Designer Skin LLC v. S & L Vitamins, Inc., et al.
GTE New Media Services Incorporated v. Ameritech Corporation, et al.
No.97-CV-2314 (RMU) 21 F. Supp. 2d 27 (D.D.C., Sept. 28, 1998), remanded,199 F.3d 1343 (D.C. Cir., 2000)
This case is sure to be closely followed by the Internet community. Plaintiff, apparently a subsidiary of a major telephone company, operates an Internet Yellow Pages service. Five of the defendants are subsidiaries of Regional Bell Operating Companies ("RBOCs") which, like plaintiff, also operate Internet Yellow Pages services. Plaintiff's complaint asserts that defendants entered into a conspiracy in violation of the Sherman Antitrust Act and various comparable District of Columbia statutes. The alleged goal of the conspirators was to monopolize and unreasonably restrain trade in the Internet Yellow Pages market by reducing competition among themselves and by preventing competing Internet Yellow Pages providers from using various important Internet access points to market their services.
More particularly, plaintiff alleged that the defendants collectively created a product which combined all or portions of their respective Internet Yellow Pages services. This product consisted of a map of the various states within the United States. The defendants allocated each of these states to one (and only one) of the defendants. The states allocated to each RBOC corresponded with the states in which that RBOC provides telephone service. Clicking on a particular state took the user to the designated RBOCs Internet Yellow Pages services.
In an effort to promote this product, the defendants obtained agreements from the owners of various high traffic Internet portals, such as Netscape, pursuant to which a link advertising "Yellow Pages" was placed on the portal website which transported users to defendants' Internet Yellow Pages map. These agreements required "exclusivity" -- the link, instead of offering the user access to a number of different, competing Internet Yellow Page services, directed the user solely to defendants' map and websites. Plaintiff alleged that defendants entered into these arrangements to increase the traffic to their websites at the expense of competitors such as plaintiff. This traffic, in turn, increased the revenues defendants made from the operation of their sites, which in the main was derived from advertising revenue generated by user traffic.
Plaintiff alleged that it was adversely impacted by defendants' conduct. Prior to the formation of this "conspiracy," plaintiff had an agreement with Netscape pursuant to which it paid for and received a link from Netscape's portal website to plaintiff's Internet Yellow Pages. Plaintiff's site was one of several Internet Yellow Pages that were linked to Netscape's site. With the advent of the new agreement between Netscape and the defendants, however, plaintiff's link was eliminated.
The court has not yet ruled on the merits of plaintiff's claim. Its September 28th ruling was limited to several procedural motions advanced by the defendants. Three of the non-resident RBOC defendants sought to dismiss the complaint on the ground that the court, situated in the District of Columbia, lacked personal jurisdiction over them. The court denied this motion, holding that defendants' contacts with the District of Columbia via the Internet were sufficient to support the court's exercise of personal jurisdiction over them.
None of the defendants were residents of the District of Columbia. However, each defendant operated an Internet Yellow Pages service on a website available to all United States residents, including those residing in Washington D.C. To utilize these services, each user was required to submit certain information to defendants (such as the identity or type of business who's listing they were looking for) in exchange for which they received a listing from defendants. While there was no direct charge for this transaction, defendants profited from it nonetheless. Thus, defendants derived revenues from advertisements appearing on their website. The price obtained for these advertisements depended on the number of users who visited defendants' sites. The more District of Columbia residents who visited the sites, the greater advertising revenue defendants generated. Conversely, plaintiff sustained injury in the District of Columbia when D.C. residents were allegedly improperly diverted from plaintiff's site to those of the defendants.
The court held that these allegations were sufficient to establish jurisdiction under Washington D.C. Long Arm Statute section 13.423(a)(4) and that the assertion of jurisdiction over defendants in these circumstances comported with the requirements of the Due Process clause of the United States Constitution.
Washington D.C. Long Arm Statute section 13.423(a)(4) permits the assertion of personal jurisdiction over a non-resident who causes tortious injury in the District of Columbia by an act outside the jurisdiction. To be subject to jurisdiction under this provision, a defendant must also either "(i) regularly do or solicit business, (ii) engage in any other persistent course of conduct, or (iii) derive substantial revenue from goods used or consumed or services rendered in this district."
The court found that "because [plaintiff] GTE's advertising revenue depends, in large part, on the number of users in the District of Columbia accessing its service, the act of directing users away from GTE's Super Pages service forseeably causes tortious injury to GTE's business in this forum." This injury was caused by a number of acts undertaken by defendants outside the forum state, including a series of alleged meetings among defendants relating to these endeavors.
The court also concluded that defendants had engaged in a persistent course of conduct in Washington D.C. as a result of their Internet activities, described above, the final prerequisite for establishing jurisdiction. In reaching this conclusion, the court performed a Zippo-styled analysis; in the court's opinion, the high degree of interactivity of the defendants' sites, combined with the revenue derived from their operation, made defendants subject to jurisdiction in the forum. Said the court:
Defendants also sought to dismiss the claims asserted in the complaint. Defendants argued that plaintiff lacked standing to advance claims for violations of sections 1 and 2 of the Sherman Antitrust Act. The court disagreed.
The court did, however, decline to exercise pendent jurisdiction over plaintiff's state law claims for tortious interference with existing contracts and prospective business relationships. The court's decision was based, in large part, on the difference between the evidence that would be presented at trial on these state law claims versus the evidence that would be presented in connection with plaintiff's antitrust claims.
The full text of the district court's decision can be found on a web site maintained by Prof. Randy Canis at the University of Missouri-Rolla.
The DC Court of Appeals decision can be found on a web site maintained by Findlaw.