibid.)

LaRonde argues that Interdyne Co. v. SYS Computer Corp. (1973) 31 Cal.App.3d 508 is on point. There, the plaintiff was a California corporation. Plaintiff’s sales representative contacted defendant in New Jersey. The contact resulted in some small orders placed through an intermediary. Later, the intermediary asked plaintiff to submit a quote to defendant. This led to direct communication between the parties. Negotiations over the contract were carried on by letter and telephone over a period of several months. Ultimately, the parties reached an agreement and plaintiff shipped the goods. When defendant failed to pay, plaintiff sued in California. Other than the contacts with plaintiff, defendant had no contact with California.

The Court of Appeal upheld the trial court’s decision to grant defendant’s motion to quash. In doing so, the court stated: “The facts as they appear from the record before us disclose a situation which lies somewhere between that held sufficient to support jurisdiction in American Continental Import Agency v. Superior Court (Pasadena Investment Co.) (1963) 216 Cal.App.2d 317 and that held insufficient to support jurisdiction in Tiffany Records, Inc. v. M. B. Krupp Distributors, Inc. (1969) 276 Cal.App.2d 610 . . . .” (Interdyne Co. v. SYS Computer Corporation, supra, 31 Cal.App.3d at p. 511.) The court opined that the only significant difference between the cases is that in Tiffany, where the facts were held insufficient to support jurisdiction, no representative of the defendant buyer ever came to California in connection with the purchase. (Ibid.)

The court concluded, “When a California business seeks out purchasers in other states–purchasers who are not ‘present’ in California for general purposes–deals with them only by out-of-state agents or by interstate mail and telephone, it is not entitled to force the customer to come to California to defend an action on the contract.” (Interdyne Co. v. SYS Computer Corporation, supra, 31 Cal.App.3d at pp. 511-512.)

Unlike the court in Interdyne, we do not believe that the physical presence of a representative of the defendant in California should be determinative. Much has happened in the role that electronic communications plays in business transactions since Interdyne was decided more than 20 years ago. The speed and ease of such communications has increased the number of transactions that are consummated without either party leaving the office. There is no reason why the requisite minimum contacts cannot be electronic.

It is uncontroverted that Hall reached out to New York in a search for business. It is also uncontroverted that LaRonde reached back to California. The record shows that LaRonde’s contacts with California consisted of more than simply purchasing a software module from Hall. LaRonde worked with Hall to integrate the module into LaRonde’s software package. Even after the initial adaptation was finished, LaRonde continued to work with Hall to modify the module for new and existing software. In addition, the contract contemplated that LaRonde would make continuing royalty payments to Hall. Thus, LaRonde created a “‘continuing obligation[]‘” between himself and a resident of California. (Burger King Corp. v. Rudzewicz, supra, 471 U.S. at pp. 475- 476 [85 L.Ed.2d at p. 543].)

LaRonde’s contacts with California were more than “‘random,’ ‘fortuitous,’ or ‘attenuated.’” (Burger King Corp. v. Rudzewicz, supra, 471 U.S. at p. 475 [85 L.Ed.2d at p. 542].) Nor were the contacts the “‘unilateral activity of another party or third person.’” (Ibid.) LaRonde purposefully derived a benefit from interstate activities. (Id., at pp. 473-474 [85 L.Ed.2d at p. 541].) It is fair to require that he account in California for the consequences that arise from such activities. (Ibid.)

Where, as here, the plaintiff establishes sufficient minimum contacts, the burden shifts to the defendant to “present a compelling case that the presence of some other considerations would render jurisdiction unreasonable.” (Burger King Corp. v. Rudzewicz, supra, 471 U.S. at p. 477 [85 L.Ed.2d at p. 544].) LaRonde fails to point to any place in the record where he raised such considerations in the trial court. For the first time on appeal he claims that maintaining the action in California would effectively deprive him of his right to represent himself.

Not only is LaRonde’s claim late, it is hardly the type of “compelling case” the court in Burger King had in mind. Such a claim, if accepted, could be used to defeat jurisdiction in most cases where out of state residents are defendants. Moreover, the claim is entirely hypothetical. LaRonde has been represented by counsel throughout this action.

The judgment is reversed. Costs on appeal are awarded to Hall.

GILBERT, J.

We concur:
STONE, P. J.
YEGAN, J.

Frederick A. Jones, Judge
Superior Court County of Ventura

No. 4:00CV1785-DJS
ORDER

This matter is before the Court on plaintiff’s motion for a temporary restraining order (“TRO”). A hearing was held on the matter in chambers on Thursday, November 9, 2000. Counsel for both parties were present and one attorney representing defendant participated by telephone. Both parties have been permitted to submit memoranda by 10:00 a.m. on Monday, November 13.

Defendant Internet Corporation for Assigned Names and Numbers (“ICANN”) is a California non-profit corporation with certain administrative responsibilities for technical management of the Internet, derivative of the U.S. Department of Commerce. Plaintiff Economic Solutions, Inc. has entered into a contract with the Central American country of Belize to attempt to commercially market Internet domain names ending with “.bz,” Belize’s country code top level domain (“TLD”) suffix. Aware that ICANN’s annual board meetings are to occur this week, plaintiff seeks a TRO enjoining ICANN from establishing a new generic TLD of “.biz,” “.ebiz” or any other designation which would be confusingly similar to the “.bz” TLD.

The issuance of temporary injunctive relief is governed by consideration of four well-known factors: (1) the threat of irreparable harm to the plaintiff; (2) the balance of harms between the parties as to granting the injunction or not granting the injunction; (3) the plaintiff’s probability of success on the merits; and (4) the public interest. Dataphase Systems, Inc. v. CL Systems, Inc., 640 F.2d 109, 112 (8th Cir. 1991). Based upon the record before it, the Court is not persuaded that these factors, as they exist in this case, warrant the extraordinary remedy of temporary injunctive relief.

The weightiest factor in the Court’s determination is the plaintiff’s probability of success on the merits. For several reasons, this factor militates against the issuance of a TRO. At this time, plaintiff has not shown a strong likelihood of success either on the threshold issue of personal jurisdiction or on the merits of its three causes of action. The bulletin-board function of defendant’s website does not create full-fledged interactivity and does not strongly establish any particularized Missouri contact, much less a purposeful contact by defendant (rather than to defendant by others) relating to this litigation. Defendant’s allegedly tortuous conduct damaging plaintiff in Missouri is also proffered as a basis for long-arm jurisdiction, such that the likelihood of success on the merits of the various tort claims becomes relevant to the jurisdictional analysis. The conduct challenged in the Lanham Act and unfair competition claims is prospective only and has not yet occurred, and so appears not to support a finding of personal jurisdiction. Neither has plaintiff demonstrated a likelihood of success on the merits of the Lanham Act and unfair competition claims, given the uncertain status of the claimed property rights in the “.bz” domain designation, the prospective and uncertain nature of possible establishment or use of assertedly competing TLDs, and questions concerning whether defendant’s role in the feared events could render it, as opposed to others actually employing the “.biz” or “.ebiz” designations, liable for false designation or unfair competition. As to plaintiff’s tortuous interference claim, at this time defendant’s proffered grounds for declining to take the administrative actions sought by plaintiff do not suggest a likelihood of success on the merits of plaintiff’s claim. Furthermore, the tortuous interference claim and the allegations underlying it are unrelated to the substance of the TRO plaintiff seeks.

Whether plaintiff is imminently threatened with irreparable harm also appears questionable at this time. Contrary to plaintiff’s initial understanding, ICANN represents that it has no authority to implement new TLDs, and that instead, it merely makes recommendations to the Commerce Department, which retains the ultimate authority to make such decisions. ICANN further represents that before any such recommendation would be made, ICANN would have to successfully negotiate a fairly complex agreement with the selected applicant. Plaintiff is overtly skeptical of these representations, but is at this juncture unable to disprove them. The possibility that, even before the ultimate establishment of an “.biz” TLD, a selected applicant might assert rights adverse to those claimed by plaintiff would not, in the Court’s view, constitute irreparable harm. The balance of harms as between the parties appears to the Court to be fairly balanced, and the public interest slightly favors denial of the TRO so as to enable a full and encumbered consideration of the advisability of new TLDs based upon the needs and interests of the entire Internet community.

Upon careful consideration and for all the foregoing reasons, the Court is not persuaded to issue the TRO sought by plaintiff at this time. Accordingly,

IT IS HEREBY ORDERED that plaintiff’s motion for temporary restraining order is denied.
IT IS FURTHER ORDERED that plaintiff’s motion for leave to file memorandum in excess of 15 pages is granted.
IT IS FURTHER ORDERED that defendant is granted leave to file its memorandum in opposition to the motion for temporary restraining order in excess of 15 pages.
IT IS FURTHER ORDERED that plaintiff’s request for leave to substitute corrected pages is granted.
IT IS FURTHER ORDERED that defendant’s motion for leave to file a supplemental memorandum is granted.
Dated this 13th day of November, 2000.

/s/ Donald J. Stohr________
United States District Judge

vs.

RUSS HICKERSON, Appellee-Defendant.

29A04-9802-CV-85

RUSS HICKERSON,

Appellee-Defendant.

APPEAL FROM THE HAMILTON CIRCUIT COURT
The Honorable Judith S. Proffitt, Judge
Cause No. 29C01-9712-CP-1158

August 14, 1998
OPINION – FOR PUBLICATION
GARRARD, Judge

Conseco, Inc. et al. (“Conseco”) appeals the trial court’s order finding that it did not have personal jurisdiction over the defendant, Russ Hickerson (“Hickerson”), and the trial court’s denial of Conseco’s petition for a preliminary injunction.
We affirm.

FACTS

Conseco filed suit against Hickerson on December 12, 1997, in IndianaSee footnote 1 1 , alleging trademark dilution and infringement, commercial disparagement, defamation, and tortious interference with contractual relationships. These claims all involved an Internet web site published by Hickerson, a resident of Texas, which mentioned Conseco and one of its subsidiaries, Philadelphia Life Insurance Company (“Philadelphia Life”). Hickerson’s web site sought information concerning fraud or other evidence of unfair treatment by Philadelphia Life or any of Conseco’s other insurance subsidiaries. The web site further explained that Hickerson sought this information to aid in a lawsuit he had filed against Philadelphia Life as the trustee of his father’s estate. To aid in the gathering of information, the web site included a mailto link enabling the web site reader to send Hickerson e-mail. Hickerson’s web site did not advertise or offer any product, or seek any money. Conseco’s suit was based upon Hickerson’s use of Conseco’s trademarked name, “Conseco Inc.,” in the text of his web site.

After filing its complaint, Conseco sought and received a temporary restraining order against Hickerson. The trial court then set a date for a preliminary injunction hearing and ordered Hickerson to file his response. Hickerson responded by filing an affidavit and exhibits. A hearing was held on December 24, 1997, but no further evidence was submitted. After the hearing and with the permission of the trial court, Hickerson filed a post-hearing brief contesting personal jurisdiction and Conseco’s petition for a preliminary injunction. On January 6, 1998, the trial court entered its order, finding that it did not have personal jurisdiction over Hickerson and denying Conseco’s request for a preliminary injunction. Conseco appeals this decision.

ISSUE

Conseco raises two issuesSee footnote 2 2 on appeal, but because we find the personal jurisdiction issue to be dispositive, we will discuss only that issue:
I. Whether Hickerson’s use of Conseco’s trademarked name in his web site was sufficient to support personal jurisdiction in Indiana.

DISCUSSION

Conseco claims that the trial court erred by determining that it did not have personal jurisdiction over Hickerson. To support this claim, Conseco argues that the tortious effects of Hickerson’s defamatory comments were sufficient under the “effects test” of Calder v. Jones, 465 U.S. 783, 104 S. Ct. 1482, 79 L.Ed.2d 804 (1984) to sustain the exercise of personal jurisdiction over Hickerson in Indiana. Hickerson argues that the “effects test” should not be applied in this case and that his web site, absent other contacts with Indiana, was not sufficient to support personal jurisdiction in Indiana.

In Indiana, jurisdiction is presumed and the plaintiff’s burden to prove jurisdiction does not arise until the defendant challenges jurisdiction. Harold Howard Farms v. Hoffman, 585 N.E.2d 18, 20 (Ind. Ct. App. 1992). Indiana courts must rely upon Indiana Trial Rule 4.4(A), Indiana’s long-arm statute, in order to gain personal jurisdiction over a non-resident. Yates-Cobb v. Hays, 681 N.E.2d 729, 732 (Ind. Ct. App. 1997). “The purpose of T.R. 4.4(A) is to extend jurisdiction to the boundaries permitted by the due process clause of the Fourteenth Amendment.” Id. “Due process requires that the defendant have certain minimum contacts with the forum state such that maintenance of the suit will not offend the traditional notions of fair play and substantial justice.” Harold Howard Farms, 585 N.E.2d at 20(citing International Shoe Co. v. Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L.Ed. 95 (1945)). The minimum contact requirement is meant to insure that the defendant has purposefully availed him or herself of the jurisdiction of the forum state. Id. “The ‘purposeful availment’ requirement ensures that a defendant will not be haled into a jurisdiction solely on the basis of random, fortuitous or attenuated contacts….” Yates-Cobb, 681 N.E.2d at 732-33.

The issue presented by this appeal is whether the mention of an Indiana corporation in an Internet web site without any other contact with Indiana is a minimum contact sufficient to support personal jurisdiction in Indiana over a Texas resident. Based upon our research, this issue appears to be a question of first impression in Indiana.See footnote 3 3 Conseco argues that Indiana had personal jurisdiction over Hickerson because the tortious effects of the allegedly defamatory comments in his web site were felt at Conseco’s Carmel, Indiana headquarters. To support this argument, Conseco relies upon several cases which utilize the Calder “effects test.” We will discuss each of these cases in turn.

Conseco first relies upon Indianapolis Colts v. Metro. Baltimore Football, 34 F.3d 410 (7th Cir. 1994). In that case, the Indianapolis Colts filed a trademark infringement suit in Indiana against the Baltimore Canadian Football team because the Baltimore team wanted to use the name “Colts” for its team. Baltimore’s only contacts with Indiana would have been the national television broadcasts of its football games and any football merchandise that might have been sold in Indiana. Relying upon the Calder “effects test,” the court found that because the effects of the trademark infringement would be felt primarily in Indiana and because of the contact through the national broadcasts, Indiana had personal jurisdiction over the Baltimore team. This case is distinguishable, however, because it did not involve the Internet and does not discuss the unique question of personal jurisdiction through the Internet.

Recognizing the unique nature of the Internet and the problems it creates for determining personal jurisdiction, the remaining cases relied upon by Conseco concern the Internet. Conseco claims that we should apply the “effects test” much like the courts in Edias Software Intern. v. Basis Intern., Ltd., 947 F. Supp. 413 (D. Ariz. 1996) and Panavision Intern. L.P. v. Toeppen, 141 F.3d 1316 (9th Cir. 1998). We first note that Edias is readily distinguishable because the Edias court did not rely solely upon the “effects test” in order to find personal jurisdiction. In Edias, Edias filed suit against Basis in Arizona for allegedly defamatory comments made on Basis’ web site and through e-mails. Though the Edias court did discuss the “effects test” in its analysis, it also noted that the e-mails, phone calls and faxes sent into Arizona, and merchandise sold in Arizona, were also contacts supporting personal jurisdiction over Basis in Arizona. Because the Edias court found other contacts to support personal jurisdiction independent of the “effects test,” Edias is not applicable.See footnote 4 4 In Panavision, Panavision, a corporation based in California involved in providing film equipment to the movie industry, filed suit against Toeppen, an Illinois resident, in California. Panavision’s suit was based on Toeppen’s acquisition of Internet domain names identical to Panavision’s trademarked names and his attempt to force Panavision to pay him a large sum in return for his release of those domain names. The evidence showed that Toeppen was a “cyber pirate” who obtained domain names of trademarked corporations and then forced those corporations to pay him to release the domain names to them. The Panavision court stated that simply registering a corporation’s trademark as a domain name and posting a web site would not be sufficient to support personal jurisdiction over a non- resident defendant. Panavision, 141 F.3d at 1322. The court stated that something more would be required to gain personal jurisdiction. Id. In that case, the Panavision court found that Toeppen had engaged in a scheme to extort money from Panavision. This scheme was aimed at California where Panavision was located. The court then discussed the “effects test” and found that California had personal jurisdiction over Toeppen. Though Panavision does involve the use of the effects test, the court appears to have relied upon an additional factor, Toeppen’s purposefully aiming his extortion scheme at Panavision in California. We are not presented here with purposefully directed activity such as in Panavision and, thus, Panavision is distinguishable.

We also decline to apply the “effects test” because we believe that it is not readily applicable in cases involving national or international corporations and the Internet. The “effects test” does not apply with the same force to a corporation as it does to an individual because a corporation’s harm is generally not located in a particular geographic location as an individual’s harm would be. Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414, 420 (9th Cir. 1997). In this case, Conseco is a national corporation with insurance subsidiaries and policyholders located throughout the United States. The potential harm to be suffered by Hickerson’s alleged defamation would not only be suffered in Indiana, but throughout the nation. Because we find the authority relied upon by Conseco to be distinguishable and that the “effects test” is not suitable in this case, we decline to apply the “effects test.” Instead, we choose to follow Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414 (9th Cir. 1997).

In Cybersell, Cybersell, an Arizona company, filed suit in Arizona against Cybersell of Florida for its use of Cybersell Az.’s trademarked name in its web site.See footnote 5 5 Cybersell Fl.’s only contact with Arizona was its use of an Arizona company’s trademarked name in its web site. Arizona’s long-arm statute, like Indiana’s, sought to expand personal jurisdiction to the limits of due process so that, like here, the Cybersell court was left to resolve the boundaries due process placed upon personal jurisdiction when dealing with the Internet. Additionally, the Cybersell court was also confronted with an “effects test” argument. The Cybersell court found that the “effects test” was not appropriate in this context.Id.at420.
In order to determine whether there are sufficient contacts to warrant the exercise of personal jurisdiction when dealing with an interactive web siteSee footnote 6 6 , courts look at the level of interactivity of the site and commercial nature of the information exchange. Id. at 418; Zippo Mfg. Co., 952 F. Supp. at 1124. The Cybersell court noted that based upon its research, it was unaware of any other court holding that an Internet advertisement alone was sufficient to support the exercise of personal jurisdiction over a non-resident defendant. Cybersell, 130 F.3d at 418. “Rather, in each, there has been ’something more’ to indicate that the defendant purposefully (albeit electronically) directed his activity in a substantial way to the forum state.” Id.; Blumenthal v. Drudge, 992 F. Supp. 44, 56 (D. D.C. 1998). Recognizing that anyone could access Cybersell Fl.’s web site, the Cybersell court stated that it could not see how it could be inferred that Cybersell Fl. purposefully directed its efforts towards Arizona. Cybersell, 130 F.3d at 419. The court then held that Cybersell Fl. had not purposefully availed itself of the benefits and protections of Arizona law and, therefore, Arizona did not have personal jurisdiction over Cybersell Fl. Id. The court noted that had it found that Arizona had personal jurisdiction, “every complaint arising out of alleged trademark infringement on the Internet would automatically result in personal jurisdiction wherever the plaintiff’s principal place of business is located. That would not comport with traditional notions of what qualifies as purposeful activity invoking the benefits and protections of the forum state.” Id. at 420.

In the present case, the facts are almost identical to those in Cybersell.See footnote 7 7 Hickerson’s only contact with Indiana was his discussion of Conseco in his web site. Hickerson did not direct any advertising, send any e-mails or letters, or make any phone calls to Indiana. In addition, Hickerson had never physically visited or resided in Indiana. Hickerson simply did not purposefully avail himself of the benefits and protections of Indiana law. We hold that Hickerson’s discussion of Conseco in his web site, without any other contacts, was not a minimum contact sufficient to allow Indiana to exercise personal jurisdiction over him. The trial court, therefore, correctly determined that it did not have personal jurisdiction over Hickerson.

Affirmed.

HOFFMAN, J. and STATON, J. concur.

Footnote: 1 1 Conseco was incorporated in Indiana and has its principal place of business in Carmel, Indiana. Through its various subsidiary insurance companies and their policyholders, Conseco does business throughout the United States.

Footnote: 2 2 Conseco also challenges the trial court’s denial of its petition for a preliminary injunction. Because, as discussed below, the trial court did not have personal jurisdiction over Hickerson, the trial court properly denied Conseco’s petition.

Footnote: 3 3 As one court noted, “the development of the law concerning the permissible scope of personal jurisdiction based on Internet use is in its infant stages.” Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1123 (W.D. Pa. 1997).

Footnote: 4 4 We also note that in Edias the court was faced with a situation where it was clear that Basis purposefully directed, at least, some of its activities towards the forum state. We are not confronted with such purposefully directed activity here.

Footnote: 5 5 Like the Cybersell court, we will refer to the Arizona Cybersell as Cybersell Az. and the Florida Cybersell as Cybersell Fl.

Footnote: 6 6 We assume, for the purposes of this appeal only, that the inclusion of the mailto link in Hickerson’s web site made the web site interactive.

Footnote: 7 7 Though Hickerson’s web site does not appear to be commercial in nature, we will assume that it is for the purposes of our analysis because we find that even if it was commercial in nature, the web site was not sufficient to support the exercise of personal jurisdiction.

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

96 Civ. 3992 (SHS)
September 9, 1996

OPINION AND ORDER
SIDNEY H. STEIN, District Judge:
Plaintiff Bensusan Restaurant Corp. (“Bensusan”) brought this action against defendant Richard King, individually and doing business as The Blue Note, alleging that King is infringing on Bensusan’s rights in its trademark “The Blue Note.” King has moved to dismiss the complaint for lack of personal jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2). The issue raised by that motion is whether the existence of a “site” on the World Wide Web of the Internet, without anything more, is sufficient to vest this Court with personal jurisdiction over defendant pursuant to New York’s long-arm statute and the Due Process Clause of the United States Constitution. For the reasons that follow, the motion to dismiss the complaint is granted.

I. BACKGROUND

Bensusan, a New York corporation, is the creator of a jazz club in New York City known as “The Blue Note.” It also operates other jazz clubs around the world. Bensusan owns all rights, title and interest in and to the federally registered mark “The Blue Note.” (Complaint, paragraphs 1, 5.) King is an individual who lives in Columbia, Missouri and he owns and operates a “small club” in that city which is also called “The Blue Note.” (Complaint, paragraphs 2,6.)

In April of 1996, King posted a “site” on the World Wide Web of the Internet to promote his club.[1] This Web site, which is located on a computer server in Missouri, allegedly contains “a fanciful logo which is substantially similar to the logo utilized by [Bensusan].” (Complaint paragraph 11.) The Web site is a general access site, which means that it requires no authentication or access code for entry, and is accessible to anyone around the world who has access to the Internet. (Meltzer Aff. paragraph 2.) It contains general information about the club in Missouri as well as a calendar of events and ticketing information. (Id., paragraphs 2 – 3; Exhs. A & B.) The ticketing information includes the names and addresses of ticket outlets in Columbia and a telephone number for charge-by-phone ticket orders, which are available for pick-up on the night of the show at the Blue Note box office in Columbia. (Id., Exh. B.)

At the time this action was brought, the first page of the Web site contained the following disclaimer: “The Blue Note’s Cyberspot should not be confused with one of the world’s finest jazz club[s] [the] Blue Note, located in the heart of New York’s Greenwich Village. If you should find yourself in the big apple give them a visit. (Complaint, paragraph 9.) Furthermore, the reference to Bensusan’s club in the disclaimer contained a “hyperlink”[2] which permits Internet users to connect directly to Bensusan’s Web site by “clicking” on the link. (Id. at paragraph 10.) After Bensusan objected to the Web site, King dropped the sentence “If you should find yourself in the big apple give them a visit” from the disclaimer and removed the hyperlink. (King Aff., paragraph 14.)

Bensusan brought this action asserting claims for trademark infringement, trademark dilution and unfair competition. King has now moved to dismiss the action for lack of personal jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2).

II. DISCUSSION

At this stage of the litigation– prior to an evidentiary hearing or discovery– Bensusan may defeat a motion to dismiss the complaint for lack of personal jurisdiction by making merely a prima facie showing of jurisdiction. See A.I. Trade Finance, Inc. v. Petra Bank, 989 F.2d 76, 79-80 (2d Cir. 1993); Hoffritz for Cutlery, Inc. v. Amaiac, Ltd., 763 F.2d 55, 57 (2d Cir. 1985); Rothschild v. Paramount Distiller, Inc., 923 F.Supp. 433, 435 (S.D.N.Y. 1996); PI, Inc. v. Quality Prods. Inc., 907 F.Supp. 752, 758 (S.D.N.Y. 1995); Dave Guardala Mouthpieces, Inc. v. Sugal Mouthpieces, Inc., 779 F.Supp. 335, 336 – 37 (S.D.N.Y. 1991).

In that regard, Bensusan is entitled to have its complaint and affidavits interpreted, and any doubts resolved, in the light most favorable to it. See Landoil Resources Corp. v. Alexander & Alexander Servs., Inc., 918 F.2d 1039, 1043 (2d Cir. 1991); Hoffritz for Cutlery, 763 F.2d at 57; Linzer v. EMI Black wood Music, Inc., 904 F.Supp. 207, 211 (S.D.N.Y. 1995); Editorial Musical Latino Americana, S.A. v. Mar Int’l Records, Inc., 829 F.Supp. 62, 64 (S.D.N.Y. 1993). This burden is satisfied even when the moving party makes contrary allegations that place in dispute the factual basis of plaintiff’s prima facie case. See A.I. Trade Finance, 989 F.2d at 79 – 80; Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981); Lancaster v. Zufle, 165 F.R.D. 38, 40 (S.D.N.Y. 1996); National Cathode Corp. v. Mexus Co., 855 F.Supp. 644, 646 (S.D.N.Y. 1994).

Furthermore, where, as in this case, discovery has not commenced on this issue or any other, plaintiff is entitled to rely on mere factual allegations to make its prima facie showing of jurisdiction. See Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir.), cert. denied, 498 U.S. 854, 111 S.Ct. 150, 112 L.Ed.2d 116 (1990); Rothschild, 923 F.Supp. at 436; Executive Telecard, Ltd. v. Engelman, No. 95 Civ. 9505, 1996 WL 191967, at *2 (S.D.N.Y. Apr. 19, 1996); Pilates, Inc. v. Pilates Inst., Inc., 891 F.Supp. 175, 177 (S.D.N.Y. 1995); Palmieri v. Estefan, 793 F.Supp. 1182, 1186 (S.D.N.Y. 1992); Kinetic Instruments, Inc. v. Lares, 802 F.Supp. 976, 981 (S.D.N.Y. 1992). Matters outside the pleadings, however, may also be considered in resolving a motion to dismiss for lack of personal jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2) without converting it into one for summary judgment. See Visual Sciences, Inc. v. Integrated Communications, Inc., 660 F.2d 56, 58 (2d Cir 1981); Rothschild, 923 F.Supp. at 436; John Hancock Property and Casualty Ins. Co. v. Universale Reinsurance Co., Ltd., No. 91 Civ. 3644, 1992 WL 26765, at *6 (S.D.N.Y. Feb. 5, 1992).

Knowing that personal jurisdiction over a defendant is measured by the law of the jurisdiction in which the federal court sits, see Rothschild, 923 F.Supp. at 436 (citing Pilates, 891 F.Supp. at 179), Editorial Musical Latino Americana, 829 F.Supp. at 64, Bensusan relies on subdivisions (a)(2) and (a)(3)(ii) of N.Y.C.P.L.R. Section 302, New York’s long-arm statute, to support its position that personal jurisdiction exists over King in this action. Each provision will be addressed in turn.

A. C.P.L.R. Section 302(a)(2)

C.P.L.R. Section 302(a)(2) permits a court to exercise personal jurisdiction over any non-domiciliary who “commits a tortious act within the state” as long as the cause of action asserted arises from the tortious act. See Pilates, 891 F.Supp. at 180; Exovir, Inc. v. Mandel, No. 94 Civ. 3546, 1995 WL 413256, at *6 (S.D.N.Y. July 12, 1995); Dave Guradala Mouthpieces, 779 F.Supp. at 337; Business Trends Analysis v. Freedonia Group, Inc., 650 F.Supp. 1452, 1456 (S.D.N.Y. 1987). In Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633, 639 (2d Cir.), cert denied, 352 U.S. 871, 77 S.Ct. 96, 1 L.Ed.2d 76 (1956), the United States Court of Appeals for the Second Circuit held that trademark infringement occurs “where the passing off occurs, i.e., where the deceived customer buys the defendant’ product in the belief that he is buying the plaintiff’s.” Under this standard, courts have found that an offering for sale of even one copy of an infringing product in New York, even if no sale results, is sufficient to vest a court with jurisdiction over the alleged infringer. See Editorial Musical Latino Americana, 829 F.Supp. at 645; German Educational Television Network, Ltd. v. Oregon Public Broadcasting Co., 569 F.Supp. 1529 (S.D.N.Y. 1983); Hertz Sys., Inc. v. Hervis Corp., 549 F.Supp. 796, 797-98 (S.D.N.Y. 1982); Honda Assocs., Inc. v. Nozawa Trading Inc., 374 F.Supp. 886 (S.D.N.Y. 1974). Accordingly, the issue that arises in this action is whether the creation of a Web site, which exists either in Missouri or in cyberspace– i.e., anywhere the Internet exists– with a telephone number to order the allegedly infringing product, is an offer to sell the product in New York.

Even after construing all allegations in the light most favorable to Bensusan, its allegations are insufficient to support a finding of long-arm jurisdiction over plaintiff. A New York resident with Internet access and either knowledge of King’s Web site location or a “search engine” capable of finding it could gain access to the Web site and view information concerning the Blue Note in Missouri.

It takes several affirmative steps by the, New York resident, however, to obtain access to the Web site and utilize the information there. First, the New York resident has to access the Web site using his or her computer hardware and software. See Shea, 930 F.Supp. at 930. Then, if the user wished to attend a show in defendant’s club, he or she would have to telephone the box office in Missouri and reserve tickets. Finally, that user would need to pick up the tickets in Missouri because King does not mail or otherwise transmit tickets to the user. Even assuming that the user was confused about the relationship of the Missouri club to the one in New York, such an act of infringement would have occurred in Missouri, not New York. The mere fact that a person can gain information on the allegedly infringing product is not the equivalent of a person advertising, promoting, selling or otherwise making an effort to target its product in New York. See Hertz, 549 F.Supp. at 797. Here, there is simply no allegation or proof that any infringing goods were shipped into New York or that any other infringing activity was directed at New York or caused by King occur here. Cf. People v. Concert Connection Ltd. 211 A.D.2d 310, 314, 629 N.Y.S.2d 254, 257 (2d Dep’t 1995), appeal dismissed 86 N.Y.2d 837, 634 N.Y.S.2d 445, 658 N.E.2d 445, 658 N.E.2d 223 (1995).

Accordingly, C.P.L.R. Section 302(a)(2) does not authorize this Court to exercise jurisdiction over King.

B. C.P.L.R. Section 302(a)(3)(ii)

Bensusan also contends that personal jurisdiction is established pursuant to C.P.L.R. Section 302(a)(3)(ii), which permits a court to exercise personal jurisdiction over any non-domiciliary for tortious acts committed outside the state that cause injury in the state if the non-domiciliary “expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.” See American Eutectic Welding Alloys Sales Co. v. Dytron Alloys Corp., 439 F.2d 428, 432-35 (2d Cir. 1971); In re Houbigart Inc., 914 F.Supp. 964, 979 (S.D.N.Y. 1995): Time Prods. Plc. v. J. Tires Classic Handbags, Inc., 93 Civ. 7856, 1994 WL 363930, at *7 (S.D.N.Y. July 13, 1994); Car-Fresher Corp. v. Broadway Mfg, Co., 337 F.Supp. 618, 619 (S.D.N.Y. 1971); see also Sybron Corp. v. Wetzel, 46 N.Y.2d 197, 204-05, 413 N.Y.S. 127, 130 – 31, 385 N.E.2d 331 (1978).

As an initial matter, Bensusan does not allege that King derives substantial revenue from interstate or international commerce. Instead, it relies on arguments that King participates in interstate commerce by hiring and showcasing bands of national stature. Section 302(a)(3)(ii), however, explicitly states that substantial “revenue” is required from interstate commerce, not mere participation in it. King has submitted an affidavit stating that 99% of his patronage and revenue is derived from local residents of Columbia, Missouri (primarily students from the University of Missouri) and that most of the few out-of-state customers have either an existing or a prior connection to the area, such as graduates of the University of Missouri. (King Decl. paragraphs 4, 8.)

Moreover, Bensusan’s allegations of foreseeability which are based solely on the fact that King knew that Bensusan’s club is located in New York, is insufficient to satisfy the requirement that a defendant “expects or should reasonably expect the act to have consequences in the state.” That prong of the statute requires that a defendant make “a discernable effort … to serve, directly or indirectly, a market in the forum state.” Darienzo v. Wise Shoe Stores, Inc., 74 A.D.2d 342, 346, 427 N.Y.S.2d 831, 834 (2d Dep’t 1980).

Finally, Bensusan’s conclusory allegation of a loss in New York is nothing more that an allegation of an “indirect financial loss resulting from the fact that the injured person resides or is domiciled in New York,” which is not the allegation of a “significant economic injury” required by section 302(a)(3). See ICC Primex Plastics Corp. v. LA/ES Laminati Estrusi Termoplastici S.P.A., 775 F.Supp. 650, 656 (S.D.N.Y. 1991); Arbitron Co. v. E.W. Scripps, Inc., 559 F.Supp. 400, 404 (S.D.N.Y. 1983); Fantis Foods, Inc. v. Standard Importing Co., 49 N.Y.2d 317, 326 – 27, 425 N.Y.2d 783, 787, 402 N.E.2d 122 (1980); Sybron, 46 N.Y.2d at 205, 413 N.Y.S.2d at 131.

Accordingly, C.P.L.R. Section 302(a)(3) does not authorize this Court to exercise jurisdiction over King.

Bensusan’s primary argument in support of both statutory bases for personal jurisdiction is that, because defendant’s Web site is accessible in New York, defendant could have foreseen that the site was able to be viewed in New York and taken steps to restrict access to his site only to users in a certain geographic region, presumably Missouri. Regardless of the technical feasibility of such a procedure, see Shea, 930 F.Supp. at 929-30, 933-34, mere foreseeability of an in-site consequence and a failure to avert that consequence is not sufficient to establish personal jurisdiction. See Fox v. Boucher, 794 F.2d 34. 37 (2d Cir. 1986); Taurus Int’l Inc. v. Titan Wheel Int’l Inc., 892 F.Supp. 79, 82 (S.D.N.Y. 1995).

C. Due Process

Furthermore, even if jurisdiction were proper under New York’s arm statute, asserting personal jurisdiction over King in this forum would violate the Due Process Clause of the United States Constitution. See e.g., Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475-76, 105 S.Ct. 2174, 2183 – 84, 85 L.Ed.2d 528 (1985); World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292, 100 S.Ct. 559, 564, 62 L.Ed.2d 490 (1980); see also Richard S. Zembek, Comment, Jurisdiction and the Internet: Fundamental Fairness in the Networked World of Cyperspace, 6 Alb. L.J. Sci & Tech 339, 367-80 (1996). Due process requires “that the non-resident defendant has purposefully established minimum contacts with the forum state such that the maintenance of the suit does not offend “traditional notions of fair play and substantial justice.’”‘ Darby v. Compagnie Nationale Air France, 769 F.Supp. 1255, 1262 (S.D.N.Y. 1991) (quoting International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945).

The following factors are relevant to this determination: “(1) whether the defendant purposefully availed himself of the benefits of the forum state; (2) whether the defendant’s conduct and connection with the forum state are such that he should reasonably anticipate being haled into court there; and (3) whether the defendant carries on a continuous and systematic part of its general business within for forum state.” Independent Nat’l Distributors, Inc. v. Black Rain Communications, Inc., No. 94 Civ. 8464, 1995 WL 571449, at *5-6 (S.D.N.Y. Sept. 28, 1995).

As set forth above, King has done nothing to purposefully avail himself of the benefits of New York. King, like numerous others, simply created a Web site and permitted anyone who could find it to access it. Creating a site, like placing a product into the stream of commerce, may be felt nationwide– or even worldwide– but, without more, it is not an act purposefully directed towards the forum state. See Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 112, 107 S.Ct. 1026, 1032, 94 L.Ed.2d 92 (1992) (plurality opinion). There are no allegations that King actively sought to encourage New Yorkers to access his site, or that he conducted any business– let alone a continuous and systematic part of its business– in New York. There is in fact no suggestion that King has any presence of any kind in New York other than the Web site that can be accessed worldwide. Bensusan’s argument that King should have foreseen that users could access the site in New York and be confused as to the relationship of the two Blue Note clubs is insufficient to satisfy due process. See Fox, 794 F.2d at 37; Beckett v. Prudential Ins. Co. of Am., 893 F.Supp. 234, 239 (S.D.N.Y. 1995).

Although CompuServe v. Patterson, 89 F.3d 1257 (6th Cir. 1996), a recent decision of the United States Court of Appeals for the Sixth Circuit, reached a different result, it was based on vastly different facts. In that case, the Sixth Circuit found personal jurisdiction proper in Ohio over an Internet user from Texas who subscribed to a network service based in Ohio. The user, however, specifically targeted Ohio by subscribing to the service and entering into a separate agreement with the service to sell his software over the Internet. Furthermore, he advertised his software through the service and repeatedly sent his software to the service in Ohio. Id. at 1264-65. This led that court to conclude that the Internet user “reached out” from Texas to Ohio and “originated and maintained” contacts with Ohio. Id. at 1266.[3] This action, on the other hand, contains no allegations that King in any way directed any contact to, or had any contact with, New York or intended to avail itself of any New York’s benefits.

ccordingly, the exercise of personal jurisdiction over King in this case would violate the protections of the Due Process Clause.

III. CONCLUSION

For the reasons set forth above, defendant’s motion to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(2) for lack of personal jurisdiction is granted and the complaint is dismissed.

FOOTNOTES:

FN1. In MTV Networks v. Curry, 867 F.Supp. 202 (S.D.N.Y. 1994), Judge McKenna of this court described the Internet as follows: The Internet is the world’s largest computer network (a network consisting of two or more computers linked together to share electronic mail and files). The Internet is actually a network of thousands of independent networks, containing several million “host” computers that provide information services. An estimated 25 million individuals have some form of Internet access, and this audience is doubling each year. The Internet is a cooperative venture, owned by no one, but regulated by several volunteer agencies. Id. at 203 n.1 (citations omitted). A “site” is an Internet address which permits users to exchange digital information with a particular host, see id. at 203 n.2., and the World Wide Web refers to the collection of sites available on the Internet, see Shea v. Reno, 930 F.Supp. 916, 929 (1996). See also Malarkey-Taylor Assocs., Inc. v. Cellular Telecommunications Indus. Ass’n, 929 F.Supp. 473, 476 n.1 (D.D.C. 1996) (citing American Civil Liberties Union v. Reno, 929 F.Supp. 824 (E.D. Pa. 1996)); Religious Technology Ctr. v. Netcom On-Line Communications Servs., Inc., 923 F.Supp. 1231, 1238 n.1 (1995).

FN2. A “hyperlink” is “highlight text or images that, when selected by the user, permit him to view another, related Web document.” Shea, 930 F.Supp. at 929. With these links “a user can move seamlessly between documents, regardless of their location; when a user viewing the document located on one server selects a link to a document located elsewhere, the browser will automatically contact the second server and display the document.” Id.

FN3. In CompuServe, the Sixth Circuit explicitly wrote that it was not addressing the issue of whether the Internet user “would be subject to suit in any state where his software was purchased or used …” CompuServe, 89 F.3d at 1268.

MEMORANDUM OF DECISION ON MOTION TO DISMISS

COVELLO, District Judge.
This is an action for damages and injunctive relief based upon an alleged infringement of a trademark. It is brought pursuant to the Federal Trademark Act, 15 U.S.C. 1051-1127. In addition, the complaint alleges violations of various state common law tenets concerning unfair competition and trademark infringement, as well as violations of C.G.S. 35-11i(c) concerning dilution and injury to business reputation, and C.G.S., ch. 735a, 42-110a et seq. of the Connecticut Unfair Trade Practices Act.

The defendant, Instruction Set, Inc., now moves pursuant to Rules 12(b)(2) and 12(b)(3) of the Federal Rules of Civil Procedure to dismiss the complaint in its entirety based upon a lack of personal jurisdiction over the defendant and for the further reason that venue is set in the wrong forum.[1] The issues presented are: 1) whether the Connecticut long-arm statute, C.G.S. 33-411(c) confers jurisdiction over the defendant, Instruction Set, Inc.; 2) whether the statute’s jurisdictional reach as applied to Instruction Set, Inc. meets the “minimum contacts” required to satisfy constitutional due process; 3) whether venue is proper. The court concludes: 1) that the plaintiff has established solicitation by the defendant, Instruction Set, Inc., within the meaning of Connecticut long-arm statute, C.G.S. 33-411(c)(2), so that long-arm jurisdiction is proper; 2) that the plaintiff has established the minimum contacts necessary to comport with due process; 3) that venue is proper according to 28 U.S.C. 1391(b). Accordingly, the motion to dismiss is denied.

FACTS

An examination of the complaint, memorandums, and accompanying affidavit reveals the following: The plaintiff, Inset Systems, Inc. (“Inset”), is a corporation organized under the laws of the state of Connecticut, with its office and principal place of business in Brookfield, Connecticut. Inset develops and markets computer software and other related services throughout the world. The defendant, Instruction Set, Inc. (“ISI”), is a corporation organized under the laws of the state of Massachusetts, with its office and principal place of business in Natick, Massachusetts. ISI provides computer technology and support to thousands of organizations throughout the world. ISI does not have any employees, nor offices within Connecticut, and it does not conduct business in Connecticut on a regular basis.

On August 23, 1985, Inset filed for registration as the owner of the federal trademark INSET. On October 21, 1986, Inset received registration number 1,414,031.

Thereafter, ISI obtained “INSET.COM” as its Internet domain address. ISI uses this domain address to advertise its goods and services.

The Internet is a global communications network linked principally by modems which transmit electronic data over telephone lines. Worldwide there are approximately 20 to 30 million users of the Internet. Domain addresses are similar to street addresses, in that it is through this domain address that Internet users find one another. A domain address consists of three parts: the first part identifies the part of the Internet desired such as world wide web (www), the second part is usually the name of the company or other identifying words, and the third part identifies the type of institution such as government (.gov) or commercial (.com), etc. If a company uses a domain which is identical to the name or trademark of a company, an Internet user may inadvertently access an unintended company. Thereafter, the Internet user may not realize that the advertisement is actually from an unintended company, or the Internet user may erroneously assume that the source of information is the intended company. As a result, confusion in the marketplace could develop.

Unlike television and radio, in which advertisements are broadcast at certain times only, or newspapers in which advertisements are often disposed of quickly, advertisements over the Internet are available to Internet users continually, at the stroke of a few keys of a computer. At this time there are at least 10,000 Internet connected computer users in the state of Connecticut.

Inset first learned of ISI’s Internet domain address in March, 1995 when attempting to obtain the same Internet domain address. ISI also uses the telephone number “1-800-US-INSET” to further advertise its goods and services. Inset did not authorize ISI’s use of its trademark, “INSET”, in any capacity. ISI continues to use “INSET” in relation to both its Internet domain address and its toll-free number. On June 30, 1995, the plaintiff filed the within action.

STANDARD
“On a [Federal Rules of Civil Procedure], Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of showing with ‘actual proof’ that the court has personal jurisdiction over the defendant.” Ensign-Bickford Co. v. ICI Explosives USA Inc., 817 F.Supp. 1018, 1026 (D.Conn.1993); See also Whelen Eng’g Co., Inc. v. Tomar Elecs., 672 F.Supp. 659, 661-662 (D.Conn.1987). “To survive the motion, the plaintiff must make a ‘prima facie showing’ through affidavits or other evidence that the defendant’s conduct was sufficient for the court to exercise personal jurisdiction.” Ensign-Bickford Co., 817 F.Supp. at 1026; See also Whelen Eng’g Co., 672 F.Supp. at 661-662. “A defendant’s conduct is sufficient for the exercise of personal jurisdiction if (1) the conduct satisfies the requirements of the [Connecticut] long-arm statute, [C.G.S. § 33-411(c) ] … and (2) the conduct satisfies the ‘minimum contacts’ requirement of the Due Process Clause of the Fourteenth Amendment. Ensign-Bickford Co., 817 F.Supp. 1018, 1026 (D.Conn.1993); See also World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980); International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).

DISCUSSION

1. Connecticut Long-Arm Statute

ISI, the defendant, in the within motion does not specifically address whether the Connecticut long-arm statute, C.G.S. § 33-411(c)[2] has been satisfied in the present instance.

Inset, the plaintiff, on the other hand, argues that the requirement of the Connecticut long-arm statute, C.G.S. § 33-411(c)(2) has been satisfied because ISI has repeatedly solicited business within Connecticut via its Internet advertisement and the availability of its toll-free number.

The Connecticut long-arm statute, C.G.S. § 33-411(c)(2) states that “Every foreign corporation shall be subject to suit in this state, by a resident of this state … on any cause of action arising … (2) out of any business solicited in this state … if the corporation has repeatedly so solicited business, whether the orders or offers relating thereto were accepted within or without the state … ”

In McFaddin v. National Executive Search, Inc., 354 F.Supp. 1166, 1169 (D.Conn 1973), the court held that “the placing of at least six franchise ads over a six-month period in a newspaper whose circulation clearly includes Connecticut (citation omitted) demonstrates a sufficiently repetitious pattern to satisfy subsection (c)(2)” of the Connecticut long-arm statute, C.G.S. § 33-411. See also Whelen Eng’g Co., 672 F.Supp 659 (advertising in 30 publications known to have been circulated in Connecticut over the course of a year and a half, plus delivery of 30 allegedly infringing catalogs to Connecticut residents, plus two sales of the allegedly infringing products to Connecticut residents, which may or may not have been due to the solicitation activities, satisfies C.G.S. § 33-411(c)(2).

Similarly, since March, 1995, ISI has been continuously advertising over the Internet, which includes at least 10,000 access sites in Connecticut. Further, unlike hard-copy advertisements noted in the above two cases, which are often quickly disposed of and reach a limited number of potential consumers, Internet advertisements are in electronic printed form so that they can be accessed again and again by many more potential consumers.

The court concludes that advertising via the Internet is solicitation of a sufficient repetitive nature to satisfy subsection (c)(2) of the Connecticut long-arm statute, C.G.S. § 33-411, thereby conferring Connecticut’s long-arm jurisdiction upon ISI.

2. Minimum Contacts

The defendant claims that personal jurisdiction is lacking here because it does not have sufficient minimum contacts within Connecticut to satisfy constitutional precepts concerning due process. Minimum contacts are lacking, according to the defendant, because it is a Massachusetts corporation with its office and principal place of business in Natick, Massachusetts, “it does not conduct business in Connecticut on a regular basis,” and it “does not maintain an office in Connecticut, nor does it have a sales force or employees in the State.”

The plaintiff responds that minimum contacts comporting with due process have been satisfied because the defendant has used the Internet, as well as its toll-free number to try to conduct business within the state of Connecticut.

“Due Process limitations require that a nonresident corporate defendant have ‘minimum contacts’ with the forum state such that it would reasonably anticipate being haled into court there. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980). [Further], [m]aintenance of the suit in the forum state cannot offend traditional notions of fair play and substantial justice. International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945), quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940).” (internal quotation marks omitted) Combustion Eng’g, Inc. v. NEI Int’l Combustion, Ltd., 798 F.Supp 100, 103 (D.Conn.1992).

a. Reasonably Anticipate

The essence of the minimum contacts test is “that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” Hanson v. Denckla, 357 U.S. 235, 253 (1958) (citing International Shoe Co., 326 U.S. at 319).” See also Ensign-Bickford Co., 817 F.Supp at 1029; Combustion Eng’g, Inc., 798 F.Supp at 105. This “due process inquiry rests upon the totality of the circumstances rather than any mechanical criteria …” Combustion Eng’g Inc., 798 F.Supp. at 105.

In Whelen Eng’g Co., 672 F.Supp. at 664, the court concluded that because “[the defendant] readily supplied interested potential customers with catalogs advertised in periodicals having Connecticut circulation, provided products on order …, and demonstrated its readiness to initiate telephone solicitation of Connecticut customers,” it purposefully availed itself of the privilege of doing business within the state and therefore, could reasonably be expected to be hailed into court. See McFaddin, 354 F.Supp. 1166.

In the present case, Instruction has directed its advertising activities via the Internet and its toll-free number toward not only the state of Connecticut, but to all states. The Internet as well as toll-free numbers are designed to communicate with people and their businesses in every state. Advertisement on the Internet can reach as many as 10,000 Internet users within Connecticut alone. Further, once posted on the Internet, unlike television and radio advertising, the advertisement is available continuously to any Internet user. ISI has therefore, purposefully availed itself of the privilege of doing business within Connecticut.

The court concludes that since ISI purposefully directed its advertising activities toward this state on a continuing basis since March, 1995, it could reasonably anticipate the possibility of being hailed into court here.

b. Fair Play and Substantial Justice

Since the defendant contends that no minimum contacts exist, it did not address the fairness of such a finding.

The plaintiff states that it is fair to adjudicate the present case in Connecticut because travel time between Natick, Massachusetts and Hartford, Connecticut is less than two hours, and the defendant has retained counsel within the state of Connecticut.

“The minimum requirements inherent in the concept of ‘fair play and substantial justice’ may defeat the reasonableness of jurisdiction even if the defendant has the requisite minimum contacts with the forum. However, where minimum contacts have been established the defendant ‘must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable.”‘ Combustion Eng’g, Inc., 798 F.Supp. at 106 (citing Burger King, 471 U.S. at 477). The factors to be considered are “the relative burdens on the plaintiff and defendant of litigating the suit in this or another forum, the forum state’s interest in adjudicating the dispute, and the interstate judicial system’s interest in efficient resolution of controversies.” Combustion Eng’g, Inc., 798 F.Supp. at 106 (citing Burger King, 471 U.S. at 476-77).

In the present case, the distance between Connecticut and Massachusetts is minimal. Further, since the present action also concerns issues of Connecticut common and statutory law, Connecticut has an interest in adjudicating the dispute. This being the case, adjudication in Connecticut would dispose of this matter efficiently. Therefore, the court concludes that its finding of minimum contacts in this case comports with notions of fair play and substantial justice.

3. Venue

The defendant next claims that, according to 28 U.S.C. 1391(b),[3] venue is improper because the defendants reside in different states, the events or omissions giving rise to this claim took place in Massachusetts, and this action, therefore, should be prosecuted in Massachusetts.

The plaintiff responds that subsection (1) of 28 U.S.C. 1391(b) which states that “a civil action … may … be brought only in (1) a judicial district where any defendant resides, if all defendants reside in the same state …,” has been satisfied in this case. This is because 28 U.S.C. § 1391(c)[4] provides that: “a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced …” Since the defendant, ISI, a corporation, is subject to personal jurisdiction in Connecticut, then for venue purposes, it is deemed to reside in Connecticut.
The court concludes, therefore, that the provisions of 1391(b)(1) having been complied with, Connecticut venue is proper.

Conclusion

For the foregoing reasons, the motion to dismiss is denied (Document No. 7).
It is so ordered, this 17th day of April, 1996, at Hartford, Connecticut.

FOOTNOTES:

FN1. 28 U.S.C. 1406(a) provides that: “The district court of a district in which is filed a case laying venue in the wrong division or district, shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.”

FN2. C.G.S. 33-411(c) provides, in relevant part, that: “Every foreign corporation shall be subject to suit in this state, by a resident of this state or by a person having a usual place of business in this state, whether or not such foreign corporation is transacting or has transacted business in this state and whether or not it is engaged exclusively in interstate or foreign commerce, on any cause of action arising … (2) out of any business solicited in this state by mail or otherwise if the corporation has repeatedly so solicited business, whether the orders or offers relating thereto were accepted within or without the state …”

FN3. 28 U.S.C. 1391(b) provides, in relevant part, that: “A civil action wherein jurisdiction is not founded solely on diversity of citizenship may, …, be brought only in (1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) a judicial district in which any defendant may be found, if there is no district in which the action may otherwise be brought.”

FN4. 28 U.S.C. 1391(c) provides, in relevant part, that: “For purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced …”

United States District Court for the District of Massachusetts
Decided March 12, 1997

MEMORANDUM AND ORDER

I. Introduction

This case involves a dispute between two corporations over rights and commercial interests on the Internet. (1) Both parties operate electronic services and distribute software over the Internet. The plaintiff, Digital Equipment Corporation (“Digital”), has brought suit against defendant AltaVista Technology, Incorporated (“ATI”), for breach of a trademark licensing agreement, trademark and servicemark infringement, unfair competition, and trademark dilution.

Digital owns an Internet and World Wide Web “search-engine” service known as AltaVista. (2) Digital purchased ATI’s rights in its trademark “AltaVista”; Digital then licensed back to ATI the right to use “AltaVista,” in certain defined ways, as part of both ATI’s corporate name and its Uniform Resource Locator (“url”), “http://www.altavista.com.” (3) The license precludes ATI from using AltaVista as “the name of a product or service offering.”

Digital seeks a preliminary injunction, claiming that ATI’s Web-site breaches its licensing agreement and infringes its trademark rights in “AltaVista.” ATI opposes Digital’s motion on the merits and moves to dismiss for lack of personal jurisdiction.

First, I find that this Court has jurisdiction over ATI, whose Web-site, in the context of the specific facts of this case, meets both the statutory and constitutional standards. Second, I find that Digital has met the requisite standards for a preliminary injunction.

ATI is hereby ENJOINED from using the trademark AltaVista in any way that does not comport with the specific terms of the licensing agreement, as set forth in the opinion below and the accompanying Order.

II. Background

In December, 1995, Digital, a Massachusetts corporation, launched an Internet search service using the service mark “AltaVista.” Since that time, Digital’s AltaVista Internet search service has become one of the leading search services on the Internet and, indeed, one of the most frequently visited sites on the World Wide Web (“Web”). Currently, Digital’s AltaVista Web-site receives millions of “hits” (or visits) per day. Digital also markets and sells computer software products and services related to the Internet under names such as AltaVista Directory, AltaVista Firewall, AltaVista Forum, AltaVista Mail, etc. Its marketing strategy, however, did not then include soliciting advertising revenues from advertisers on its Website.

At the same time, Digital claims two sources for its right to use the service and trademark “AltaVista”: its own use of the mark under common law, and its acquisition by assignment of ATI’s trademark rights in AltaVista.

ATI is a California corporation, formerly known as Tree Full of Owls, Inc.; it changed its name to AltaVista Technology, Inc., by amendment to its Articles of Incorporation, in May of 1994. In March of 1996, Digital paid for an assignment of ATI’s rights to the trademark AltaVista; it immediately licensed-back to ATI the right to use AltaVista both as part of ATI’s corporate name, AltaVista Technology, Inc., and as part of ATI’s Web-site address “www.altavista.com.” The license agreement, however, precludes ATI from using “AltaVista” as “the name of a product or service offering.”

The scope and meaning of this license are hotly contested by the parties. ATI contends that its agreement with Digital was formed with the specific intention of allowing it to benefit from the popularity of Digital’s AltaVista, and the strong brand identity the “AltaVista” search service had created. In contrast, Digital maintains that ATI’s licensing agreement strictly limited ATI’s ability to use “Altavista” — as part of its corporate name and its url — and not as “the name of a product or service offering.”

Consistent with its broad interpretation of the agreement, ATI dramatically changed the appearance of its Website, (4) moving it markedly closer to the appearance of Digital’s AltaVista Web-site. (5) By the time this lawsuit was brought by Digital, ATI’s Website looked like, and could effectively function as, Digital’s AltaVista search service.

As of May 22, 1996, less than two months after the Digital-ATI agreement, a visitor to “www.altavista.com,” ATI’s Web-site, would see the word “AltaVista” by itself at the top of the page, apparently not attached to ATI’s corporate name. One would see an offer of free ATI software. Using a link, (6) one could “click” (7) to receive “demo versions of AltaVista software.” (8) One would also have been offered a link to an unnamed “Search Engine” where one could “Search the Internet. . .” This link was to Digital’s AltaVista search service.

By August 8, 1996, ATI’s page changed again. Again, the visitor would see the word “AltaVista” at the top of the page, again not as part of ATI’s corporate name. Below that there was a banner ad (9) selling an unrelated party’s products. This time, however, directly beneath the “Search Engine” line were the words “Digital’s Alta Vista,” rather than merely “Search the Internet. . .”

On the same date as these changes were implemented, Digital’s trademark counsel, Lawrence Robins (“Robins”) sent ATI’s president, Jack Marshall, a letter claiming that the appearance of ATI’s Web-site constituted a breach of Clause 1.1 of their license agreement. The letter states: Use of the ‘AltaVista’ logo, without the additional language ‘Technologies, Inc.’ is a violation of Paragraph 1.1 of the Agreement. The sole license granted therein is to use “AltaVista” as part of the corporate name ‘AltaVista Technologies, Inc.’ and as part of the url ‘http://www.altavista.com.’ Robins claimed that any use by ATI of “Altavista,” including using it as the name of a product or service on ATI’s Web-site, and apart from its use as part of ATI’s corporate name and as the url of ATI’s Web-site, constituted a breach of Clause 1.1.

Clause 1.1 of the license agreement says: Digital hereby grants to ATI a nonexclusive, nontransferable license to use the trademark ‘ALTAVISTA’ (the “Mark”) as part of the corporate name ‘Altavista Technologies, Inc.’ and as part of the url ‘http://www.altavista.com, and in accordance with and subject to the terms and conditions of this Agreement, provided that nothing in this agreement shall prohibit Digital or any of its direct or indirect majority-owned subsidiaries from using the Mark or from offering products or services under such Mark to third parties. This License does not grant ATI the right to use the Mark as the name of a product or service offering.

At the same time, Robins put ATI on notice of the possible termination of their license agreement pursuant to Clause 3.1. Clause 3.1 of the licensing agreement deals with quality control: “all products sold and services rendered while using the Mark shall be. . .of such style, appearance and quality as to protect and enhance the Mark and the goodwill associated therewith.” (10)

A month later, on September 5, 1996, a visitor to ATI’s Website would have been greeted by “AltaVista” in large, bold letters at the top of the page, with “Technology” immediately under it in smaller, plain type; beneath this was a banner ad and link through which one could “Search the Net with AltaVista” (again, presumably, but not explicitly, Digital’s search service) by “Clicking here.” (11) In addition, the site retained a second, clearly designated link to Digital’s AltaVista search site, as well as ATI’s AltaVista logo by itself in bold near the bottom of the page.

By October 28, 1996, three days before Digital brought its present motion for preliminary injunction, ATI’s Web-site had been altered again: beneath the AltaVista logo in big, bold letters (with a small, plain “Technology” placed immediately below it) sat a “banner ad” for an unrelated product; beneath the banner ad is a solicitation encouraging one to “Click here for advertising information-reach millions every month!” Immediately below that sits an almost identical graphical representation of Digital’s AltaVista search engine interface (i.e. the appearance of Digital’s AltaVista Web-site, including the logo, etc.). Below that is a statement informing users that they can “Search with Digital’s AltaVista” (using Digital’s AltaVista search engine while still, to all appearances, being at the ATI Web-site). In short, a visitor to ATI’s site could easily have the impression that they were actually at Digital’s AltaVista site. (12)

By October 28, 1996, ATI’s Web-site was designed to look, feel, and function very much like Digital’s AltaVista Web-site. At the same time, ATI derived revenues from the site and its ties to Digital’s Altavista. It displayed banner ads and solicited other advertisers, who could get information about how they, too, could reach millions of users everyday by advertising on ATI’s Web-site. Digital expressly eschewed providing advertising space to others for its Web-site at that time.

Digital claims that ATI’s Web-site is now a service that provides both a search engine, and advertising space. ATI thus breaches the license agreement by attaching the word “AltaVista” to both of these services. Digital further contends that ATI’s Web-site infringes Digital’s trademark rights in AltaVista, and that the ATI site constitutes unfair competition both under the Lanham Act § 43(a) and at common law. ATI argues its usage of AltaVista is permitted by its license with Digital. It also contends this Court lacks personal jurisdiction over it.

III. Personal Jurisdiction

Before: BROWN, KENNEDY, and WELLFORD, Circuit Judges.

BAILEY BROWN, Circuit Judge.

[1] In a case that requires us to consider the scope of the federal courts’ jurisdictional powers in a new context, a computer network giant, CompuServe, appeals the dismissal, for lack of personal jurisdiction, of its complaint in which it sought a declaratory judgment that it had not infringed on the defendants’ common law copyrights or otherwise engaged in unfair competition. The district court held that the electronic links between the defendant Patterson, who is a Texan,[n1] and Ohio, where CompuServe is headquartered, were “too tenuous to support the exercise of personal jurisdiction.” The district court also denied CompuServe’s motion for reconsideration. Because we believe that CompuServe made a prima facie showing that the defendant’s contacts with Ohio were sufficient to support the exercise of personal jurisdiction, we REVERSE the district court’s dismissal and REMAND this case for further proceedings consistent with this opinion.

[2] I. BACKGROUND

[3] CompuServe is a computer information service headquartered in Columbus, Ohio. It contracts with individual subscribers, such as the defendant, to provide, inter alia, access to computing and information services via the Internet, and it is the second largest such provider currently operating on the so-called “information superhighway.”[n2] A CompuServe subscriber may use the service to gain electronic access to more than 1700 information services.[n3]

[4] CompuServe also operates as an electronic conduit to provide its subscribers computer software products, which may originate either from CompuServe itself or from other parties. Computer software generated and distributed in this manner is, according to CompuServe, often referred to as “shareware.” Shareware makes money only through the voluntary compliance of an “end user,” that is, another CompuServe subscriber who may or may not pay the creator’s suggested licensing fee if she uses the software beyond a specified trial period. The “end user” pays that fee directly to CompuServe in Ohio, and CompuServe takes a 15% fee for its trouble before remitting the balance to the shareware’s creator.[n4]

[5] Defendant, Richard Patterson, is an attorney and a resident of Houston, Texas who claims never to have visited Ohio. Patterson also does business as FlashPoint Development. He subscribed to CompuServe, and he also placed items of “shareware” on the CompuServe system for others to use and purchase. When he became a shareware “provider,” Patterson entered into a “Shareware Registration Agreement” (“SRA”) with CompuServe. Under the SRA, CompuServe provides its subscribers with access to the software, or shareware, that Patterson creates. The SRA purports to create an independent contractor relationship between Patterson and CompuServe, whereby Patterson may place software of his creation on CompuServe’s system. The SRA does not mention Patterson’s software by name; in fact, it leaves the content and identification of that software to Patterson.

[6] The SRA incorporates by reference two other documents: the CompuServe Service Agreement (“Service Agreement”) and the Rules of Operation, both of which are published on the CompuServe Information Service. Both the SRA and the Service Agreement expressly provide that they are entered into in Ohio, and the Service Agreement further provides that it is to “be governed by and construed in accordance with” Ohio law. These documents appear to be standardized and entirely the product of CompuServe. It bears noting, however, that the SRA asks a new shareware “provider” like Patterson to type “AGREE” at various points in the document, “[i]n recognition of your online agreement to all the above terms and conditions.” Thus, Patterson’s assent to the SRA was first manifested at his own computer in Texas, then transmitted to the CompuServe computer system in Ohio.

[7] From 1991 through 1994, Patterson electronically transmitted 32 master software files to CompuServe. These files were stored in CompuServe’s system in Ohio, and they were displayed in different services for CompuServe subscribers, who could “download” them into their own computers and, if they chose to do so, pay for them. Patterson also advertised his software on the CompuServe system, and he indicated a price term in at least one of his advertisements. CompuServe asserts that Patterson marketed his software exclusively on its system. Patterson, for his part, stated that he has sold less than $650 worth of his software to only 12 Ohio residents via CompuServe.

[8] Patterson’s software product was, apparently, a program designed to help people navigate their way around the larger Internet network. CompuServe began to market a similar product, however, with markings and names that Patterson took to be too similar to his own. Thus, in December of 1993, Patterson notified CompuServe (appropriately via an electronic mail or “E-mail” message[n5]) that the terms “WinNAV,” “Windows Navigator,” and “FlashPoint Windows Navigator” were common law trademarks which he and his company owned. Patterson stated that CompuServe’s marketing of its product infringed these trademarks, and otherwise constituted deceptive trade practices. CompuServe changed the name of its program, but Patterson continued to complain. CompuServe asserts that, if Patterson’s allegations of trademark infringement are correct, they threaten CompuServe’s software sales revenue with a loss of approximately $10.8 million.

[9] After Patterson demanded at least $100,000 to settle his potential claims, CompuServe filed this declaratory judgment action in the federal district court for the Southern District of Ohio, relying on the court’s diversity subject matter jurisdiction. CompuServe sought, among other things, a declaration that it had not infringed any common law trademarks of Patterson or FlashPoint Development, and that it was not otherwise guilty of unfair or deceptive trade practices. Patterson responded pro se with a consolidated motion to dismiss on several grounds, including lack of personal jurisdiction. Patterson also submitted a supporting affidavit, in which he denied many jurisdictional facts, including his having ever visited Ohio. CompuServe then filed a memorandum in opposition to Patterson’s consolidated motion, along with several supporting exhibits.

[10] The district court, considering only these pleadings and papers, granted Patterson’s motion to dismiss for lack of personal jurisdiction in a thorough and thoughtful opinion.[n6] At various points in its consideration of the case, however, the district court expressly relied on Patterson’s affidavit. Joint Appendix at 97, 98, 99. The court below then denied CompuServe’s motion for a rehearing, which it construed as a motion for reconsideration under Federal Rule of Civil Procedure 59(e). CompuServe timely appealed. Patterson, however, filed no appellate brief, and he did not appear at oral argument.

[11] II. ANALYSIS

[12] A. Standards of Review.

[13] We conduct a plenary review of personal jurisdiction issues. E.g., Reynolds v. International Amateur Athletic Fed’n, 23 F.3d 1110, 1117 (6th Cir.) (citing Conti v. Pneumatic Prods., 977 F.2d 978, 985 (6th Cir. 1992)), cert. denied, 115 S.Ct. 423 (1994). CompuServe, as the party seeking assertion of in personam jurisdiction, bears the burden of showing that such jurisdiction exists. E.g., Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991). When, however, a district court rules on a jurisdictional motion to dismiss made pursuant to Federal Rule of Civil Procedure 12(b)(2) without conducting an evidentiary hearing, the court must consider the pleadings and affidavits in a light most favorable to the plaintiff – here, CompuServe. Id. at 1458-59. To defeat such a motion, a party in CompuServe’s position need only make a prima facie showing of jurisdiction. Id.

[14] Furthermore, a “court disposing of a 12(b)(2) motion does not weigh the controverting assertions of the party seeking dismissal,” Patterson in this case, because we want “to prevent non-resident defendants from regularly avoiding personal jurisdiction simply by filing an affidavit denying all jurisdictional facts.” Id. at 1459 (emphasis added). Dismissal in this procedural posture is proper only if all the specific facts which the plaintiff (CompuServe) alleges collectively fail to state a prima facie case for jurisdiction. Id.

[15] B. Personal Jurisdiction.

[16] This case presents a novel question of first impression: Did CompuServe make a prima facie showing that Patterson’s contacts with Ohio, which have been almost entirely electronic in nature, are sufficient, under the Due Process Clause, to support the district court’s exercise of personal jurisdiction over him? The Supreme Court has noted, on more than one occasion, the confluence of the “increasing nationalization of commerce” and “modern transportation and communication,” and the resulting relaxation of the limits that the Due Process Clause imposes on courts’ jurisdiction. E.g., World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 293 (1980) (quoting McGee v. International Life Ins. Co., 355 U.S. 220, 223 (1957)). Simply stated, there is less perceived need today for the federal constitution to protect defendants from “inconvenient litigation,” because all but the most remote forums are easily accessible for the pursuit of both business and litigation. Id. The Court has also, however, reminded us that the due process rights of a defendant should be the courts’ primary concern where personal jurisdiction is at issue. Insurance Corp. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 n. 10 (1982).

[17] The Internet represents perhaps the latest and greatest manifestation of these historical, globe-shrinking trends. It enables anyone with the right equipment and knowledge – that is, people like Patterson – to operate an international business cheaply, and from a desktop. That business operator, however, remains entitled to the protection of the Due Process Clause, which mandates that potential defendants be able “to structure their primary conduct with some minimum assurance as to where the conduct will and will not render them liable to suit.” World-Wide Volkswagen, 444 U.S. at 297. Thus, this case presents a situation where we must reconsider the scope of our jurisdictional reach.

[18] To determine whether personal jurisdiction exists over a defendant, federal courts apply the law of the forum state, subject to the limits of the Due Process Clause of the Fourteenth Amendment. Reynolds, 23 F.3d at 1115. “[T]he defendant must be amenable to suit under the forum state’s long-arm statute and the due process requirements of the Constitution must be met.” Id. (citing In-Flight Devices Corp. v. Van Dusen Air, Inc., 466 F.2d 220, 224 (6th Cir. 1972)).

[19] The Ohio long-arm statute allows an Ohio court to exercise personal jurisdiction over nonresidents of Ohio on claims arising from, inter alia, the nonresident’s transacting any business in Ohio. Ohio Rev. Code Ann. Section(s) 2307.382(A) (Anderson 1995). It is settled Ohio law, moreover, that the “transacting business” clause of that statute was meant to extend to the federal constitutional limits of due process, and that as a result Ohio personal jurisdiction cases require an examination of those limits. Reynolds, 23 F.3d at 1116 (quoting Creech v. Roberts, 908 F.2d 75, 79 (6th Cir. 1990), cert. denied, 499 U.S. 975 (1991)); R.L. Lipton Distrib. Co. v. Dribeck Importers, Inc., 811 F.2d 967, 969 (6th Cir. 1987).

[20] Further, personal jurisdiction may be either general or specific in nature, depending on the nature of the contacts in a given case. E.g., Reynolds, 23 F.3d at 1116 (citing Third Nat’l Bank v. WEDGE Group Inc., 882 F.2d 1087, 1089 (6th Cir. 1989), cert. denied, 493 U.S. 1058 (1990)). In the instant case, because CompuServe bases its action on Patterson’s act of sending his computer software to Ohio for sale on its service, CompuServe seeks to establish such specific personal jurisdiction over Patterson. Id.

Citation: Braintech, Inc. v. Kostiuk Date: 19990318
1999 BCCA 0169 Docket: CA024459
Registry: Vancouver

COURT OF APPEAL FOR BRITISH COLUMBIA

BETWEEN: BRAINTECH, INC.

PLAINTIFF
(RESPONDENT)

AND:

JOHN C. KOSTIUK

DEFENDANT
(APPELLANT)

Before: The Honourable Mr. Justice Goldie
The Honourable Mr. Justice Donald
The Honourable Madam Justice Newbury

J. P. Scouten Counsel for the Appellant

Michael Wilhelmson Counsel for the Respondent

Place and Date of Hearing Vancouver, British Columbia
February 1 and 2, 1999

Place and Date of Judgment Vancouver, British Columbia
March 18, 1999

Written Reasons by:

The Honourable Mr. Justice Goldie

Concurred in by:

The Honourable Mr. Justice Donald
The Honourable Madam Justice Newbury

Reasons for Judgment of the Honourable Mr. Justice Goldie:

[1] On 7 May 1997 the respondent (“Braintech”) obtained a default judgment in the District Court of Harris County in the
State of Texas against the appellant (“Kostiuk”). On 9 May 1997 Braintech commenced an action on this judgment in the
Supreme Court of British Columbia. On 2 April 1998, after a summary trial Braintech obtained a judgment in its favour from which the present appeal is taken.

ISSUES

[2] The issues may be grouped as follows:
1. Whether, in the circumstances, the trial judge erred in proceeding to summary trial under the provisions
of Rule 18A of the Rules of the Supreme Court of British Columbia.

2. Whether a fraud was practised on the Texas court of which cognizance should be taken in the courts of
British Columbia.

3. Whether there was a real and substantial connection between Texas and the wrongdoing alleged to have
taken place in that state.

Issue 1
The mode of trial in the Supreme Court

[3] The writ was issued and the statement of claim filed on 9 May 1997. Kostiuk was alleged to reside at 602 – 195 West 21st Street, West Vancouver. (The first “West” is incorrect.) The proceeding in Texas was recited and judgment was sought in the amount of $409,680, as the equivalent in Canadian currency of the judgment awarded by the Texas court of US$300,000.

[4] Kostiuk in his statement of defence filed 8 August 1997 denied service on him of any process in the Texas action; denied any connection of his or the plaintiff with Texas; denied he had attorned to the foreign jurisdiction and alleged circumstances amounting to fraud on the Texas court, principally related to service of process. The relief sought was a declaration that the Texas court acted without jurisdiction and for an order dismissing Braintech’s claim.

[5] A reply was filed on 14 November 1997. The rules of the Supreme Court require leave of the court to file any subsequent pleading, and where the reply is the final pleading (as it was here) all material facts alleged in it are deemed to have been denied and are in issue.

[6] The reply alleged the source of jurisdiction as s. 17.042(2) of the Texas Civil Practice and Remedies Code and the nature of service effected thereunder. In the alternative, jurisdiction of Texas was claimed by reason of a real and substantial connection between the Texas action and Texas, particulars of which were alleged. Among the particulars were the following:
3. …
(a) the Defendant defamed the Plaintiff and disparaged the business of the Plaintiff by the transmission and publication in the State of Texas of untruths and false and disparaging words, as alleged in the Plaintiff’s Original Petition and First Amended Petition filed in the District Court of Harris County;

(b) at the time of the aforesaid publication, shareholders of the Plaintiff resided in the Texas;

(c) at the time of the aforesaid publication, the Plaintiff maintained an office in Texas, its director of research and development resided in Texas and its research and development activities were carried on in Texas Furthermore, the Plaintiff’s head office had been located in Texas until 1995;

…

(e) it was reasonably foreseeable to the Defendant that the Plaintiff’s reputation stood to be injured in Texas by the publication of untruths by the Defendant in Texas;

[7] There was thus put in issue in the British Columbia courts the nature and effect of service; the application of the Texas
long arm statute; and whether Kostiuk had committed a tort in Texas, in whole or in part, by transmission and publication in Texas of defamatory and disparaging untruths.

[8] On 24 March 1998 Braintech filed notice of a motion for judgment under Rule 18A. Kostiuk by motion filed 1 April 1998 moved for an order adjourning the summary trial application until such time as he had an opportunity to conduct an examination for discovery of a representative of Braintech and to cross examine the makers of the affidavits filed by Braintech in support of its Rule 18A application.

[9] Kostiuk’s application was dismissed by Mr. Justice Thackray on 26 March without reasons. We were advised he did
so in order to leave the matter to the judge who would be hearing the Rule 18A application – then apparently set down to be heard on 31 March.

[10] Sub-rule (11) of Rule 18A provides in part that upon the hearing of the application for an order for a summary trial the court may:
(11) …
(a) grant judgment in favour of any party, either on an issue or generally, unless
(i) the court is unable, on the whole of the evidence before the court on the application, to find the facts necessary to
decide the issues of fact or law, or
(ii) the court is of the opinion that it would be unjust to decide the issues on the application,
(b) …
(c) …

[11] The trial judge had before him the pleadings I have outlined and affidavits filed in the Supreme Court by both parties, the last one of which was filed on behalf of Kostiuk on 25 March 1998. In retrospect, it is clear pre-trial discovery and examination of the makers of some of the affidavits would have been of assistance. Nevertheless, the decision whether to proceed to trial on the affidavit material is a matter within the discretion of the trial judge. The motion to adjourn was not made in a timely way. In my view it has not been demonstrated that his decision to proceed with the summary trial amounts to a failure to exercise a discretionary power judicially. I would not give effect to the appellant’s contention in this Court that the cause should be remitted to the Supreme Court to be placed on the regular trial list.

Issue 2
The Texas long arm statute and service thereunder

[12] Section 17.042 of “Subchapter C. Long-Arm Jurisdiction in suit on Business Transaction or Tort” of the Texas Civil
Practice and Remedies Code provides: 17.042. Acts Constituting Business in This State In addition to other acts that may constitute doing business, a nonresident does business in this state if the nonresident:
(1) contracts by mail or otherwise with a Texas resident and either party is to perform the contract in whole or in part in this state;
(2) commits a tort in whole or in part in this state; or
(3) recruits Texas residents, directly or through an intermediary located in this state, for employment inside or outside this state.

[Emphasis added.]

[1998] N.J. No. 122 1997 No. C.B. 439
Newfoundland Supreme Court – Trial Division Woolridge J.
May 21, 1998

1 WOOLRIDGE J.: This is a three-part interlocutory application (inter partes) by the Defendant, Informix Corporation, that this action be dismissed pursuant to Rule 14.24(1)(a) for failing to disclose a reasonable cause of action as against the Defendant by the following three of the five Plaintiffs: Robert Alteen, Ren White, and William Chipp.

I. PLEADINGS DISCLOSE REASONABLE CAUSE OF ACTION?

2 In the first of these applications, the Defendant asserted that the Plaintiffs’ pleadings alleged that the Defendant issued false and misleading statements which artificially inflated the stock price of the Defendant’s common shares. Because three of the five Plaintiffs alleged in the Amended Statement of Claim filed that they purchased shares prior to the date of the alleged misrepresentation by the Defendant, the Defendant moved to strike out the claims of the three Plaintiffs, Alteen, White and Chipp.

3 However, at the hearing of this application before me the Plaintiffs alleged that there had been a mistake made in para. 9 of the Amended Statement of Claim, whereby references to “December, 1996″ should have read “December, 1995″, and “December 2, 1996″ should have read “December 2, 1995″. After hearing submissions of both counsel, I accepted the assurance of Monaghan, Q.C. that a genuine mistake had occurred, and I allowed an amendment to para. 9 of the Amended Statement of Claim accordingly.

4 That disposed of the first of the three applications because the amended dates now show that none of the Plaintiffs purchased shares prior to the date of the alleged misrepresentation.

II. SITUS OF THE TORT

5 Should the Statement of Claim be dismissed for want of jurisdiction on the part of this Court?

6 The Plaintiffs allege in paras. 10 and 11 of the Statement of Claim that the Defendant company issued false and misleading statements regarding its current and future operations from early December 1996 until April 1, 1997.

7 The Defendant acknowledges it issued press releases concerning its software product “Universal Server” and its earnings expectations for the first quarter of 1997.

8 However, the Defendant also asserts the following:

1. It never issued public statements to the Canadian financial or business press.
2. It did not solicit the Plaintiffs’ investment and never made statements to them.
3. There was no contact directly between the Plaintiffs and Defendant.
4. The Defendant’s shares were not traded on any Canadian exchange. The shares of the Defendant are traded on the NASDAQ Exchange in the U.S.A., and all public disclosure is made with the Securities and Exchange Commission (SEC) of the United States of America.

9 Hence, the Defendant argues Canada does not have jurisdiction to deal with this claim which, accordingly, should be dismissed for want of jurisdiction, because the law to be applied in torts is the law of the place where the activity occurred.

10 The Plaintiffs reply that the situs of the tort is the place where the damage is suffered, which in this case is Canada. Poirier v. Williston (1988), 113 D.L.R. (3d) 252, affirmed 118 D.L.R. (3d) 576 (Ont. C. of A.).

11 In some instances, damage can be suffered in more than one place. The jurisdictional test for the place of a tort has been held to be the place where the damage is suffered, is assumed to be the place where the tort is committed so long as it was reasonably foreseeable that the product would be used or consumed where the plaintiff used or consumed it. Moran v. Pyle National (Canada) Limited, [1975] S.C.R. 393 (Sask.).

12 Each of the individual Plaintiffs purchased the shares of the Defendant within the jurisdiction of Newfoundland where the Defendant no doubt could have reasonably foreseen that shares in the Defendant company would have been purchased. The Plaintiffs allege that the Defendant was well aware of the fact that Canadian citizens and, in particular, citizens within the jurisdiction of Newfoundland, purchased shares of the Defendant company, and so long as the Defendant had this knowledge, it could have reasonably foreseen that its actions could have resulted in damages to the stockholders. The Plaintiffs’ damages, which are outlined in the Plaintiffs’ Statement of Claim, were obviously suffered within the jurisdiction of Newfoundland.

13 The Plaintiffs allege that the investing public were misled by the Defendant’s financial performance in that the means by which the Defendant communicated its financial performances were through internationally accessible mediums. Public documents such as SEC filings, securities analysts’ reports, and advisories about the company, press releases issued by the company, and media reports about the company, were all available to the Plaintiffs as a means of determining the financial future of this company. When the Defendant made these research tools available to the investing public, and, in particular, Newfoundland investors, they ran the risk of having legal action initiated against them should any of these financial performance claims be shown to have been made negligently or in such a manner as to be intentionally misleading. As to the Defendant’s claim that it never made or issued any public statements to the Canadian financial or business press, the Plaintiffs state that any information disseminated by the various news wires and through the Internet are often picked up in news stories by the Canadian financial or business press.

14 Since the shares in question were purchased in Newfoundland, a fact the Defendant could have reasonably foreseen, following which they are alleged to have declined in value due to misdeeds of the Defendant, the jurisdictional test for the place of a tort is assumed to be the place where the tort is committed and damage suffered.

15 I conclude that this Court does have jurisdiction to try the case. Hence, the application for dismissal for want of jurisdiction fails.

III. FORUM NON CONVENIENS

16 The third and final portion in this application is a request that the within action be dismissed on the basis of forum non conveniens. This term refers to discretionary power of a court to decline jurisdiction when convenience of parties and the ends of justice would be better served if action were brought and tried in another forum. The doctrine is patterned upon the right of the court in the exercise of its powers to refuse the imposition upon its jurisdiction of the trial of cases even though the venue is properly laid if it appears that for the convenience of litigants and witnesses and in the interest of justice the action should be instituted in another forum where the action might have been brought. The application of the doctrine rests in the sound discretion of the Court. Black’s Law Dictionary (5th.ed.), p. 589.

17 In support of its application the Defendant argues as follows.

18 The Defendant is a corporation duly incorporated under the laws of the State of Delaware in the United States, and its headquarters is situating at Menlo Park, California, U.S.A.

19 The Defendant is a publicly-traded company on the NASDAQ Stock Exchange in Washington, D.C., U.S.A.

20 All of the Defendant’s executive officers and members of its board of directors reside in the United States.

21 The Defendant has limited operations in Canada, maintaining only five sales offices and employing approximately 30 people in total in British Columbia, Alberta, Ontario and Quebec. It has no operations or offices in Newfoundland. In contrast, the Defendant employs more than 2,300 people in the United States through its 50 offices, and almost 4,000 people worldwide through its 120 offices.

22 Only $220.00 US of the Defendant’s products were sold directly to any customers residing in Newfoundland in both 1997 and 1996, representing less than .003 percent of the Defendant’s total revenues for those years.

23 All other securities actions, including numerous class actions which include all securities purchases made during the time period when the Plaintiffs purchased stock in the Defendant have been filed in state and federal courts in Northern California.

24 The Defendant has offered, but the Plaintiffs have refused to be included in the federal class action referred to herein.

25 The Defendant states the Plaintiffs joining in the class action suit will provide both the Plaintiffs and Defendant with the advantages of cost savings and avoiding duplicitous actions.

26 The Plaintiffs reply as follows. In order for a contract clause to give exclusive jurisdiction to a particular court, the clause must expressly state in specific terms the particular jurisdiction as exclusive jurisdiction. In the absence of such a clause, the court where either party resides may have concurrent jurisdiction with the jurisdiction referred to in the jurisdictional clause. McKinley Motors Ltd. v. Honda Canada Inc. (1985), 55 Nfld. & P.E.I.R. 170 (Nfld. S.C.) at paras. 2 and 6; Khalij Commercial Bank Ltd. v. Woods (1985), 17 D.L.R. (4th) 358 (Ont. H.C.) at pp. 360 and 361.

27 Provided that an applicant can establish that provisions of a contract truly confer exclusive jurisdiction, the court still has the discretion to refuse an application for a stay of proceedings. Section 97(1) of the Judicature Act, R.S.N. 1990, c. J-4 provides that, “The Court may direct a stay of proceedings pending before it.”

28 When considering if it is appropriate to exercise their discretion, courts look to the plaintiff to establish that it is just to have the action proceed in their jurisdiction. In this regard, courts look at the following factors:

(a) where the evidence is situate I assume the bulk of the evidence of any alleged wrongdoing is situate in the United States, but sufficient quantities of it have reached Canada and Newfoundland as the 54-page Plaintiffs’ Memorandum of Law makes plain. Accordingly, evidence is situating in both jurisdictions.

(b) whether foreign law applies, and, if so, whether the foreign law is different from the law of the present jurisdiction The Plaintiffs suggest, and I agree, that there is probably little, if any, difference in general terms between the corporate law of the United States of America as opposed to that of Canada. Certainly the attitude of courts in both countries to the fraudulent misrepresentations alleged must be very similar.

(c) with which countries the parties are connected Clearly, the Plaintiffs are connected with Canada and the Defendants with the U.S.A.

(d) whether the defendant genuinely desires trial in that foreign country or are only seeking procedural advantages I believe it would be decidedly to the advantage of the Defendant if the Plaintiffs were required to prosecute their case in the U.S.A.

(e) whether the plaintiffs would be prejudiced by having to sue in the foreign court

It is plain from its Pleadings that the Defendant is anxious to avoid trial in Canada. The whole tenor of the three original applications before me (now reduced to two) is to strike out on procedural or jurisdictional grounds the whole of the Plaintiffs’ pleadings at this preliminary stage in order to avoid trial on the merits for technical reasons. In general terms, it is always preferable that a cause of action be dealt with on its merits within a reasonable time and at the least prejudice to both sides.

29 The Plaintiffs propose that Newfoundland is the proper forum for this proceeding and that by making shares available to Canadian citizens, the Defendant has opened itself to having to defend proceedings in Canada when it commits a tort against Canadian citizens.

30 The Plaintiffs ask for an order that the within proceeding continue in the jurisdiction of Newfoundland, naming the Newfoundland courts forum conveniens for this matter.

31 I believe that on these facts the Plaintiffs have made a clear case, as in the McKinley Motors case, (supra), that the Newfoundland Trial Division has at least concurrent jurisdiction to try this case.

32 The arguments of the Defendant that the subject matter of the case is substantially connected to a U.S. jurisdiction are impressive. However, in the exercise of my discretion I am more impressed with the arguments raised by the Plaintiffs at paras. 99 and 100 of its Memorandum, namely:

1. By making the shares available to Canadian citizens, the Defendant has opened itself to defend proceedings in Canada, if and when it commits a tort against a Canadian citizen;

2. Given the ease by which Canadian citizens can obtain reports originating from the Defendant, the Defendant could have reasonably foreseen that foreign investors would have access to and would consult such reports put out by the Defendant in deciding whether or not to purchase shares of the Defendant corporation.

33 Accordingly, I decline to exercise my discretion by dismissing the Plaintiffs’ action before this Court. I find the Trial Division of the Supreme Court of Newfoundland to be forum conveniens for this action.