In a recent decision, Plixer International v. Scrutinizer GMBH, Case No. 18-1195 (1st Cir. 2018), the First Circuit Court of Appeals ruled that exercising personal jurisdiction over a foreign company with no American physical presence, but that maintains an interactive website accessible in the United States, complies with the requirements of the Due Process Clause.
Because the case involved a federal question, the court conducted its analysis under the Due Process Clause of the Fifth Amendment, which requires a plaintiff to demonstrate that a defendant has adequate contacts with the United States as a whole rather than a particular state.
First, the court noted that website operators do not necessarily purposefully avail themselves of the benefits and burdens of every state in which their websites ares accessible. Still, here it noted that the defendant used its website to conduct both sizeable and continuing commerce with U.S. customers. Second, by creating a globally accessible website that U.S. customers used for years, the court determined that the defendant’s contacts with the United States were not involuntary. Third, the extent of the defendant’s contacts were determined to be sufficient enough to put it on notice that it may be hauled into court in the United States even though its global marketing effort weren’t specifically focused on the United States.
Interestingly, the court considered whether the defendant’s filing of a U.S. trademark application established purposeful contact but did not provide any guidance as to how this affected its due process analysis. Instead, the court found that the while application confirmed the defendant’s desire to deal with the U.S. market, it did not “tip the scales.” Indeed, foreign trademark applicants can be excused from demonstrating prior use of the mark but must disclose a bona fide intent to use the mark in commerce. While this may have factored into the court’s analysis, it gave no such indication.
The First Circuit’s ruling in Plixer can be troubling for international online service platforms seeking to sell access to foreign sourced software programs and databases in the U.S. market both due to the result it reaches and the uncertainty it creates.
Also, diversity cases may very well reach opposite results because they require minimum contacts with the relevant state rather than with the United States as a whole. In addition, notwithstanding the possible effect this ruling could have on foreign cloud-based software providers, the court acknowledged its decision was a close call; leaving ways to distinguish or limit its application and thus highlighting the factors the court considered. Finally, the court specifically noted the lack of clear guidance from the Supreme Court and that it was deliberately avoiding the creation of any broad rules.
Notwithstanding Plixer’s intentional lack of specific guidance, the First Circuit’s ruling confirms federal courts’ continuing inclination to find personal jurisdiction over foreign defendants selling cloud-based software and tools into the U.S. market. Foreign sellers beware!
Ruben Conitzer and Brian Wilson are attorneys with the litigation boutique Carey Rodriguez MIlian Gonya in Miami.