Determining which laws govern the operation of your business is a function of many factors, including where you are operating your web-based business, into which jurisdictions you may be shipping products, the nature of the target audience for your ecommerce site, and the ways in which you market and promote your web-based business. The notion that a business located in one state may be subject to the decisions of courts in another state is not new and applies outside the ecommerce context, as well. Courts throughout the United States follow the general rule that, if a business “purposefully avails itself” of the benefits of doing business in another state, such as by actively soliciting and marketing to customers in that state and entering into agreements for the sale of goods or services delivered in that state, then the business can be sued in that state over claims relating to the transactions it sought or concluded there. Lack of a physical presence within a state does not prevent you from being sued there. The jurisdiction of any state over a business based elsewhere arises under the state’s “long-arm” jurisdiction statute (so-dubbed because the state is considered to be reaching far and wide with the “long arm of the law”). How aggressively a state may apply its “long-arm” statute to non-resident businesses and individuals stems from a long line of famous U.S. Supreme Court cases. With the proliferation of web-based ecommerce, states have tried to assert their jurisdiction over businesses with much less obvious connections to their state than some of the defendants in the jurisdiction cases of yore. Whether a court can assert jurisdiction over an out-of-state defendant based on Internet-related contacts with the state depends on the nature and quality of commercial activity that [the defendant] conducts over the Internet. U.S. courts have tried to draw distinctions between passive web sites – those which don’t actively seek or conduct business with consumers within a state – and active web sites – which involve commercial transactions between a business and a consumer within a state. Maintaining a "passive" web site for advertising purposes isn’t enough to create jurisdiction within a state. It isn’t necessarily enough, even if a site has some interactive features. That an interactive web site may create the potential for a business transaction with consumers inside a particular state may not even be sufficient. There needs to be something more: some level of business must actually have been transacted. Where a business uses a web site to sell goods and services to a consumer in a particular state, and it is designed to allow consumers in multiple places to purchase products or services through the site, it may be more likely to be considered an “active” web site, and jurisdiction within that particular state will lie.
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