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A $10,000 “side bet” wasn’t enough to persuade a 9th U.S. Circuit Court of Appeals en banc panel to answer whether federal courts have jurisdiction over out-of-state Internet retailers. In an 8-3 decision Tuesday, judges decided the issue was moot because the parties, Maine-based L.L. Bean Inc. and Gator.com Corp. of Redwood City, Calif., settled after last summer’s oral argument. Gator.com agreed to pay L.L. Bean, but the amount remained under seal at the 9th Circuit. Both sides had asked the court to keep the issue alive and included a provision in their confidential settlement agreement that said Gator.com would pay L.L. Bean $10,000 more if the panel decided in favor of the well-known outdoor apparel retailer. No money would change hands if Gator.com had won. The case was closely watched by lawyers working in the still-developing realm of Internet commerce because it could have helped decide how companies in different parts of the United States resolve disputes that occur over the Internet, which has no geographic boundaries. But the panel majority declined to take that up. Underscoring the settlement, the judges said a live controversy must “persist throughout all stages of the litigation.” “Although the parties have negotiated a ‘side bet’ concerning our resolution of this appeal, that wager does not alter the fact that the personal jurisdiction issue is wholly divorced from any live case or controversy,” Judge Diarmuid O’Scannlain wrote for the majority, which included Chief Judge Mary Schroeder and Judges Pamela Ann Rymer, M. Margaret McKeown, Ronald Gould, Jay Bybee and Senior Judges Warren Ferguson and A. Wallace Tashima. Neither side can claim absolute victory, but the ruling definitely helps L.L. Bean by invalidating a three-judge panel decision in favor of Gator.com, now known as Claria. The lower panel ruled that even though L.L. Bean is headquartered in Maine, it does enough business to create liability in California. L.L. Bean would have preferred the en banc panel to go into the merits of the case. “It is an issue that’s not going to go away,” said L.L. Bean’s lawyer, Peter Brann of Brann & Isaacson in Lewiston, Maine. Brann also didn’t like the majority’s characterization of the $10,000 as a “side bet.” “It was an amount of money that was designed to make clear that the parties didn’t just have an abstract interest on this jurisdictional issue, but there were real consequences,” Brann said. Claria’s general counsel, Richard Gray, did not want to comment on the “side bet” characterization, nor would he say if he was disappointed that the jurisdictional issue is still unresolved. “I don’t think [the court] is dodging it,” Gray said. “I don’t view a court … struggling with jurisdiction as dodging anything.” Gator.com’s position was originally argued by Michael Traynor of Cooley Godward in San Francisco. After the settlement, the firm hired Daniel Bergeson of San Jose, Calif.’s Bergeson LLP to handle litigation over mootness. The case began over pop-up ads that automatically appear when users visit certain Web sites. Gator.com created a product that displayed ads for rival clothier Eddie Bauer when surfers visited L.L. Bean’s site. L.L. Bean sent a cease-and-desist letter to Gator.com, telling it to stop the pop-ups. Gator.com responded by filing a pre-emptive suit against L.L. Bean in the Northern District. L.L. Bean argued that the Northern District did not have jurisdiction because it is based on the East Coast. Magistrate Judge Maria-Elena James agreed, and tossed Gator.com’s suit. Gator.com appealed, and a three-judge panel reversed in its favor. In Tuesday’s opinion, three dissenting judges — William Fletcher, Susan Graber and Richard Paez — said the $10,000 at stake was enough to get into the issue of jurisdiction. “We have had every benefit the adversarial process has to offer,” according to the dissent, which Fletcher wrote. “If we find this appeal moot, we will not be frugally guarding the scarce resources of the federal courts. Rather, we will be wasting them in spectacular fashion.” Brann, L.L. Bean’s attorney, said the 9th Circuit could still sort out court jurisdiction in connection with Internet disputes with another case recently accepted for en banc review, Yahoo v. La Ligue Contre Le Racisme et L’Antisemitisme, 05 C.D.O.S. 1232. Yahoo arose after anti-hate groups obtained an order in France preventing the sale of Nazi paraphernalia through Yahoo’s auction site and requiring the Internet portal to block all French users from accessing banned Nazi materials over the Internet. Yahoo declined to obey the order. Millions of dollars in fines began accruing, and Yahoo asked the Northern District to issue a declaration saying the French order was unenforceable in the United States. However, a divided three-judge panel of the 9th Circuit said U.S. federal courts do not have personal jurisdiction over the French groups. The 9th Circuit agreed to reconsider the case last week, and the en banc argument is scheduled for March 24. Tuesday’s case is Gator.com v. L.L. Bean, 05 C.D.O.S. 1355.

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