Apps and Jurisdiction: Are apps automatically creating personal jurisdiction for app creators?

Posted by Cyberbear on April 28, 2015 in Internet, Litigation, Mobile Phones |

Posted by: David Medina

April 19, 2015


Iphone_2The law on internet jurisdiction has been complicated from day one. Prior to the internet, a company’s actions had to be fairly deliberate to cause them to be exposed to personal jurisdiction in a given state. The reason for such a relatively strict rule was that otherwise, a company that had a website could be exposed to personal jurisdiction in every state since the internet is accessible everywhere. So to make things fair, companies were only exposed to personal jurisdiction in states where they actively tried to conduct business or otherwise had a significant amount of interaction with people in that state. Smartphone apps threaten to upset that balance.

Interaction with customers in a given state is currently the prerequisite for personal jurisdiction, but almost by definition, smartphone apps are designed to create interaction between the app creator and the app user. The question I am presenting is: does the interaction apps seek to create automatically render app creators subject to personal jurisdiction in every state in which someone downloads the app?

Jurisdiction Basics

Jurisdiction is a rather complex issue in the law, so to make things easier, I will break this section into two parts. The first part explains the two types of jurisdiction a court must have to hear a case, and the second part explains the different ways a court can establish personal jurisdiction.

Subject Matter Jurisdiction and Personal Jurisdiction

As a quick reminder, it’s worth taking a minute to refresh ourselves on jurisdiction. There are two different jurisdictional requirements to bring a case in a court: (1) subject matter jurisdiction, and (2) jurisdiction over the parties. Subject matter jurisdiction refers to the ability of a court to hear the case. Federal courts are courts of limited subject matter jurisdiction, and can only hear cases regarding certain issues. State courts are courts of general jurisdiction, and can hear cases regarding anything that they’re not forbidden to hear.

The second type of jurisdiction, jurisdiction over the parties, is pretty intuitive. Courts must have the ability to enforce their judgment on parties for it to make sense to let them deal with a case. If a judge couldn’t enforce his judgment on a party, then everyone would be wasting their time. To get around that problem, courts check to make sure they have jurisdiction over the party. This type of jurisdiction is known as in personam jurisdiction. Deciding whether a court has personal jurisdiction over a party is the issue we’re discussing in this blog post.

Personal Jurisdiction – Long-arm statutes and minimum contacts

In most instances, deciding whether a court has personal jurisdiction over a party is pretty simple and straightforward. The court always assumes that it has personal jurisdiction over the plaintiff because the plaintiff was the party that started the lawsuit, and it could have sued the defendant anywhere else. The issue then is whether the court has personal jurisdiction over the defendant.

In most cases, a court can easily find that it has personal jurisdiction over a defendant because often the defendant lives within the geographic area that the court has control over. In situations where the defendant lives in the same geographic area that the court is located, the court has jurisdiction because it can use the local law enforcement to enforce its orders. Additionally, the court can issue orders that control the resources of the defendant either by garnishing the wages of the defendant, or by levying the defendant’s assets within the state.

Deciding whether a court has jurisdiction over a defendant gets trickier, however, when the defendant does not reside or own a business in the court’s state. In those cases, courts use a legal test to determine if they have enough control over the defendant to hear the case. As a general rule, a defendant must have enough contacts (known legally as sufficient “minimum contacts”) to be subject to jurisdiction within a given state. The way a court decides this is that they look to what contacts the defendant has with the state. If a defendant has absolutely no contacts with the state—i.e. no family, business ties, never visited the state, etc.—then the court will find that it does not have personal jurisdiction over the defendant.

The toughest situation is where the defendant has some connection with the state. This is the toughest situation because there is no bright line for how much contact is enough contact to satisfy the personal jurisdiction requirement. Although there are many factors that are important to determine whether a court has personal jurisdiction over a defendant, the Internet can be one of the more complicated factors to consider.

Internet and Personal Jurisdiction

The trickiest issue within this personal jurisdiction context is whether having a website on the Internet can create jurisdiction within a given state. Depending on a number of factors, a court may find that a defendant is or is not subject to personal jurisdiction based on maintaining a website.

In some cases, the courts have held that having a website that can be accessed from a given state does not necessarily mean that the website owner is subject to personal jurisdiction in that state. The general rule is that a defendant must have sufficient contacts with the state to subject them to personal jurisdiction. Although every state can differ in terms of what constitutes “sufficient contacts,” the Supreme Court has set forth a minimum set of contacts that a defendant must meet to be subject to personal jurisdiction.

As is most common with tests the Supreme Court creates, the test for what constitutes “minimum contacts” is not clear. Generally, courts use some variation of the following three part test:

(1) The nonresident defendant must do some act or consummate some transaction with the forum or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections; (2) the claim must be one which arises out of or results from the defendant’s forum related activities; and (3) exercise of jurisdiction must be reasonable.

Note: I took this test from Cybersell Inc., v. Cybersell Inc., which you can read about here.

Although that test is pretty thick with legalese, the basic idea is that a defendant can be subject to personal jurisdiction if he purposely avails himself of the benefits of that state. Most often courts consider a defendant to have done so if he sells things in a state or otherwise conducts business in that state.

Applying this test to the Internet is even still more difficult to do. Everyone recognizes that for the most part, any website can be viewed from anywhere in the world. With that fact in mind, what kind of Internet presence is enough to trigger the test above? Courts have gone back and forth on this issue, but generally a few factors sway their decisions.

The first factor is how interactive a website is. If a website is just a static webpage that provides information, a court will have a hard time finding that there are sufficient contacts with the state to warrant subjecting the defendant to personal jurisdiction. On the other hand, if a website is very interactive and uses input from the user to accomplish a number of tasks, courts have weighed that in favor of finding jurisdiction.

A second factor is whether the website creator sells anything. If a website sells goods or services over the internet to people in a state, then courts are more likely to find that the defendant website creator had enough contacts with the state to allow for them to be subject to personal jurisdiction in that state.

A third factor is whether the servers that host the website are found in the state. Generally courts are more likely to find that defendant website creators are subject to personal jurisdiction in a given state if their servers are also located in that state.

All in all, courts have looked to a number of common sense factors to decide whether a defendant website creator is subject to personal jurisdiction in their state, and generally, the more contact and connection with the state, the more likely defendant website creators will be subject to personal jurisdiction.

Apps, the Internet, and Personal Jurisdiction

Now that we have a decent grasp of how the Internet affects personal jurisdiction judgments, it’s time to apply the rationale used for websites to smartphone apps. As you’ll remember, interactivity of a website, whether the website sold goods or services, and the location of the servers all weighed in favor of finding that a defendant software creator was subject to personal jurisdiction. Unfortunately for the budding app-maker, all of those traits except for the last one (server location) weigh firmly in favor of finding personal jurisdiction. And for a reason I’ll set forth in a moment, even the third one arguably weighs in favor of finding personal jurisdiction.

Tackling the first factor, interactivity, not many could argue that apps are often more successful the more interactive they are. The most popular apps on any smartphone are popular because they do something. Unlike some of the old-school webpages that exist, almost no app today exists just to display a static set of information. Even apps that function to provide information (e.g. Kelly Blue Book, LA Times, or some other information provider) respond to the interests of the user, and tailor their content to the user’s interests. Despite that relatively small set of apps, apps generally interact very highly with the user, and thus, that factor likely will weigh firmly in favor of finding personal jurisdiction.

Moving to the second factor, whether a website sells anything, almost every successful app sells, or at least tries to sell, something. Practically all of the “free” games people play on their phones offer purchase-able upgrades that either speed up the game or enhance gameplay. Other apps like eBay, Etsy, and others actually sell tangible goods. Although it may be a stretch, even apps that are truly free arguably still sell because they usually gather information about the user and sell it to third parties. Thus, this factor also weighs strongly in favor of finding that an app-developer is subject to personal jurisdiction.

The last factor, although it doesn’t naturally weigh in favor of finding personal jurisdiction, can weigh in favor if a lawyer were to get creative. Courts have looked to see whether website creators host their websites in a given state to consider whether that defendant should be subject to personal jurisdiction. Although apps are typically not hosted on a server, they are always stored on the individual memory of a user’s cell phone. In that sense, one could argue that every cell phone could be considered a tiny server, which could reinforce a court’s decision to exercise personal jurisdiction. Though this idea is a long-shot that likely wouldn’t fly in court, the fact that it hasn’t been litigated yet makes it just one more thing to consider.

Why Apps will change personal jurisdiction calculations

Taken to its logical conclusion, a court may decide that because an app user downloaded an app, played it on her phone, and paid for some feature to get unlocked on the phone, the app creator may be subject to personal jurisdiction in the state. A court certainly decided something similar in the case of Zippo Manufacturing Co. v. Zippo Dot Com, Inc. (you can view it here). In that case, a court decided that since a website had a few thousand subscribers in Pennsylvania, it was subject to personal jurisdiction in Pennsylvania.

So if future courts were to follow the logic in the Zippo case, then practically every app-maker in the country might be subject to personal liability in any state of the union.

This is a problem.

The law of personal jurisdiction most likely was not intended to wrap up every app-maker in the country and make them subject to the laws of every other state. To be sure, courts across the country are aware of that. The last element of the test from Cybersell that I wrote above stated that, “(3) exercise of jurisdiction must be reasonable.” This requirement is a key one, and one that will likely serve as a catalyst to changing the test for personal jurisdiction.

Reasonability is one of the main factors courts must consider, and I think many judges would find the outcome I described above to be unreasonable. Thus, to bring their test in line with reasonable expectations, a court will likely have to either change its factors, or change the way it weighs factors. Personally, I think the factors themselves are pretty fair. If you do business in a state, or you otherwise target people in that state, then you should be subject to litigating there. What may change, however, is to what extent people need to conduct business or target people in that state.

I do think that particularly looking to whether the app-maker targeted people in that state should matter more. If I create an app for dating in Arizona, and I target Arizona people, but I live in California, then it would be fair for me to be open to litigation in Arizona. If instead I created an app about growing cucumbers, and some people in Arizona happened to like my app, I think that since I didn’t target them directly, I shouldn’t necessarily be subject to Arizona litigation.

To be sure, this idea is one of those that is much easier said than done, but I think it could serve as a fair starting point to shift the weight of the current factors to determine personal jurisdiction.

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