Pavalovich v. Superior Court

BROWN, J.

"The Internet is an international network of interconnected computers" which "enable[s] tens of millions of people to communicate with one another and to access vast amounts of information from around the world. The best known category of communication over the Internet is the World Wide Web, which allows users to search for and retrieve information stored in remote computers, as well as, in some cases, to communicate back to designated sites. In concrete terms, the Web consists of a vast number of documents stored in different computers all over the world." On the Web, "documents, commonly known as Web 'pages,' are . . . prevalent." These pages are located at Web sites and have addresses marking their location on the Web. If a Web page is freely accessible, then anyone with access to a computer connected to the Internet may view that page. With its explosive growth over the past two decades, the Internet has become " 'a unique and wholly new medium of worldwide human communication.' "

Not surprisingly, the so-called Internet revolution has spawned a host of new legal issues as courts have struggled to apply traditional legal frameworks to this new communication medium. Today, we join this struggle and consider the impact of the Internet on the determination of personal jurisdiction. In this case, a California court exercised personal jurisdiction over a defendant based on a posting on an Internet Web site. Under the particular facts of this case, we conclude the court's exercise of jurisdiction was improper.


I

Digital versatile discs (DVD's) "provide high quality images, such as motion pictures, digitally formatted on a convenient 5-inch disc. . . ." Before the commercial release of DVD's containing motion pictures, the Content Scrambling System (CSS), a system used to encrypt and protect copyrighted motion pictures on DVD's, was developed. The CSS technology prevents the playing or copying of copyrighted motion pictures on DVD's without the algorithms and keys necessary to decrypt the data stored on the disc.

Real party in interest DVD Copy Control Association, Inc. (DVD CCA) is a nonprofit trade association organized under the laws of the State of Delaware with its principal place of business in California. The DVD industry created DVD CCA in December 1998 to control and administer licensing of the CSS technology. In September 1999, DVD CCA hired its staff, and, in December 1999, it began administering the licenses. Soon thereafter, DVD CCA acquired the licensing rights to the CSS technology and became the sole licensing entity for this technology in the DVD video format.

Petitioner Matthew Pavlovich is currently a resident of Texas and the president of Media Driver, LLC, a technology consulting company in Texas. During the four years before he moved to Texas, he studied computer engineering at Purdue University in Indiana, where he worked as a systems and network administrator. Pavlovich does not reside or work in California. He has never had a place of business, telephone listing, or bank account in California and has never owned property in California. Neither Pavlovich nor his company has solicited any business in California or has any business contacts in California.

At Purdue, Pavlovich was the founder and project leader of the LiVid video project (LiVid), which operated a Web site located at "livid.on.openprojects.net." The site consisted of a single page with text and links to other Web sites. The site only provided information; it did not solicit or transact any business and permitted no interactive exchange of information between its operators and visitors.

According to Pavlovich, the goal of LiVid was "to improve video and DVD support for Linux and to . . . combine the resources and the efforts of the various individuals that were working on related things. . . ." To reach this goal, the project sought to defeat the CSS technology and enable the decryption and copying of DVD's containing motion pictures. Consistent with these efforts, LiVid posted the source code of a program named DeCSS on its Web site as early as October 1999. DeCSS allows users to circumvent the CSS technology by decrypting data contained on DVD's and enabling the placement of this decrypted data onto computer hard drives or other storage media.

At the time LiVid posted DeCSS, Pavlovich knew that DeCSS "was derived from CSS algorithms" and that reverse engineering these algorithms was probably illegal. He had also "heard" that "there was an organization which you had to file for or apply for a license" to the CSS technology. He did not, however, learn that the organization was DVD CCA or that DVD CCA had its principal place of business in California until after DVD CCA filed this action.

In its complaint, DVD CCA alleged that Pavlovich misappropriated its trade secrets by posting the DeCSS program on the LiVid Web site because the "DeCSS program . . . embodies, uses, and/or is a substantial derivation of confidential proprietary information which DVD CCA licenses. . . ." The complaint sought injunctive relief but did not seek monetary damages. In response, Pavlovich filed a motion to quash service of process, contending that California lacked jurisdiction over his person. DVD CCA opposed, contending that jurisdiction was proper because Pavlovich "misappropriated DVD CCA's trade secrets knowing that such actions would adversely impact an array of substantial California business enterprises--including the motion picture industry, the consumer electronics industry, and the computer industry." In a brief order, the trial court denied Pavlovich's motion, citing Calder v. Jones.

Pavlovich petitioned the Court of Appeal for a writ of mandate. After the Court of Appeal summarily denied the petition, we granted review and transferred the matter back to the Court of Appeal with directions to vacate its denial order and issue an order to show cause. The Court of Appeal then issued a published opinion denying the petition. . . .


II

California courts may exercise personal jurisdiction on any basis consistent with the Constitutions of California and the United States. The exercise of jurisdiction over a nonresident defendant comports with these Constitutions "if the defendant has such minimum contacts with the state that the assertion of jurisdiction does not violate ' "traditional notions of fair play and substantial justice.” ”

Under the minimum contacts test, "an essential criterion in all cases is whether the 'quality and nature' of the defendant's activity is such that it is 'reasonable' and 'fair' to require him to conduct his defense in that State." ( Kulko v. California Superior Court, quoting International Shoe. "[T]he 'minimum contacts' test . . . is not susceptible of mechanical application; rather, the facts of each case must be weighed to determine whether the requisite 'affiliating circumstances' are present." ( Kulko, quoting Hanson v. Denckla) "[T]his determination is one in which few answers will be written 'in black and white. The greys are dominant and even among them the shades are innumerable.' "

In making this determination, courts have identified two ways to establish personal jurisdiction. "Personal jurisdiction may be either general or specific." In this case, DVD CCA does not contend that general jurisdiction exists. We therefore need only consider whether specific jurisdiction exists.

When determining whether specific jurisdiction exists, courts consider the " 'relationship among the defendant, the forum, and the litigation.' " (Helicopteros Nacionales de Colombia v. Hall, quoting Shaffer v. Heitner). A court may exercise specific jurisdiction over a nonresident defendant only if: (1) "the defendant has purposefully availed himself or herself of forum benefits"; (2) "the 'controversy is related to or "arises out of" [the] defendant's contacts with the forum' "; and (3) " 'the assertion of personal jurisdiction would comport with "fair play and substantial justice" ' "

"The purposeful availment inquiry . . . focuses on the defendant's intentionality. This prong is only satisfied when the defendant purposefully and voluntarily directs his activities toward the forum so that he should expect, by virtue of the benefit he receives, to be subject to the court's jurisdiction based on" his contacts with the forum. Thus, the " 'purposeful availment' requirement ensures that a defendant will not be haled into a jurisdiction solely as a result of 'random,' 'fortuitous,' or 'attenuated' contacts [citations], or of the 'unilateral activity of another party or a third person.' " "When a [defendant] 'purposefully avails itself of the privilege of conducting activities within the forum State,' [citation], it has clear notice that it is subject to suit there, and can act to alleviate the risk of burdensome litigation by procuring insurance, passing the expected costs on to customers, or, if the risks are too great, severing its connection with the State." ( World-Wide Volkswagen Corp. v. Woodson)

In the defamation context, the United States Supreme Court has described an "effects test" for determining purposeful availment. In Calder, a reporter in Florida wrote an article for the National Enquirer about Shirley Jones, a well-known actress who lived and worked in California. The president and editor of the National Enquirer reviewed and approved the article, and the National Enquirer published the article. Jones sued, among others, the reporter and editor (individual defendants) for libel in California. The individual defendants moved to quash service of process, contending they lacked minimum contacts with California.

The United States Supreme Court disagreed and held that California could exercise jurisdiction over the individual defendants "based on the 'effects' of their Florida conduct in California." The court found jurisdiction proper because "California [was] the focal point both of the story and of the harm suffered." "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 . . . and the brunt of the harm, in terms both of [Jones's] emotional distress and the injury to her professional reputation, was suffered in California." The court also noted that the individual defendants wrote or edited "an article that they knew would have a potentially devastating impact upon [Jones]. And they knew that the brunt of that injury would be felt by [Jones] in the State in which she lives and works and in which the National Enquirer has its largest circulation."

Although Calder involved a libel claim, courts have applied the effects test to other intentional torts, including business torts. Application of the test has, however, been less than uniform. Indeed, courts have "struggled somewhat with Calder's import, recognizing that the case cannot stand for the broad proposition that a foreign act with foreseeable effects in the forum state always gives rise to specific jurisdiction."

Despite this struggle, most courts agree that merely asserting that a defendant knew or should have known that his intentional acts would cause harm in the forum state is not enough to establish jurisdiction under the effects test. Instead, the plaintiff must also "point to contacts which demonstrate that the defendant expressly aimed its tortious conduct at the forum. . . ." For example, the Third Circuit Court of Appeals has held that, to meet the effects test, "the plaintiff must show that the defendant knew that the plaintiff would suffer the brunt of the harm caused by the tortious conduct in the forum, and point to specific activity indicating that the defendant expressly aimed its tortious conduct at the forum." Similarly, in the Ninth Circuit Court of Appeals, the plaintiff must show not only that the defendant "caused harm, the brunt of which is suffered and which the defendant knows is likely to be suffered in the forum state," but also that the defendant "committed an intentional act . . . expressly aimed at the forum state." Indeed, virtually every jurisdiction has held that the Calder effects test requires intentional conduct expressly aimed at or targeting the forum state in addition to the defendant's knowledge that his intentional conduct would cause harm in the forum. . . .

We now consider whether Pavlovich's contacts with California meet the effects test. "[T]he plaintiff has the initial burden of demonstrating facts justifying the exercise of jurisdiction." If the plaintiff meets this initial burden, then the defendant has the burden of demonstrating "that the exercise of jurisdiction would be unreasonable." In reviewing a trial court's determination of jurisdiction, we will not disturb the court's factual determinations "if supported by substantial evidence." "When no conflict in the evidence exists, however, the question of jurisdiction is purely one of law and the reviewing court engages in an independent review of the record." Applying these standards, we conclude that the evidence in the record fails to show that Pavlovich expressly aimed his tortious conduct at or intentionally targeted California.

In this case, Pavlovich's sole contact with California is LiVid's posting of the DeCSS source code containing DVD CCA's proprietary information on an Internet Web site accessible to any person with Internet access. Pavlovich never worked in California. He owned no property in California, maintained no bank accounts in California, and had no telephone listings in California. Neither Pavlovich nor his company solicited or transacted any business in California. The record also contains no evidence of any LiVid contacts with California.

Although we have never considered the scope of personal jurisdiction based solely on Internet use, other courts have considered this issue, and most have adopted a sliding scale analysis. "At one end of the spectrum are situations where a defendant clearly does business over the Internet. If the defendant enters into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files over the Internet, personal jurisdiction is proper. At the opposite end are situations where a defendant has simply posted information on an Internet Web site which is accessible to users in foreign jurisdictions. A passive Web site that does little more than make information available to those who are interested in it is not grounds for the exercise [of] personal jurisdiction. The middle ground is occupied by interactive Web sites where a user can exchange information with the host computer. In these cases, the exercise of jurisdiction is determined by examining the level of interactivity and commercial nature of the exchange of information that occurs on the Web site."

Here, LiVid's Web site merely posts information and has no interactive features. There is no evidence in the record suggesting that the site targeted California. Indeed, there is no evidence that any California resident ever visited, much less downloaded the DeCSS source code from, the LiVid Web site. Thus, Pavlovich's alleged "conduct in . . . posting [a] passive Web site[] on the Internet is not," by itself, "sufficient to subject" him "to jurisdiction in California." " 'Creating a site, like placing a product into the stream of commerce, may be felt nationwide--or even worldwide--but, without more, it is not an act purposefully directed toward the forum state.' " Otherwise, "personal jurisdiction in Internet-related cases would almost always be found in any forum in the country." Such a result would "vitiate long-held and inviolate principles of" personal jurisdiction.

Nonetheless, DVD CCA contends posting the misappropriated source code on an Internet Web site is sufficient to establish purposeful availment in this case because Pavlovich knew the posting would harm not only a licensing entity but also the motion picture, computer and consumer electronics industries centered in California. According to DVD CCA, this knowledge establishes that Pavlovich intentionally targeted California and is sufficient to confer jurisdiction under the Calder effects test. Although the question is close, we disagree.

As an initial matter, DVD CCA's reliance on Pavlovich's awareness that an entity owned the licensing rights to the CSS technology is misplaced. Although Pavlovich knew about this entity, he did not know that DVD CCA was that entity or that DVD CCA's primary place of business was California until after the filing of this lawsuit. More importantly, Pavlovich could not have known this information when he allegedly posted the misappropriated code in October 1999, because DVD CCA only began administering licenses to the CSS technology in December 1999--approximately two months later. Thus, even assuming Pavlovich should have determined who the licensor was and where that licensor resided before he posted the misappropriated code, he would not have discovered that DVD CCA was that licensor. Because Pavlovich could not have known that his tortious conduct would harm DVD CCA in California when the misappropriated code was first posted, his knowledge of the existence of a licensing entity cannot establish express aiming at California.

Thus, the only question in this case is whether Pavlovich's knowledge that his tortious conduct may harm certain industries centered in California--i.e., the motion picture, computer, and consumer electronics industries--is sufficient to establish express aiming at California. As explained below, we conclude that this knowledge, by itself, cannot establish purposeful availment under the effects test. . . .

Cases citing a defendant's knowledge of the effects of its tortious conduct on an industry centered in the forum state to support a finding of jurisdiction under the effects test are inapposite. In exercising jurisdiction, those courts concluded that the defendant's knowledge of industry-wide effects in the forum state in conjunction with other evidence of express aiming at the forum state established purposeful availment under the effects test. Thus, those cases merely hold that such knowledge is relevant to any determination of personal jurisdiction. They do not establish that such knowledge, by itself, establishes express aiming. Indeed, DVD CCA does not cite, and we have not found, any case where a court exercised jurisdiction under the effects test based solely on the defendant's knowledge of industry-wide effects in the forum state.

This dearth of supporting case law is understandable when we consider the ramifications of a contrary holding. According to DVD CCA, California should exercise jurisdiction over Pavlovich because he should have known that third parties may use the misappropriated code to illegally copy movies on DVD's and that licensees of the misappropriated technology resided in California. In other words, DVD CCA is asking this court to exercise jurisdiction over a defendant because he should have known that his conduct may harm--not a California plaintiff--but industries associated with that plaintiff. As a practical matter, such a ruling makes foreseeability of harm the sole basis for jurisdiction in contravention of controlling United States Supreme Court precedent.

Indeed, such a broad interpretation of the effects test would effectively eliminate the purposeful availment requirement in the intentional tort context for select plaintiffs. In most, if not all, intentional tort cases, the defendant is or should be aware of the industries that may be affected by his tortious conduct. Consequently, any plaintiff connected to industries centered in California--i.e., the motion picture, computer, and consumer electronics industries--could sue an out-of-state defendant in California for intentional torts that may harm those industries. For example, any creator or purveyor of technology that enables copying of movies or computer software--including a student in Australia who develops a program for creating backup copies of software and distributes it to some of his classmates or a store owner in Africa who sells a device that makes digital copies of movies on videotape--would be subject to suit in California because they should have known their conduct may harm the motion picture or computer industries in California. Indeed, DVD CCA's interpretation would subject any defendant who commits an intentional tort affecting the motion picture, computer, or consumer electronics industries to jurisdiction in California even if the plaintiff was not a California resident. Under this logic, plaintiffs connected to the auto industry could sue any defendant in Michigan, plaintiffs connected to the financial industry could sue any defendant in New York, and plaintiffs connected to the potato industry could sue any defendant in Idaho. Because finding jurisdiction under the facts in this case would effectively subject all intentional tortfeasors whose conduct may harm industries in California to jurisdiction in California, we decline to do so.

We, however, emphasize the narrowness of our decision. A defendant's knowledge that his tortious conduct may harm industries centered in California is undoubtedly relevant to any determination of personal jurisdiction and may support a finding of jurisdiction. We merely hold that this knowledge alone is insufficient to establish express aiming at the forum state as required by the effects test. Because the only evidence in the record even suggesting express aiming is Pavlovich's knowledge that his conduct may harm industries centered in California, due process requires us to decline jurisdiction over his person.

In addition, we are not confronted with a situation where the plaintiff has no other forum to pursue its claims and therefore do not address that situation. DVD CCA has the ability and resources to pursue Pavlovich in another forum such as Indiana or Texas. Our decision today does not foreclose it from doing so. Pavlovich may still face the music--just not in California.


III

Accordingly, we reverse the judgment of the Court of Appeal and remand for further proceedings consistent with this opinion.


BAXTER, J. dissenting.

I respectfully dissent. That this case involves a powerful new medium of electronic communication, usable for good or ill, should not blind us to the essential facts and principles. The record indicates that, by intentionally posting an unlicensed decryption code for the Content Scrambling System (CSS) on their Internet Web sites, defendant and his network of "open source" associates sought to undermine and defeat the very purposes of the licensed CSS encryption technology, i.e., copyright protection for movies recorded on digital versatile discs (DVD's) and limitation of playback to operating systems licensed to unscramble the encryption code. The intended targets of this effort were not individual persons or businesses, but entire industries. Defendant knew at least two of the intended targets--the movie industry and the computer industry involved in producing the licensed playback systems--either were centered in California or maintained a particularly substantial presence here. Thus, the record amply supports the trial court's conclusion, for purposes of specific personal jurisdiction, that defendant's intentional act, even if committed outside California, was "expressly aimed" at California.

In the particular circumstances, it cannot matter that defendant may not have known or cared about the exact identities or precise locations of each individual target, or that he happened to employ a so-called passive Internet Web site, or whether any California resident visited the site. By acting with the broad intent to harm industries he knew were centered or substantially present in this state, defendant forged sufficient "minimum contacts" with California "that he should reasonably anticipate being haled into court [here]"

Moreover, defendant has made no "compelling case" that California's assertion of personal jurisdiction for this purpose otherwise fails to "comport with 'fair play and substantial justice.' " Quite the contrary. Defendant identifies no unconscionable burden of defending the suit here, nor does he suggest California litigation would infringe any significant sovereignty interests of other jurisdictions.

But California has a substantial interest in the subject matter, and California appears a fair, convenient, and effective forum for California-centered industries to obtain relief. Moreover, this action seeks injunctions against a large number of persons, geographically dispersed, who are alleged to have participated with defendant in an organized effort to infringe and defeat DVD encryption. Thus, so long as the defendants' due process rights are not compromised, the interests of both the plaintiff and the interstate judicial system "in obtaining the most efficient resolution of controversies" strongly favor suit against all in a single forum, rather than a multiplicity of suits in the defendants' individual domiciles. Accordingly, I conclude the Court of Appeal's judgment should be affirmed.

* * *

Though the majority imply otherwise, the result I propose does not signal a broad new rule that California jurisdiction is proper over any foreign defendant who causes foreseeable effects in this state. On the contrary, I base my conclusions on the specific facts of this case. These facts indicate that defendant Pavlovich engaged in intentional conduct purposefully targeted at interests he knew were centered or substantially present in California, with knowledge they would suffer harm here, such that he must reasonably have anticipated being called to account in this state. Pavlovich thus forged minimum contacts with California, and it is otherwise fair and reasonable to assert personal jurisdiction over him here for purposes of related litigation. For these reasons, and these reasons alone, I conclude that his motion to quash was properly denied.

I would affirm the judgment of the Court of Appeal.