Online Vendors Beware!

Back to Contents of Issue: April 2005

Disclaimers, log-in screens and geo-filtering software are some ways online vendors can steer clear of foreign lawsuits.

by David B. Hoppe

Sato slippers, a small family-owned shop located in Niigata, started offering its products over the Internet last year. The Satos hoped to use the website to expand their market within Japan, but soon found that they would occasionally receive orders from Japanese living in Australia, the United States, and Europe as well. After some initial hesitation, the Satos began shipping their slippers abroad.

All went well until a few months ago, when the Satos received a notice advising them that they were being sued in a court in the US state of California. It seemed that a US slipper manufacturer was claiming that the design of certain Sato Slipper products infringed its US copyright. Last week, the Satos received another notice, that a judgment had been entered against them in the California court, and that the US slipper manufacturer was now seeking to enforce its judgment against the company in Japan.

The story above may be fictitious, but developments over the last few years in the law of the Internet and international jurisdiction have made it an increasingly real possibility, and one that small- and medium-sized Japanese companies doing business over the Internet would do well to take note of. Courts in various countries have recently indicated that they believe they have the authority to hear lawsuits filed by local residents against foreign companies that may be located thousands of miles away but have websites accessible by local residents. Fortunately, however, there are some ways that this risk can be reduced.

The Developing Law
The law regarding jurisdiction over companies based on their Internet sites is still in the early stages of development, and courts in only a few countries have considered the issue. However, indications are that companies that offer products for purchase by foreign residents, publish content on the Internet, or even operate websites that simply provide information regarding their products, may be sued outside their home countries. The cost of defending such lawsuits internationally may be expensive, and a company may find that it is subject to unfamiliar laws and regulations as a result.

Sale of Products Overseas
Companies that take orders from customers overseas through their websites are the most vulnerable to foreign lawsuits. In perhaps the most famous case in this area, the US portal operator Yahoo! Inc. was sued in a French court for violation of a French law prohibiting the display of Nazi memorabilia. The Nazi items were being offered by users on the Yahoo! US auctions site at, which of course is developed in the US, served from California, and directed at US users. (Yahoo! also operates a French portal, but the French site complied with the law regarding Nazi items.)

The French court in this case needed little convincing to take jurisdiction over Yahoo! US. The court appeared to hold that Yahoo! US could be sued in France simply because displaying the Nazi items violated French law, but it also noted that Yahoo! US knew that its site was being viewed by French users because it utilized tracking software that correlated IP addresses to particular regions.

Yahoo! US refused to comply with the French court's order to attempt to block access by French users to auctions of Nazi items on the US site, but the Yahoo! case was eventually resolved after Yahoo! voluntarily implemented a worldwide ban on the offering of Nazi items.

The Yahoo! case is a little bit unusual because of the nature of the law that was being enforced. However, it appears that courts are most likely to allow lawsuits against foreign websites if those websites are used to offer products to local residents. European law in particular favors the rights of consumers to bring lawsuits in their home countries against companies delivering products from overseas. Some commentators have suggested that the European Union's recently-enacted Brussels Regulation could allow a European court to take jurisdiction over a foreign website operator even if the site only provided information about the website operator's products, without allowing the ability to purchase the products online.

Content Publication
Companies that publish content on the Internet, such as news sites, may also be subject to lawsuits in foreign courts. Courts in at least three countries have now said that if a website publishes content alleged to be defamatory, that website can essentially be sued anywhere in the world. In these cases, US publications were sued in courts in Australia, Canada and the UK as a result of material that appeared in their US online editions.

In the Australian case, an Australian businessman sued the Wall Street Journal online edition in Australia after it carried an article suggesting he had been involved in money laundering. Dow Jones, owner of the Wall Street Journal, claimed that the lawsuit should not be heard by the Australian court, since the article had been written in the US, primarily for US readers, and the website was served from the US. The court rejected this defense, finding that the individual was entitled to bring his lawsuit in the place where his reputation was harmed by the alleged defamation. Since Australia was his residence, the court reasoned, it was appropriate for the Australian court to hear his case. Dow Jones recently settled with the foreign party.

In the UK case, another foreign party, Harrod's Department Store, sued the Wall Street Journal in a UK court in response to critical statements in an editorial in the Wall Street Journal Online. As in the Australian case, the UK court accepted Harrod's request to take jurisdiction over the case, even though the content appeared on an American website.

The most recent of the defamation cases is currently underway in Canada. In that case, a former employee of the United Nations sued the Washington Post in Ontario in response to allegations of scandal about him that had appeared in the Post's online edition. Unlike the Australian and UK cases, however, the individual in this case did not bring suit in the country in which he resided at the time the article initially appeared on the Internet. The UN employee actually was stationed in Africa when the article was published, and was not a resident or even a citizen of Canada at the time. Later, he moved to Canada, and then filed his lawsuit in the Ontario court.

This fact did not seem to concern the Ontario court, however, which held broadly that the harm resulting from defamation would follow an individual wherever he went, and so the Post should have been prepared to be sued anywhere in the world. This case is currently on appeal.

Recommendations to Avoid Foreign Lawsuits
It is possible that in the next few years international treaties, such as the proposed Hague Convention on Jurisdiction and Enforcement of Judgments, will be enacted that will provide some predictability to website operators as to the countries in which they may be required to defend a lawsuit. In the meantime, however, Japanese website operators who are concerned about the possibility of foreign litigation may take steps to reduce this risk.

First, a website that publishes content could include a disclaimer stating that content available on the site is not intended to be accessed by users outside Japan (and perhaps certain other countries), and providing that residents of such countries are not authorized to view content on the site. Note that while the fact that content on a site is written in Japanese may help limit the likelihood that a foreign court would find jurisdiction, it would not be dispositive -- a US court recently took jurisdiction over a Hong Kong-based website, written in Chinese, in part because Chinese-speaking Americans would be able to access the site within the US and read the contents.

The website could also provide for a log-in screen in which the user would have to specify his or her country of residence, and block access to users who enter countries in which the website operator wishes to avoid the risk of jurisdiction. Sites requiring payment by users could exclude certain currencies from drop-down menus used in purchasing subscriptions. While the disclaimer could be ignored and users could falsely indicate their countries of residence, many courts will consider measures such as these as indicating that a website operator did not intend to reach users located in their jurisdictions, and may decline to allow lawsuits by local users as a result.

Websites that offer products for sale could simply refuse to ship orders to addresses located in countries for which jurisdiction is a concern.

Many commercial sites utilize some kind of geo-filtering software, which attempts to identify the region in which a website user accessing the site is located. Geo-filtering software, which is increasingly accurate, is often used to serve up region-specific advertising. It could also be used, however, to block residents of certain countries - or all countries outside of the website operator's home country - from accessing the site altogether.

While the steps suggested above may be helpful in reducing the likelihood of having to defend a lawsuit overseas, it is always important for website operators to be aware of laws relating to the company's business and products in the principal countries in which the site is accessed or products are sold, or in which the company has a physical presence. Such an understanding may be the best defense against liability, whether lawsuits are filed abroad or in the home country. @

David B. Hoppe is a member of the Access International Law Group

Note: The function "email this page" is currently not supported for this page.