Beware of the Long Arm Of the Law

Deck: 
Do you know that your business may be sued in a distant state based on your Internet site?
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Jean Warshaw, Beauty & The Law columnist

Your beauty business is probably headquartered in the state where you and most of your employees live. When can another state reach out and make you defend a lawsuit in that other state? Going to another state to defend yourself could be an expensive undertaking, requiring you to hire new lawyers you have never worked with before, travel long distances to attend depositions and court hearings, and put your witnesses up in hotels during the trial.

This was the question posed in a lawsuit against a company that sells cosmetics and beauty products over the Internet and by mail order. The beauty company and one of its managers were sued in New York for allegedly using trade secrets belonging to a beauty-product company that did business in New York. The defendant argued that it didn’t have a New York office, any New York employees or any New York bank accounts or property, although it said it did make one mass mailing to New York residents. Neither the beauty company nor the manager was in New York for any of the acts the plaintiff said they had done.

The court still required the beauty company to defend itself in New York. The court based its conclusion, in part, on the fact that it had a website that New Yorkers could use to order its products. The court was also persuaded by the plaintiff’s assertion that the company used the plaintiff’s trade secrets to make its one mass mailing into New York. The manager was also forced to defend himself in New York because he allegedly participated in using the plaintiff’s trade secrets, which the court said could have caused injury in New York to the plaintiff.

A federal court in Oregon reached the opposite conclusion when a defendant company did not aim its marketing efforts toward Oregon residents. Jell-e-Bath sued Crystal Mud Spa in the Oregon court claiming that Crystal Mud Spa infringed its rights to a patent for bath jelly. The product includes a powder that forms a jelly when added to bath water, and another powder to dissolve the jelly so the bath can be drained after use. Crystal Mud Spa was incorporated and headquartered in California, all of its sales were in California, and its only two out-of-state sales at the time were made at a trade show in San Francisco. Crystal Mud Spa had a website that out-of-state purchasers could use to buy its products, but it took down the order form before the court reached its decision, and it had not made a single Internet sale by then. It didn’t have a toll-free number for out-of-state customers to use. Crystal Mud Spa’s owner had never been to Oregon. The Oregon court found that Crystal Mud Spa did not have enough Oregon contacts to require it to defend itself in Oregon and dismissed the case against it.

[Photo courtesy of Barry Burns]