MICHAEL GEIST
Thursday, March 9, 2000
Whose laws apply in the global world of e-commerce? As Web sites are accessible worldwide, some companies fear they may be subjecting themselves to any jurisdiction that can access their site.
In fact, during the Internet's commercial infancy, several U.S. courts ruled precisely in this manner. Confronted with the Internet for the first time, several judges ruled that since a Web site was accessible within their jurisdiction, they were entitled to assert their authority over the site's activities.
Legal experts quickly objected to this reasoning, saying that such an approach effectively turned the Internet -- the proverbial "lawless Wild West" -- into the most regulated space in the world.
Happily, courts took note of the undesirable result of the early U.S. approach and a new standard emerged. Frequently referred to as the "passive versus active test," this standard has significant implications for the Canadian legal system, and for Canadian companies doing business on-line.
Rather than treating the Internet as a single entity, the passive versus active test recognizes that a spectrum of activities occurs on-line and that each must be individually examined. The legal response ought to differ with the nature of each activity.
At one end of the spectrum are "passive" Web sites that are largely informational in nature. These sites feature minimal interactivity and function much like an electronic brochure.
In the interest of fairness, and to help facilitate e-commerce, courts have agreed to take a hands-off approach to such sites. This sensible decision recognizes that site owners cannot reasonably foresee facing legal action in a far-off jurisdiction based simply on the availability of information.
At the other end of the spectrum are those sites that are set up to do e-business. These sites, which feature significant interactivity by functioning as the on-line equivalent of a real space store, are characterized as "active" sites.
Courts have repeatedly asserted their authority over such sites, arguing that site owners are aware of the risk of facing legal actions in multiple jurisdictions since they are doing business globally through the Internet.
Falling between these two are sites that provide more than simple information but less than full-blown e-commerce. These sites present courts with a tough balancing act. Judges must carefully consider all the features and circumstances to determine at which end of the spectrum the site falls.
It's important to note that the passive versus active test does not remain static. A site characterized as active two years ago could today be considered passive, since the level of interactivity found on the world's leading e-commerce sites have increased dramatically.
For Canadian companies, the passive versus active test must be considered when venturing on-line.
Braintech Inc. v. Kostiuk, a 1999 British Columbia Court of Appeal case, was the first Canadian appellate level decision to address the Internet jurisdiction issue.
Of concern in that case was a series of allegedly defamatory messages posted on a stock chat site by a B.C. resident. Braintech, a B.C.-based company with a small branch in Texas, sued the person who posted the message in a Texas court, where large damage awards are common. The strategy paid off, as the company was awarded roughly $409,680 (U.S.) in damages.
When the company returned to British Columbia to enforce the judgement, the B.C. courts examined the appropriateness of the Texas court's assertion of jurisdiction over the dispute.
The B.C. Court of Appeal adopted the passive versus active test and ruled that the Texas court had improperly asserted its jurisdiction. It argued that the postings were passive in nature and were insufficient grounds to grant the Texas court authority over the case. Braintech has appealed that decision to the Supreme Court of Canada.
Canadian companies have not been immune to litigation in the United States arising from their Internet activity and have found the need to avail themselves of the passive versus active test.
In one recent decision, Transglobe Energy Corp., a B.C. company, successfully relied on U.S. Internet jurisdiction law in a federal district court in Louisiana.
When a plaintiff in that state argued that the court could assert its jurisdiction because the company's Web site was available there, Transglobe responded by pointing to the site's passive nature. The U.S. court agreed.
Michael Geist is a law professor at the University of Ottawa School of Law specializing in Internet and electronic-commerce law. He can be reached at mgeist@uottawa.ca and on the Web at http://www.lawbytes.com.
