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*3 territorial jurisdiction in cyberspace howard J. Grooters [FN1] © 2002 by Howard J. Grooters Trouble in Cyber-Paradise



4 ORRIL 3

Page

(Cite as: 4 Or. Rev. Int'l L. 3)






Oregon Review of International Law

Spring, 2002

Article



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TERRITORIAL JURISDICTION IN CYBERSPACE

Howard J. Grooters [FN1]

Copyright © 2002 by Howard J. Grooters

Trouble in Cyber-Paradise

:

A well-known American internet portal, in the course of doing business in the United States, makes web pages in cyberspace [FN2] available to its members [FN3] for the purpose of

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announcing and describing merchandise for sale, which other members can then browse on its web site. The internet portal then facilitates transactions between members by conducting simultaneous electronic auctions of the merchandise offered. The auctions are fashioned in such a way as to create legally binding contracts between sellers and high bidders, and at the conclusion of each auction the web portal places the two parties in contact with each other, who then execute the transaction directly. This web portal, one of the major transnational corporate presences in cyberspace, receives a "listing fee" [FN4] for its facilitation.

A number of the web portal's members place World War II era Nazi war memorabilia up for sale on the web-site on an ongoing basis. [FN5] Any implicit message or ideology drawn from the display and sale of such material is presumptively protected speech in the United States under the First Amendment to the US Constitution. In France, however, there is no absolute right of free speech equivalent to the First Amendment, and France has well defined anti-hate-speech laws [FN6] that prohibit the display of symbols of ideologies such as Nazism. Two French Anti-Hate groups [FN7] file suit against the American web portal in French court, [FN8] alleging that because the web pages promoting the offensive material can be viewed in

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France, the American company is in violation of French law. [FN9] Does the Paris court have jurisdiction to hear the complaint? Should it? If it does assert jurisdiction, how might a court enforce an ensuing judgment against an entity outside France's territorial borders?

If the Paris court issues an injunction ordering the American company to take all necessary steps to prevent the offensive web-pages from being viewed in France, subject to a cumulative fine (it did issue just such an order,) [FN10] does an American court have jurisdiction to hear a complaint seeking to block the Paris court's order on the basis that it violates the American company's and its members' free speech rights under the US Constitution? Should it?

If the American court asserts jurisdiction (it did) [FN11] and blocks the order of the Paris court (it did,) [FN12] should the Paris court seek to enforce its judgement anyway, through the provision of fines for non-compliance with the order, against any of the American company's assets that happen to be within their reach? More generally, at what point in a conflict spanning two or more sovereigns should the courts of one sovereign practice comity and respect the judgement of the courts of another? And at the broadest level, how might rules of jurisdiction be reformulated and harmonized to prevent jurisdictional conflicts such as this from arising in the first place?

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These sort of questions have existed since the very beginning of cross border trade, simmering away on a back burner to one degree or another, but have very recently become dramatically more urgent reaching the proverbial boiling point on the relative high-heat burner of cyberspace.

The scenario just presented, a real one to which this paper shall return, demonstrates a number of key points that become self-evident

1. Cyberspace is inherently global, requiring a global point of view. It is simultaneously nowhere and everywhere, and those participating in it have little, if any, control over where it will pop into existence.

2. Jurisdiction matters. In addition to the familiar arguments revolving around fairness in terms of notice and convenience to the party sued, in practice it is often partially or wholly determinative of choice of law and therefore outcome.

3. If you are an operator in cyberspace, you are presently liable to be dragged into court anywhere in the world at any time -- if for no other reason than to contest jurisdiction or face default. This is because territorial jurisdiction in matters of the non-territorially constrained realm of cyberspace is both highly uncertain and often existing simultaneously across many far-flung fora.

While the real life scenario, as described, is more than just a little interesting in considering the state of jurisdiction doctrine at the start of the Twenty-First Century, consider the following two hypothetical variations on the basic fact pattern:

1. Rather than a large, well financed corporate behemoth of the internet business sector, facilitating

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the transactions of others, and that purposefully engages itself in a myriad of unrelated international business transactions, instead the offensive web-site is operated by a small, and otherwise local antique dealer in the Willamette Valley of Oregon, as the seller in the transactions, on a computer in the back room of the business.

2. Rather than Nazi memorabilia, the subject matter of the web site is an internet securities offering by a legitimate securities issuer, whose internet offering is in compliance with US securities regulations, but is not in compliance with some pertinent law of the offended sovereign state.

Does either variation change any of the answers? Should they? One could easily spin numerous other hypothetical variations to wash out the moral, cultural, and power dynamics of the parties to the controversy, but these two suffice to demonstrate the point.

Historical overview: Part I



A brief review of the historical development of territorial jurisdiction to adjudicate in the United States will facilitate the discussion that follows. This overview does not purport to present a comprehensive history, but rather seeks to trace the development of the current doctrinal limitations on territorial jurisdiction to adjudicate in the US: namely, the requirements that the action be categorized, analyzed for the existence of territorial power under the power test, and subjected to due process scrutiny under the unreasonableness test. [FN13]

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Actor forum rei sequitur, or "the plaintiff follows the defendant's forum," was the classical jurisdictional doctrine imported into America from England during the colonial period. [FN14] The doctrine had its roots as a Justinian maxim in Roman law, which England had adapted and incorporated into the theory that sovereignty rested on the consent of the governed. [FN15] Thus, jurisdiction came to require the consent of the defendant. The early British requirement of express consent was, as one might imagine, met through coercion of the defendant by the plaintiff, yet coercion ultimately gave way to the more civilized doctrine of implied consent through physical presence [FN16] -- the seed of the modern idea of physical power to adjudicate over the person.

At the birth of the industrial revolution, some American jurists were casting their nets farther afield in the development of jurisdictional doctrine. The theory of exclusive, territorially based jurisdiction appears as early as 1684 with the work of the Dutch Jurist Ulric Huber. [FN17] Huber wrote in the historical

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context of a relatively new confederation of states, [FN18] the seven northern provinces of the Low Countries, [FN19] which renounced their allegiance to the Spanish Crown, becoming the Republic of the United Provinces, also know as the United Netherlands. [FN20] Huber's writings had a natural appeal to an early American jurist at a time when territorial tensions among the several states encouraged the adoption and development of a theory of exclusive jurisdictional power based on territory. [FN21] One hundred fifty years after its genesis, the theory made its 1834 appearance in Justice Joseph Story's celebrated treatise, COMMENTARIES ON THE CONFLICT OF LAWS. [FN22]

Fairly early, the need became apparent for power to be categorized into what the power was directed upon, even though all actions ultimately affect a person's interests: As early as 17th Century colonial America, power concepts led to the invention of jurisdiction by attachment, or quasi in rem, [FN23] in

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response to the demands of politically powerful creditors seeking a better collection tool in the aftermath of the depression of 1640 than personal jurisdiction then afforded. [FN24] Such is the conceptual baggage of the concept of power that attachment jurisdiction remains with us three hundred and sixty years later even though the subsequent expansion of personal jurisdiction has largely overcome the problems that led to this development. [FN25] In the context of limitations on power, Justice McLean, in the 1850 case of Boswell's Lessee v. Otis, wrote that "[j]urisdiction is acquired in one of two modes: first as against the person of the defendant by the service of process; or, secondly, by a procedure against the property of the defendant within the jurisdiction of the court. In the later case, ... [i]t must be substantially a proceeding in rem." [FN26] Thus, we have jurisdiction over persons (in personam) and jurisdiction over things (in rem). Of course, in rem ordinarily requires a nexus, i.e., that the property under power be the subject matter of the controversy. Quasi in rem did away with the nexus requirement, so that it is sufficient that the property be that of the defendant, but no longer necessary that it be the subject matter of the controversy. Necessarily, from a conceptual point of view, when the court proceeds in rem, it assumes power over the thing, or res, not the person, and "the defendant is not personally bound by the judgment beyond the property in question." [FN27]

In the 1877 case Pennoyer v. Neff, Justice Field further noted that power over the res is good because "[t]he law assumes that property is always in the possession of its

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owner." [FN28] This is a prime example of the sort of legal fiction that binds the power theory together. This decision precisely memorialized the doctrine of exclusive territorial jurisdiction by applying to the sovereign states the "principles of public law," one of which is "that every state possesses exclusive jurisdiction and sovereignty over persons and property within its territory," and by corollary, "no state can exercise direct jurisdiction and authority over persons or property without its territory." [FN29] One hundred and twenty-four years later, we still live with the last viable holding of the Pennoyer decision: the second prong of the necessity and sufficiency of physical presence for the exercise of personal jurisdiction -- i.e., that physical presence of the defendant is always sufficient for the exercise of personal jurisdiction over her.

The power theory of exclusive territorial jurisdiction made sense in the compact, agrarian economies of both Seventeenth Century Holland and early Nineteenth Century America, and it generally resulted in "correct" outcomes, while minimizing interstate judicial conflict. The corollary, stated above, is most important because the power theory is, in the application, fundamentally one of limitations between sovereigns, explaining when and why a court, as in Pennoyer, should not adjudicate in light of those considerations. Moreover, those considerations primarily are infused with the mutual interests of sovereigns and politically powerful entities, rather than issues of fairness as to the parties. That is, the true underlying rationale was always the desirable allotment of authority among the courts of competing sovereigns. [FN30] However, while power explained jurisdiction relatively well prior to industrialization, it inevitably became less and less effective at jurisdictional explanation as industry and technology developed and the territorial relationship between parties in a transaction become less and less important.

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Development of Unreasonableness as an Erosion of Power

:

The manifestations of the inherent conceptual problems with the doctrine of power as the basis for jurisdiction are at a minimum when transactions between persons are, either wholly or substantially, localized geographically. As parties to transactions become geographically dispersed, power becomes less reasonable as a rationale for the exercise of jurisdiction. This is because power never adequately explained why, with a geographically complex cause of action, jurisdiction should be exercised in one forum rather than another. Recall that power ultimately developed out of the Justinian maxim actor forum rei sequitur, which was essentially an expression of the spirit of fairness at a time when Roman law enjoyed unlimited sovereign power. [FN31] As a determinative doctrine, though, the evolved, modern power theory never encompassed the assurance of fairness in an environment of mutually powerful and competing sovereigns. Such an assertion, of course, suggests that it was not a reasonable rationale in the first place, but merely a doctrine of convenience that fit the times. As the times have diverged from those of the source of the doctrine, it has become increasingly necessary to balance a test for unreasonableness against the unbridled expression of power. Thus, a line of cases developing an unreasonableness test as against the unfair exercise of territorial power was inevitable. Furthermore, the American courts began addressing the "why" of power in addition to the "what," leading to the development of doctrinal bases of jurisdiction that provided the theoretical explanation for the existence of the power in each category: The bases of personal jurisdiction, for example, are now physical presence, domicile, consent, and forum-directed acts. [FN32] The result is that

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the territorial power theory has undermined itself: jurisdictional exclusivity as an absolute doctrine having gone the way of the Dodo. [FN33]

In Mitchell v. Neff, [FN34] the non-resident Neff, not readily available for personal service, was given constructive service via local publication. [FN35] The Oregon court commenced an ex parte proceeding in personam against Neff, and entered default judgement against him in favor of Mitchell. [FN36] When Neff later purchased land in Oregon, it was seized and sold to Pennoyer in satisfaction of the judgement. [FN37] The result was Pennoyer v. Neff, and a decision that should not have been difficult. To proceed ex parte in personam, after all, is a logical oxymoron that cries out for a balancing test for unreasonableness. Although he could have easily avoided the constitutional issue, J. Field, for his own private reasons, was evidently not satisfied with the wholly adequate territorial power argument to justify the holding. Instead, Field took the opportunity to make constitutional law and to write one for the casebooks. Deep in the opinion, he went the extra step of looking to the then recently ratified Fourteenth Amendment to the U.S. Constitution as the underlying basis for the power test as articulated, to find that such a proceeding "to determine the personal rights and obligations of parties over whom that court has no jurisdiction do[es] not constitute due process of law." [FN38]

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Field's opinion marked the genesis of the view of jurisdiction as a constitutional doctrine, and due process under the Fourteenth Amendment has been eroding power ever since. A good example is found in Justice Oliver Wendell Holmes' 1917 opinion in McDonald v. Mabee. [FN39] Here, the principle that "service by publication dos not warrant a personal judgment against a non-resident" is extended into the realm of the resident, Mabee, who has departed, intending never to return (with dicta further suggesting that the same principle should apply to absent parties more generally). [FN40] J. Holmes acknowledged bluntly that "[t]he foundation of jurisdiction is physical power ...," and in the context of the due process tempered power theory, explained why, where the defendant had left the state, intending never to return, and the only service of process was by local publication, the Texas courts had no basis for jurisdiction in personam. [FN41]

The full development of an unreasonableness test woven out of the cloth of due process came in the 1945 case of International Shoe v. Washington. [FN42] Therein, Chief Justice Stone, in rejecting "simply mechanical or quantitative" criteria in determining the boundary line of jurisdiction to adjudicate the rights and responsibilities of a non-resident corporation doing business in the state, and he held that "[w]hether due process is satisfied must depend ... upon the quality and nature of the activity in relation to the fair and orderly administration of the laws which it was the purpose of the due process clause to insure." [FN43] The opinion goes on to rule that "the activities ... were systematic and continuous ... in the course of which appellant received the benefits and protection of the laws of the state, .... The obligation which is here sued upon arose out of those very activities. It is evident that these operations establish

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sufficient contacts or ties with the ... forum to make it reasonable and just, ... to permit the state to enforce the obligations which appellant has incurred there. Hence we cannot say ... the present suit ... involves an unreasonable or undue procedure." [FN44] The lesson was that jurisdictional analysis must henceforth consider the question of unreasonableness before allowing power to be exercised, and that the crucial element in that analysis must specifically be the relation of the cause of action to the defendant's activity within the forum. Another effect, given the "mechanical or quantitative" language, was to ensure the ensuing tradition of ad hoc fact-based analysis of jurisdictional questions as a common-law doctrine that has inevitably led to a state of jurisdictional uncertainty and lack of predictability in geographically complex controversies. However, C.J. Stone failed to explain why only such an ad hoc judicial analysis could implement the constitutional protections of the Fourteenth Amendment.

In 1958, the Court in Hanson v. Denckla elaborated on the minimum- contacts idea by declaring that "there be some act by which the defendant purposefully avails itself of the privileges of conducting activities within the forum State, thus invoking the benefits and protections of its laws." [FN45] Shaffer v. Heitner, in considering a case of jurisdiction quasi in rem in 1977, extended the minimum-contacts analysis, and the application of the unreasonableness test, from jurisdiction in personam to all categories of jurisdiction to adjudicate. [FN46]

A sort of culmination to this jurisdictional morass came in 1980 with World- Wide Volkswagen Corp. v. Woodson, in which Justice White opined that the Due Process Clause, "acting as an instrument of interstate federalism, may sometimes act to divest the State of its power to render a valid judgement." [FN47] In so opining, he ruled that where the plaintiff

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had purchased an automobile in one state, and was involved in a collision in a second, in which the harm was allegedly enhanced by a defect in the automobile, the state where the collision occurred had no jurisdiction over the auto dealer and distributor, who were located in the first state and did no business in the second. Ignoring the strong arguments in the dissenting opinions regarding the reasonable expectation that an automobile would likely be driven out of the state, [FN48] the broader flaw in restricting the unreasonableness analysis to the interests of the defendant, and by implication the development of an ad hoc mode of analysis, becomes relatively clear.

In the first instance, the Court has created a situation, and the potential for a virtually limitless number like it, where the plaintiff can seek full justice only by litigating the same cause of action twice. Surely, the local defendant driver of the other automobile involved in the collision is not amenable to suit in the forum of the first state. However, the specter of double litigation, and its impact on the interests of the plaintiff, do not factor into the Court's due process analysis as the Court has formulated it through International Shoe [FN49] and its progeny. In the second instance, the Court has created a situation, and the potential again for many more like it, where the relevant litigation must be conducted in a forum in which neither the evidence nor the witnesses are located. Such physical distancing of jurisdiction from the tools of litigation also does not factor into the Court's conception of a doctrine of fairness. One cannot know for certain, but had the Court adopted a mode of analysis that examined the interests of both the plaintiff and the defendant, as well as the forum, in its application of an unreasonableness test, it is likely that this case would have come out the other way. One also cannot know for certain when, or with what case or fact pattern, the Court may decide to alter its method of ad hoc analysis.
2014-07-19 18:44
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