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Ninth Circuit clarifies jurisdiction rules in intellectual property cases brought against out-of-state companies operating on the Internet
August 16, 2011
Intellectual Property Alert
Author(s): John A. Chatowski, Robert A. Weikert

In a pair of recent Ninth Circuit cases decided by the same panel on the same day, the court clarified the circumstances whereby an out-of-state company operating a website may be subject to personal jurisdiction in California in intellectual property cases.

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In a pair of recent Ninth Circuit cases decided by the same panel on the same day, the court clarified the circumstances whereby an out-of-state company operating a website may be subject to personal jurisdiction in California in intellectual property cases. In CollegeSource, Inc. v. AcademyOne, Inc., ___ F.3d. ___, 2011 U.S. App. LEXIS 16328 (9th Cir.; August 8, 2011) (“CollegeSource “) and Mavrix Photo, Inc. v. Brand Technologies, Inc., et al., ___ F.3d. ___, 2011 U.S. App. LEXIS 16326 (9th Cir.; August 8, 2011) (“Mavrix”), the court held that the defendants were subject to the jurisdiction of the California federal courts, notwithstanding that they had no continuous and systematic contacts with the state, because each had engaged in conduct for commercial gain through its website that was “expressly aimed” at California.

In CollegeSource, CollegeSource sued its competitor, AcademyOne, for misappropriation of trade secrets for allegedly taking materials from CollegeSource’s website and using them on its own website. Both companies compete against each other in the market for assisting students and colleges with the college transfer process. AcademyOne, based in Pennsylvania, has no offices or staff in California, is not registered to do business in California, has no agent for service of process in California, and pays no state taxes. Nevertheless, AcademyOne specifically targets California students and schools. For example, AcademyOne owns several Google “AdWords” that include the term “California,” and when entered as a search term prompts Google to display an advertisement designed to encourage the user to visit AcademyOne’s website. AcademyOne also solicits California colleges and state educational agencies by phone and e-mail, and one sponsored a speaker at an educational conference in San Diego. Approximately 26,000 unique California IP addresses have visited AcademyOne’s websites (19 percent of all visitors), and 300 California students (15 percent of all students from all jurisdictions) have registered with and provided an address to AcademyOne. Finally, AcademyOne made a series of attempts to obtain CollegeSource’s materials and catalogs for its personal use: AcademyOne representatives called CollegeSource personnel, AcademyOne’s vice president of marketing signed up for a trial membership in order to view CollegeSource’s catalogs, and AcademyOne even went so far as to propose that the two companies enter into a relationship whereby they could jointly create an online course inventory.

CollegeSource sued AcademyOne in the United States District Court for the Southern District of California. AcademyOne moved to dismiss, claiming that it was not subject to general jurisdiction or specific jurisdiction there. The district court agreed, and dismissed the action. The Ninth Circuit reversed. Although the Ninth Circuit agreed that AcademyOne did not have sufficient continuous and systematic contacts with California to subject it to general jurisdiction in California, the court was persuaded that AcademyOne was subject to specific jurisdiction because (1) AcademyOne purposefully directed activities to California, (2) CollegeSource’s claim arose out of those activities, and (3) the exercise of jurisdiction over AcademyOne was reasonable. Relying on the Supreme Court’s recent decision in J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780 (2011), the court concluded that the facts demonstrated that AcademyOne expressly aimed its actions at the forum state. The court also found that the exercise of jurisdiction over AcademyOne was reasonable, in part, because of the strong evidence that AcademyOne purposefully directed its actions to California (as described above), and the record did not support AcademyOne’s claim that it is “a small company in Philadelphia,” whose “key employees and witnesses are in Pennsylvania,” such that defending this case in California would be “onerous.” The court also noted that while this action could have been filed in the Eastern District of Pennsylvania, as AcademyOne suggested it should have been, whether an alternative reasonable forum exists “becomes an issue only when the forum state is shown to be unreasonable.” And in this case, the Ninth Circuit concluded it was not.

In Mavrix, Mavrix sued Brand Technologies and its CEO in the United States District Court for the Central District of California, claiming that Brand infringed Mavrix’s copyrighted photos on its website. Mavrix later amended its complaint to add a trademark infringement claim. The suit arose out of photographs of celebrities that Mavrix owned, but that Brand posted on its celebrity websites without authorization. Like AcademyOne in CollegeSource, Brand also has no offices, personnel, or real property in California, and is not licensed to do business in California and pays no California taxes. Although the Ninth Circuit noted that it was unclear how many of Brand’s website’s visitors are California residents, the record demonstrated that Brand’s website has specific ties to California, including that (1) Brand makes money from third-party advertisements for jobs, hotels, and vacations in California, (2) Brand’s website has a “Ticket Center” with a link to the website of a third-party vendor who sells tickets to events, (3) various California firms provide advertising, hosting, and website maintenance services to Brand, and (4) Brand has a “link-sharing” agreement with a California-based national news site.

Brand moved to dismiss Mavrix’s complaint on personal jurisdiction grounds. The district court agreed with Brand and dismissed the action. As in CollegeSource, however, the Ninth Circuit reversed. Applying the three-part “effects” test, the court found that Brand was expressly aiming its activities at California residents: “we find most salient the fact that Brand used Mavrix’s copyrighted photos as part of its exploitation of the California market for its commercial gain.” Analogizing the facts of this case with those in Keeton v. Hustler Magazine, Inc., 465 U.S. 770 (1984), the Ninth Circuit noted that Brand was a large publication that “sought and attracted a nationwide audience,” and that consumption of its products in any state was “a predictable consequence of [its] business model[].”

The court also held that Mavrix had sufficiently established that it suffered “significant harm” in California, which also must be proven to establish specific personal jurisdiction. However, the court cautioned not to read too much into its decision: “The same would not necessarily be true, for example, of a local newspaper, an individual, or an unpaid blogger who posted an allegedly actionable comment or photo to a website accessible in all fifty states, but who could not be as certain as Brand or Hustler [the defendant in Keeton] that his actions would be so widely observed and who did not seek commercial gain from users outside his locality. Not all material on the Internet is, solely by virtue of its universal accessibility, expressly aimed at every state in which it is accessed. But where, as here, a website with national viewership and scope appeals to, and profits from, an audience in a particular state, the site’s operators can be said to have ‘expressly aimed’ at that state.”
 
The key takeaways from CollegeSource and Mavrix are that companies operating their businesses on the Internet must be conscious of the fact that if they have a national viewership, and if they gain significant profits from said viewership in a particular state, and if the plaintiff in an intellectual property case can establish that it suffered significant harm in that state, then they may be subject to personal jurisdiction in that state. Further, although CollegeSource and Mavrix involved claims for misappropriation of trade secrets, and copyright and trademark infringement, respectively, the principles in these decisions would seemingly apply in suits based on non-IP claims. Of course, the more significant a company’s web-based activities, the more likely such activities will warrant the exercise of personal jurisdiction. However, in today’s ever increasing web-dominated environment, with most mid-to large sized companies (and even smaller ones) having a presence on the Internet, companies should anticipate that as they become larger and their “footprint” expands, they may be required to defend intellectual property suits in jurisdictions across the country based solely on their website and online activities.


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