|This article will analyze the factors that New York courts have utilized in determining whether it is proper to exercise jurisdiction over out of state defendants that offer or sell products on the internet that prospectively infringe upon the trademarks of others, particularly focusing on CPLR §302, or the Long Arm statute, and how each of the sections contained therein relate to this inquiry.|
|Under CPLR §302(a)(1), it is possible for a court to exercise personal jurisdiction “where the cause of action arises from any of the acts enumerated in this section, … (and the defendant) transacts any business within the state or contracts anywhere to supply goods or services in the state.” Query: does the defendant’s operation of a website that is available for viewing in New York constitute the transaction of business in New York? The simple answer is that it may depend upon the level of business activity performed on the internet by the defendant. More to the point, the Second Circuit has generally followed a standard whereby it evaluates websites on a general spectrum of activity that typically fall into one of three categories, namely, passive, interactive and active.1 “Passive” websites are mere advertisements for the goods that may be available for sale by the website owner and are similar in character to an advertisement in a national newspaper or magazine, which absent other mitigating factors would not be sufficient to permit a court to exercise personal jurisdiction over a prospective defendant.2 An example of a “passive” site would be one where the prospective defendant’s site contained an image of the infringing product along with an accompanying phone number that prospective purchasers could call in order to obtain information about the product. This type of site acts as a mere advertisement and, as a result, is not likely to create a basis for personal jurisdiction.|
|By comparison, if a court determines a defendant’s site to be “active,” that determination may be sufficient to exercise jurisdiction over an out-of-state defendant in New York. An “active” site would “allow consumers to exchange information and actually do business through the internet such as where it repeatedly transmits computer files to customers in other states.”3 While New York courts appear to discuss the types of websites that would theoretically fit into this “active” category, the courts have not actually analyzed many instances where websites were determined to be “active;” thus the analysis in this area of the internet interactivity spectrum is somewhat lacking.|
|Occupying the middle ground are websites that are classified as “interactive,” “which permit the exchange of information between the defendant and website viewers.”4 As example of this type of site is an out-of-state website that allowed New York users to purchase products by providing payment and shipping information online. The Southern District considered this type of exchange to be sufficiently “interactive” for jurisdictional purposes, and dismissed a motion by the defendant for lack of personal jurisdiction.5 However, a medium level of “interactivity,” which permits the exchange of information via the defendant’s website is, typically speaking, not sufficient in a vacuum for a New York court to exercise jurisdiction over an out of state defendant. Rather, courts that have permitted the exercise of jurisdiction over a trademark defendant operating an out-of-state website have required a plaintiff to prove further contacts by the defendant with New York.6 Examples of the types of contacts that supported a finding of jurisdiction over an out-of-state defendant, when combined with a site determined to be “interactive,” include where a defendant had affiliates and attended trade shows in New York, or in the alternative actively attempted to recruit customers in New York. Under both of these circumstances, the courts have held that the defendant purposely availed itself of the benefits of “transacting business” in New York, thus permitting the exercise of jurisdiction.7 Thus, while no court has definitively stated that a plaintiff must show instances of non-internet contact with the forum in order to exercise jurisdiction over an out of state defendant, recent jurisprudence has made such a finding a de facto requirement.|
|Turning to CPLR §302(a)(2), it is possible for a New York court to exert jurisdiction over an out of state defendant if it “commits a tortious act within the state.” However, the mere display of a prospective defendant’s wares on a website that is viewable by New York purchasers is not considered a tortious act within the state. Rather, in instances where an out of state website is displaying products bearing an infringing mark viewed in New York, the tort is deemed to be committed where the website is created and/or maintained.8 Therefore, this section of the Long Arm statute will not create a basis for a New York Court to exercise jurisdiction over an out of state defendant that merely displays its products on the internet, or for that matter, provides an electronic form that users could complete to order products in New York.|
|Finally, a prospective defendant’s website must be evaluated within the context of CPLR §302(a)(3). Under CPLR §302(a) (3)(i), it is possible for the Court to exercise jurisdiction in instances where the prospective defendant “commits a tortious act without the state causing injury to person or property within the state … 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 the state.” This sub-section of the Long Arm statute shares a great deal of similarity with CPLR §302(a)(1), except that it is exclusively for use in conjunction with torts, as compared to CPLR §302(a)(1), which is also applicable to breach of contract disputes. However, for the purposes of this article, the analysis under CPLR §302(a) (3)(i) is essentially the same as under CPLR §302(a)(1).|
|By comparison, under CPLR §302(a)(3) (ii), it is possible for a court to exercise jurisdiction if the defendant “commits a tortious act without the state causing injury to person or property within the state… if he…expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.” In order for a court to maintain jurisdiction over an out-of-state trademark defendant selling products that are the subject of a potential tort claim, the court will engage in a four part test in order to assess the propriety of the same, namely whether “(1) defendant committed a tortious act outside of New York, (2) plaintiff suffered harm in New York, (3) defendant should have reasonably expected its actions to have consequences in New York, and (4) defendant derives substantial revenue from interstate commerce.”9|
|The first two factors of the test are typically met in a trademark infringement scenario. First, when a website is displaying a product bearing an infringing trademark, the tort is deemed to be committed where the out-of-state website is created and maintained, thus meeting the first factor. Second, a plaintiff’s allegations of deception or confusion, or potential confusion, amongst actual or potential customers in conjunction with the allegedly infringing products made available to New York consumers via a defendant’s site is sufficient to meet the second prong.10 The third prong is more difficult to meet in that it “requires that a defendant foresee that its tortious act will have some (emphasis added) consequences in New York, although not necessarily the exact consequences that occurred.”11 Clearly, in an instance where the prospective defendant’s website is promoting products that would be of interest to New Yorkers such as Yankees or Mets gear, even if there has not yet been a sale made of such products, the prospective defendant clearly expects, or should expect, that the offer for sale of such products would have consequences in New York. However, if the products in question are more generic, the defendant will have less reason to expect its actions will have consequences in New York. Fourth, with respect to the “substantial revenue” derived from interstate commerce prong, the case law does not provide any minimum threshold. However, if the prospective defendant can prove that nearly all of its sales have been local, it is likely that a court would not be able to exercise jurisdiction under this portion of the statute.12 After a court has made its evaluation under the Long Arm statute, it must make an assessment regarding whether the exercise of personal jurisdiction comports with “traditional notions of fair play and substantial justice.”13 Generally, a court will require a defendant to defend itself in a New York court “if the claim arises out of, or relates to the defendant’s contacts with the forum, minimum contacts exist where the defendant purposefully availed itself of the privilege of doing business in the forum and could foresee being haled into court there.”14 If it is determined that the Long Arm statute permits the exercise of personal jurisdiction under any of the bases detailed herein, it would certainly seem that due process of the prospective defendant would not be violated. Under 302(a)(1) and 302(a)(3)(i) the defendant would have purposely availed itself of the benefits of the forum by doing business in the state, provided the claim related to the defendant’s contacts. By comparison, under 302(a)(2) or 302(a)(3)(ii), the defendant would have either sold an infringing product into the forum, or engaged in behavior that would be clearly anticipated to have an impact in New York, which would demonstrate that the prospective defendant had purposefully availed itself of the benefits of the forum. Thus under either circumstance, fair play and substantial justice would not appear to be violated.|
|In conclusion, the exercise of personal jurisdiction over a trademark defendant whose chief presence in the forum is web-based will depend heavily upon the nature and extent of the interactivity of the website’s features, in addition to more traditional “brick and mortar” business contacts with the state.|
|Keith A. Weltsch is a senior associate at Scully, Scott, Murphy & Presser, P.C. concentrating in trademark and copyright law.|
|1. Citigroup Inc. v. City Holding Co., 97 F. Supp. 2d 549, 565 (S.D.N.Y. 2000).
4. Id.; Student Advantage, Inc. v. International Student Exchange Cards Inc., 00 Civ. 1971 (AGS), 2000 U.S. Dist. LEXIS 13138, 4* (S.D.N.Y. 2000).
5. Student Advantage, *11.
6. Rosenberg v. PK Graphics, 71 USPQ2d 1223, 1224 (S.D.N.Y. 2004).
7. Hsin Ten Enter. United States v. Clark Enters., 138 F. Supp. 2d 449, 456 (S.D.N.Y. 2006); Student Advantage, *12.
8. Citigroup Inc., 97 F. Supp. 2d at 567.
9. Starmedia Network Inc. v. Star Media Inc., 64 USPQ2d 1791, 1792 – 1793 (S.D.N.Y. 2001).
10. Citigroup Inc., 97 F. Supp. 2d at 568.
11. In re DES Cases, 789 F. Supp. 552, 570 (E.D.N.Y. 1992).
12. Bensusan Restaurant Corp. v. King, 126 F.3d 25, 29 (2d Cir. 1997).
13. Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).
14. Bank Brussels Lambert v. Fiddler Gonzalez, 305 F.3d 120, 127 (2d Cir. 2002) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472-76 (1985)).
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