|2nd Circuit Addresses Personal
Jurisdiction in Web Based Defamation Case
6/26. The U.S. Court of Appeals (2ndCir)
opinion [36 pages in PDF] in Best Van Lines v. Tim Walker, a
case regarding personal jurisdiction over an out of district defendant in a
defamation action where the defendant published the allegedly defamatory
statements in a web site. The Court of Appeals affirmed the District Court's
dismissal for lack of jurisdiction, based upon an interpretation of the New York
Introduction. The Court of Appeals held that Tim Walker, who lives in the state
of Iowa, cannot be sued in the distant forum of New York based solely upon his
publication of comments on the internet. While this opinion is a victory for bloggers and
some other internet speakers, its reach is
limited, to the extent that it was decided under the state of New York's long
arm jurisdiction statute, rather than the due process clause of the
Constitution, and its minimum contacts limitation.
For a court to hear a case, it must have jurisdiction, both over the subject
matter of the case (federal courts have jurisdiction over diversity actions and
actions arising under federal law), and over the person of the defendant.
States, including New York, enact statutes in which they assert the jurisdiction
of their courts. (In diversity actions in federal courts, the relevant state's
jurisdictional statute applies in determining whether there is personal jurisdiction.)
In addition, the Supreme Court of
the U.S. (SCUS) has long held that the due process clause imposes
limitations upon the exercise of jurisdiction over out of state defendants. The
SCUS held in International
Shoe v. Washington, 326 U.S. 310 (1945), that "For due process to be
satisfied, a defendant, if not present in the forum, must have ``minimum
contacts´´ with the forum state such that the assertion of jurisdiction ``does
not offend traditional notions of fair play and substantial justice.´´"
States tend to write very broad jurisdictional statutes. Hence, they are
called "long arm" statutes. In most leading cases on personal jurisdiction, the
state jurisdictional statute reaches the distant defendant, or the statute
asserts all jurisdiction consistent with the Constitution. Thus, in most of
these cases the key issue is whether the due process rights of the defendant
would be violated by the distant court's exercise of jurisdiction.
However, in this case, New York's statute imposes limitations on the exercise
of jurisdiction over out of state defendants, and the District Court and Court
of Appeals both held that the state statute does not provide for personal
jurisdiction over Walker.
District Court. Tim Walker is a resident of the state of Iowa. He operates a
a not-for-profit internet website that provides
information and opinions about household movers. He published information
critical of Best Van Lines (BVL) in his web site. BVL asserts that this
information is defamatory.
BVL filed a complaint in U.S. District Court
(SDNY) against Walker alleging defamation. Walker moved to dismiss for lack of personal
jurisdiction. The District Court dismissed the complaint. BVL brought the present appeal.
Statute. The New York statute, which is codified at N.Y. C.P.L.R. §
302(a), provides in relevant part as follows:
"As to a cause of action arising from any of the acts enumerated in this
section, a court may exercise personal jurisdiction over any non-domiciliary, or
his executor or administrator, who in person or through an agent:
1. transacts any business within the state or contracts anywhere to
supply goods or services in the state; or
2. commits a tortious act within the state, except as to a cause of
action for defamation of character arising from the act; or
3. commits a tortious act without the state causing injury to person or
property within the state, except as to a cause of action for defamation of
character arising from the act, if he
(i) 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, or
(ii) expects or should reasonably expect the act to have
consequences in the state and derives substantial revenue from interstate or
international commerce; or
4. owns, uses or possesses any real property situated within the state."
Court of Appeals. The Court of Appeals affirmed.
It wrote that "This appeal raises a single question: whether the
United States District Court for the Southern District of New York had personal
jurisdiction over Walker for purposes of entertaining this lawsuit. To answer
that question, we look first to the law of the State of New York, in which the
district court sits."
It continued that "If, but only if, our answer is in the
affirmative, we must then determine whether asserting jurisdiction under that
provision would be compatible with requirements of due process established under
the Fourteenth Amendment to the United States Constitution."
It concluded that "under well-settled principles of New York
law, the district court did not have such jurisdiction. We therefore need not
address the second question: whether, if New York law conferred it, asserting
such jurisdiction would be permissible under the Due Process Clause".
Nevertheless, the Court of Appeals did summarize and discuss the due process
The court found that Walker's online activities did not amount to transaction
business within the state within the meaning of the statute.
Related Cases. This case turned upon an interpretation of the New York
statute. However, other courts have held that even though a state long arm
jurisdiction statute may allow an action to proceed, the due process clause does
In 2002, the U.S. Court
of Appeals (4thCir) issued its
pages in PDF] in Young v. New Haven Advocate, holding that a court in
Virginia does not have jurisdiction over two small newspapers, and their editors
and reporters, located in Connecticut, who wrote allegedly defamatory stories
about a Virginia prison warden and published them on the internet. The Court of
Appeals held that the web publication did not establish minimum contacts because
the newspapers are not directed at a Virginia audience.
In Young v. New Haven Advocate the long arm statute analysis and due process
analysis merged, because the state statute provided that personal jurisdiction of the
Virginia courts extends to the maximum extend allowed by the due process clause.
See, story titled "4th Circuit Rules in Internet Jurisdiction Case" in
TLJ Daily E-Mail
Alert No. 568, December 16, 2002. See also, story titled "Supreme Court
Denies Cert in Case Involving Personal Jurisdiction in Internet Defamation Suit"
in TLJ Daily E-Mail
Alert No. 665, May 20, 2003.
However, not all personal jurisdiction cases involving allegations of
internet based defamation have been decided in favor of the internet speaker.
For example, in 2002, the U.S. Court
of Appeals (9thCir) issued its "not for publication"
opinion in Northwest Healthcare Alliance v. HealthGrades.com holding
that the District Court has personal jurisdiction over an out of state defendant
in defamation case, based solely upon its publication of the allegedly
defamatory statements in its "passive" internet web site. See also, story titled
"Supreme Court Denies Certiorari in Internet Jurisdiction Case" in
TLJ Daily E-Mail
Alert No. 652, April 30, 2003.
The SCUS has not yet decided a case involving personal jurisdiction based
upon internet conduct. There is some lack of clarity as to the state of U.S. law,
particularly in other types of actions, such as actions alleging violation of
intellectual property laws.
Also, in 2002 the High Court of Australia
opinion in Dow Jones v. Gutnick, a tort action brought in Australia
for an allegedly defamatory news story published on the internet by Dow Jones, a
U.S. publisher. The Court held that because of publication on the internet, the
Australian courts have jurisdiction, that Australian law applies, and that the
case should proceed in the trial court in the Australian state of Victoria. See, story titled "High Court Rules Australia Has Jurisdiction Over Dow Jones
Based on Web Publication" in
TLJ Daily E-Mail
Alert No. 564, December 10, 2002.
Cases such as Gutnick may pose little threat to individuals like Walker. He
has no assets in Australia. Hence, if someone in Australia, or any other
country, is offended by his internet speech, sues him there, and obtains a
money judgment, that plaintiff will not be able to execute upon any of his
assets. However, for companies with international operations, including news
businesses, Gutnick remains a threat.
Goldsmith, who was recently the Assistant Attorney General in charge of the
Office of Legal Counsel wrote in his 2006 book,
Who Controls the Internet: Illusions of a Borderless World [Amazon], that
"the First Amendment does not reflect universal values; to the contrary, no
other nation embraces these values, and they are certainly not written into the
He continued that "Australia can effectively coerce Dow Jones because Dow
Jones is a multinational company with employees, facilities, contracts, and bank
accounts in Australia. But the vast majority of Internet users -- students,
e-consumers, porn purveyors, chat room participants, web-page operators,
bloggers, and over 99 percent of other Net users -- have no connection to
Australia or to any other country ..."
He concluded that Gutnick affects "content providers like CNN, Dow
Jones, and The Economist; systems operations like Yahoo, Google, eBay, and AOL;
and financial intermediaries like MasterCard, PayPal, and Citibank".
Tim Walker proceeded pro se. At the request of the Court of Appeals,
Kate Bolger and Slade Metcalf of the New York
City office of the law firm of Hogan & Hartson
supported Walker as amicus curiae.
TLJ spoke with Bolger, who focuses on First Amendment and media law. She said
that this opinion is "very good news" for internet speakers and free speech.
While it primarily addressed New York law, "it builds up the case law", and
providers speakers another case to cite.
She also commented that the Australian court's opinion in Gutnick was
"such an unfortunate decision". She added that while that case caused concern,
the U.S. courts are "building up a significant body of case law" that offers
protection to internet speakers.
This case is Best Van Lines v. Tim Walker, U.S. Court of Appeals for the 2nd
Circuit, App. Ct. No. 04-3924-cv, an appeal from the U.S. District Court for the Southern
District of New York, Judge Gerard Lynch presiding.
|SCUS Holds That All Vertical Price
Restraints Are Subject to Rule of Reason
6/28. The Supreme Court of the U.S. (SCUS)
issued its opinion
[55 pages in PDF] in Leegin Creative Leather Products v. PSKS, an antitrust
case regarding minimum resale price maintenance by manufacturers and intermediate
The SCUS reversed the judgment of the Court of Appeals, held that all vertical price
restrains are to be judged by the rule of reason, and that the SCUS's 1911
opinion in Dr. Miles Medical Co. v. John D. Park & Sons Co., which is
reported at 220 U.S. 373, is overturned.
Resale price maintenance (RPM) exists when a manufacturer
agrees with its distributor(s) to set the minimum price that the distributor(s)
can charge for the manufacturer's goods. Prior to this opinion, RPM was subject
to the antitrust per se rule, rather than the lighter rule of reason standard.
This opinion changes the law for vertical RPM. After this opinion,
horizontal agreements among competitors to fix prices remain per se
violations of the Sherman Act.
The case will impact the way some consumer information technology (IT) and
other electronics products are marketed. It will also likely incent IT sector
manufacturers to develop new products.
Manufacturers of consumer IT devices sometimes offer products that
include numerous new and complicated features and services. But, many consumers
do not know what the features are, or how to use the products. In order to
promote adoption of new technologies, and sales of their products, manufacturers
have an interest in distributors' disseminating information about the new
devices through advertising, in store demonstrations, training of employees, and
customer support. But, these services impose costs on the distributors who
provide them. This can create a free riding situation, when some distributors go
to the trouble to provide such information and support, but others do not. The
presence of free riders, offering the products at lower prices, disincents other
distributors from educating consumers. This, in turn, disincents manufacturers
from offering complex devices that require consumer education. And this inhibits
innovation in the IT sector.
The Office of the Solicitor General
(OSG) submitted an
amicus curiae brief in which it explained this free rider problem. The OSG
wrote that "an individual retailer has an incentive to free ride on the
provision of those services by rival retailers. A retailer offering no services
but a lower price can sell to consumers who have been educated by retailers that
do provide the services desired by the manufacturer and the consumer. The
problem is exacerbated by catalog retailing and the advent of the Internet, as
consumers may visit traditional, brick-and-mortar retailers to examine a product
and select its features but then purchase the product at a discounted price from
a catalog or on-line retailer, whose very lack of ``bricks and mortar´´ affords
point-of-sale services impossible and whose lack of expenses for bricks and
mortar gives them a competitive advantage over traditional retailers who provide
the services that some manufacturers desire."
The use of RPM can incent distributors to engage in consumer education
efforts. Thus, this opinion will make it easier for manufacturers to provide
such incentives in the marketing of consumer communications, music and satellite
radio devices, and other IT products.
The relevant statute, Section 1 of the Sherman Act, which is codified at
15 U.S.C. § 1, provides little guidance. It merely states that "Every
contract, combination in the form of trust or otherwise, or conspiracy, in
restraint of trade or commerce among the several States, or with foreign
nations, is declared to be illegal." Section 1 also contains a criminal prohibition.
The rest of the law exists in judicial interpretation and agency enforcement.
The SCUS held in 1911 in Dr. Miles that intrabrand vertical price fixing by
manufacturers or intermediate distributors is a per se violation of the Sherman Act. That
is, a manufacturer cannot fix the minimum price at which retailers sell its product.
More recently, the SCUS has issued opinions that have eroded the Dr. Miles rule. For
example, it has held that vertical nonprice restraints and maximum resale price maintenance
are not per se unlawful under the antitrust laws. Yet, until the just released opinion, the
basic rule was that minimum resale price fixing was a per se violation.
PSKS, the plaintiff below, runs a women's clothing and accessories store. It
filed a complaint in the U.S. District
Court (EDTex) against Leegin Creative Leather Products (LCLP), which makes
women's accessories, alleging violation of Section 1 of the Sherman Act, in
connection with LCLP's suggested resale price policies. The District Court
awarded $3.6 Million in treble damages to PSKS.
The U.S. Court of Appeals (5thCir)
affirmed in a non-precedential
opinion [PDF]. The District Court and Court of Appeals both applied the
antitrust per se violation rule to LCLP's imposing of a minimum price fixing
agreement on its retailer, PSKS.
The SCUS granted certiorari on December 7, 2006. See, story titled "Supreme
Court Grants Certiorari in Antitrust Cases" in
TLJ Daily E-Mail
Alert No. 1,501, December 8, 2007.
The SCUS reversed and remanded, and expressly overturned Dr. Miles.
The SCUS wrote that under the rule of reason, "the factfinder weighs all of
the circumstances of a case in decidingwhether a restrictive practice should be
prohibited as imposing an unreasonable restraint on competition."
Relevant factors include information about the relevant business, the restraint’s
history, nature, and effect, and whether the businesses involved have market power. The
Court wrote that the rule of reason is designed to distinguish between restraints "with
anticompetitive effect that are harmful to the consumer and restraints stimulating
competition that are in the consumer’s best interest".
In contrast, if a restraint is subject to the per se rule, it is necessarily
illegal. The Court wrote that "the per se rule is appropriate only after courts
have had considerable experience with the type of restraint at issue ... and
only if courts can predict with confidence that it would be invalidated in all
or almost all instances under the rule of reason ..."
The Court continued that the "economics literature is replete with procompetitive
justifications for a manufacturer’s use of resale price maintenance."
It also wrote that "A single manufacturer's use of vertical
price restraints tends to eliminate intrabrand price competition; this in turn
encourages retailers to invest in tangible or intangible services or promotional
efforts that aid the manufacturer’s position as against rival manufacturers.
Resale price maintenance also has the potential to give consumers more options
so that they can choose among low-price, low-service brands; high-price,
high-service brands; and brands that fall in between."
It continued that "Absent vertical price restraints, the retail services that
enhance interbrand competition might be underprovided. This is because
discounting retailers can free ride on retailers who furnish services and then
capture some of the increased demand those services generate."
It added that "Resale price maintenance, in addition, can increase interbrand
competition by facilitating market entry for new firms and brands."
The Court conceded that in some circumstances, RPM can have anticompetitive
effects, such as a manufacturer cartel, and consequent monopoly profits.
Thus, it concluded that "Vertical agreements establishing
minimum resale prices can have either procompetitive or anticompetitive effects,
depending upon the circumstances in which they are formed." Thus, a per se rule
is inappropriate, because it would prohibit vertical agreement where there are
The Court held that the rule of reason applies, and proceeded to offer lower
courts some guidance on its application to vertical agreements.
This is a 5-4 opinion. Justice Kennedy wrote the opinion of the Court, which
was joined by Justices Thomas, Scalia, Alito and Roberts.
Justice Kennedy was confirmed as a Justice following the Senate's rejection
of Robert Bork. Bork's fundamental area of expertise was antitrust law. He
advocated the holding of the present opinion in his 1978 book,
The Antitrust Paradox: A Policy at War With Itself [Amazon]. See especially,
page 288, where Bork wrote that Dr. Miles is based on "mistaken
economics". In 1987, his opponents blocked his confirmation as a Justice of the
Supreme Court. In the present case, his disciples cited his book.
Justice Breyer, who was appointed by former President Clinton, wrote a long
dissent that was joined by Justices Stevens, Souter and Ginsburg. He argued that
the rule of law announced in Dr. Miles has been good enough for the Court
for nearly one hundred years, and the Congress has not altered the law
legislatively, so the Court should not now depart from the doctrine of stare decisis.
He also challenged the economic analysis of the majority. He wrote that "The only
safe predictions to make about today's decision are that it will likely raise the price of
goods at retail and that it will create considerable legal turbulence as lower courts seek
to develop workable principles."
Albert Foer, head of the
American Antitrust Institute (AAI) criticized the ruled in a
release [PDF]. The AAI represents the interests of the plaintiffs' antitrust bar.
He said that "While rule of reason cases are tough to win, ... manufacturers should
not interpret this ruling as a green light to enforce minimum resale prices. Especially in
concentrated markets, resale price maintenance agreements will remain risky. And resale
price maintenance may still be unlawful per se under state antitrust laws."
This case is Leegin Creative Leather Products, Inc. v. PSKS, Inc.,
Sup. Ct. No. 06-480, a petition for writ of certiorari to the U.S. Court of
Appeals for the 5th Circuit, App. Ct. No. 04-41243. The Court of Appeals heard
an appeal from the U.S. District Court for the Eastern District of Texas, D.C.
No. 2:03-CV-107-TJW. See also, Supreme Court
Theodore Olson of the Washington DC office of the law firm of
Gibson Dunn & Crutcher represents
Leegin. Robert Coykendall
of the law firm of Morris Laing Evans
Brock & Kennedy represents PSKS.
|Washington Tech Calendar
New items are highlighted in red.
|Friday, June 29
The House will not meet. It will next
meet on July 10.
The Senate will meet at 9:45 AM for
9:30 AM. Subcommittees of the
House Foreign Affairs
Committee and the House Education
and Labor Committee will hold a hearing titled "International Students and
Visiting Scholars: Trends, Barriers, and Implications for American
Universities and U.S. Foreign Policy". See,
notice. Location: Room 2172, Rayburn Building.
|Saturday, June 30
Trade promotion authority expires.
|Sunday, July 1
Opening date for sending a Notice of Internet Availability of Proxy
Materials to shareholders. See, the Securities and
Exchange Commission's (SEC)
rule [119 pages in PDF]
regarding voluntary internet availability of proxy materials. See also,
notice in the Federal Register, January 29, 2007, Vol. 72, No. 18, at Pages
4147-4173. And see, story titled "SEC Adopts E-Proxy Rule Changes" in
TLJ Daily E-Mail Alert No.
1,506, December 15, 2006.
|Monday, July 2
The House will not meet on July 2-6 due to the Independence Day District Work Period.
See, House 2007 calendar.
The Senate will not meet on July 2-6 due to the Independence Day District
Work Period. See, Senate 2007
11:00 AM. The
Heritage Foundation will host an event titled "Irrational Politics:
What's Happening to Free Trade?". See,
Location: Heritage, 214 Massachusetts Ave, NE.
Deadline to submit initial comments to the
Copyright Office (CO) in response to its Notice
of Inquiry (NOI) regarding the operation of, and continued necessity for, the cable
and satellite statutory licenses under the Copyright Act.. See,
notice in the Federal Register, April 16, 2007, Vol. 72, No. 72, at Pages
19039-19055. See also, technical correction
notice in the Federal Register, April 24, 2007, Vol. 72, No. 78, at Page 20374.
Deadline for those persons who are scheduled to testify at the
Copyright Office's (CO) hearings on
July 23 through July 26, 2007, regarding the operation of, and continued
necessity for, the cable and satellite statutory licenses to submit to
the CO copies of their prepared testimony. See,
notice in the Federal Register, May 23, 2007, Vol. 72, No. 99, at Pages
Deadline to submit reply comments to the Federal
Communications Commission (FCC) in response to its request for comments updating its
record on the Center for the Study of Commercialism's (CSC) Petition for Reconsideration
regarding stations that air home shopping programming and their status. See,
notice in the Federal Register, May 17, 2007, Vol. 72, No. 95, at Pages
|Monday, July 9
There will be no votes in the House.
8:30 AM - 12:00 NOON. The
Electronic Transaction Association (ETA) will host
an event titled "Second Annual ETA Payments Education and Discussion Forum".
The ETA states that this event "is designed to provide Congressional staff,
regulators, and law enforcement with a working knowledge of the acquiring side
of the electronic payments business. Topics will include an overview of the
roles/responsibilities of entities in the payments system; the components of
an electronic transaction; and industry efforts to protect cardholder data." See,
notice [PDF] and
program agenda [PDF]. For more
information, and to RSVP, contact Rob Drozdowski at 202-828-2635 x203 or rob dot drozdowski at electran
dot org. A continental breakfast will be served. There is no charge. Location: Columbus Room, Union
10:00 AM. The U.S. Court of
Appeals (FedCir) will hear oral argument in SRI International v. Internet
Security, App. Ct. No. 2007-1065, a patent infringement case. Location: Courtroom
201, 717 Madison Place, NW.
10:00 AM. The U.S. Court
of Appeals (FedCir) will hear oral argument in Cybersettle v. National
Arbitration Forum, App. Ct. No. 2007-1092, a
patent infringement case. Location: Courtroom 203, 717 Madison Place, NW.
2:00 PM. The U.S. Court of
Appeals (FedCir) will hear oral argument in Dolby Labs v. Lucent
Technologies, App. Ct. No. 2006-1583, a
patent infringement case. Location: Courtroom 201, 717 Madison Place, NW.
2:00 - 3:30 PM. The U.S.
Chamber of Commerce's Coalition Against
Counterfeiting and Piracy (CACP) will meet. For more information, contact
counterfeiting at uschamber dot com or 202-463-5500. Location: U.S. Chamber,
1615 H St., NW.
Deadline to submit petitions to deny and
initial comments to the Federal Communications Commission
(FCC) regarding its review of the proposed merger of XM Satellite Radio Holdings and
Sirius Satellite Radio. See,
Notice [5 pages in PDF] (DA 07-2417).
|Tuesday, July 10
10:00 AM. The U.S. Court
of Appeals (FedCir) will hear oral argument in Nilssen v. Osram Sylvania,
App. Ct. No. 2006-1550, a patent infringement case. The
District Court (NDIll) held that the patents in suit are unenforceable for
several reasons, including that Nilssen did not pay a large entity fee to the
USPTO, but granted a non-exclusive license to a large corporation. Location: Courtroom
201, 717 Madison Place, NW.
Deadline to submit comments to the Rural
Utilities Service (RUS) in response to its notice of proposed rulemaking regarding its
Rural Broadband Access Loan and Loan Guarantee Program. The RUS proposes to change
its rules regarding funding in competitive markets and new eligibility requirements, new
equity and market survey requirements, and new legal notice requirements. See,
notice in the Federal Register, May 11, 2007, Vol. 72, No. 91, at Pages
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