There's No Such Thing as Scattershot Jurisdiction: 7th Circuit Fends Off Wayward Pepperball Litigation

12 May 2014 Wisconsin Appellate Law Blog

A few months ago, we wrote about the Supreme Court’s decision in Walden v. Fiore, 571 U.S. ___, in which the Court stressed that for specific personal jurisdiction to exist, there must be a connection between the defendant and the locale arising from “contacts that the ‘defendant himself’ creates with the forum State.” That opinion expressly “le[ft] questions about virtual contacts for another day.” On Friday, the Seventh Circuit in Advanced Tactical Ordnance Systems, LLC v. Real Action Paintball, Inc., 13-3005, picked up where the high court left off, forging into the cyber sphere. 

The plaintiff, Advanced Tactical, formerly a supplier of “irritant projectiles” to PepperBall Technologies Inc., became itself the manufacturer and seller of “Pepperball”-branded products after purchasing trademarks and other property in foreclosure. (The Court noted this was a “more serious” product used by police and security firms, not to be confused with recreational paintballs.) Another former PepperBall supplier hooked on with the defendant, Real Action Paintball, which took it upon itself to announce – via its website and a mass email blast – that it had acquired the “machinery, recipes, and materials once used by PepperBall Technologies Inc.” The plaintiff (by then, d/b/a PepperBall Technologies) filed claims under the Lanham Act and common-law theories in federal court in Indiana. The plaintiff was headquartered in Indiana with operations in California, and the defendant was a California company. After an evidentiary hearing, the district court found that it could exercise personal jurisdiction over the defendant and entered a preliminary injunction. The lower court found contacts based on Indiana sales, foreseeable harm to the Indiana plaintiff, and virtual contacts via an email list, email blasts, and a website accessible from Indiana.

Naturally, on appeal, jurisdiction (and the validity of the injunction) depended on review of these contacts. In an opinion by Chief Judge Diane Wood, the Seventh Circuit found jurisdiction lacking and reversed, relying heavily on Walden.

As to the sales, the Court stressed Walden’s requirement that “[f]or a State to exercise jurisdiction consistent with due process, the defendant’s suit-related conduct must create a substantial connection with the forum State.” Thus, it found the defendant’s 600 alleged sales to Indiana residents in the preceding two years were irrelevant: “The only sales that would be relevant are those that were related to Real Action’s allegedly unlawful activity.” There were only a few orders Real Action fulfilled after posting the contested messages, and the plaintiff had not shown that any of those Indiana purchasers had seen the messages or had thought Real Action was dealing in Pepperballs. Even if they had, that likely wouldn’t be enough. The Court warned against any interpretation that would threaten a “de facto universal jurisdiction” contrary to the Supreme Court’s case law.

Most interesting, however, is the Seventh Circuit’s analysis of Real Action’s internet activities (misleading mass emails and its website) in light of Walden. The Court refused to find that the use of a mass email list that happened to include Indiana residents created the necessary connection to the state, citing fundamental distinctions between such email addresses and “snail mail” addresses: “As a practical matter, email does not exist in any location at all; it bounces from one server to another, it starts wherever the account-holder is sitting when she clicks the ‘send’ button, and it winds up wherever the recipient happens to be at that instant. The connection between the place where an email is opened and a lawsuit is entirely fortuitous.”

As to the “interactive” website, the Court found renewed (implicit) support in Walden for its own previous opinions resisting broad personal jurisdiction based on such sites. Importantly, those websites do “not show that the defendant has formed a contact with the forum state.” Thus, giving them decisive weight would leave “no limiting principle—a plaintiff could sue everywhere,” a result contrary to the premises of recent Supreme Court cases, including Walden. Such websites “should not open a defendant up to personal jurisdiction in every spot on the planet where that interactive website is accessible.”

The Court’s logic is similar as to both the mass emails and the website. In essence, email addresses and website access are not tethered to any given forum state, so they ought not, without more, be able to tether a defendant to that state either. The Court left open the possibility that some types of online marketing could show a defendant targeting a specific state, giving the example of geographically restricted internet advertisements. Those efforts would show a defendant’s effort to reach the forum state, not merely to reach email recipients who fortuitously happened to be in the state.

A definitive case from the Supreme Court on specific jurisdiction based on virtual contacts remains to be written. Yet the Advanced Tactical case shows the Seventh Circuit first stating that there must be some limiting principle to the ability of such contacts to create jurisdiction, and then more confidently suggesting how those lines are to be drawn in the wake of Walden. The Internet offers businesses marketing tools of broad reach. As long as the courts avoid a shotgun approach to jurisdiction based on online activity, and instead require greater precision, businesses can breathe easier and maintain some control on where they’ll be haled into court.

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