E-Commerce & Internet Jurisdiction

Lawyers are often criticized for arguing over semi-colons and prepositions. Here is one case where the word “of” and “in” were debated up to the Ninth Circuit Court of Appeal.

In the recent decision in Doe 1 v. AOL LLC, 2009 WL 103657 (9th Cir. Jan. 16, 2009), AOL was sued in California in a class-action suit.  AOL tried to deflect the California lawsuit based on the “venue selection clause” in its online member agreement.  That clause stipulated that lawsuits had to be brought in the State of Virginia. However, the court refused to uphold the agreement because Virginia state courts do not permit class action lawsuits.  The phrase in the agreement referred to “the courts of Virginia”, which the court interpreted as meaning state court – the equivalent of our provincial courts. If it had referred to “the courts in Virginia” then the court may have agreed with AOL’s argument that this would include both state and federal courts.  In that situation, the agreement would have been upheld, since federal courts permit class action lawsuits. 

The Canadian case of Desjean v. Intermix Media Inc. [2007] 4 F.C.R. 151 (F.C.), also deals with the issue of jurisdiction.  In that case, a Canadian internet user tried to launch a class-action lawsuit against Intermix Media Inc., a California-based company.  The  complaint alleged that spyware and adware were bundled with free software downloaded from the Intermix site.  Intermix did have an online license agreement and defended by arguing that the Canadian Federal Court lacked jurisdiction over Intermix and that the license agreement chose California law. In other words, Intermix argued that there was no “real and substantial connection” between Canada and Intermix. Specifically, the American company had no offices, employees, servers or bank accounts in Canada, and conducted no marketing or advertising in Canada.  The Federal Court agreed with Intermix and the Federal Court of Appeal upheld this decision. 

One more e-commerce case: in Mehmet v. Paypal, Inc., 2008 WL 3495541 (N.D. Cal. Aug. 12, 2008). the court upheld the consequential damages waiver in PayPal’s user agreement. 

The business lessons:

  • ensure your online agreements are enforceable; 
  • in Canada, laws in Ontario and Quebec deal with online agreements and the right to institute class-action proceedings, so special care should be taken where online customers are located in those jurisdictions;
  • the venue selection clauses in online agreements may have to be reviewed in light of the AOL decision;
  • even for free downloads, an online license should be put in place to address jurisdiction issues.

Calgary – 11:15 MST


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