Los Angeles Daily Journal, May 22, 1997, at 7

Choose or Lose
Choice-of-Law Issues in Cyberspace Cases Remain Unresolved

Hao-Nhien Q. Vu

It probably started when a computer bulletin board operator from Milpitas was hauled into court in Memphis, Tenn., to face
obscenity and child pornography charges.  The U.S. District Court held that the computer data transfer between the
defendant's computer and the Memphis community justified the exercise of personal jurisdiction over the bulletin board
operator.  United States v. Thomas, No. CR-94-20019-G (W.D. Tenn. 1994).

Since then, other courts have held that a state may exercise personal jurisdiction over an operator of World Wide Web site,
based on the site's "presence," via the Internet, in the state.  See, e.g., Compuserve, Inc. v. Patterson, 89 F.3d 1257 (6th Cir.
1996).  But see Bensusan Restaurant Corp. v. King, 937 F. Supp. 295 (S.D.N.Y. 1996) (mere posting of information does
not justify jurisdiction).  As a result, members of the computer community are resigned to the possibility that they may be
subject to jurisdiction everywhere, and they live in fear that one day they will wake up and find themselves facing liability in
some state "out there" because of some idiosyncratic law of that state.

Just because one may be haled into court in Tennessee, for example, does not necessarily mean that one is subject to
Tennessee law.  The Tennessee court may very well be required to apply Nevada law.  This is the difference between personal
jurisdiction and choice of law.  Personal jurisdiction gives the court the power to impose judgment on a defendant.  Which
state's law the court uses to arrive at the judgment, however, is a question of choice of law (also called conflict of laws).

Choice-of-law issues should be a central feature in a civil case where state law applies, which may affect the result:  The
statute of limitations, statute of fraud, or whether punitive damages are available -- all depend on which state's law is used.
(Choice-of-law issues also arise where the law of a foreign nation may be applicable; that aspect is not examined here.)

When a California client is sued in another state over an Internet act, the lawyer the choice-of-law issue.  Conversely, if the
client plans to sue some out-of-state defendant for a wrongful cyber-act, do not assume that the California court will
automatically apply California law.

Internet activities, especially on the World Wide Web, differ from land-based activities in that they are free from any concept
of locality and distance.  Text and graphics posted on a Web site become available almost instantaneously to computers
everywhere.  Electronic-mail messages or other communications sent through the Internet can be received by the recipient
wherever she happens to be located.  A person's "address," e-mail address or a web site's URL contains no geographic
indication. As a result, Internet activities cause a special problem for choice-of-law analysis, because most traditional
choice-of-law rules are based the locations where activities take place.

A federal or state court applies the forum's choice-of-law rule.  There are two main rules, "vested rights" under the
Restatement of Conflict of Laws, §§ 6-8 (1934), and the "most significant relationship" test, Restatement (Second) of Conflict
of Laws, § 6 (1971).  Also of interest are the "center of gravity" and "governmental interest" tests.  California courts apply the
latter test.

The first Restatement rule, once the dominant approach in American courts, is now followed by less than half the states,
including Tennessee.  Under this rule, the court applies the law of the state where the right vests.  In contract cases, it is either
the "place of contracting," if the contract's validity is at issue, or the "place of performance," if the performance or breach of the
contract is at issue.  Restatement of Conflict of Laws §§ 311-331, 355-372.

In tort cases, the court applies the law of the "place of wrong."  Id. § 377.  An attempt to apply the "place of wrong" rule to
a cyber-defamation case -- a typical Internet tort issue -- illustrates why the rule of vested rights is particularly unsuited for

In a defamation case, the place of injury is the place where the information is published.  Id. § 377 n.5. For information
published on the Web, this means everywhere.  The defendant may argue that the publication that matters is where it physically
took place first, at the defendant's file server, in defendant's home state.  The plaintiff may argue that the publication that matters
is where plaintiff saw the offending materials, in his home state.  The plaintiff may also argue that the publication that matters is
where some significant third party (competitor, potential partner or customer) saw the offending materials, which may be just
about anywhere. This approach is thus subject to manipulation by the parties.

Under the Restatement (Second) approach, which more states are adopting, including such major states as Illinois, Ohio,
Texas, and Washington, the court applies the law of the state with the most significant relationship to the transaction or injury at
issue.  The court considers policy factors, such as the needs of the interstate or international system and the protection of the
parties' justified expectations.  Restatement (Second) of Conflict of Laws § 6.  This source also provides concrete facts for
courts to consider, including the place where the injury and conduct causing the injury occurred, the domicile of the parties, and
the place where the relationship, if any, between the parties is centered.  Id. § 145.  These factors are difficult to apply in
cyberspace:  Besides the parties' domicile, other factors are unclear and subject to dispute.

The center of gravity test, used by North Dakota, Indiana, and a few other states, is the most manipulable.  Under this
approach, the court applies the law of the state with the most "significant contacts" with the case.  See W.H. Barber Co. v.
Hughes, 63 N.E.2d 417 (Ind. 1945). On the Web, a  site has equally significant contacts with all states.  This means that either
the center of gravity test fails, or the Web site's host state consistently wins, based on the mere physical presence of the file
server in that state.

Under the governmental interest test, applicable in California, Louisiana, and some other states, the court finds the proper
law to apply based upon the interest of the states involved.  Reich v. Purcell, 67 Cal. 2d 551, 553 (1967). The default is the
forum law "unless a party litigant timely invokes the law of a foreign state. In such event he must demonstrate that the latter rule
of decision will further the interest of the foreign state and therefore that it is an appropriate one for the forum to apply to the
case before it."  Hurtado v. Superior Court, 11 Cal. 3d 574, 581 (1974).  The applicable rule is a rule of "comparative
impairment," where the court would apply the law of that state whose interests would be impaired the most, should another
state's law be applied.  Bernhard v. Harrah's Club, 16 Cal. 3d 313 (1976). In other words, it is not a rule of benefit
maximizing, but a rule of damage minimizing.

For example, suppose a California plaintiff sues in California, alleging that the out-of-state defendant's Web site invades his
privacy.  And suppose that the defendant is a news organization, for whom the defendant's state provides absolute immunity
against claims of this sort.  The court needs to determine how much California's interest in protecting plaintiff's privacy would be
impaired if the court were to apply the laws of defendant's state. Then the court needs to determine how much the interest of
defendant's state in protecting free press and free speech would be impaired if the court were to apply California law.  The
court must then weigh the results.  This test is even more difficult to apply where the interests involved are not of a constitutional
dimension, e.g., where requirements for the statute of fraud differ.

So far, courts have not applied choice-of-law rules to cases arising out of acts or transactions performed on the Internet. The
courts seem to be concerned exclusively with whether they have personal jurisdiction over the defendant.  Once the courts find
jurisdiction, they appear to have instinctively applied forum law, without any analysis.  Forum law is by no means automatically
applicable.  A lawyer litigating Internet transactions would do well to consider not just which forum the case should be in, and
whether the forum has jurisdiction over the defendant, but also which state's law should apply.

Hao-Nhien Q. Vu, a litigation associate at Proskauer Rose Goetz & Mendelsohn in Century City, is a member of the
entertainment, media and information technology practice group.