01
Oct
2004

Personal Jurisdiction Over Foreign Website Operators

Intellectual Property Alert

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PUBLISHED ON: October 1, 2004

When a suit is brought against a defendant, as a threshold matter, the court examines whether it has the power to command obedience from the defendant. If the court lacks this power, it will dismiss the suit without adjudication. The question of jurisdiction gets to be particularly troublesome when the court is situate in a country different from that of the defendant. However, recently, the United States District Court for the Eastern District of Virginia held that a U.S. court would have jurisdiction over a foreign defendant in a matter concerning use of a foreign web site and infringing domain name. Graduate Management Admission Council v. Raju d/b/a,’GMATplus.com’, 241 F.Supp.2d 589 (E.D.Vir. 2003). The Court applied Fed. R. Civ. P. Rule 4(k)(2), although the Plaintiff had not based jurisdiction on this rule, and held that the Court possessed jurisdiction over the Defendant.

The underlying facts are straightforward. Plaintiff, Graduate Management Admission Council (“GMAC”), a Virginia corporation located in Virginia develops, owns and conducts the Graduate Management Admission Test (“GMAT”) used by several universities to assess the qualifications of applicants to business programs. The questions it creates are original copyrightable material and it has exclusive rights to copy, distribute, display, publish and prepare derivative works from this material. GMAC also owns the trademark “GMAT.”

Defendant, Raju, registered the domain names and with VeriSign Global Registry Services, located in Herndon, Virginia. Raju operated a web site associated with these domain names from India and through this web site sold GMAT questions for test preparation purposes. According to GMAC, Raju sold and delivered infringing materials to persons located in Virginia on at least two occasions. Payment for the same was to be made via Western Union or MoneyGram and the proceeds transferred to India. The ordering page mentioned only the U.S. and Canada as countries from which orders could be placed.

The Magistrate Judge recommended a finding of no personal jurisdiction over Raju, which was contested by GMAC. The District Court began its determination of the issue by reiterating that the inquiry is a two-step process, viz. (i) a determination of whether the facts of the case fall within the reach of Virginia’s “long-arm statute,” and (ii) whether such exercise of personal jurisdiction is consistent with “traditional notions of fair play and substantial justice” under the Due Process clause.

Virginia’s Long-Arm Statute provides for personal jurisdiction over a person “causing tortious injury in this Commonwealth by an act or omission outside this Commonwealth if he regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in this Commonwealth.” The court found that Raju caused injury to GMAC in Virginia by operating the web site and selling the infringing materials. Moreover, citing to precedent developed by courts in Virginia, soliciting business through a web site accessible by Virginians satisfies the remaining requirement of the long-arm statute, namely, “does or solicits business, or engages in any other persistent course of conduct” in Virginia. Thus, the court held, Raju’s conduct as alleged by GMAC, clearly placed him within reach of the Virginia long-arm statute.

Due Process analysis: (A) Analyzing the facts under the more commonly used rule to find jurisdiction (Fed. R. Civ. P. Rule 4(k)(1)(A), the court applied the well established formulation of the U.S. Supreme Court in International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945) regarding personal jurisdiction and the adaptation thereof by the Fourth Circuit, namely, that the due process analysis “must take into account the modern reality of widespread Internet electronic communications.” Thus, a State may, consistent with due process, exercise jurisdiction over a person outside the State when that person “(1) directs electronic activity into the State, (2) with the manifest intent of engaging in business or other interactions within the State, and (3) that activity creates, in a person, within the State, a potential cause of action cognizable in the State’s courts.” ALS Scan, Inc. v. Digital Service Consultants, Inc., 293 F.3d 707 (4th Cir. 2002).

The court held that Raju’s contacts with Virginia, when evaluated in light of the 3-part ALS test, did not lead to the conclusion that Virginia courts had personal jurisdiction over him because Raju did not direct electronic activity into the State with the “intent of engaging in business…within the State.” However, there existed an alternate basis for personal jurisdiction over the defendant under Rule 4(k)(2). The court said that it would examine personal jurisdiction under this rule even though the plaintiff had not raised it in any of its pleadings. “Federal courts are entitled to apply the proper body of law, whether the parties name it or not.” Kamen v. Kemper Financial Services, Inc., 500 U.S. 90, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991).

(B) “Rule 4(k)(2) was added in 1993 to deal with a gap in federal personal jurisdiction law in situations where a defendant does not reside in the United States, and lacks contacts with a single state sufficient to justify personal jurisdiction, but has enough contacts with the United States as a whole to satisfy the due process requirements.” GMAC at 597. “[It] responds to the Supreme Court’s suggestion that the rules be extended to cover persons who do not reside in the United States, and have ample contacts with the nation as a whole, but whose contacts are so scattered among states that none of them would have jurisdiction.” The rule provides for personal jurisdiction over any defendant if “(i) exercise of jurisdiction is consistent with the Constitution and laws of the United States, (ii) the claim arises under federal law, and (iii) the defendant is not subject to the jurisdiction of the courts of general jurisdiction of any state.” GMAC at 597.

The significant difference between the minimum contacts due process analysis conducted under Rule 4(k) (1)(A) and 4(k)(2) is that under the latter enquiry, the relevant forum is the United States as a whole and not a particular State. Therefore, the question to be asked under the latter rule is whether the defendant has contacts with the United States. The court adapted the ALS test for determining jurisdiction based on electronic activities for the purpose of the national contacts analysis. Thus the plaintiff would have to show that: (i) Raju directed his electronic activity into the United States, (ii) he did so with the manifest intent of engaging in business or other interactions within the United States, and (iii) his activity created a potential cause of action in a person within the United States that is cognizable in the United States’ courts.

The court found that all three elements of the adapted ALS test had been satisfied. The record indicated that Raju had directed his activity at the United States market and had targeted customers therein. The web site itself was “designed to attract or serve a United States audience.” The ordering information was also specifically directed to customers in the United States and the prices were stated in dollars. The materials were advertised on the web site as allowing test takers in the United Sates to score as well as their counterparts from Asia. These facts showed that Raju had directed his activity into the United States. The second prong of the ALS test was also satisfied because Raju was in the business of selling the GMAT materials for a price. The third element was met because GMAC’s causes of action were based on federal law, which was cognizable in federal courts.

Although Fed. R. Civ. P. Rule 4(k)(2) has been in the statute book for several years now, this provision has been used infrequently by plaintiffs confronted by web merchants. This case assumes importance because it casts light upon a potent method of obtaining in personam jurisdiction over a foreign web merchant. Its importance is increased by the fact that the Virginia court applied the alternate rule even in the absence of specific pleading directed towards it. Since most matters concerned with infringing Internet activity originating in foreign countries will be brought in Virginia, this decision should prove very helpful to plaintiffs seeking to protect their intellectual property.