Ninth Circuit orders review of LL Bean jurisdiction ruling

The US Court of appeals for the Ninth Circuit has announced that it will reassess en banc its decision in Gator.com Corp v LL Bean Inc - a ruling that was likely to have a significant impact on online businesses.

The case arose from Gator.com's (Gator changed its name last year to Claria Corporation) internet advertising service that caused advertisements and coupons for a competitor of retailer LL Bean to pop up when customers visited LL Bean's website. LL Bean sent a cease and desist letter to Gator and Gator responded with a declaratory judgment action in the Northern District of California. LL Bean moved to dismiss Gator's action for lack of personal jurisdiction. The district court granted LL Bean's motion, finding that neither general nor specific jurisdiction existed. Gator appealed.

In overturning the lower court's finding that California courts lacked personal jurisdiction over LL Bean, a three-judge panel of the Ninth Circuit discussed the requirements for general and specific jurisdiction, confirming that general jurisdiction requires "substantial" or "continuous and systematic" contacts with the forum and extends to all claims, even those unrelated to the defendant's contacts with the forum. Specific jurisdiction, however, may be exercised only if the case arises out of certain forum-related activities. After acknowledging that "[t]he standard for establishing general jurisdiction is 'fairly high'" and that "[n]o Supreme Court cases and only a handful of Ninth Circuit cases have addressed the issue of when and whether general jurisdiction may be asserted over a company that does business on the Internet", the panel held that LL Bean's contacts with California satisfied the high standard for general jurisdiction.

Notably, the panel reasoned that even if LL Bean's only contacts with California were through its extensive website, such contacts in themselves were sufficient to support California courts' exercise of general jurisdiction over LL Bean. The panel used the 'sliding scale' test previously applied to internet businesses, which looks to whether the defendant (i) clearly does business over the Internet, and (ii) has internet business contacts with the forum that are "substantial" or "continuous and systematic".

In LL Bean's case, the panel found that the sliding scale test was satisfied because LL Bean's website is "highly interactive and very extensive". It stated that LL Bean:

• maintains "substantial numbers" of online accounts for California residents;
  
  
• allows California residents to view and purchase products; and
  
  
• enables California residents to interact with LL Bean's customer service representatives over the Internet if they have questions or concerns with an LL Bean product.

Moreover, the panel found that LL Bean's millions of dollars in sales in California resulting from its 'virtual store', its extensive and sophisticated online sales effort comprised of very large numbers of direct email solicitations to California, and its catalogue sales in the state qualified as "substantial" or "continuous and systematic" commercial activity.

The Ninth Circuit's en banc review of this decision is significant given the potential impact of the court's earlier decision on online businesses. Under the three-judge panel's reasoning, a "sophisticated" online business (for example, one that operates an extensive interactive website, and sells and solicits business electronically) may be treated for jurisdictional purposes as though it has a physical presence in potentially every state in the United States. As a result, such online businesses could be hauled into court in any state and forced to defend a broad range of claims, including those unrelated to its business in the state. But the Ninth Circuit's earlier decision has not deterred LL Bean. On May 17 2004 it sued Nordstrom, JC Penny, Atkins and Gevalia in four separate complaints filed in the US District Court in Maine challenging their use of LL Bean's trademarks to trigger delivery of pop-up ads.

The Ninth Circuit's rehearing is scheduled for June 22 2004 and it is likely to take several months for the court to issue its decision. In the meantime, the three-judge panel's opinion in Gator.com Corp v LL Bean Inc is not citable as precedent and the question of general jurisdiction over online businesses remains unsettled.

For a discussion of other cases involving Gator, see Gator bites back in pop-up ads saga and Gator settles one pop-up ad suit, but more waiting in the wings. For a general outline of the law on pop-up ads, see Law on pop-up ads remains unclear.

Leslie McKnew (San Francisco), Carla B Oakley (San Francisco) and Ron N Dreben (Washington DC), Morgan Lewis & Bockius LLP