Net Prophets

The surge in online disputes won't be suppressed in '98.

by , / February 28, 1998 0
Internet usage increased substantially in 1997. Due to pricing changes, for instance, America Online now has more subscribers than the Chicago-metropolitan area has residents. One research group concluded that 15 percent of the U.S. population now uses e-mail, up from 2 percent in 1992 with a prediction of about 50 percent within 5 years. Another study concluded that Internet use has more than doubled in the last 18 months and that almost 25 percent of all persons in the U.S. over the age of 16 have used the Internet.


This boom in usage has lead to
a substantial increase in legal issues
and problems as well as substantial creativity by lawyers in attempting
to resolve such problems over the
past year.

We are probably all aware of the more publicized legal matters, such as the difficulties Microsoft faced in attempting to market its Web browser while complying with a 1995 U.S. government consent decree prohibiting various restrictive practices; and the civil class action suits and state consumer actions against AOL for service difficulties that arose after AOL initiated its fixed-fee pricing; and, of course, the media has duly informed us about the year-2000 problem and the host of legal problems that it will bring.

Of equal importance are the host of less notorious legal issues spawned by Internet use. The cases involving Net users are far too numerous to discuss in detail in this review. Suffice it to say that the authorities, and civil plaintiffs as well, went after stalkers, spammers, scammers, pornographers, defamers, infringers, hackers, crackers, gamblers, drug pushers, pyramid scheme operators, stock traders, fences, term paper purveyors and even parents who neglected their children and surfed the Net instead. A difficulty raised by these issues, of course, is trying to judge Internet activities by the application of traditional legal concepts. Nevertheless, lawyers were successful in doing so this past year.

A recent example is a "spamming" case tried in federal court, CompuServe Inc. vs. Cyber Promotions Inc., 962 F.Supp. 1015 (S.D. Ohio 1997). The U.S. District Court for the Southern District of Ohio held that the defendant's sending of unsolicited, commercial e-mail to CompuServe subscribers without CompuServe's consent (spamming) constituted a trespass to chattels under traditional Restatement (Second) of Torts theory. Traditional theories have been tested on other fronts as well.

JURISDICTION

Jurisdiction has been a major issue in both civil and criminal litigation, and there is no uniformity in the decisions to date. The courts have had some difficulty in determining whether and what Internet activities constitute sufficient "minimum contacts" for the exercise of personal jurisdiction. In Minnesota vs. Granite Gate Resorts Inc., 1996 WL 76731 (Minn. 1996) aff'd 568 N.W.2d. 715 (1997), it was held that Minnesota had jurisdiction over a Nevada company and its president for offering betting information to Minnesota residents. The court found that the posting of information on a Web page and the distribution of information in all the states by an e-mail distribution list created sufficient minimum contacts with Minnesota.

A similar result was reached by a federal judge in Massachusetts, in Digital Equipment Corp. vs. AltaVista Technology Inc., 960 F.Supp. 456 (D. Mass. 1997), who concluded that the defendant was subject to jurisdiction in Massachusetts by reason of the solicitation of sales of advertising and software on its Web page from another jurisdiction.

The same result had been reached near the end of [1996] by a federal court in Arizona in EDIAS Software International vs. BASIS International Ltd., 947 F.Supp. 413 (Ariz. 1996). This court, in a case involving charges of defamation and
tortious interference, applied a traditional tort theory of jurisdiction and concluded that jurisdiction was
present because the out-of-state defendant knew that his out-of-state activities would damage the Arizona plaintiff and thus have an effect in Arizona. The court in fact emphasized that the defendant should not escape traditional notions of jurisdiction through the use of modern technology.

Other courts have reached contrary results and have held that the mere use of an out-of-state Web page and server and consequent "advertising" in the forum state via the Internet is insufficient to confer jurisdiction. See for example, Webber vs. Jolly Hotels, 1997 WL 574950 (D.N.J. 1997), and Bensusan vs. King, 937 F.Supp. 295 (SDNY 1995) aff'd 126 F.3d 25 (2d Cir. 1997).

The Bensusan court held that the Blue Note Night Club in New York could not obtain jurisdiction in New York over a Missouri night club of the same name that advertised on the
Internet.

And, in a year-end jurisdiction case, the Ninth U.S. Circuit Court of Appeals held that a Florida company, known as Cybersell, was not subject to personal jurisdiction in Arizona for allegedly infringing, via the Internet, the trademark of an Arizona company with the same name.

"Cybersell Florida," the appeals court said, "did nothing to encourage people in Arizona to access its site, and there is no evidence that any part of its business (let alone a continuous part of its business) was sought or achieved in Arizona," Cybersell vs. Cybersell, 96-17087 (9th Cir. Dec. 2, 1997). As these cases show, jurisdiction and choice of law questions will continue to be a challenge in the years to come. Whether Web site solicitations and even e-mail solicitations will meet the minimum contacts required for the exercise of personal jurisdiction may well lead the U.S. Supreme Court to review its International Shoe criteria in a far different technological setting. Because the Internet is in some ways removed from geographical connections, Internet commerce offers the possibility of falling under the jurisdiction of any state or country with an Internet connection. If Internet commerce is to progress, it will be necessary for courts to establish a principled test of when an Internet user is subject to jurisdiction. 1998 will likely produce some efforts to establish such an Internet- specific test.

VICARIOUS AND CONTRIBUTORY LIABILITY

The liability of Internet service providers for the acts and actions of users of its services continued to be a significant issue in the past year. Contributory liability issues arose in various settings.

For example, a Florida circuit court, relying on the "safe harbor" provisions of the Federal Communication Decency Act, held that America Online was not vicariously liable for the violation of pornography laws by others over AOL. The civil action, which sought $8 million in damages, was filed on behalf of a boy who was sexually assaulted by someone he met through a chat room.

Similar vicarious liability actions have been filed involving defamation, trademark infringement and other tortuous and intellectual property infringement theories. The safe harbor provision of the Communications Decency Act -- one of the remaining provisions after the U.S. Supreme Court ruled part of the act unconstitutional -- is limited in its protective scope, however, and does not address liability for other types of harms occurring online, such as copyright infringement.

Even so, new federal legislation may resolve some of these issues. For example, the Online Copyright Liability Limitations Act, pending in the House of Representatives, would protect service providers from infringement claims based on the mere transmission of copyright-infringing material that others place on the Internet. Judicial and legislative activity will continue on this front in the coming year.

Service providers and Web site operators also have been sued and held liable for direct and intentional involvement in a variety of activities. These cases are to be distinguished from those involving vicarious liability alleged to arise by reason of merely providing the facility for the Internet use. The decisions, however, have arguably produced some inconsistent holdings due to questionable understandings of the underlying technology.


DOMAIN NAMES

The necessity and significance of domain names (, for example) have been the source of the largest number of Internet-related conflicts [in 1997]. First and foremost are claims arising from alleged trademark infringement occurring when businesses want to use the same domain name or when one business uses a domain name that matches a registered trademark of another company. These conflicts may skyrocket in [1998].

The National Science Foundation, which has laid much of the groundwork for the Internet, has announced that it is exiting the domain name business and will not be renewing its contract with Network Solutions Inc. (NSI) when it expires [this year]. NSI has announced that it will continue its registry functions, however, and also claims that it has a proprietary right to the database of registration information necessary to route e-mail and Web traffic to a company or organization's domain.

An international ad hoc committee has been meeting in Geneva and has signed a memorandum of understanding with many groups to begin the implementation of a new mechanism for creating and managing new top level domains and for addressing domain name conflicts. However, there is significant objection to this approach by various parties, including the U.S. government, which, on the other hand, is contemplating antitrust charges against NSI (in addition to the class action suits that have been filed against the registrar).

Adding new top level domains is likely to increase the opportunities for trademark conflicts. This is obviously an important issue about which we will be reading and hearing much more in 1998.

OTHER INTELLECTUAL PROPERTY ISSUES

Copyright, trademark and unfair competition issues have always abounded by reason of activities on the Internet. Of recent interest are challenges that have arisen because of various linking activities on the Net.

Hypertext linking -- the very essence of the Internet -- involves the use of software and programming that allows a user to quickly move from one site to another. This has given rise to several interesting infringement problems. In general, the mere linking of one site to another is the sine qua non of the Internet and does not give rise to liability -- either on the part of the entity creating the link for impliedly adopting or sponsoring the information at the linked-to site, or on the part of the link creator for infringing the intellectual property of the owner of the other site. However, certain forms of non-consensual linking gave rise to claims in 1997.

For example, TicketMaster (and Paul Allen, a founder of Microsoft) sued Microsoft for linking to Ticketmaster's site. The case was settled but did raise the issue of non-consensual hypertext linking. Some critics believe this case challenged "the very essence of the World Wide Web." Fear created by such lawsuits, regardless of their merits, is already leading to the practice of "link licensing." Unfortunately, none of the suits have been litigated to a useful decision, though such a case may be in store for 1998.

Other forms of linking have sparked disputes too. Challenges have been made to the practice of "framing," which involves linking to another site but maintaining on the screen the link creator's own "frame" (and advertising) surrounding Web pages provided by the framed site. This practice has raised issues of misappropriation, trademark dilution, trademark infringement and unfair competition.

The World Wide Web was not designed with precise page layout in mind, and a successful win against framing would raise issues such as whether looking at a company's page on a small computer monitor, thus producing the same "detrimental" effect as framing, would constitute an infringement as well -- obviously a nonsensical conclusion. On the other hand, framing offers the potential for a legitimate unfair competition or false-attribution claim. It will be interesting to see how the courts
address the issue, and whether they appropriately restrict the scope of their holdings on this issue.

Another challenged practice that arises by reason of Internet functionality involves the use of "meta-tags," essentially comment lines in the coding for a Web site. The meta-tags do not show up on users' screens but can be observed and "read" by Web browsers or search engines. The infringement problem arises when developers or Web site operators include the legitimate trademarks of others as meta-tags in their own sites. This surreptitious use in the Web site code means that a search for a particular company or its products will list the rogue site as a match.

This practice was found to be unlawful in Playboy Enterprises vs. Calvin, 1997 U.S. Dist. Lexis 14346 (N.D. Cal. Aug. 29, 1997) injunction granted 1997 U.S. Dist. Lexis 14345 (Sept. 8, 1997). The federal judge in California enjoined the use of the words "Playboy" and "Playmate" in meta-tags on a Web site that was not operated by Playboy Enterprises.

Whether other courts will enjoin such activities remains to be seen, but it is distinctly possible. The counter-argument allowing the use of such tags is simply that the user does not see the meta-tags and can ignore the irrelevant Web site that the allegedly infringing meta-tag brings to light.

LEGAL ETHICS

Several bar associations were called on to render opinions on such issues as whether attorneys could have privileged communications with clients through the use of e-mail and whether attorneys' Web pages constitute unlawful "solicitation." In general, the opinions approved the use of online technology and concluded that it was acceptable for attorneys to communicate with clients through the use of e-mail. It also was generally held that the use of a Web page did not constitute unlawful solicitation because the use was not directed to any particular group of people in specific need of attorneys' services. See, for example, ISBA Advisory Opinion on Professional Conduct. (Opinion 96-10 dated May 16, 1997).

LEGISLATION

The technology field generated a flurry of legislative activity on both the state and federal levels. Significant efforts were made to deal with the many new legal issues posed by the Internet. Some of the legislation was regulatory in purpose, such as a section in the California Business and Professions Code requiring online merchants doing business with buyers located in California to disclose their legal name and address as well as provide notice of their refund and return policy. Other legislation is criminal in nature, such as in Illinois law making it punishable by up to five years in prison to solicit minors, by computer, into having sex -- an activity that is already a crime in Illinois without regard to the use of a computer.

Legislation was introduced in Maryland making it illegal to send "annoying" or "embarrassing" e-mail. Similar bills are pending in other states. Nevada prohibited unsolicited e-mail relating to the purchase of real property, goods or services unless the recipient had a pre-existing business relationship with the sender.

Texas passed a law that penalizes anyone who "prepares, sells, offers or advertises for sale, or delivers to another person an academic product when the person knows, or should reasonably have known, that a person intends to submit or use the academic product to satisfy an academic requirement." In short: Don't sell term papers!

These are but a few examples of the proliferation of state legislation involving the Internet. Regulating the Internet became "trendy" and a way for legislators to look "hip" and "with it." Unfortunately, it also showed that many of these legislators have a narrow grasp on constitutional principles and often a non-existent grasp of the relevant technology.

On the federal level, the House took up the Consumer Internet Privacy Protection Act of 1997. The bill would prohibit an
interactive computer service from disclosing to third parties any personally identifiable information provided by subscribers to the service.

Other proposed or passed federal legislation includes:

* The Internet Gambling Prohibition Act of 1997 (introduced).

* The Internet Tax Freedom Act -- a proposal for a two-year moratorium on the taxation of Internet transactions by state and local governments.

* The Online Copyright Liability Limitations Act -- a measure that would protect service providers from infringement claims based on the mere transmission of infringing material.

* The Electronic Commerce Enhancement Act -- a bill that would make government forms available online and allow citizens to use digital signatures to sign those forms.

* The No Electronic Theft Act -- a law President Clinton signed recently that makes the willful electronic distribution of a copyrighted work a criminal offense.

The federal agencies are also hard at work in this area. The Commodities Futures Trading Commission (CFTC) has proposed rules regulating certain conduct on the Internet, for example, by requiring registration with the CFTC by anyone who issues or promulgates futures contracts analyses or reports.

The Federal Trade Commission (FTC) did a lot of Web surfing in 1997. It conducted "North American Health Claim Surf Day," wherein individuals surfed the Web in search of Web sites containing false or deceptive health claims. The FTC has not limited its inquiries to health care. It has held surf days to uncover other online wrong-doing. Most recently it filed suit and obtained injunctive relief against
several firms and individuals who participated in a scheme whereby a "viewer" program that, when downloaded from the Internet, disconnected the user's computer and "secretly redialed a Moldovian telephone number." The respondents received a kickback from the long distance provider and unwaring users received large bills from the telephone company in Moldova. This activity was enjoined.

The lesson here is simply that the states and federal government, regulatory agencies, and even many municipalities want to play a role in stopping or regulating many of the activities that are carried out on the Net. If you represent clients in this area, a thorough search of legislation and administrative action should be undertaken. One must also keep in mind that the law of the Internet is not just limited to the United States. Although this review has been so limited, we, as attorneys in a small world, may have to expand our search in resolving Internet legal issues. International Internet law is an area ripe for expansion, and it is likely to be a large area of concern in the coming years.

CONSTITUTIONAL RIGHTS

The [past] year would not be complete without a brief review of some of the constitutional challenges to Internet regulation. Many are aware of the successful challenges to portions of the Communications Decency Act. See ACLU vs. Reno, 929 F.Supp. 824 (E.D. Pa. 1996) aff'd 117 S.Ct. 2329 (1997).

Sen. Dan Coates of Indiana has already proposed a more narrowly focused version. Referred to by some as the "Son of CDA," the scaled-back measure would require purveyors of material "harmful to minors" to restrict access in various ways.

Successful constitutional challenges were made on other fronts too, including challenges to state legislation regulating various aspects of the Net. See, for example, American Library Association vs. Pataki, 969 F.Supp. 160 (S.D. N.Y. 1997). However, the arguments of spammers who believe they have the constitutional right to distribute e-mail through services such as AOL have met with little success. Indeed, in America Online vs. Cyber Promotions Inc., 948 F.Supp. 456 (E.D. Pa. 1996), the court rejected the argument that AOL was a state actor and had unconstitutionally prohibited the flow of certain forms
of e-mail.

Earlier [in 1997], a federal court in Ohio reached a similar conclusion with respect to CompuServe and, as
noted at the beginning of this review, even protected CompuServe's property rights from trespass by a junk e-mailer.

Lawsuits against junk e-mailers, or "spammers," were plentiful this year, second only to the number of domain name suits. Statutes to combat junk e-mail are being considered by half a dozen states, or so, and three federal bills are pending in Congress. Expect lawsuits against senders of junk e-mail to multiply, at least until legislation is passed.

Because the essence of the Internet is communication with others, constitutional challenges to many forms of regulation are far from over.

Champ W. Davis is a partner at Davis, Mannix & McGrath, which is involved in commercial litigation with emphasis on computer related cases. He is a current member, and past chair, of the Chicago Bar Association Computer Law Committee, and currently serves as an adjunct professor of law at Chicago-Kent College of Law.

David Loundy is an attorney at the Chicago law firm of Davis, Mannix & McGrath, practicing in the areas of intellectual property, computer, and entertainment law. He is chair of the Chicago Bar Association Computer Law Committee, and is a member of the Illinois State Bar Association Intellectual Property Section Council, for which he chairs the Internet Law subcommittee. Internet: . E-mail: .

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