Online marketing is increasingly common, but does it open a business to being sued anywhere in the country? The Seventh Circuit recently provided guidance on that question in Advanced Tactical Ordnance Systems, LLC v. Real Action Paintball, Inc., __F.3d__, 2014 WL 184926913 (7th Cir. May 9, 2014).
In Advanced Tactical, a California company manufacturing nonlethal ammunition was sued by an Indiana competitor in Indiana federal court alleging that the company had engaged in false advertising on its website and in emails to customers. Though the California company had no physical presence in Indiana, the competitor argued that there was personal jurisdiction based on the company’s occasional emails to its customer lists (which included at least two Indiana residents), its interactive website (accessible from Indiana computers), its hundreds of online sales to Indiana customers, and its presumed knowledge that the Indiana competitor would be harmed by the false advertising. The district court concluded that this satisfied the well-established “minimum contacts” test.
But the Seventh Circuit reversed, finding the company’s presence in Indiana too slight to confer jurisdiction. The court rejected out of hand the idea that merely maintaining an interactive website meant that a business could be sued anywhere in the country, stating that “the operation of an interactive website does not show that the defendant has formed a contact with the forum state.”
The court was also unconvinced that the company’s sales in Indiana were sufficient minimum contacts when there was no allegation that these sales were connected to the false advertising at issue. The court explained that “[t]o hold otherwise would mean that a plaintiff could bring suit in literally any state where the defendant shipped at least one item.”
Nor did the court view the defendant having an email list that included Indiana residents as a “purposeful” effort to direct false advertising to the Indiana market — the presence of some Indiana residents on the list was “fortuitous, depending entirely on activities outside of the defendant’s control.” The court noted that it is common for a company to allow consumers to sign up for an email list and concluded that it this alone did not demonstrate that a defendant had established a “substantial connection” to a state.
Finally, the plaintiff argued that it being based in Indiana was enough for jurisdiction. But, the court rejected this argument as well — a recent decision from the United States Supreme Court, Walden v. Fiore, 134 S. Ct. 1115, 1121 (2014), squarely holds that “the plaintiff cannot be the only link between the defendant and the forum.” Accordingly, the Seventh Circuit reversed with directions to vacate the judgment for lack of personal jurisdiction.
Overall, with the Advanced Tactical decision, the Seventh Circuit has provided guidance as to when online marketing may be a basis for personal jurisdiction:
- Courts understand that online retailers frequently have little control over who ends up on their email lists, and therefore, email lists alone are insufficient for personal jurisdiction.
- Similarly, interactive websites by themselves fail to provide adequate minimum contacts for personal jurisdiction.
- Even if an online retailer occasionally ships products to a particular state, there is no basis for personal jurisdiction unless the delivery itself forms the lawsuit’s basis. It is the plaintiff’s burden to demonstrate that connection.
- A defendant does not form a connection with a state merely by taking actions that may harm someone in that state, even if the harm is foreseeable.
- But, if as the court noted, the retailer “purposefully exploited” the market of a particular state “beyond simply operating an interactive website,” then that might be the basis for personal jurisdiction.