A recent decision by the First Circuit in a trademark infringement case, Plixer Intl v. Scrutinizer GmbH (1st Cir 2018) held that a German website used to sell software services, had done substantial business with U.S. customers, and was subject to a trademark infringement suit in the U.S. by another company claiming that the trademark used to market the services infringed its rights.
This was the case despite the fact that the website did not specifically target the U.S., but merely offered the services to the world at large (to be paid in Euros). What clinched the finding of jurisdiction was that the company had done significant U.S. business (about $200,000) over three years.
Although the site had a forum selection clause requiring its customers to litigate any disputes in Germany, the plaintiff was not a customer – its claim of trademark infringement lay completely outside any contractual relationship the German company had with its customers.
The decision is significant not only for foreign companies, but also for website operators in the U.S. Websites that do business with any states might subject their owners to jurisdiction where the site does business – even if the site is not specifically targeted to particular states.
The plaintiff in the Plixer case brought its claims in the District of Maine, hardly a convenient forum for many large companies. It is easy to see how, under the same reasoning, a California or New York based website that does significant business throughout the country could be subject to suit in many jurisdictions.
Scrutinizer GmbH is a German corporation based in Kassel Germany. It operates an English language, self-service website that helps customers build better software, providing various tools (for a price) that purportedly improves source-code quality, eliminate bugs and finds security vulnerabilities.
Scrutinizer does not target any particular country for sales; payments must be made in Euros. In a three-year period, Scrutinizer made about $200,000 in sales to 156 U.S. customers.
Plixer International, a Maine corporation, owns a trademark registration for the mark SCRUTINIZER for “computer software and hardware for analyzing, reporting and responding to malware infections and application performance problems, used in the field of information technology.” Plixer filed a trademark infringement suit under federal and state law against the German company for its use of the name Scrutinizer to identify the company’s online software services.
The First Circuit affirmed a finding that the German company was subject to jurisdiction in the District of Maine. Under Rule 4(k) of the Federal Rules of Civil Procedure, as a foreign defendant, Scrutinizer would be subject to jurisdiction if (a) the claims arose under federal law; (b) it was not subject to jurisdiction in any state court of general jurisdiction; and (c) if Scrutinizer’s contacts with the U.S. as a whole sufficed to make exercise of jurisdiction comport with due process. The first two requirements were undisputed.
On the third requirement, the First Circuit held that given that Scrutinizer had voluntarily offered its services into U.S. commerce, and used its marks in connection with offering those services, jurisdiction comported with Due Process.
It rejected an analogy to “stream of commerce” cases, because there the contact with the forum was completely involuntary. (A typical example is when a party sells a defective product to one forum, and then someone else moves the product to a second forum. That “stream of commerce” theory is often insufficient to give rise to jurisdiction in the second forum because the contact was not created by the first party.)
And, the First Circuit held, the fact that Scrutinizer had not specifically targeted the U.S. was of no moment – it had voluntarily done a substantial amount of business in the U.S. using its mark, and that was enough to create personal jurisdiction in the United States.
Although Scrutinizer’s website included a rigorous forum selection clause, that clause had no effect because it only bound Scrutinizer’s customers. Plixer was not a customer – it was a trademark owner claiming infringement.
As noted above, website operators, whether foreign or domestic, should take note.
Operating an ecommerce site may well subject the operator to jurisdiction in a far location, so long as substantial business is being done with that location. Although forum selection clauses are a good idea, they only bind customers, and are generally more useful for contractual disputes.
The First Circuit did mention the possibility of Scrutinizer having set up its website to avoid jurisdiction in the U.S. by, for example, by disabling business from the U.S., or at least posting a disclaimer stating that it does not accept U.S. business. Those might have been a way to avoid U.S. jurisdiction. Of course, those would have to be bona fide – Scrutinizer would have had to really wish to decline U.S. business. That might or might not be a price worth paying. Where a website does only a small amount of business in an inconvenient forum, the operator might consider refusing business from there.