Article - Internet jurisdiction only deeper in confusion (May 2003)
- Pavlovich v Superior Court
- MGM v Grokster (Kazaa order)
- The Questions
The liberal ideologies of the programmers and engineers that gave birth to the Internet said that it marked the beginning of a new age of uninhibited information. But to do so would have meant a miraculous escape from the omniscience of politics, greed and lawyers. Instead, years and years down the track from the first Internet-related disputes, the legal profession is still being paid by the hour to disagree on just how to deal with the thorny question of jurisdiction in cyberspace.
Pavlovich v Superior Court
Matthew Pavlovich, a student and resident of Indiana, was the founder and leader of a software project aimed at overcoming the encryption used to prevent the copying and unlicensed use of DVDs. This ‘LiVid’ project’s stated goal was to enable Linux systems to play DVDs without having to betray Linux’s free open source model of distribution.
In October 1999 Pavlovich posted the code to break the DVD encryption in plain text format on the LiVid website. At the time he acknowledged that he thought his reverse engineering of CSS encryption was probably illegal, and that he was aware there was a body that issued licences for the technology, but he did not know of the DVD Copy Control Association (DVDCCA), the California body which administered CSS on behalf of the motion picture industry. In fact, the DVDCCA did not begin operation until December 1999, two months after the posting.
The DVDCCA sued Pavlovich in 2000 in a California court for misappropriating trade secrets. Pavlovich moved to quash the service of process for lack of personal jurisdiction. The motion was denied in a lower court, but the California Supreme Court issued an order vacating the decision and required the court to give reasons for its terse dismissal. It did so, affirming its earlier decision, and the appeal soon returned to the Supreme Court. The court found in favour of Pavlovich by a narrow 4-3 majority, finding that California had no jurisdiction.
As the majority judgment explains, a Californian court can either claim general or specific jurisdiction over a defendant. General jurisdiction requires that the defendant have extensive and systematic contacts with the forum state, but the plaintiff can sue on a much wider range of actions. The DVD CCA sought to have Pavlovich haled into the California court based on specific jurisdiction. This requires, according to Brown J, that:
‘(1) the defendant has purposefully availed himself or herself of forum benefits’;
‘(2) the controversy is related to or arises out of the defendant’s contacts with the forum’; and
‘(3) the assertion of personal jurisdiction would comport with fair play and substantial justice’.
The decision cited the Zippo v Zippo case, which set one of the earliest benchmarks for Internet jurisdiction, saying that sites with little or no interaction with the user could not support the ‘purposeful availment’ prong of the test, while sites that knowingly made contracts with consumers with the exchange of several files were sites that could be haled into court wherever the user was located. The technical distinction that Judge McLaughlin made between ‘interactive’ and ‘passive’ sites in Zippo in 1997 would be sorely tested by a wide variety of content delivery methods common today but nevertheless the judge found that the DeCSS posting clearly fell into the non-interactive category. In doing so he also pointed to the lack of any evidence of a Californian actually visiting the site, and Pavlovich’s total lack of contacts with the state.
The larger part of the decision focused on the DVDCCA’s attempt to have the purposeful availment requirement satisfied by the ‘effects test’. The effects test was established by the US Supreme Court in 1988 in Calder v Jones, where a California resident sued a Florida publication for defamation. The essential feature of the effects test is that the ‘brunt of the harm’ of the tortious act is felt in the forum state.
However, this decision spends a great deal of time emphasising that the defendant’s actions must do more than to simply create a foreseeable prospect of harm in the forum state; the plaintiffs must be able to ‘point to specific activity indicating the defendant expressly aimed its tortious conduct at the forum’. Brown J discusses the line of cases since Calder and cites a large number of authorities to support this proposition.
Since the DVDCCA only began operations 2 months after the code was posted to the LiViD site, the judge reasoned that the only basis for concluding Pavlovich ‘expressly aimed’ his conduct at California was the reasonably foreseeable possibility of harm to entertainment industries centred in California. Since the DVDCCA brought suit on misappropriating trade secrets, the judge questioned whether it would support jurisdiction under any circumstances. He nevertheless concluded that such contacts were not sufficient.
...the foreseeability that third parties may use DeCSS to harm the motion picture industry cannot, by itself, satisfy the express aiming requirement. Because nothing in the record suggests that Pavlovich encouraged Web site visitors to use DeCSS to illegally pirate copyrighted motion pictures, his mere ‘awareness’ that they might do so does not show purposeful availment.
In a closing passage sure to be quoted by litigants disputing jurisdiction in future cases, Brown J says that a finding for the DVDCCA would mean that ‘plaintiffs connected to the auto industry could sue any defendant in Michigan, plaintiffs connected to the financial industry could sue any defendant in New York, and plaintiffs connected to the potato industry could sue any defendant in Idaho.’
MGM v Grokster (Kazaa order)
Perhaps it is surprising, then, that just over a month after this decision, a Californian federal court claimed jurisdiction over the Vanuatu incorporated and Australian operated company that distributes the Kazaa file-sharing software.
The Kazaa file-sharing software runs using the proprietary ‘FastTrack’ network, which was originally designed by a Dutch couple. Access to FastTrack was licensed to software developers, who created their own interfaces for the network. The founders also created their own network access software, Kazaa, as the company Kazaa BV. Following the launch of this lawsuit, Kazaa BV’s assets - the website, brand, and long term licence to the FastTrack network, and later the operation of the network itself - were transferred to Sharman Networks, a company incorporated in Vanuatu and run from the north shore of Sydney.
The company’s contacts with California, as outlined by the plaintiffs, were the provision of the Kazaa software to 2 million California residents (together with the associated end-user licence agreement); the use of a PR company, an online advertising agency and a law firm in California; a number of contracts with other Californian companies inherited from Kazaa BV; and a number of forum selection choices in such contracts specifying California and other US states.
The court denied Sharman Networks’ dismissal motion, which claimed that the court lacked personal jurisdiction over the case. Wilson J determined that Sharman could be haled into court under the purposeful availment prong of the jurisdiction test before even referring to the ‘effects test’ first, in an ominous decision for future litigants trying to escape the wrath of Hollywood’s lawyers.
Wilson J characterises the test for personal jurisdiction (purposeful availment of the forum, relevance of the in-forum activities to the complaint, and overall reasonableness) as instructive rather than binding tests, with the overarching emphasis placed on the reasonableness test based in the US Constitution ‘due process’ clause. However, copyright holders will be encouraged by the fact that the judge framed his decision firmly in terms of the first two elements of the test and only considered the reasonableness factor when the final result was beyond any doubt.
The judge first ruled that the forum contacts retaining law firms and advertisers, and the various contractual matters linking Sharman to California, were too distant from the subject of the litigation - copyright infringement - and thus could not be considered in the jurisdictional analysis. Thus the only contact relevant to the litigation was the online transaction - actual downloading of the Kazaa software by the California users.
On this point, Sharman argued that the software was not purposefully directed at California. This line of argument was supported by cases such as World-Wide Volkswagon v Woodson, in which the Supreme Court has held that ‘personal jurisdiction cannot be exercised where the only contact with the forum state is as the result on an isolated or fortuitous act not directed by the defendant.’ Such a doctrine has been used to support the Zippo sliding-scale test, where purposeful availment is determined based on the level of ‘interactivity’ the site has with the user.
Wilson J held that Sharman had purposefully availed itself of California since:
- circumstantial evidence suggested that over 2 million California residents downloaded the software;
- the software was distributed for commercial gain through advertising revenue; and
- users had a high degree of ‘interactivity’ with the site - they downloaded software and executed contracts with Kazaa.
Wilson J then gave a lengthy consideration of the application of the effect test to his case, discussed below.
The final issue Wilson dealt with was the constitutional requirement of reasonableness, which, as he explains, is a decisive and necessary factor that can swing a jurisdictional decision either way. Despite the six pages the judge spends covering the various factors that can go towards this requirement, the outcome is never in doubt; Kazaa’s asset sale to a Vanuatu corporation was a decidedly unsubtle attempt to escape US jurisdiction. What is perhaps more important is that the court claimed jurisdiction before even considering such aspects of Sharman’s behaviour.
The effects test
‘Even if purposeful availment were not manifested by Sharman’s commercial contacts, it nonetheless may be demonstrated through the ‘effects test.’’ It was held the ‘effects test’ for purposeful availment would apply in this case.
However, Wilson’s J judgment offers an interesting observation on the test. Sharman argued that the test did not apply because it was not the party that had actually committed the tortious act - it was the users of Kazaa committing the copyright infringement - and that the test had never applied to a non-tortfeasor before. Wilson J seemed to agree that the effects test required an ‘intent to cause a tortious effect within the forum state’ - and thus, Sharman would unlikely be held liable for a claim of vicarious infringement. However, it was not to escape so easily. Wilson J went on to say that Sharman was, on the facts alleged, guilty of contributory infringement - that it was, in fact, a tortfeasor - and that the necessary intent was thus present.
He also briefly noted that Sharman should have reasonably been aware of the effect the conduct would have on the state of California, and it was only here, in a full page footnote, that the Pavlovich decision was considered. Sharman had argued that Pavlovich held that more than just an awareness of the foreseeable risk of injury to the plaintiff was required to satisfy the effects test.
Having noted that the court was divided 4-3 and that the California Supreme Court’s decision was not binding on his federal court, Wilson J quoted the Pavolvich majority acknowledging that ‘[a] defendant’s knowledge that his tortious conduct may harm industries centred in California is undoubtedly relevant to any determination of personal jurisdiction and may support a finding of jurisdiction.’ He decided that Kazaa’s wide distribution within California constituted an act that satisfied the express aiming/intentional targeting requirement.
This was tendered together with what might be a far more persuasive fact in showing a targeting of California - that Sharman was aware of this litigation when it bought Kazaa BV. Nevertheless this point was relegated to a brief mention in a footnote and the judgment would have stood without it.
The opinions of the two courts seem furthest apart on their view of the ‘purposeful availment’ requirement. There were a number of differences between the facts of two cases on this point (as listed below). But one has to question whether they should have made the difference to the outcome that they did.
- Kazaa users downloaded the Kazaa software as an executable file. Pavlovich’s site was a plain text posting of computer code.
- Kazaa users had to submit to the end-user licence agreement. Pavlovich’s site apparently had no agreement or terms of service.
These distinctions are the realm of the Zippo test - a sliding scale test of the ‘interactivity’ of a website in determining jurisdiction. Passive, non-interactive websites are at one end, and sites clearly doing business over the Internet are at the other. Sites in the ‘middle ground’ should be decided on a case-by-case basis.
This test has sometimes been interpreted as referring to particular technical features of the site. The fact is that such distinctions are founded, at best, on a flimsy basis. As far as forum contacts are concerned, there is very little technical difference between a site of plain text with links and pictures, a site heavily laden with Flash gimmicks, and a downloadable file; all are simply a unilateral request for data from a remote server. There is a greater degree of ‘interactivity’ with the forum in an online voting poll on a news site than downloading the Kazaa software.
It is much easier to support the Zippo test if the sliding scale is couched in terms of ‘legal interactivity’ instead - i.e., contracts formed and legal obligations between the site and the users. This, of course, raises a whole new set of uncertainties and questions but at least a judge is better qualified to deal with them.
- It was estimated that Kazaa had about 2 million Californian users among its 143 million users worldwide. There was no specific evidence that a Californian had actually visited Pavlovich’s site.
- Kazaa was a commercial enterprise that relied on the wide distribution of its software to make money through advertising. The LiVid site was not a commercial undertaking; there may have been some banner advertising on the site but it is not mentioned.
The preponderance of Kazaa’s contacts with California was a significant factor in Wilson’s J decision to find jurisdiction. But there are many other sites with large followings on the Internet. Does slashdot.org or cnn.com purposefully avail itself of an Australian court simply because its business model relies on large numbers of visitors, a proportionate number of whom come from the forum? By this reasoning, purposeful availment would be found without any conduct aimed at the forum at all - for example, a defamatory article about an Australian resident, as relied on by the Australian High Court in Gutnick v Dow Jones.
It is not difficult to criticise the Kazaa decision on policy grounds. But Wilson’s J reasoning may yet stand. The fact is that, even after more than seven years of deliberating on the point, there are a huge number of questions to be answered on how websites will be treated on jurisdiction.
 Matthew Pavlovich v Superior Court of Santa Clara County, 2002 Cal. LEXIS 7959. Page references below refer to the version hosted at http://www.eff.org/IP/Video/DVDCCA_case/20021125_pavlovich_opinion.pdf
 Pavlovich p6
 Zippo Mfg Co v Zippo Dot Com, 952 F Supp 1119, 1124
 Calder v Jones, 465 US 783
 Pavlovich p8
 Pavlovich p17
 Pavlovich p19-20
 Metro-Goldwyn-Mayer Studios Inc. et. al., v. Grokster, Ltd., et. al., CV 01-08541-SVW (PJWx), USDC (Central Dist. Calif.), Jan. 8, 2003; and Leiber d/b/a Jerry Leiber Music v. Empowerment BV a/k/a Fasttrack, CV 01-09923-SVW (PJWx), USDC (Central Dist. Calif.), Jan. 8, 2003. Available at http://www.politechbot.com/docs/kazaa.jurisdiction.ruling.011003.tif
 World-Wide Volkswagon Corp v Woodson 444 US 286. Oklahoma refused to assert jurisdiction over a New York car dealer after the plaintiff had an accident in Oklahoma in the car purchased from the defendant.
 MGM v. Grokster p16
 MGM v. Grokster p19
 MGM v. Grokster p21
 MGM v. Grokster p23
 MGM v. Grokster; Wilson J quotes Batzel v Smith 2001 US Dist LEXIS 8929; a ‘‘strictly ‘passive’ website, in which only contacts with the forum state consist of mere viewings of the website’s content by those surfing the Internet,’ typically will not give rise to specific jurisdiction.’ p17
 One of the earliest cases to decline jurisdiction. Bensusan v King 937 F Supp 295, 300
 Gutnick v Dow Jones 2002 HCA 56