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Choice of Forum / Choice of Law in Cyberspace
Tuesday, September 25, 2001

 

R E A D I N G S

Knowing Where You've Clicked: Forum Selection Clauses Online

As with their realspace counterparts, eCommerce businesses can (attempt) to limit their jurisictional exposure through the use of agreements with their customers and users. First, we'll start with an example:

Yahoo!, Inc. is perhaps the largest truly "online" business, with a market capitalization of about $75 billion (as of late August, 2000) and revenues of $498.5 million for the first six months of 2000.

The company describes itself as follows:

Yahoo! Inc. is a global Internet communications, commerce and media company that offers a comprehensive branded network of services to more than 120 million users each month worldwide. As the first online navigational guide to the World Wide Web, www.yahoo.com is a major guide in terms of traffic, advertising, household and business user reach, and is one of the most recognized brands associated with the Internet. The Company also provides online business services designed to enhance its clients' Web services, including audio and video streaming, store hosting and management, and Web site tools and services. Under the Yahoo! brand, the Company provides broadcast media, communications, and commerce services.

On many of the pages of the Yahoo! web site, the following "Terms of Service" is posted (edited for relevance to our inquiry here):

Terms of Service

1. ACCEPTANCE OF TERMS

Welcome to Yahoo!. Yahoo provides its service to you, subject to the following Terms of Service ("TOS"), which may be updated by us from time to time without notice to you. You can review the most current version of the TOS at any time at: http://docs.yahoo.com/info/terms/. In addition, when using particular Yahoo services, you and Yahoo shall be subject to any posted guidelines or rules applicable to such services which may be posted from time to time. All such guidelines or rules are hereby incorporated by reference into the TOS. If you are a homesteader on Yahoo's GeoCities Service, please note that Yahoo provides a different Terms of Service for you. Yahoo also may offer other services from time to time, such as Yahoo! Store and Yahoo! Site that are governed by different Terms of Services. These TOS do not apply to the Yahoo GeoCities Service, Yahoo! Store or Yahoo! Site or such other services.

[ . . . ]

24. GENERAL INFORMATION

The TOS constitute the entire agreement between you and Yahoo and govern your use of the Service, superceding any prior agreements between you and Yahoo. You also may be subject to additional terms and conditions that may apply when you use affiliate services, third-party content or third-party software. The TOS and the relationship between you and Yahoo shall be governed by the laws of the State of California without regard to its conflict of law provisions. You and Yahoo agree to submit to the personal and exclusive jurisdiction of the courts located within the county of Santa Clara, California. The failure of Yahoo to exercise or enforce any right or provision of the TOS shall not constitute a waiver of such right or provision. If any provision of the TOS is found by a court of competent jurisdiction to be invalid, the parties nevertheless agree that the court should endeavor to give effect to the parties' intentions as reflected in the provision, and the other provisions of the TOS remain in full force and effect. You agree that regardless of any statute or law to the contrary, any claim or cause of action arising out of or related to use of the Service or the TOS must be filed within one (1) year after such claim or cause of action arose or be forever barred.

What do you think of this practice? Is it fair? Will it hold up in court?

Next, as you read the following, consider what the limitations -- both practically and leaglly -- of this practice are (or should be):

Margaret Jane Radin, John Rothchild and Gregory M. Silverman, Internet Commerce: Doing Business in a Networked World (2001) [excerpts from Chapter 16] [pdf, 133 kb]

Now consider the following example:

Decker v. Circus Circus Hotel, 49 F. Supp. 2d 743 (D.N.J. 1999) [pdf, 145 kb ]

 

Finding the Law: Choice of Law Online

Under the doctrine established by Erie R.R. Co. v Tompkins, 304 US 64, 78 (1938), a case in federal court due to diversity jurisdiction must follow the choice of law rule established by the state in which it sits. Different states, of course, have different choice of law rules -- and this is where the problem arises.

For a very short introduction to the problems of choice of law in eCommerce, read SECTION IV.A.3 ONLY of

John Rothschild, Protecting the Digital Consumer, The Limits of Syberspace Utopianism, 74 Indiana Law Journal 893 (1999). {LEXIS ID required - read SECTION IVA.3 ONLY]

 

The International Dimension

Choice of law rules also present thorny problems in the international context. One debate (the terms of which are not limited to choice of law principles) has been the extent to which the rise of eCommerce justifies new choice of law principles. Some commentators have argued that:

Territorial regulation of online activities serves neither the legitimacy nor the notice justifications. There is no geographically localized set of constituents with a stronger and more legitimate claim to regulate it than any other local group. The strongest claim to control comes from the participants themselves, and they could be anywhere. And in Cyberspace, physical borders no longer function as signposts informing individuals of the obligations assumed by entering into a new, legally significant, place. Individuals are unaware of the existence of those borders as they move through virtual space.

The rise of an electronic medium that disregards geographical boundaries throws the law into disarray by creating entirely new phenomena that need to become the subject of clear legal rules but that cannot be governed, satisfactorily, by any current territorially based sovereign. For example, although privacy on the Net may be a familiar concept, analogous to privacy doctrine for mail systems, telephone calls, and print publications, electronic communications create serious questions regarding the nature and adequacy of geographically based privacy protections. Communications that create vast new transactional records may pass through or even simultaneously exist in many different territorial jurisdictions. What substantive law should we apply to protect this new, vulnerable body of transactional data? May a French policeman lawfully access the records of communications traveling across the Net from the United States to Japan? Similarly, whether it is permissible for a commercial entity to publish a record of all of any given individual's postings to Usenet newsgroups, or whether it is permissible to implement an interactive Web page application that inspects a user's "bookmarks" to determine which other pages that user has visited, are questions not readily addressed by existing legal regimes - both because the phenomena are novel and because any given local territorial sovereign cannot readily control the relevant, globally dispersed, actors and actions.

Because events on the Net occur everywhere but nowhere in particular, are engaged in by online personae who are both "real" (possessing reputations, able to perform services, and deploy intellectual assets) and "intangible" (not necessarily or traceably tied to any particular person in the physical sense), and concern "things" (messages, databases, standing relationships) that are not necessarily separated from one another by any physical boundaries, no physical jurisdiction has a more compelling claim than any other to subject these events exclusively to its laws.

David Johnson & David Post, Law And Borders - The Rise of Law in Cyberspace, 48 Stan. L. Rev. 1367, 1375-76 (1996).

But does the Internet really make choice of law (in the international context or otherwise) any more difficult? For a contrary view, read SECTION III(F) ONLY of

Jack Goldsmith, Against Cyberanarchy, 65 U. Chi. L. Rev. 1199 (1998) [LEXIS ID REQUIRED - read SECTION III(F) ONLY]

 

 

 

N O T E S  &   Q U E S T I O N S

1. Why do you think that Yahoo! wants to limit the fora in which it may be sued? Is it financial considerations, or something else? Setting aside the legal principles, is it fair to allow Yahoo! to establish the forum?
   
   
2. Given the services that Yahoo! provides, as well as the quantity of users, in which of the three Zippo categories would you place the company? Where, in your view, would jurisdiction be appropriate?
   
   
3. Review the Yahoo! web sites (starting with www.yahoo.com, etc.). How prominent is the above language? Do (non-lawyer) users know or understand that their forum to sue is being restricted? As you read the case law in the following part, think about how the Yahoo! agreement stacks up legally. Will it work?
   
   
4. The choice of forum cases in the online context raise contractual issues as well as jurisdictional issues. Should it matter whether the plaintiff in Decker or Groff read the forum selection clause? In Groff, the plaintiff claimed that he had never seen or read the clause before he clicked the "I Agree" button; in Decker, the court didn't address this question. Also, should the prominence of the clause (or the contract itself) be a factor? In Groff, the entire sign-up process took numerous screens, totaling 94 pages of printed text. How prominent is the Yahoo! "Terms of Service"? Prominent enough? In Hill v. Gateway 2000, 105 F.3d 1147 (7th Cir. 1997), Judge Easterbrook made the following statements in this light:
   

   A customer picks up the phone, orders a computer, and gives a credit card number. Presently a box arrives, containing the computer and a list of terms, said to govern unless the customer returns the computer within 30 days. Are these terms effective as the parties' contract, or is the contract term-free because the order-taker did not read any terms over the phone and elicit the customer's assent? . . .
   
   One of the terms in the box containing a Gateway 2000 system was an arbitration clause. Rich and Enza Hill, the customers, kept the computer more than 30 days before complaining about its components and performance. They filed suit in federal court arguing, among other things, that the product's shortcomings make Gateway a racketeer (mail and wire fraud are said to be the predicate offenses), leading to treble damages under RICO for the Hills and a class of all other purchasers. . . . The Hills say that the arbitration clause did not stand out: they concede noticing the statement of terms but deny reading it closely enough to discover the agreement to arbitrate, and they ask us to conclude that they therefore may go to court. Yet . . . [a] contract need not be read to be effective; people who accept take the risk that the unread terms may in retrospect prove unwelcome.
   
   ProCD, Inc. v. Zeidenberg . . . holds that terms inside a box of software bind consumers who use the software after an opportunity to read the terms and to reject them by returning the product. Likewise, Carnival Cruise Lines, Inc. v. Shute . . . . enforces a forum-selection clause that was included among three pages of terms attached to a cruise ship ticket. ProCD and Carnival Cruise Lines exemplify the many commercial transactions in which people pay for products with terms to follow . . . . A vendor, as master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance. A buyer may accept by performing the acts the vendor proposes to treat as acceptance. . . . Practical considerations support allowing vendors to enclose the full legal terms with their products. Cashiers cannot be expected to read legal documents to customers before ringing up sales. If the staff at the other end of the phone for direct-sales operations such as Gateway's had to read the four-page statement of terms before taking the buyer's credit card number, the droning voice would anesthetize rather than enlighten many potential buyers. Others would hang up in a rage over the waste of their time. And oral recitation would not avoid customers' assertions (whether true or feigned) that the clerk did not read term X to them, or that they did not remember or understand it. Writing provides benefits for both sides of commercial transactions. Customers as a group are better off when vendors skip costly and ineffectual steps such as telephonic recitation, and use instead a simple approve-or-return device. Competent adults are bound by such documents, read or unread.

   
   What do you think of this discussion? Does the jurisdictional context change anything? Should it? [Note that we'll consider ProCD v. Zeidenberg a little more closely later in the course.]
   
   
5. Which choice of law doctrine -- lex loci delicti or "most significant relationship" -- is the best for disputes arising from online transactions or relationships?
   
   
6. What relevance, if any, should the location of the web server have on choice of law principles? What about routers? Assume for the moment that some 40% of all internet traffic routes through a series of routers in Virgnia or California (at an earlier time, this was true). Does this have any impact on the choice of law analysis?

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