The district court is considering whether the exercise of personal jurisdiction is proper. What should it decide and why?, homework help

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Chapter 8

Review Question #4 on page 261 and then answer the following question:

The district court is considering whether the exercise of personal jurisdiction is proper. What should it decide and why?



Chapter 9

Apple, Inc. and Major League Baseball (MLB) signed an agreement for the broadcast of games. MLB will offer two live games per day, subject to black-out restrictions. Then MLB plans to roll out an entire offering of out-of-market games currently offered only through its premium live streaming video service. Identify some other, extra features users want. Identify restrictions that MLB will want to see in the agreement.





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chapter 8: ADR Dispute Resolution: Jurisdiction, Litigation, and For their travels into cyberspace, most cybernauts never leave their chair in front of the computer. Nevertheless, cybernauts do surf around the world and may well be caught in a jurisdictional battle just as real as landing a space vehicle in an unintended country. But they are not envoys of mankind. Cybernauts are merely people who have become users of a new and fascinating technology whose early creators passed along a technology that has revolutionized human interaction and rivals inventions like the telegraph and telephone. —David S. Weitzel1 LEARNING OUTCOMES After you have read this chapter, you should be able to: • Explain jurisdiction • Discuss some jurisdictional issues that arise when businesses connect and communicate electronically, not face-to-face, with each other and with individuals • Describe several different methods for resolving disputes that arise in business • Identify problems that 21st-century businesses—especially high-technology businesses—encounter when they resort to the traditional litigation method of resolving disputes • Explain online dispute resolution Introduction Many companies with online operations engage in a wide range of transactions with individuals and entities from all over the world. Unfortunately, these transactions do not always go quite as smoothly as one might like and expect when they initially agree to the transaction. When this occurs, and a dispute evolves, adjudicators may determine the appropriate legal outcome. But first, before we can even get to the point of dispute resolution, we must determine the law that will apply to the resolution of the dispute as well as the means and situs of the dispute resolution. Consider, by means of illustration, technology heavyweight Apple, Inc. In addition to a number of products and services, Apple offers its widely popular iTunes service to online consumers. Now, consider hypothetically that technical glitches arose with the service such that some users in several different countries (France, several states in the Northwest United States, Brazil, and Korea) suddenly could no longer access and use the music that they had downloaded through Apple’s iTunes service. Consider that at the same time, music distributors from Canada suddenly had all their music removed from the service, just as a major new release was ready to hit the market. In this case, Apple would clearly have a major problem on its hands and would also be facing a number of disgruntled consumers and business partners. Assuming Apple is unable to resolve the matters amicably with its various constituents, what next? Jurisdiction Introduction The Fourteenth Amendment to the U.S. Constitution has several parts, the first of which addresses, among other things, due process: All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the state wherein they reside. No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws. The right to procedural due process is the entitlement to certain procedures to be followed before one is deprived of life, liberty, or property. From the Due Process Clause springs the jurisdictional principle that each state has jurisdiction over persons within its territory. Jurisdiction is the authority of a court or arbitration panel to hear a case and resolve a dispute. It is important to note that jurisdiction does not resolve the issue of liability; it just resolves where the case will be tried. Whether a state has in personam, or personal, jurisdiction over a particular individual is determined by application of tests developed by the U.S. Supreme Court. As a general matter, a state has jurisdiction over a person who is present within the state, lives in the state, or has consented to the exercise of the state’s jurisdiction over him or her.2 “[T]he Due Process Clause ‘does not contemplate that a state may make binding a judgment in personam against an individual or corporate defendant with which the state has no contacts, ties, or relations.’”3 Jurisdiction over the person and over the subject matter are two key elements of any civil lawsuit in the United States. When a person initiates a suit by filing a complaint, the complaint must include basic statements that describe the plaintiff and the defendant and state on what basis the court has personal and subject-matter jurisdiction. For instance, a breach of contract complaint filed in a California trial court might state that the plaintiff is a company residing and doing business in California; the defendant is incorporated in Delaware and does business in California; and the parties entered into a contract on a particular date in a particular location in California. The allegation that the defendant does business in California is a basic statement of in personam jurisdiction over the defendant, and the fact that the complaint asserts a breach of contract in California is an assertion of the California trial court’s jurisdiction over the subject matter (i.e., civil contract law). That California court would not have personal jurisdiction over a nonresident who had no connection to California and would not have subject-matter jurisdiction over a contract matter arising in Massachusetts. Given that jurisdiction is critical to any legal action, jurisdiction is often one of the first aspects of the complaint the defendant attacks by way of a motion to dismiss. Dismissal may be sought on various grounds, including lack of jurisdiction. In a motion to dismiss for lack of jurisdiction, the defendant argues that the action should end almost before it starts: that the court should dismiss the complaint without consideration of any of its substantive allegations because it lacks authority to hear the case. In MGM Studios, Inc. v. Grokster, Ltd., a case that would become even more famous after its hearing on the merits (the U.S. Supreme Court held that Grokster’s peer-to-peer file-sharing program infringed copyright law4), the defendants’ motion to dismiss for lack of personal and subject matter jurisdiction was famously denied by the federal district court.5 The Australian companies were subject to specific personal jurisdiction in the California federal court based on their distribution of file-sharing software to California residents.6 Generally speaking, where the effect of an event takes place, the case should be tried.7 For example, if a plane crashes in New York, the resulting legal case should be tried in New York regardless of the plane’s departure location. However, there are a number of reasons why parties involved in litigation and/or their counsel might wish to have a matter adjudicated elsewhere. Many clients and their counsel prefer to pursue their legal claim in their local courts. When the local court has jurisdiction over the matter, local law will apply, attorneys will not need to travel, it will not be necessary to hire attorneys from another state, and the judge may be familiar and even sympathetic to business. A lawyer who is familiar with the local judge and his or her decisions is in a legal comfort zone. Long-arm statutes are an important part of the determination of jurisdiction. In order for the court to have personal jurisdiction over a nonresident defendant, the plaintiff must prove: (1) the state long-arm statute applies; and (2) satisfaction of the Due Process Clause. All fifty states have their own version of a long-arm statute. Some are very liberal, as is California’s statute. It allows jurisdiction in any case in which the Due Process Clause is not violated. Other states enumerate specific activities that must have occurred in the state in order for its court to have jurisdiction. In Massachusetts, for example, a defendant must have transacted business in Massachusetts, and the plaintiff’s claim must have arisen from that transaction. The metaphor of a long arm is useful if you think of a state with a long arm reaching out to grab a defendant from another state and pulling the defendant into the state to stand trial. Traditional Concepts of Jurisdiction As demonstrated in the introductory example, the concept of personal jurisdiction is essential to any analysis of jurisdiction in cyberspace. The Due Process Clause of the Fourteenth Amendment to the U.S. Constitution allows a court to require a nonresident defendant to stand trial only in the state in which the court properly exercises personal jurisdiction over the defendant. A court may exercise general jurisdiction over a nonresident defendant only if the defendant is physically present in the forum state, or maintains continuous and systematic contacts with that forum state.8 Specific jurisdiction may be exercised over a nonresident defendant via the long-arm statute of a forum state if the defendant has minimum contacts with the forum state such that maintenance of a suit against the defendant does not offend the “traditional notions of fair play and substantial justice” and that the defendant should have or would reasonably have been able to foresee being haled into court in the forum state.9 Key to finding specific personal jurisdiction is that the defendant has minimum contacts with the forum state.10 The minimum contacts test contains three elements necessary to find personal jurisdiction.11 First, the defendant must have purposefully availed itself of benefits from association with the forum state. “Purposeful availment” exists when the defendant purposefully directs its action or actions towards the forum state and shows a substantial connection with the forum state.12 Second, the claim must arise from the defendant’s activities with the forum state.13 If the defendant’s contacts with the forum state are not related to the incident, then sufficient minimum contacts do not exist and the action against the defendant in that forum cannot stand. Third, the court’s exercise of jurisdiction over the defendant must be reasonable.14 Factors used in determining reasonableness include the burden placed on the defendant, the forum state’s interest in the outcome, the plaintiff’s interests in obtaining relief, the judicial system’s interest in a most efficient resolution, and furthering social policies shared by the states.15 When the minimum contacts analysis is satisfied, due process is also satisfied and the court may exercise personal jurisdiction over the out-of-state defendant.16 Personal Jurisdiction and the Internet The Internet has raised questions regarding the “presence” of a business in a particular location or jurisdiction because arguably an online business is present wherever the Internet reaches. But despite near-universal accessibility, it is often hard to prove that someone accessed a site in a specific state unless a transaction was made. In the hypothetical scenario described in the Introduction, where did the effect of the event take place—at Apple’s headquarters or in all of the countries in which iTunes became unavailable? This problem is further demonstrated in Exhibit 8.1. EXHIBIT 8.1: Depiction of Jurisdiction Problem Notwithstanding these inherent difficulties in determining personal jurisdiction when the Internet was involved, a body of case law has developed addressing personal jurisdiction in the digital age. Courts have exercised personal jurisdiction over defendants who were not physically in the territory of the court based on the traditional concepts of jurisdiction discussed above. CALDER v. JONES: 465 U.S. 783 (1984) One of the significant early cases that would have significance to the jurisdiction online issue was Calder v. Jones. In this case, the U.S. Supreme Court discussed whether a court has personal jurisdiction over a publisher/reporter in a case in which the contacts that the reporter had with the forum state were nothing but the fact that its newspapers circulated there. FACTS The plaintiff was an entertainer who had a libelous article written about her and published in the National Enquirer (the “Enquirer”). The Enquirer was a Florida corporation with its principal place of business in Florida. The article at issue was written and edited in Florida. The plaintiff filed suit for libel in California. JUDICIAL OPINION The California superior court did not allow jurisdiction, but the California court of appeal reversed and the California Supreme Court affirmed the court of appeal. The Supreme Court of the United States affirmed the court of appeal’s decision. The issue was whether the circulation of a newspaper creates sufficient contacts to establish personal jurisdiction over a defendant publisher in a libel case in the forum state. The Court determined that the circulation of the paper in the forum state was enough to establish personal jurisdiction there. It reasoned that the tort that was committed (libel) is an intentional tort and the subject of the article was injured by the libelous assertion. The publisher knew that the piece would be widely circulated in California. All of the damage was done in California. Therefore, the Court concluded that the defendants purposefully availed themselves of the forum state. The court observed: The allegedly libelous story concerned the California activities of a California resident. It impugned the professionalism of an entertainer whose television career was centered in California. The article was drawn from California sources, and the brunt of the harm, in terms both of respondent’s emotional distress and the injury to her professional reputation, was suffered in California. In sum, California is the focal point both of the story and of the harm suffered. Jurisdiction over petitioners is therefore proper in California based on the “effects” of their Florida conduct in California. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297–298, 100 S.Ct. 559, 567–568, 62 L.Ed.2d 490 (1980); Restatement (Second) of Conflicts of Law § 37.17 CASE QUESTIONS 1. On what basis did the Court determine that jurisdictionoverthedefendantswasproperin California? 2. This case was decided in 1984. Had it occurred today, when so much of our news is reported and circulated online, do you think that jurisdiction would have been an issue? 3. Ethical Consideration: Could allowing the plain tiff’s case to proceed in California have a chilling effect on journalists who might be fearful of being brought into court in a faraway jurisdiction? Should this even be a factor of consideration in the court’s determination of jurisdiction? Although Calder did not involve the Internet but distribution of information by traditional methods, the Calder test has become a key test for courts determining personal jurisdiction in the age of cyberlaw. Even if a tort occurs across the Internet rather than by publication in a nonelectronic newspaper or magazine, the court will look to where the injured party was injured when deciding whether to exercise personal jurisdiction. Consider, by means of example, the following recent case. In the Tamburo v. Dworkin case the court examined whether a tort committed against a company over the Internet by sending blast emails and urging customers to boycott another company’s products can be a basis for personal jurisdiction in a foreign state. TAMBURO v. DWORKIN: 601 F.3d 693 (7th Cir. 2010) FACTS The plaintiff was an Illinois resident and the owner of a dog pedigree program that, after rightfully taking information from other dog pedigree websites, was the subject of retaliation against him by postings on the other company’s websites to boycott plaintiff’s program, as well as blast emails to the plaintiff. The defendants were several owners of dog pedigree websites, some from the United States, one from Canada, and one from Australia. None had any ties with Illinois. Plaintiff contended that these actions by the defendant companies were defamatory and tortiously interfered with his business. The United States District Court for the Northern District of Illinois found that the court lacked personal jurisdiction over the defendants and dismissed the case. The plaintiff appealed. JUDICIAL OPINION The Court of Appeals for the Seventh Circuit was asked to determine whether the transmission of blast emails and boycotting messages about another Internet company can subject the defendant to personal jurisdiction in the plaintiff’s state of residence. The court used the Calder v. Jones test and held that in this case, the defendants “defame[d] and tortiously generate[d] a consumer boycott against [plaintiff] knowing that he lived and operated his software business in Illinois and would be injured there.” On this basis, the court held that the federal district court could exercise personal jurisdiction over the defendants in Illinois. CASE QUESTIONS 1. What test was used in this case to determine that there was jurisdiction over the defendants in Illinois? 2. In the new technological age, there is much litigation on whether one is subject to personal jurisdiction even though he or she had never stepped foot in the jurisdiction where the court was located or, for that matter, even heard of it. What is your opinion on how cases such as this should be decided? 3. Ethical Consideration: The court held in this case that the district court in Illinois had personal jurisdiction over the defendant. Could this result be justified solely on the idea that we want to discourage people from defaming individuals and companies? The Calder and Tamburo cases demonstrate that a court’s jurisdiction can extend as far as the tortfeasor’s injury, even if that injury was caused by using electronic media. Another way that personal jurisdiction might attach is by operation of a website. In the last decade, the courts have considered various uses of websites and to what extent a website operator’s actions or the content of the website can form the basis for the court’s personal jurisdiction over the defendant. The seminal case in this area is widely considered to be Yahoo!, Inc. v. La Ligue Contre Le Racisme Et l’Antisemitisme. YAHOO!, INC. v. LA LIGUE CONTRE LE RACISME ET l’ANTISEMITISME: 433 F.3d 1199 (9th Cir. 2006) While there has been debate over the general topic of Internet jurisdiction ever since the Internet came into existence, concern over facing civil or criminal liability in foreign jurisdictions because of the content of one’s website is a relatively new issue, fostered in large part by the experiences of Yahoo! in France.18 FACTS France had enacted a law making it illegal and punishable with both civil and criminal penalties to display or sell Nazi artifacts. Nazi material was being made available through Internet Service Provider Yahoo!’s online auction service hosted out of the United States (although Yahoo! France complied with the French law). In April 2000, La Ligue Contre Le Racisme et L’Antisémitisme (“LICRA”) and L‘Union des Etudiants Juifs de France (“UEJF”)19 filed suit in a French court, claiming that Yahoo! violated the French Penal Code, which prohibits exhibition or sale of racist materials. The French court found it had jurisdiction and found Yahoo! liable. It ordered Yahoo! to use all means necessary to prevent French users from accessing its auction site. It further order Yahoo! “to remove from ‘all browser directories accessible in the territory of the French Republic’” the “negationists” heading, as well as all links “‘bringing together, equating, or presenting directly or indirectly as equivalent’ sites about the Holocaust and sites by Holocaust deniers.”20 Yahoo! then brought suit in a federal district court in California claiming, and seeking a declaration, that the French court’s order was unenforceable. The court found that it had jurisdiction over the two French organizations.21 It also decided that there was an actual controversy, which was causing a real and immediate threat to Yahoo!, and that enforcement of the French order in the United States would violate the First Amendment of the U.S. Constitution. This decision was overturned by the Court of Appeals for the Ninth Circuit, which concluded that the district court erred in finding that it had personal jurisdiction over the French organizations.22 Jurisdiction in a U.S. court could only be obtained, and Yahoo!’s First Amendment claim heard, if the French parties sought enforcement of the French judgment in the United States—and that had not yet happened. JUDICIAL OPINIONS In the first Ninth Circuit Court of Appeals decision, the three-member court panel stated the familiar test for determining whether jurisdiction existed: Exercise of jurisdiction is consistent with these requirements of “minimum contacts” and “fair play and substantial justice” where (1) the non-resident defendant has purposefully directed his activities or consummated some transaction with the forum or a resident thereof, or performed some act by which he purposefully availed himself of the privileges of conducting activities in the forum, thereby invoking the benefits and protections of its laws; (2) the claim arises out of or relates to the defendant’s forumrelated activities; and (3) the exercise of jurisdiction is reasonable.23 After applying the test, the court concluded: LICRA and UEJF took action to enforce their legal rights under French law. Yahoo! makes no allegation that could lead a court to conclude that there was anything wrongful in the organizations’ conduct. As a result, the District Court did not properly exercise personal jurisdiction over LICRA and UEJF.24 Yahoo! sought and was granted a rehearing en banc, that is, by the entire 11-member Ninth Circuit Court of Appeals. Eight judges—a majority—decided that California did have jurisdiction over the French organizations based on its actions in California, but that the case should be dismissed for other reasons. There were several opinions issued in the appeal. The Majority (Judge W.A. Fletcher, joined by Chief Judge Schroeder and Judges Hawkins, Fisher, Gould, Paez, Clifton, and Bea) A majority of eight judges concluded that the U.S. district court had properly exercised personal jurisdiction over the defendants. They reasoned that personal jurisdiction could be exercised over the defendants because the French court order required Yahoo! to take actions in California (where Yahoo! was headquartered) and the order was under threat of substantial penalty. In a specific jurisdiction inquiry, we consider the extent of the defendant’s contacts with the forum and the degree to which the plaintiff’s suit is related to those contacts. A strong showing on one axis will permit a lesser showing on the other.… The case before us is the classic polar case for specific jurisdiction described in International Shoe, in which there are very few contacts but in which those few contacts are directly related to the suit.25 The court reviewed the French organizations’ actions under the applicable International Shoe test, holding that a court in California could exercise personal jurisdiction over LICRA based on its sending a cease-and-desist letter to Yahoo! in California, serving process on Yahoo!, and obtaining and serving a French court order. Together, these contacts were enough to confer jurisdiction under Calder v. Jones. LICRA and UEJF have obtained two interim orders from the French court directing Yahoo! to take actions in California, on threat of a substantial penalty. We agree with LICRA and UEJF that the French court’s orders are appropriately analyzed under the Calder effects test. The first two requirements are that LICRA and UEJF “have ‘(1) committed an intentional act, [which was] (2) expressly aimed at the forum state[.]’” It is obvious that both requirements are satisfied. LICRA intentionally filed suit in the French court.… Further, LICRA and UEJF’s suit was expressly aimed at California. The suit sought, and the French court granted, orders directing Yahoo! to perform significant acts in California. It is of course true that the effect desired by the French court would be felt in France, but that does not change the fact that significant acts were to be performed in California. The servers that support yahoo.com are located in California, and compliance with the French court’s orders necessarily would require Yahoo! to make some changes to those servers. Further, to the extent that any financial penalty might be imposed pursuant to the French court’s orders, the impact of that penalty would be felt by Yahoo! at its corporate headquarters in California.26 The majority concluded that the California federal court had jurisdiction over the French organizations. [C]onsidering the direct relationship between LICRA and UEJF’s contacts with the forum and the substance of the suit brought by Yahoo!, as well as the impact and potential impact of the French court’s orders on Yahoo!, we hold that there is personal jurisdiction.27 Despite the majority’s conclusion that jurisdiction existed, the action was dismissed by a majority of six—only three of whom found jurisdiction. Three judges (Chief Judge Schroeder and Judges W.A. Fletcher and Gould) concluded “that the suit is unripe,” that is, not ready for litigation. When their votes were combined with “those of three dissenting judges who conclude that there is no personal jurisdiction over LICRA and UEJF, there are six votes to dismiss Yahoo!’s suit.”28 The Concurrence (Judges Ferguson, O’scannlain, and Tashima) Judge Ferguson authored a concurring opinion in which he asserted that dismissal was appropriate because personal jurisdiction was not present. LICRA did not expressly aim its French litigation activities at California as required to find jurisdiction under Calder. LICRA and UEJF’s suit was not “expressly aimed” at California under the “effects” test of [Calder v. Jones], which, I agree with Judge Fletcher, governs this case and may be appropriately applied to the French court orders. An intentional act aimed exclusively at a location other than the forum state, which results in harm to a plaintiff in the forum state, does not satisfy the “express aiming” requirement under Calder.29… LICRA and UEJF’s suit sought French court orders directing Yahoo! to perform significant acts locally in France, not in California.… To comply with French law, Yahoo! would need “to prevent surfers calling from France from viewing these [anti-Semitic] services on their computer screen”; “to identify the geographical origin of a visiting site from the caller’s IP address, which should enable it to prevent surfers calling from France … from accessing services and sites which[,] when displayed on a screen installed in France[,]… is liable to be deemed an offence in France and/or to constitute a manifestly unlawful trouble [under French law]”; and “to take all measures to dissuade and make impossible any access by a surfer calling from France to disputed sites and services of which the title and/or content constitutes a threat to internal public order.” (emphases added). There is no evidence whatsoever that LICRA and UEJF had any intention to expressly aim their suit at California.30 Judge O’scannlain’s Separate Concurrence (Joined by Judges Ferguson and Tashima) In a separate concurrence, Judge O’scannlain took issue with the majority’s determination that under Calder the relevant forum contacts need not be wrongful. He asserted that under Calder, the rule of jurisdiction applies to intentional tortious actions directed at the forum state. Neither [LICRA nor UEJF] has ever carried on business or any other activity through which they have availed themselves of the benefits and protections of California’s laws, nor should either party have reasonably anticipated that it would be haled into court in California to answer for the legitimate exercise of its rights in France.31 He also believed the majority went too far. The personal jurisdiction requirement is not merely a rule of civil procedure; it is a constitutional constraint on the powers of a State, as exercised by its courts, in favor of the due process rights of the individual…. The Supreme Court has never approved such a radical extension of personal jurisdiction as would sanction the majority’s holding that, by litigating a bona fide claim in a foreign court and receiving a favorable judgment, a foreign party automatically assents to being haled into court in the other litigant’s home forum.32 Judge Tashima’s Separate Concurrence (Joined by Judges O’scannlain and Ferguson) Finally, Judge Tashima also wrote a separate concurrence and was joined by the other two dissenting judges. He criticized the majority’s application of Calder: [No prior case] based a finding of specific jurisdiction on conduct expressly aimed at the forum state which conduct was not also a contact with the forum state. Here, for the first time, the majority completely divorces the expressly-aimed conduct from the requirement that that conduct also be a contact with the forum state. Thus, I submit that the finding of personal jurisdiction on the basis of Calder’s “effects” test in the circumstances of this case is a radical extension of that doctrine.33… Whatever other conduct Calder’s “effects” test was intended to encompass, it surely was not intended to include attribution of the effects of an intervening court’s order when a citizen does no more [than] petition a court in his own country for relief under domestic law, particularly in a case, such as this, in which defendants have had no contact that would “provide a sufficient basis for jurisdiction.”34 CASE QUESTIONS 1. Does a U.S. court have jurisdiction over a foreign organization that obtains a judgment against a U.S. defendant in a foreign court? 2. Ethical Consideration: Yahoo!’s French subsidiary, and eventually Yahoo! itself, took all Nazi parapher nalia from the site, complying with French law—what does this say about the foreign court’s actual power? Was Yahoo! wise to do so, or should it have defied the French court’s order? 3. The litigation took approximately six years and in volved multiple appeals and some related criminal proceedings—what does this tell us about the actual costs of complex cyber-litigation? Although the Yahoo! case generated a significant amount of media attention35 and should serve as a wake-up call to many website operators, it is not representative of the kinds of risks with which website operators should be concerned. In fact, website operators may find themselves running afoul of foreign laws for activities much more mundane than offering Nazi materials. There are many examples of how domestic U.S. websites can find that they have violated the law of one country by virtue of the kinds of materials they have placed on their website. In the early days of the Internet, for example, CompuServe decided to deny its subscribers worldwide access to certain sex-related discussion groups because of the potential for liability under German antipornography laws.36 In 1996, a number of German Internet service providers attempted to block out American and Canadian websites that contained neo-Nazi material.37 As national and local governmental authorities continue to enact laws and regulations concerning the Internet, conflicts such as these are likely to continue and even intensify. Whether a state has personal jurisdiction in cases involving the Internet is often unclear. Although decided well before the Internet was widely popularized, the test laid out in Calder v. Jones still currently serves as the starting point for many courts when determining personal jurisdiction when an intentional tort is alleged. Courts first ask whether the party challenging jurisdiction “purposely availed” itself of the forum state in order to make the necessary finding to establish jurisdiction. Courts will make this finding if they find that the defendant allegedly “(1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state.”38 The other significant test courts currently employ to find personal jurisdiction comes from Zippo Manufacturing Co. v. Zippo Dot Com, Inc.39 The “sliding scale” test applies when defendants do business over the Internet and is used in lieu of the Calder-effects test in an unintentional tort case. It is used to determine if a defendant has the requisite “minimum contacts” in the forum state sufficient to establish personal jurisdiction. Under Zippo, the decision to find personal jurisdiction is based on a sliding scale, balancing the defendant’s Internet presence with “the nature and quality of commercial activity” the defendant engages in over the Internet. OLDFIELD v. PUEBLO DE BAHIA LORA: 558 F.3d 1210 (11th Cir. 2009) In Oldfield v. Pueblo de Bahia Lora, the court discussed whether a plaintiff who made reservations at a hotel through a website from his home and then was injured near the hotel on a fishing vessel not owned by the hotel, subjects the owners of the hotel to personal jurisdiction in the plaintiff’s home state. (Ferrera 235-246) Ferrera, Gerald R., Margo E. Reder, Stephen Lichtenstein, Robert Bird, Jonathan Darrow, Jeff. CyberLaw: Text and Cases. Cengage Learning, 01/2011. VitalBook file. chapter 9: Contracts for the Internet and Tech Sectors In a globalized economy, technology licensing and transfer of technology are important factors in strategic alliances and international joint ventures in order to maintain a competitive edge in a market economy. —World Intellectual Property Organization, IP Services LEARNING OUTCOMES • Students will gain insights into the process of engaging with business partners to accomplish an end through drafting contracts. • Students will gain insight into the dynamics of performing contracts, much of which involves trust and verification, and communication. • Students will understand the limited conditions under which site licenses or software licensing agreements are unenforceable. • Students will be able to comprehend the differences between proprietary software and free and open source software, as well as the particular distinctions between permissive and restrictive licensing agreements. • Students will be able to grasp how software tends toward a natural monopoly, in large part aided by licensing agreements, and further understand the regulatory response to this market power. Introduction Contracts, also known as agreements, are the product of negotiations between private parties to accomplish a desired end. Parties meet to negotiate and voluntarily bargain. The end result is an agreement outlining the purpose of the deal along with details on any specifics that are material to accomplishing this end. Contracts are in a sense a road map for the parties to follow as they both perform their duties under the agreement. Contracts are the system for creating a mutual set of conditions, whereby each party attempts to maximize their control and reward, while minimizing their risk and responsibilities. Contracts are a type of transactional law, ranging from simple purchase and sales agreements to complex transactions, where the parties plan, negotiate, make proposals, draft, review, modify, and then finally execute these agreements. Engaging in transactions means taking on risk to reach a goal. This chapter opens with introductory contract concepts, and then addresses contracts that are of particular relevance to Internet and technology companies. Contracts in these sectors typically include intangibles including services, site licenses, intellectual property licenses, and software goods, so there are a number of significant differences from contracts involving physical goods or real property. Significant developments have occurred in this practice area due to the advent of free and open source software and third-party developer agreements. This chapter emphasizes the legal, financial, and business implications of these transactions. General Contract Law Principles A contract represents a formal agreement between parties to accomplish goals. This part of the chapter surveys general contract principles common to all contracts and offers a concise summary of these legal principles. Purpose of Contracts The point of a contract is for parties to join together to pursue a common commercial objective, each with different and complementary rights and performance duties. Contracts are an intentional process, initiated by the parties themselves for a defined purpose. Contracts are ideally written to align as best as possible the parties’ (inevitably somewhat divergent) interests and create a system of incentives and disincentives that will lead to satisfactory completion of all obligations. Contracts are essentially a road map detailing what rights the parties have, what they are obligated to do, and what happens should the parties fail to perform. Broadly, they are blueprints calculated to lead to the expected success; as well they detail plans for arbitration or litigation should there be a failure to meet obligations. Contracts are, at their most basic, a bet. They involve calculated risk taking for a reward, driven by optimism, but also backstopped with clauses hedging against the possibility of failure and limitations to liability or loss. Composing an agreement clearly takes creativity and diligence: creativity to imagine what could be accomplished, and diligence to think about what could go wrong and plan for such an eventuality. Negotiations, Formation, and Elements of Contracts A contract is a legally enforceable agreement—a bargained-for exchange that courts recognize and enforce. It is at its simplest an exchange of promises, and should there be a breach, the courts will provide a remedy. A contract signifies that each party has agreed to be bound by legally enforceable duties or obligations. During negotiations as well as throughout the life of the contract, parties are bound by the implied covenant of good faith and fair dealing. This includes all aspects of the parties’ commercial relationship. Under the Uniform Commercial Code Sections 1–203 (2005), parties are governed by the duty of good faith, requiring honesty in fact and the observance of reasonable commercial standards of fair dealing in transactions. As an example of how courts construe this implied responsibility, consider the Wells Fargo Bank case.1 Under the construction loan agreement, the bank was authorized to volunteer financial information about the developer to a pension fund that invested in the project— but the bank was not obligated to provide this information. After some time, the developer’s finances deteriorated, and the bank withheld this information from the pension fund investing in the project. At trial the bank argued that under the contract, it was not obligated to volunteer this information. The Arizona Supreme Court disagreed with the bank’s narrow interpretation of its responsibilities, ruling that even if the bank did not breach the contract’s specific provisions, it breached the implied duty of good faith and fair dealing when its actions went beyond the risks assumed by the fund or acted in ways inconsistent with the fund’s reasonable, justified expectations. Parties form contracts for a variety of enterprises and reason, but all have the same goal: to achieve something that could not be done alone. Examples of these contracts include: TMobile’s deal with Starbucks to offer wifi service in its stores, and T-Mobile’s deal with Google to offer wireless service bundled with the Android hardware. More recently, Amazon and Facebook created an alliance to make shopping on Amazon more social, as users can get recommendations on what to buy from friends. It is only through combined efforts that the parties’ chosen goals can be reached. This process is deliberate—and in contrast to, for example, torts, which are accidental outcomes. Everything about contracts is the result of intentional purposeful engagement and bargaining; it is a process that occurs over a period of time, with each party conducting due diligence on the other, generating an initial working draft, then suggesting—or demanding—revisions, resulting in more bargaining, drafts, and then the execution copy is finalized. The terms are a reflection of the parties’ needs, hopes, and fears. The terms are detailed and provide for substantive terms of performance, as well as for a process should the contract obligations not be met. As examples of terms parties consider when drafting agreements, many contracts provide that the contract has to be performed by a certain date or a damages clause will be triggered. The basic elements for every contract include (1) an offer, (2) acceptance, (3) consideration, (4) with legal capacity, for a legal purpose. Each element is necessary for a valid contract. Defects in the process can render a contract unenforceable and either void or voidable. Examples of contracts that are unenforceable span quite a range. It could be that the offer was not sufficiently definite, that the acceptance was not done in a way as to properly notify the offeror, and so forth. It could be that the consideration was nonexistent, thus the contract is unenforceable (unless an alternative form of consideration is found). It could be that the terms of the contract are so unconscionable (though not illegal) that the court will refuse to enforce the contract on grounds that it would violate public policy. It could be that the contract is void because of incapacity based on age, intoxication, or mental condition. It could be that there was a mistake, misrepresentation, duress, or fraud in the making of a contract. In short, there are many hazards to consider when drafting a contract. Overall though, courts favor enforcement rather than destruction of contracts as a matter of public policy, with some courts even going so far as to imply terms before striking down the contract. Performance and Conditions in Contracts Once the parties finish negotiations and execute the agreement, the parties begin performance of their contractual obligations. In most instances, there are benchmarks in the contract, points of reference for the parties to measure progress and assess whether the other contract partner is performing as expected. As an example, in a construction contract, the contractor is obligated to work diligently to reach a certain stage in building a house, such as completing the framing portion, and then performance obligations turn to the site owner to pay the contractor a percentage of the contract price. Contracts can provide a system of rewards and punishments, but they are not instruments for micro-managing contracts partners. Governed by the reasonable person standard, there is a great deal of autonomy and leeway afforded to performance of specific contractual obligations. In contracts with conditions, such as conditions precedent or subsequent, the contracts cite specific events that will trigger obligations. As a contract is being performed, though, there are often other outside events occurring that can have the effect of causing parties to question the purpose or rationale of the contract going forward, or worse, stop performing. For example, the housing market crashed in 2008, causing a drastic change in conditions of the housing market. Home buyers who signed purchase and sale agreements wished to back out of their original contract and renegotiate the contract price as home prices were dropping precipitously; of course, the selling parties wanted to enforce the contracts. Changed conditions in the larger environment clearly impact attitudes and incentives. It is quite possible to renegotiate contracts, but barring this the contract remains in force. Material obligations that are not met in an adequate or timely manner will cause that party to be in breach, though it is possible to excuse performance under certain limited conditions. Discharge, Termination, Breach, and Remedies Contracts are discharged, or completed upon satisfactory performance, or when performance is excused. Adequate or reasonable performance is all that is required. Any other, higher standard must be clearly stipulated. Once the contract terminates, parties have no further rights, duties, or obligations toward one another. Should either party fail in any way to satisfactorily complete performance benchmarks, or fail to correct failures in a reasonable amount of time, there is a breach of the contract. A breach occurs when there is a material failure to act or perform obligations as outlined by the contract. As an example of breach, in Parrish v. NFL Players Association, the jury returned a verdict in favor of the plaintiff class of retired NFL players who signed a “Retired Player Group License Agreement,” finding that defendant breached a duty to market their likeness and names. Defendants lobbied thousands of retired players for fourteen years to sign them up for the “program,” yet never paid one cent to any retired player, while passing on deals with Electronic Arts and others. The jury reasonably concluded that the true motive was to deter or head off competing efforts by other promoters to license this group.2 The breaching party is then subject to the remedies provisions of the contract. The injured party is entitled to a range of damage remedies such as direct, consequential, and special damages, and must take care to mitigate damages even after breach. In the Parrish case, the district court affirmed the jury’s award of $7.1 million in compensatory damages and $21 million in punitive damages. Equitable relief is potentially available to a limited extent in contracts since in most instances a monetary award will compensate for such injuries. Remedies clauses in contract include: choice of law, venue, computation formulae for damages, or arbitration clauses and so forth. EXHIBIT 9.1: A Sample Termination Clause Found in Agreements TERMINATION CLAUSE 1. If either party breaches a material provision of these Agreements and the breach is not cured within sixty (60) days after receipt of written notice from the other party specifying the nature of the breach or if a plan is not in place to expeditiously cure such breach, the non-breaching party may terminate the Agreement by written notice to the party in breach. 2. Either party may terminate this Agreement by written notice upon the occurrence of any of the fol lowing events, unless such event is eliminated or cured within sixty (60) days of notice therefore. a. the filing by the other party of a petition in bankruptcy or insolvency; or b. any adjudication that the other party is bankrupt or insolvent; or c. the institution of any proceedings for the liquidation or winding up of the business or for the termination of the corporate charter of the other party; or d. the making by the other party of any assignment or attempted assignment of the benefit of creditors. The following contracts case is an example of a tech contract, highlighting the formation process, then performance problems, and finally, questions related to breach of contract, and how courts construe warranties. ROCKLAND TRUST CO. v. COMPUTER ASSOC.: 2007 U.S. Dist. LEXIS 69380 (D. Mass. Aug. 31, 2007) FACTS Rockland Trust Company was interested in banking software products and services. It had used banking software from Kirchman Corporation, but Kirchman notified Rockland that it would no longer provide support for that software. Rockland undertook an extensive evaluation of software, ultimately focusing on three companies: Computer Associates, Systematics, and Newtrend. Each offered a full line of banking software, which was important as Rockland wanted to use software from a single vendor, and they needed to replace the Kirchman software components completely before those licenses expired. The evaluation was rigorous; each aspect of functionality was scored on a matrix using a ranking system. After completion of this phase, Rockland personnel made site visits to the companies’ offices. Then each candidate company sent an on-site team to provide demonstrations to potential end users. Each of these employees rated the software as well. Finally, Rockland followed up on each of the banks that the candidate companies listed as references. When the evaluation phase was complete, Rockland concluded that Computer Associates (CA) was the best candidate. It opted to purchase CA’s package of fourteen components. The license negotiations were involved, and Rockland requested several changes to the contract and received all of the requested concessions. The License Agreement covered “all program code, documentation, training materials … and any subsequent versions or releases.” The limited warranty provided in relevant part: CA also represents that the Licensed Program will operate according to the specifications published by CA for the Licensed Program. If it is determined that the Licensed Program does not operate according to such specifications, CA’s only responsibility will be to use its best efforts, consistent with industry standards, to cure the defect. All other warranties were specifically disclaimed. Lastly, the agreement contained a Merger Clause providing that the terms of the parties’ agreement are completely contained within the “four corners” of the document. The parties then executed a Professional Services Agreement (PSA). Rockland opted to install some of the programs and not to use others. Then Rockland asserts that it had problems with several of the pieces of the CA software. The most substantial disputes concerned the overall “integration” of the software products in three areas: mortgages, commercial loans and installment loans. Rockland contends that the software was not adequate, that the software did not have a feature to link these loans together or a seamless interface into an individual’s portfolio, or a way to input information that would update across programs throughout the system. A CA salesperson acknowledged that the mortgage program was weak and advised Rockland that it was developing a new version of the product, which would be available as an upgrade under the maintenance provisions of the agreement. The eventual upgrade did not work as represented. Further, Rockland argued that the CA brochures making extravagant representations and describing the various qualities of its software products were part of the contract, too. Rockland became disappointed in all aspects of its relationship with CA and subsequently filed suit for breach of contract and misrepresentation. JUDICIAL OPINION: JUDGE WOODLOCK [BENCH TRIAL] Communication Problems The parties dispute the degree to which software problems were reported to CA. Although there was no requirement that written notice be provided, the limited warranty in the License Agreement necessarily contains an implicit requirement that CA be notified of problems before the company could be required to use “best efforts, consistent with industry standards” to correct them. Three sources of evidence cast light on this issue: the customer service Support Tracking and Reporting System Reports (STAR reports) introduced by CA, testimony from various witnesses, and small set of written correspondence. 1. STAR Reports The most probative evidence of complaints made by Rockland are theSTAR reports described by a CA customer support manager. She could not find any unresolved issues reported by Rockland. She also noted that there is no record of Rockland taking advantage of CA’s escalation process, which was to be used where a client felt their problems were not being adequately addressed. It is apparent that very few serious issues were identified by Rock land. I find the STAR reports support CA’s assertion that Rockland failed to give meaningful notice of the problems it claims to have encountered. 2. Witness Testimony Testimony suggests that notice was provided which might trigger the limited warranty “best efforts” provision. I find no compelling evidence that once issues were identified by Rockland employ ees, CA failed to use its best efforts to address a problem. 3. Written Evidence This evidence identified by the parties relevant to the question of notice is a set of letters between a Rockland employee and a CA Profes sional Services Account Manager discussing problems with Installment Loans. Based on the contents of these exchanges, CA made reasonable efforts to correct pro blems when it was notified of them. Breach of Contract: CA’s liability under the contract was limited to an obligation to use “best efforts” to correct failures to conform to the published specification. A threshold issue is what constitutes the specification under the contract. Rockland defines specification under the contract as “manuals, and other documentation” including brochures given to them during the evaluation period. I conclude however, that the specification does not include these extra documents. Sales and technical documents such as manuals are intended for a particular purpose and audience and therefore are not part of contract under either the contract language or general principle of contract interpretation. Because the agreement has an express warranty clause, CA’s liability for breach of contract is limited. Under the contract, CA had an obligation to deliver the licensed software, and to ensure that it either (1) functioned as provided in the specifications, or (2) use “best efforts consistent with industry standards” to fix the problem. Inherent in the “best efforts” clause is a notice requirement, effectively providing that CA could only be expected to fix problems of which it was made aware. One of the major issues pressed in this lawsuit was CA’s failure to complete an upgrade, but this was not required under the agreement. To be sure, the CA salesperson promised that the software would be re-engineered by a particular date; but this promise was, at best, a non-binding oral modification to an agreement, that required written and signed approval of any changes. In short, Rockland received the software it evaluated and purchased, and there is no evidence that CA failed to use its best efforts to correct problems, after having been informed. There is also no persuasive evidence that CA’s upgrade efforts were inadequate or below industry standards, even though they were ultimately unsuccessful. Therefore there is no breach of contract or breach of express warranty by CA. I direct the Clerk to enter judgment in favor of Defendant, CA. I also direct the Clerk to enter judgment for Defendant CA on its counterclaim against Rockland in the amount of $1,089,113.73, together with pre-judgment interest in the amount of $272,278.43. CASE QUESTIONS 1. If you could have an opportunity to redraft one clause, knowing this outcome, which clause would you choose, and what language would you change? 2. As a matter of policy, how fair do you think limita tion of liability clauses are in the event of a breach? 3. What is the top business recommendation for Rock land, based on the fact that it spent a lot of money and time, both in selecting CA, and then in court after filing this lawsuit against CA—and most regret tably for them, they owed money to CA after trial? Contracts Relevant to the Assets of Tech Companies— Negotiated Agreements between Businesses to Commercially Exploit Value Beyond the basics of transactional law concepts and the elements common to contracts generally, there are specialized agreements regularly used by tech and Internet companies to capture and exploit the value of the assets, which are most frequently intangible assets in the form of intellectual property and the key employees who created them. This topic area covers contracts negotiated between businesses for the purpose of developing commercially viable uses for the intellectual property. This section also incidentally cites forms of business organization that are used by companies for projects that have a limited scope or for a limited time period. Exhibit 9.2 provides an overview of the types of contracts typically managed by a single tech company. EXHIBIT 9.2: A Display of the Range of Contracts Just One Company Manages Terms of Licensing Agreements between Companies The negotiations are, again, over a period of time, and every term is under consideration. Licensing is a tool to maximize control over the technology, to maximize revenue from the license, and to minimize liability, all as a means of generating a return on investment for the company. Negotiations cover a range of issues between the parties and most usually include: • statement as to ownership of the rights and title in the goods or services • pricing for licenses • proprietary rights • copyright and trademark policies • scope of license rights • duration of license rights • confidentiality provisions • rights over adaptations, improvements • technical support, training • non-disclosure • advertisers and other third-party use of data • rules of conduct • whether license is exclusive or nonexclusive • whether license is transferable or assignable • number of permitted users and copies per license • number of licensed machines • usage rules • prohibitions (such as reverse engineering, redistribution, copying) • termination • clauses that survive termination • export restrictions • testing period • acceptance date • disclaimers • indemnification • limitations on liability • DMCA notice and take-down provisions • warranty disclaimers • jurisdiction • choice of law • venue • arbitration Technology Transfer and Licensing Agreements Technology transfer describes the process by which one organization transfers to another organization assets such as technology or expertise in order to commercialize these assets into new products or services, or as innovations to existing products or services. This can be accomplished by the sale or assignment of IP rights or through the licensing of the rights to the IP. Companies engage in tech transfer for a variety of reasons. For example, smalland medium-sized enterprises (SMEs) lacking substantial in-house R&D capabilities must decide whether to develop the technology or obtain it from other companies. This makebuy decision is especially relevant to Internet and tech companies where innovation, speed to market, and market share are crucial to the success of their business models. Negotiating technology transfer agreements is again the result of bargaining between parties. The terms vary depending on a number of factors, including the complexity of the technology, the number of partners, and the type of support desired. Tech transfer agreements involve large or small companies, academic or research institutions, and even public sector or government entities that either have technology or want technology. These agreements facilitate the exchange of technology, and through this diffusion the process of innovation accelerates. Well-constructed agreements allow businesses to meet objectives and quickly adapt to developments and changing markets, through the pooling of expertise and shared financial risk. Tech transfer agreements may provide that the technology is licensed exclusively to one company, or it could be a nonexclusive license, meaning that same technology may be licensed to an unlimited number of users (such as is the case with office software). Another notable clause in these agreements, contained even in the preliminary memoranda, is the covenant of nondisclosure. Nondisclosure agreements (NDAs) provide: • the parties agree that they each have sensitive confidential proprietary business information; • that gives them a competitive advantage, which they are disclosing to the other company in order to explore furthering a common goal; • that this information is being disclosed for this purpose only (for example, to ensure interoperability of processes, systems and so forth); • and that this information may not be further disclosed to other people or entities. EXHIBIT 9.3: A Sample of a Non-Disclosure Clause PROPRIETARY INFORMATION CLAUSE Each party hereby agrees for a period of three years that all information in writing or other physical form delivered to it by the other party which is designated to be proprietary and confidential will be safeguarded in the same manner the receiving party safeguards its own proprietary and confidential information or like character, and will not be divulged to their parties. When negotiating this covenant, again it is crucial to identify with particularity the information that is covered and what is excluded, as well as with the time period the NDA is in force. As an example of recent litigation in this area, tech start-up LimitNone developed a software tool called gMOVE for migrating data from Microsoft Outlook to Google’s Gmail service. The company was planning to charge $19 per download of this tool. Google told LimitNone that it was interested in collaborating on this project, and the two parties allegedly signed an NDA and then began the work. For the next nine months, LimitNone worked closely with Google engineers while revealing all of its technology, and together they worked on developing the next generation of gMOVE. During this time however, Google told LimitNone that it had decided instead to build its own data migration tool, subsequently named Google Gmail Loader, and offered it for free to users. The case is in court3 presently on a theory of contract breach of the NDA and associated damages. The tech transfer practice area took off after Congress passed the Bayh-Dole Act in 1980.4 This law gives universities, small businesses, and nonprofits the ability to elect title to inventions and intellectual property resulting from federally funded research. The federal government actively supports commercialization, and this public sector initiative is credited with much innovation and invention. This law reversed the presumption that title to the invention belonged to the federal government in recognition that the free-market economy’s private sector will make the most cost-efficient and wealth-maximizing decisions for new product development. In limited cases, where the owner fails to commercialize the technology the federal government itself may assert ownership rights, or assert “march in” rights and thereby ignore the exclusivity of the owner’s rights. The Association of University Technology Managers reported that just in fiscal year 2008, 648 new products were introduced, over 5,000 licenses were granted, nearly 600 new companies started up, and over 3,000 start-ups begun with the help of Bayh-Dole were still operating. Google In the context of university research and federal funding, it is notable that Google got its start based on the National Science Foundation’s Graduate Research Fellowship Program grant in 1994 to Stanford University’s Computer Science Department for developing a better interface with its burgeoning digital library collection on the Web. Because of Bayh-Dole, Stanford, and not the federal government, owns the technology that forms the basis for Google search, and the university commercializes this by licensing it to Google. Sometimes referred to as academic capitalism, as these endeavors now represent profit centers for universities, there has been a fair amount of litigation as the stakes escalate. For example in 2008, the University of Missouri spent $1.4 million commercializing intellectual property and it earned $6.2 million in licensing income. Each university establishes policies and develops its own ownership, licensing, or revenue-sharing formula for research. EXHIBIT 9.4: Government Grant to Stanford for the Work Completed in Part by Google Founders Larry Page and Sergey Brin The following case highlights the problems associated with this joint development of technology and technology transfer. UNIVERSITY OF PITTSBURGH v. TOWNSEND: 2007 U.S. Dist. LEXIS 56860 (E.D. Tenn. 2007) FACTS Dr. David Townsend, along with other scientists, worked on Positron Emission Tomograph (PET) imaging at the University of Geneva. (PET imaging is a process by which diagnostic images are created based on the detection of radioactive isotopes injected into patients prior to the scan.) During this time, in 1991 Dr. Townsend conceived the idea of combining a PET scanner with a CT scanner. (CTs use special xray equipment to obtain image data from different angles, and then through computer processing, reassembles the data to show a cross-section of body tissues and organs.) In 1992, Dr. Townsend signed a consulting agreement with another of the Defendants: CTI Molecular Imaging, Inc., a manufacturer of PET scanners. In this agreement, Dr. Townsend assigned all of his intellectual property rights to CTI. The technology was not built out yet though. The University of Pittsburgh then recruited Dr. Townsend to join its faculty as an Associate Professor of Radiology and he was provided with an engagement letter along with a Faculty Handbook. The Handbook contains a section entitled “University Policy on Patents” in which it claims ownership and control of the worldwide patent rights that result from activities of its faculty. Inventors are to receive 30%, and the University is to receive 70% of the net financial returns from the sale, licensing or other transfer of such rights. Dr. Townsend also filled out conflict of interest forms in which he disclosed that he is a paid consultant with CTI, and that a patent application on the PET/CT scanner was filed by CTI. Dr. Townsend commenced work at the University; he applied for and was awarded a grant from the National Institutes of Health (NIH). The funds were to be used to research and build a prototype. Federal grant money is paid directly to the universities and disbursed from there. The prototype was completed in 1998. CTI tested it, and later CTI personnel installed and maintained it at the University. Dr. Townsend testified that there was no NIH funding for the clinical validation of the PET/CT scanner, and that NIH had specifically declined to fund the clinical portion of the process. At the end of the term of this NIH Grant in 1999, Dr. Townsend executed a Final Invention Statement and Certification, along with a report for them, certifying that the invention was “conceived and/or first actually reduced to practice during the course of work under the Grant.” Later on at the suggestion of the University’s Office of Technology Management (OTM), Dr. Townsend submitted an “Invention Disclosure Statement” for the invention, listing him and Dr Ronald Nutt of CTI as co-inventors and CTI as a potential licensee; that it was conceived in Geneva, and first operational in the U.S. in 1998, and that an NIH grant provided support. The form was incomplete; it was unsigned and did not include any statement assigning an interest to the University. [It is not uncommon in technology transfer offices to be provided with assignments at a later date, when the invention is closer to the licensing stages.] In 1999 the University’s Technology Transfer Committee approved the filing of a patent application on the invention described in Dr. Townsend’s Invention Disclosure Statement. The University’s attorneys then filed a provisional patent application for the combined PET/CT scanner listing Townsend and Nutt as co-inventors. On the third page of the application is a form entitled “Statement Claiming Small Entity Status— Independent Inventor,” and there, Dr. Townsend represented that he assigned, granted, conveyed, or licensed rights to CTI. The University evidently did not read this, and proceded under its abiding assumption that it owned the technology. The University elected title to the invention pursuant to the provisions of the Bayh-Dole Act. CTI began the commercial development of the scanner in March 2000. In 2001, University officials asked Dr. Townsend to sever his relationship with CTI and instead work with CTI’s competitor General Electric. Dr. Townsend refused and left the University faculty. Before leaving, Dr. Townsend entered into a Royalty Agreement with CTI, that in consideration of his assignment of patent rights he would receive a royalty rate of $1,500.00 per unit sold. The University claims ownership of this technology asserting that is was assigned to the school. The University alleges that Defendants subverted and misappropriated its rights and interests in valuable technology that was developed collaboratively at its campus; that the wrongful actions include breaches of and interference with the University’s contractual right to joint ownership in the technology, as well as tortious misrepresentations and misappropriation. The Plaintiffs assert that Defendants remained silent in response to the University’s repeatedly stated view that it had an ownership interest in the scanner and associated intellectual property. At no time during discussion the University argues, did any of the Defendants deny that the University had an ownership interest, nor did any of the Defendants indicate that Dr. Townsend would not be executing an assignment in favor of the University. The Defendants filed a motion for summary judgment. (Ferrera 263-274) Ferrera, Gerald R., Margo E. Reder, Stephen Lichtenstein, Robert Bird, Jonathan Darrow, Jeff. CyberLaw: Text and Cases. Cengage Learning, 01/2011. VitalBook file.
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Running Head: CHAPTER 8 ASSIGNMENT

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Case: Weather Underground Corporation versus Navigation Catalyst Systems, Inc
In this case, the Plaintiff is a Michigan Corporation namely Weather Underground
Corporation that deals with commercial weather service. Essentially, Weather Underground
files data from various weather stations and earns revenue from advertisements and
subscriptions. On the other hand, the defendant is Navigation Catalyst Systems,
Incorporated (NCS), a Delaware corporation that owns domains in bulk similar to the name
of the plaintiff's company. In this light, NCS benefits from users that visit these websites
and click on their links (Ferrera, Lichtenstein, & Reder, 2011). Weather Underground filed
suit against the defendant and some of its firms in the District Court for the Michigan
Eastern District. Due to the fact of NCS not being incorporated in Michigan, the issue of
personal jurisdiction arises. To start a particular personal jurisdiction the court the courts of
appeals held that they had to show three things. First, the defendant must have availed
himself deliberately of the privilege of behaving in the forum state. Secondly, the defendant
activities lead to the course of action there. Thirdly, the acts of the defendant reveal being
substantial to make it reasonable to pursue personal jurisdiction (Ferrera, 2011).
Qn 1. The district court is considering whether the exercise of personal jurisdiction is
proper. What should it decide and why?
Solution
In order to consider whether the e...


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