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Is Zippo Getting Zapped?

By Kent A. Lambert, Litigation News Associate Editor – August 12, 2011

Since 1997, courts struggling to decide whether to exercise personal jurisdiction over nonresident defendants based on their Internet activities frequently turn to a “sliding scale” analysis. This analysis is commonly attributed to a decision from the Western District of Pennsylvania, Zippo Mfg. Co. v. Zippo Dot Com, Inc. [PDF]. A recent appellate decision from Florida, released despite a settlement by the parties, highlights a growing dissatisfaction with the Zippo analysis.


The Nuances of Jurisdictional Analysis in the Digital Age
Internet jurisdictional analysis presents challenges beyond what faces a court in a brick and mortar dispute. “Internet jurisdiction has bedeviled courts for over a decade,” observes Ian H. Fisher, Chicago, cochair of the ABA Section of Litigation’s Pretrial Practice and Discovery Committee.


Zippo’s influence may stem from a desire to find bright-line guidance in an elusive area of jurisdictional analysis. This approach, at least from the perspective of potential defendants, trades fairness for predictability.


“On one level, anything posted on the Internet essentially occurs everywhere it can be accessed, and traditional notions of jurisdiction cannot be stretched so far as to impose universal jurisdiction based on nothing more than the operation of a website,” observes Fisher. On the other hand, he continues, “A state should be able to protect its residents from wrongful behavior directed against them.”


Zippo’s Sliding Scale
The Zippo sliding-scale test seeks to simplify analysis by focusing on the “interactivity” of the defendant’s web-based activities. If “a defendant has simply posted information on an Internet [website] which is accessible to users in foreign jurisdictions,” jurisdiction is generally not appropriate. At the opposite extreme are situations where a defendant proactively uses the Internet to pursue and conduct business within the forum.


Courts looking at fact patterns falling somewhere in the middle must examine “the level of interactivity and commercial nature of the exchange of information that occurs on the website.” In Zippo, the district court ultimately found jurisdiction where 3,000 of the 140,000 paying subscribers to the service offered by a California-based website lived in Pennsylvania.


Virtual Jurisdiction in the Florida Courts
In Caiazzo v. American Royal Arts Corp. [PDF], Florida’s Fourth District Court of Appeal appears to provide perhaps the most pointed abandonment of Zippo’s sliding scale to date. Applying a more subjective multifactor balancing analysis, the appellate court upheld specific personal jurisdiction over a New Jersey defendant, but declined to uphold broader general personal jurisdiction.


Specific Personal Jurisdiction over Caiazzo
The defendant derived the majority of his sales from his website. A significant amount of the defendant’s total sales over a four-year period—4.35 percent (approximately $100,000)—shipped to buyers with Florida addresses. Finally, the complaint included allegations that the defendant made disparaging remarks about the plaintiff—headquartered in Florida—“to enhance [his] own commercial sales in Florida.”


According to the appellate court, these facts were enough to demonstrate minimum contacts for purposes of specific personal jurisdiction. They prove the reasonableness of proceeding against the defendant in a Florida court under each of the three counts. The appellate court therefore held claims under Florida’s Deceptive and Unfair Trade Practices Act, defamation and unlawful restraint of trade could have gone forward, but for the settlement.


Insufficient Facts for General Personal Jurisdiction
According to the appellate court, “[M]inimum contacts for general jurisdiction is a much more demanding and necessarily different analysis than that required for specific jurisdiction.” In conducting such analysis, the appellate court emphasized “[T]hat a ‘continuous and systematic business contacts’ determination requires a holistic analysis of the defendant’s relationship with Florida.”


In the context of its general personal jurisdiction analysis, the appellate court found that the 4.35 percent sales figure is “de minimis,” and combined with the defendant’s website, devoted to memorabilia, was “of insufficient caliber” to support the exercise jurisdiction. It noted, “[T]he law is severely underdeveloped and somewhat contradictory in the area of the Internet and general jurisdiction,” and stressed that the analysis of general personal jurisdiction must always be intensely fact-specific.


The appellate court explained how percentages may be deceptive by comparing an example of 1 percent of the global sales of a large multinational corporation compared to 15 percent of the sales of small business. The corporation may have millions of dollars in sales and “dozens of stores within Florida.” The small business may have “a handful of actual transactions and only a few hundred dollars [in sales into Florida].” The appellate court posits that the general personal jurisdiction would lie as to the corporation but not the small business.


An Issue That Won’t Go Away
Fisher gives the Caiazzo court credit for abandoning Zippo’s sliding scale and embracing what he feels is a more sound, fact-intensive balancing analysis. He notes that this approach, while, “probably the most fair, does not provide a bright-line and, thus, is not very practical for businesses trying to assess their exposure” to long arm jurisdiction.


There is a second reason why Caiazzo merits notice. The appellate court took the unusual step of issuing its opinion even though the underlying case settled while the appeal was pending.


“Both the importance of Internet-based jurisdiction and the difficulty inherent in resolving such cases are manifest in the Caiazzo court’s decision to issue its opinion in a moot case,” says Betsy P. Collins, Mobile, AL, Fisher’s cochair on the Section of Litigation’s Pretrial Practice and Discovery Committee. Collins adds that while jurisdictional analysis may have to be adapted to keep up with evolutions in Internet commerce, “traditional minimum contacts analyses, from purposeful availment to the ‘effects test’ of Calder v. Jones, can still be effectively applied to determine whether the exercise of personal jurisdiction over a nonresident defendant is appropriately grounded upon Internet-based contacts.”


Keywords: litigation, Florida courts, Zippo, Internet, virtual jurisdiction


 
Related Resources

  • » Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997).
  • » Caiazzo v. Am. Royal Arts Corp., 2011 WL 2135585 (Fla. App. 4 Dist. June 1, 2011), 2011 Fla. App. LEXIS 8078.
  • » Calder v. Jones, 465 U.S. 783 (1984).

 

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