More Brussels, anyone?

John Prescott made the headlines recently when he uncharacteristically upset French Environment Minister Dominique Voynet at the recent International Conference on Global Warming. However, another less reported legal row involving France has been boiling away behind the scenes. It concerns the French EU Presidency’s desire to push through new rules on jurisdiction for consumer contracts. These were approved in Brussels on 30th November 2000. (“Council Regulation (EC) on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters, and particularly Chapter II, Jurisdiction, Section 1, Article 15”). The amendment could expose Scottish web businesses large or small to the risk of litigation in a foreign country simply because their website can be accessed there and used to enter a consumer contract.

The adopted text provides that, with very limited exceptions, the courts of the consumer’s domicile shall have jurisdiction if “the contract has been concluded with a person who pursues commercial or professional activities in the Member State of the consumer’s domicile or, by any means, directs such activities to that Member State or to several States including that Member State, and the contract falls within the scope of such activities”. This seems squarely to encompass the basic web business model.

Further problems may occur when this new Brussels Regulation is read along with the ‘Rome II Convention’ governing the applicable law of a contract. Once a foreign court has taken jurisdiction it could replace the provisions of the contract with its own mandatory consumer protection laws. For example, if a consumer who is habitually resident in France enters into a contract (governed by Scots law) with a company established in Scotland by accessing the Scottish company’s website - in the event of a contractual dispute the newly adopted Brussels Regulation seems to give the French courts jurisdiction, applying French law. (Thought - France has enacted that all consumer contracts must be written in French - so does this mean that the terms and conditions of a British company will be treated as pro non scripto by a French court adjudicating a web dispute? Answers on a postcard. Maybe multi lingual websites will have to become the norm.)

Consumer groups reasoned that if Internet shoppers are able to sue in their own courts this will add to the general credibility and desirability of e-business in the long term. Industry groups however are dismayed that the amendment to the Brussels Convention is a further nail in the coffin of e-commerce, with British SME’s fearful of setting up websites that are any more interactive than shop windows, lest they risk being sued in foreign courts throughout the European Union.

So what might the concept of “directing activities” at a consumer involve? Industry groups feel that there should be an objective test to determine whether the website actually targeted an overseas consumer. One suggested test seeks to distinguish between “active” and “passive” websites, with only the former attracting the attention of the amended Brussels Regulation. The “active/passive” test is well known in the USA. There has been a recent British case in this area as well.

USA Cases

On 27 November 2000 the Philadelphia Superior Court ruled in the case of Kubik v Route 252. The Court held that a website which provided driving directions to Delaware from Philadelphia; an e-mail newsletter; and the online sale of gift certificates, did not “regularly conduct business” in Philadelphia. In this case the plaintiff was injured when his chair collapsed in the Delaware restaurant. The plaintiff lived in Philadelphia and claimed damages in the Philadelphia Court. The Trial Judge, affirmed by the Superior Court, concluded that the mere ability to see the website from Philadelphia was not sufficient to found jurisdiction.

In the case of Melvin v John Doe; Case Number 21942, Circuit Court of Loudon County, 24 June 1999, Melvin alleged that she had been defamed on a website by an unknown individual. Melvin asked the Court to order that the service provider, AOL, produce “all documents which identify the individual or entity who own, leases or subscribed to AOL to open the website where the alleged defamatory material was published”. AOL made a special appearance for the purpose of challenging the jurisdiction of the Court. The Court supported AOL. The action was dismissed for want of jurisdiction. The Court found that although the Plaintiff had satisfied the requirements of the Virginia Long Arm Statute, she had failed to aver sufficient facts to satisfy the “minimum contact” requirement of the Fourteenth Amendment. The defamatory posting did not target an audience in Virginia. There was no allegation that the un-named Defender worked, lived or maintained any personal or business relationship in Virginia. This was nothing more than “a passive website that does little more than make information available to those who are interested in it” – Telco Communications Grouts Inc v An Apple a Day Inc et al 977 F SUPP 404(ED.VA 1997). Further, a passive site could readily be distinguished from an “active” site. If the site is passive, a reasonable person would not expect to be “haled” before a Court in Virginia for the publication of material that could not with any degree of foreseeability evoke a response from one of its citizens. Mitchell v McGowan; Civil Action Number 98-1026-A (ED.VA 1998).

In the case of Bensusan Restaurant Corporation v King 96 CIV 3992 (SHS) dated 9 September 1996, Bensusan Restaurant sued in New York for trademark infringement, citing material posted on the defendant’s website. The defendant lived in Missouri and his site was hosted on a server there. The action was dismissed for lack of personal jurisdiction. The issue was whether the existence of a website was sufficient, without anything more, to vest the New York court with personal jurisdiction over the Defendant pursuant to New York’s Long Arm Statute and the Due Process clause of the United States Constitution. The Court held “the mere fact that a person can gain information on the allegedly infringing product (from the website) is not the equivalent of a person advertising, promoting, selling or otherwise making an effort to target its product in New York…… 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 toward the Forum State”.

In the recent English High Court decision of Euro Market Designs Inc v Peters, an American company sold household goods under the name ‘Crate and Barrel’. It had also registered the mark in the UK. The Defenders ran a shop in Eire also called Crate and Barrel. They had been there since 1994. The Irish shop had a website and had also put an advert in Homes and Gardens Magazine in the UK. Mr Justice Jacob stated “but if the trader is merely carrying on business in X and an advertisement of his slips over the border into Y, no businessman would regard that fact as meaning that he was trading in Y”. The Judge felt this reasoning was applicable to the website, and particularly so given its .ie domain name. His Honour stated “I rejected the suggestion that the website owner should be regarded as putting a tentacle on to the users’ screen”.  The Judge felt that the website was like using a telescope to look into the Defenders’ shop in Ireland. The Judge also significantly looked at the business activity of the Defenders and found that, unlike (for example) Amazon.com, the Defenders had not gone out of their way to solicit business in the rest of the world.

Yahoo! – Not.

Unfortunately, the French approach has already been flagged up. In August this year, the French dealt a severe blow to Yahoo!, which offers a wide variety of goods for sale on the Internet. In summary, the French Courts held that national boundaries could and should be respected on the Internet. They ordered that Yahoo! should block the ability of French citizens to access any part of the Yahoo! site where Nazi memorabilia might be offered for sale. Is this partitioning of cyberspace possible? It seems doubtful. Several companies offer technology for tracing the approximate physical location of a net user. Akami Technologies have a product called EdgeScape which can trace the physical position of servers that hand out the numeric codes or IP addresses used to route signals over the web to people’s computers. However, unsurprisingly, several tools exist on line that are designed to shield surfers’ personally identifiable information – including locations of their ISP’s. Zero Knowledge’s Freedom Network encrypts web traffic and sends it through a series of detours making it well nigh impossible to determine the origin of requests.

We will undoubtedly hear more about all the above. It’s not all doom and gloom though. At least the Brussels Regulation is due to be reviewed….….in five years.

Paul Motion is a partner with Ledingham Chalmers. He is Convener of the Society’s Electronic Commerce Committee and Scottish Legal Group Chairman of E-Centre UK.