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General Business Advice

Operation of Website May Subject Business to Out-of-State Litigation May-June-09

                     Advancements in technology have created opportunities for businesses to connect with clients outside of traditional geographic reach.  As a consequence of greater access to out-of-state clients, businesses using interactive websites may unknowingly submit themselves to jurisdiction in unexpected venues.
                        The growth of e-business has forced the courts to determine when a business whose only connection to the state is through its website can be sued in that court’s jurisdiction. Courts analyze a business’s website activity to determine whether that business has sufficient contacts to justify jurisdiction in that state (“forum state”).  In general, most states have adopted a long-arm statute, which empowers courts to exercise jurisdiction over an out-of-state entity that conducts business within the forum state.  To satisfy due process guarantees under the United States Constitution, long-arm statutes can only confer jurisdiction where the defendant has sufficient minimum contacts within the forum state and purposefully avails itself of the privilege of conducting activities within that state.                        

                  While this area of the law is still in its infancy, the “sliding scale” approach has emerged as the preferred analysis.  At one end of the scale, jurisdiction is asserted where the defendant transacts business via an interactive website where contracts are completed online and the defendant derives profits directly from web-related activity.  On the other end of the scale, the courts refrain from asserting jurisdiction over the business because the website is passive which has been defined as merely providing information about the business or its products.  The court will judge the level of interactivity on the defendant’s website relative to the extremes of the scale. 

                        Recently this standard was tested in the 2008 Florida case of Licciardello v. Lovelady.  In that case, the plaintiff, Carman Licciardello (“Licciardello”), a Florida resident and a music artist, alleged that the defendant, Rendy Lovelady (“Lovelady”), a resident of Tennessee, infringed on Licciardello’s trademarks by using his name and image on Lovelady’s website without authorization.  According to Licciardello’s Complaint, Lovelady operated a website in which he sold CDs providing management advice and career assistance tips.  The website utilized images of Licciardello as well as his name to promote Lovelady’s skills as a manager of music artists.  Licciardello maintained the infringement of his trademark was a tortious act committed by Lovelady in Florida, so he brought claims for trademark infringement in the District Court for the Middle District of Florida.  

                        Lovelady maintained that he had no constitutionally significant contacts with Florida.  He had no office, no agents, no employees, and no property in Florida.  His infrequent travel to Florida in connection with his management of Licciardello and other music groups, he argued, was both constitutionally insufficient to allow jurisdiction in Florida and unrelated to Licciardello’s cause of action.

                        The trial court dismissed the case on the grounds that there were insufficient contacts between Lovelady and the state of Florida to allow Florida courts to exercise jurisdiction over a Tennessee resident. The Appellate Court, however, reversed that decision.  The Appellate Court found that the allegedly infringing content of Lovelady’s website caused an injury to occur in Florida. Thus, jurisdiction in Florida was deemed proper despite Lovelady having no other physical contacts within the state.
           
                        A business that operates a website is advised to consider the geographical scope of its website’s content to avoid a foreign court’s exercise of personal jurisdiction over it.  In addition, a business that contracts through website transactions should be proactive and state its choice of law and venue benchmarks in its online contract in anticipation of litigation or dispute resolution. 

                        If you have a question about your business’s potential exposure to litigation in another jurisdiction or whether your website is passive or active under the sliding scale approach, please contact a member of the firm.

Attorney to Contact

• Thomas W. Rieck
• Jerome F. Crotty
• Ronald P. Duplack
• Douglas C. Conover
• Bernard A. Henry