Where Can Digital Retailers be Sued?

Online or digital retailers have emerged as a fast-growing sector over the last few years. Between 2021 and 2023, retail tech companies raised over $192 billion in capital.[1] This post explores a continuing issue regarding the jurisdiction in which a digital retailer can be sued.

The Current State

The question of where a digital retailer may be sued requires discussion of personal jurisdiction, which is the power of a court over the parties in a lawsuit.[2] While operating a website does not mean that the owner is subject to personal jurisdiction wherever the site is accessible, unresolved limits over personal jurisdiction remain a pressing issue for digital business owners.[3] On one side of the issue, the Ninth Circuit held last year that Arizona courts have specific personal jurisdiction over a company because it routinely sold and delivered physical products to purchasers within the court’s jurisdiction.[4] The court’s reasoning for finding personal jurisdiction in this case was that delivery of a product is conduct “expressly aimed at the forum state.”[5] In its decision, the Ninth Circuit instructed lower courts to focus on whether delivery is part of the defendant’s routine business operation or is a truly one-off event. Notably, this instruction excluded consideration of the number of sales occurring within the jurisdiction.[6] This ruling appeared to deliberately leave open the possibility of a single sale establishing jurisdiction, with the court stating that “[i]f one sale were not enough to establish that a defendant expressly aimed its conduct at a forum, we would face the difficult question of how many sales would suffice.”[7] 

In a Seventh Circuit case addressing this issue, the court also focused on the defendant’s willingness and capacity to ship products to purchasers instead of actual delivery and sales within the forum state.[8] But, unlike the Ninth Circuit’s decision, this court’s ruling explicitly stated that the single act of shipping a counterfeit product to the forum state sufficed for specific personal jurisdiction over the online retailer.[9] The Second Circuit has also followed this approach, granting jurisdiction over digital retailers stemming from the single act of shipping a product to the jurisdiction.[10]

There is a sharp split among the five circuits that have ruled on this matter.[11] Using case law from the Second, Seventh, and Ninth Circuits, a party could argue that a court has jurisdiction solely by showing that an online retailer delivered a single product within the court’s geographical boundaries.[12] The Fifth and Eighth Circuits have ruled in direct opposition to this principle on cases involving similar fact patterns.[13]

A Brief History

As illustrated by these cases, there is no majority approach to this issue, and opinions on the matter are developing rapidly.[14] Just a few years ago, courts employed an active vs. passive test (also referred to as the Zippo analysis) to determine sufficiency of jurisdiction over online retailers.[15] This analysis originated from an early internet age case, Zippo Mfg. Co. v. Zippo Dot Com, Inc., where the court introduced the “sliding scale test” based on the website’s level of interactivity.[16] Under the Zippo analysis, active sites, defined as websites that function as online stores where customers order and pay for goods, typically led to a court’s finding of jurisdiction.[17] Passive sites, largely informational in nature and featuring little interactivity with viewers, generally did not lead to a finding of jurisdiction.[18] Despite its apparent dichotomy, the Zippo test left much to be desired for cases caught in the middle.[19] The analysis also did little to alleviate volume concerns, trying to justify personal jurisdiction over cases involving a single sale by looking to intentional communications with customers to determine that the transaction was purposefully aimed at residents of that state.[20]

Conclusion

In our increasingly developed internet era, cases of personal jurisdiction over digital retailers are highly fact sensitive and face enormous volatility based on the views of the proposed forum state.[21] Frustrated with the lack of clarity, several small companies that operate virtual storefronts on Amazon.com sought final resolution from the Supreme Court.[22] While the Supreme Court denied the petition for certiorari, the concerns of these Amazon-based businesses likely represent the views of business owners, which may consider that the Second, Seventh, and Ninth Circuits’ rulings extinguish their due process rights and subject them to jurisdiction in every state in the Union.[23] As the coming months reveal more developments in the lower courts, this jurisdictional issue will only be resolved with clear guidance from the Supreme Court.

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[1] CB Insights, Retail tech in 5 charts: 2023 (Jan. 31, 2024), available at: https://www.cbinsights.com/research/retail-tech-trends-2023/.

[2] Curt Graham, Commerce on The Internet: “I’ve Been Sued Where?” (Apr. 28, 2017), available at: https://www.mrrlaw.com/2017/04/28/commerce-on-the-internet-ive-been-sued-where/.

[3] Betsy Rosenblatt, Principles of Jurisdiction, available at: https://cyber.harvard.edu/property99/domain/Betsy.html

[4] Herbal Brands, Inc. v. Photoplaza, Inc., 72 F.4th 1085, 1093 (9th Cir. 2023).

[5] Id. at 1095.

[6] Id.

[7] Alison Frankel, Amazon resellers ask Supreme Court to clarify where online businesses can be sued (Nov. 20, 2023), available at: https://www.reuters.com/legal/transactional/column-amazon-resellers-ask-supreme-court-clarify-where-online-businesses-can-be-2023-11-16/.

[8] NBA Properties, Inc. v. HANWJH, 46 F.4th 614, 624 (7th Cir. 2022), cert. denied, 143 S. Ct. 577 (2023).

[9] Id.

[10] Chloe v. Queen Bee of Beverly Hills, LLC, 616 F.3d 158, 165 (2d Cir. 2010).

[11] Frankel, supra note 7.

[12] Id.

[13] Id.

[14] Kruggel Lawton CPAs, Sort Out the Jurisdictional Issues of E-Commerce (Feb. 26, 2014), available at:  https://www.klcpas.com/sort-out-the-jurisdictional-issues-of-e-commerce/.

[15] Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1124-25 (W.D. Pa. 1997).

[16] Id.

[17] Kruggel Lawton CPAs, supra note 14.

[18] Id.

[19] Zippo, 952 F. Supp. at 1124.

[20] Phil Nicolosi, Where Internet Jurisdiction Can Get Your Business Sued!, available at: https://www.internetlegalattorney.com/business-internet-jurisdiction-laws/.

[21] Graham, supra note 2.

[22] Photoplaza, Inc. v. Herbal Brands, Inc., No. 23-504, 2024 U.S. LEXIS 484 (Jan. 22, 2024).

[23] Frankel, supra note 7.