As pressure to regulate the Internet grows both domestically and internationally, courts and scholars appear decreasingly able to agree on an appropriate regulatory scheme. Historically territorial in nature, our mechanisms for conferring jurisdiction betray fundamental inadequacies with respect to electronic commerce and placeless transactions. Imposition of broad external regulations, perhaps through creation of a new international Internet jurisdiction, has been urged in order to resolve jurisdictional disputes. However, broad regulation has its practical and ideological opponents. Furthermore, a great number of interactive web sites already successfully self-regulate. Such sites require their users to register by providing identification, and condition use upon acceptance of an arbitration or forum selection clause designed to preempt difficult procedural disputes.

This paper will examine the efficacy of traditional jurisdictional analysis with respect to the Internet, the growing need for regulation, the significance of interactivity, the interests of the cybercommunity, and the implementation of forum selection clauses. It will consider potential problems associated with some self-regulatory methods, and ultimately assert that interactive sites, especially auction sites, are equipped to self-regulate and, further, that such regulation promotes efficiency.
 

In 1969, the Advanced Research Projects Agency within the Department of Defense created what would become the Internet.[1] Today the Global Information Infrastructure[2] serves internationally as a forum for commerce and communication. Decentralized by its nature and purpose, the Internet presents monumental challenges to a traditionally territorial legal system.

"The Internet is not a physical or tangible entity, but rather a giant network which interconnects innumerable smaller groups of linked computer networks." [3]"The Internet is a cooperative venture, owned by no one, but regulated by several volunteer agencies." [4] The result is "a decentralized, global medium of communications--or 'cyberspace'--that links people, institutions, corporations, and governments around the world."[5]

We commonly speak of communication and transactions "in cyberspace." The vocabulary we use to describe the Internet fixes various kinds of activities in an electronic context, but in doing so it also generates a false sense of place. Our vocabulary does not equip us to say where something happens when it happens "in cyberspace"--but unless we speak in terms of location, we alienate the Internet from traditional concepts of jurisdiction. If an activity or utterance "in cyberspace" is harmful, or even criminal, there can be no legal remedy without a clearly defined forum in which to adjudicate. But because personal jurisdiction, a court's power over individuals, has historically been territorial in nature, courts and scholars have difficulties speaking with a uniform voice when applying the vocabulary of location to placeless electronic events.

Most agree, however, that territory-based dispute resolution is ill-equipped to handle Internet disputes. For example, which court has jurisdiction when a Michigan resident posts a defamatory message about a Tennessee resident, through a Delaware-based company with a server in Florida? The situation is far from a remote possibility, and messier still in an international context.

Further, most commentators recognize the need to regulate the Internet somehow. Some analysts urge the creation of a new set of jurisdictional rules for the cyberspace as a method for avoiding the obsolete constraints of geography.[6] Others argue that regardless of the medium of occurrence, the essence of a crime or tort is fundamentally the same, and creating a new jurisdiction would be otiose.[7] Some meekly urge that countries with access to the Internet should develop a treaty to deal with disputes.[8] Still others suggest that since no single sovereign authority governs cyberspace, there should be no governmental control over Internet related activities--such impositions would be artificial at best.[9]

A variety of services and communications take place over the Internet. Sites are often categorized according to varying degrees of interactivity as "active" or "passive".[10] "On one end of the spectrum, where a website will not confer jurisdiction, is the passive-local website. This is a website that does not have interactive components (e.g., order processing capabilities) and is only directed to people in a limited geographic area."[11] By contrast, an active site "is specifically designed to attract people in all states, process orders and establish ongoing relationships with customers."[12]

Internet auction sites are a species of interactive sites. Registered users pay a nominal fee to a managing company in order to post an item for sale. When bidding opens, other registered users bid according to the company's regulations, and everyone goes home happy, so to speak. An imposing number of such sites exist, most notably eBay, GO Network Auction, Onsale and Yahoo! Auctions.

But in any commercial context, there is of course room for trouble. Beginning in early September of this year, a small number of eBay users began listing human kidneys for sale. Despite suspicions that the listings were jokes, eBay promptly discontinued the auctions and suspended the sellers from using the site.[13] Suppose such a sale, or of any other illegal goods, were facilitated by eBay: a number of uncertainties arise. A variety of venues would be available for prosecution of the offenders, including the buyer's or seller's state of residence, the place of the physical exchange of goods, the location of the server, or of eBay's chief physical presence. Further, it is not immediately clear whether eBay would be criminally liable, and if so, under what conditions. In an announcement that it would begin offering auctions, Disney's GO Network proclaimed it would "scrutinize all text and images that accompany products, in order to avoid sponsoring auctions of unborn babies, a human liver, or a young man's virginity, as eBay inadvertently did."[14] But for how long and to what extent can scrutiny avert all potential legal trouble?

Fortunately, jurisdictional nightmares seem less tricky with respect to interactive sites. When an individual registers to use a service, an auction site for example, he agrees to certain conditions. He submits identification information, usually including place of residence. For this reason, interactive sites look perfectly suited for self-regulation. By including a forum selection clause in the user agreement, companies like eBay can provide for adjudication or arbitration in a specified state. By insisting on mandatory forum selection clauses for interactive sites, the legal system might settle procedural disputes before they arise.

Perhaps existing tests governing the exercise of personal jurisdiction can be stretched into an Internet context, thus eliminating the need for extensive revision or creation of new laws. We begin by determining whether traditional tests are sufficient.

Plaintiffs are not free to bring lawsuits in any place they like.[15] A state or court must have jurisdiction, or power, over a party to comport with our notions of fairness and efficiency. Jurisdiction may be general or personal. States may exercise jurisdiction over out-of-state defendants only if certain "minimum contacts" have been satisfied between the defendant and the forum state.[16] The conclusion that sufficient contacts were established "make[s] it reasonable and just according to our traditional conception of fair play and substantial justice to permit the state to enforce the regulations . . . incurred there."[17] This test may apply to individuals as well as corporations.[18] As courts struggle to prevent technology from outpacing technology, many have held recently that e-mail and other forms of electronic communication may satisfy the minimum contacts test.[19] Further, some errant courts have held that by merely posting information on a web site accessible in a state, a defendant can reasonably anticipate being haled into court in that state.[20]

The determination of personal jurisdiction involves a two-prong test.[21] A court first looks to state statutes to determine whether that court is authorized to exercise personal jurisdiction in the instant case.[22] If the state is empowered by statute to exercise personal jurisdiction, the court must determine whether such exercise violates the constitutional Due Process Clause.[23]

In analyzing the propriety of general jurisdiction, courts have considered the plaintiff's interest in obtaining relief, the shared interests of the states in furthering substantive social policies, the interstate judicial system's interest in efficient resolution of interstate conflicts.[24] The Supreme Court has upheld general jurisdiction only once,[25] and no court has ever found general jurisdiction to exist merely because of advertising on the Internet.[26]

Where a defendant has not had continuous and systematic contacts with a state sufficient to subject him or her to general jurisdiction, courts apply a three-part test to detect "minimum contacts."[27] The court considers first whether the defendant purposely availed himself to the state's laws; second, whether the claim arises out of the defendant's forum-related activities; third, whether exercise of jurisdiction would comport with fair play and substantial justice, viz. whether it would be reasonable.[28] Even if a defendant's activities were sufficient to meet the purposeful availment test, they might not be sufficient to satisfy fairness.[29]

Courts may attempt to balance the interests of parties and of competing forums. They may consider the inconvenience to defendant of defending in the forum and the forum state's interest in adjudicating the dispute. To adjudicate an Internet tort claim, a court will "determine the state with the most significant relationship to the occurrence and the parties, including consideration of the place where the injury occurred, the domicile, residence, nationality, place of incorporation and place of business of the parties, and the place where any relationship between the parties is centered."[30] "The most significant relationship is determined based on the place of contracting, the place of negotiation of the contract, the place of performance, the location of the subject matter of the contract, and the domicile, residence, nationality, place or incorporation and place of business of the parties."[31]

Such balancing tests may from time to time be fair or effective, but they are inefficient at best. Interest analysis is time and labor intensive, and subsequently impractical. "Because GII transactions frequently permit actor, intermediaries and victim to be widely separated geographically, interest analysis requires careful scrutiny of the technology and the facts of a particular transaction."[32] Perrit argues that domicile will likely govern defamation actions in cyberspace.[33] Observing that "[i]ntellectual property claims primarily involve injuries to markets," he adheres to an impacts test and argues that "location of the markets should drive the interest analysis."[34] Such an inquiry still falls short of practical implementation. Even if one can identify a market in the case of an Internet defamation or illegal sale, that market is diffuse, and the corresponding felt effects will not always be physical.

While traditional guiding factors in jurisdictional analysis may provide guidance, they are insufficient to solve many potential conflicts arising from the Internet.

"[T]he virtual world has historically been litigation free, primarily governed by norms--or 'netiquette'--rather than resort to the judicial system."[35] However, pressure to regulate broadly is on the rise, both domestically and internationally. Chinese officials announced in January 1996 that they wanted to stop 'detrimental information' from entering the country via the Internet.[36] The French Government reportedly complained to Compu-Serve that there is too much English on the Internet.[37] "The Malaysian government has proposed a bold new legal framework, popularly known as the cyberlaws," which extends beyond Malaysian territory.[38] Britain's "Home Office is currently examining how the Internet can be regulated."[39] "CompuServe, Inc. blocked access by its subscribers in the United States and around the world to two hundred discussion groups after a federal prosecutor in Germany had indicated that they might violate German pornography laws."[40]

Broad regulation could take various forms. One is a separate jurisdiction for Internet-related disputes and crimes.[41] Alternately, sweeping governmental regulation, perhaps in the form of filtering or requiring local registration, could perform the task of regulating.

Of course broad regulation has its opponents. The fundamental concern with broad external regulation is the restriction of access to information.[42] Many worry that courts have become too permissive already in holding jurisdiction proper over defendants who merely create and advertise on a web site.[43] Other users are simply loathe to submit to any regulation that is not absolutely necessary. "Intermediaries, frequently known as 'systems operators' or 'sysops,' in the United States, almost always prefer to minimize the legal control of their activities."[44] To them, self-regulation is attractive not only because it preserves the decentralized nature of the Internet, but because users will retain more privacy and control:

Private dispute resolution such as arbitration offers advantages over traditional government-sponsored dispute resolution because private institutional arrangement can employ whatever modes of communication and record keeping the parties wish. For example, there is no legal impediment to writing an arbitration agreement providing that everything, including the hearing itself, be conducted remotely through computer networks.[45]

Johnson and Post write that "[c]rossing into Cyberspace is a meaningful act that would make application of a distinct 'law of Cyberspace' fair to those who pass over the electronic boundary."[46] But where interactive sites are concerned, the imposition of an elaborate new legal framework is unnecessary. Even though many interactive web sites have already achieved a sophisticated level of self-regulation, some commentators question whether the Internet is fit for self-regulation.[47] Because of the interactivity of auction sites and their corresponding registration and compliance procedures, the governing rules are often set by private contracts rather than courts or statutes. The success of self-regulation through registration depends loosely on two factors: registration and community.

"The electronic era did not introduce the form contract, but it refined it into something of an art. For years, software publishers distributed software with boilerplate license agreements called 'shrinkwraps'.[48] Shrinkwraps have been upheld under both copyright and contract law.[49] Shrinkwraps and registration requirements could discourage users from entering a site.[50] However, there is evidence that competition is working among auction sites, and as long as registration terms are not overly standardized, "the law should be reluctant to preempt contractual provisions when it is clear that users are aware of and have agreed to" the terms.[51]

Most auction sites require users to register before they can participate in bidding or advertising. Personal information, including, but not limited to, name, address, telephone number, age, occupation, is required.[52] Privacy is often guaranteed, but eBay, not a lone example, notifies registrants that information will be divulged if necessary to comply with law enforcement.[53] The mere acquisition of this information by companies like eBay might help courts to confer jurisdiction over a given defendant.

Through the registration process, a company like eBay can gather information about its users for identification purposes. By divulging a minimal degree of information, each user might exchange anonymity for avoidance of external regulation. More significantly, registration is a bargaining process. In exchange for the use of a site, the user agrees to abide by its rules. In this way, registration could be used to constrain jurisdiction: "if a site has a registration process for users, then users from certain jurisdictions could be filtered out."[54] At any rate, the registration process involves more than divulging a user's personal information. Users must accept the terms of use articulated by a company. Acceptance of the terms, (which accompanies a handshake icon in the case of eBay,) may, and usually does, involve agreeing to a stipulated forum for arbitration. Unless a potential user agrees to a company's forum selection clause, he will be ineligible to participate in the site.

The community of participants in an interactive site helps to ensure compliance with terms of use, partly because users may have more at stake than community-mindedness. Individual users composing the community want to secure the privacy of their registration information. They want to protect their intellectual property. Self-policing is coextensive with self-interest. Generally, users would prefer self-policing to the imposition of external regulation. For them, the threat of such regulation, and the accompanying loss of community, might be enough incentive to implement and perfect self-regulation.

To speak of a cyber-community is not to engage in more misapplication of language. Communities are "distinguished by lively interaction and engagement on issues of mutual concern."[55] Frequent users of auction sites consider themselves members of a community, and they respond as a community to mutual concerns. The language used by eBay in a portion of its website called the "announcement board" reflects that it recognizes its users as a community.[56] "[M]any seek to participate actively in particular online cybercommunities, over long periods of time. For them, separation from their cybercommunities would impose a very substantial personal loss."[57] The U.S. government sponsors of the ARPANET[58] considered the groups interacting on the ARPANET to be communities.[59] While some question whether the Internet has established norms,[60] many others analogize "netiquette" to customary or common law.[61] For example, eBay refers at length to "Community Standards".[62] O'Rourke writes "Netiquette is, quite simply, the custom of the Internet. Custom often serves as a source of law and, at least in some areas, commentators have suggested that it is desirable for the law to reflect what people actually do in practice."[63]

"Experience suggests that the community of online users and service providers is up to the task of developing a self-governance system."[64] eBay has a "Community Watch" program under which community members can report the listing of questionable or infringing items for sale, and a Verified Rights Owner (VERO) Program which encourages owners of intellectual property to report items that allegedly infringe on their rights. In speaking of a cyber-community, of "Netizens," we acknowledge that due process might concern a different set of persons than the citizens of a given nation or state.[65]

One of the most attractive alternatives to imposing regulation of the Internet is to provide for arbitration. "[T]he availability of arbitration as an alternative dispute resolution forum, the decisions of which are nearly universally enforceable, provides a readily acceptable alternative to civil judgment enforcement".[66] As previously noted, one advantage of including a forum selection clause at the time of registration "is that arbitrators can be selected,[ ] and arbitration procedures and choice of law can be specified in the arbitration agreement to suit the nature of claims arising in the [Internet] better than regular judicial procedure and generalist judges."[67]

Hans Smit suggests the establishment of a single worldwide institution, privately administered and created, to improve institutional international arbitration.[68] However, "[p]rivate dispute resolution offers significant advantages for dealing with disputes that arise in cyberspace,"[69] and unless arbitration is provided in a decentralized manner and at the initiative of individual companies, it might lose some of the advantages that self-regulation aims at preserving. A better solution, perhaps, is a worldwide incentive to self-regulate by incorporating arbitration clauses. This might be facilitated by a consensus on where liability falls: in the case of an illegal sale, for example, on the buyer, seller or auction site.

Still, a user agreement need not be limited to an arbitration provision. A simple forum selection clause might be just as effective. Such a clause is usually enforceable as long as it is fundamentally fair, and unenforceable "if there is evidence of [its] inclusion for the purpose of discouraging parties from pursuing legal claims by assigning litigation to a remote alien forum, by proof that resisting parties lacked notice of the clause or evidence of fraud or other overreaching."[70] Recent case law provides little evidence that "a participant in electronic commerce could avoid a forum-selection clause on the grounds that there was no negotiation over it."[71] Forum selection clauses are acceptable under the Restatement (Second) of Conflict of Laws, which states that parties' choice will govern "if the particular issue is one which all the parties could have resolved by an explicit provision in their agreement directed to that issue."[72]

But perhaps the solution is not so simple. First consider the enormous value placed on privacy by users of the Internet, and the importance of anonymity among members of the cybercommunity. For those users, does avoidance of governmental regulation justify the sacrifice of anonymity required by some user agreements?

Just how vital the notion of anonymity is among the cyber-community cannot be overestimated. "In the Networld, the whole idea of legal personhood takes on a new dimension--because participants in online transactions cannot easily tell (and may not care) whether an online identity belongs to only one individual."[73] On line, a user gets "the ability to leave [his or her] teen-age body behind and take advantage of the limitless freedom to explore your personal identity."[74]

An equally pressing concern that accompanies forum selection and arbitration clauses is whether contract doctrine will end up replacing intellectual property law with respect to the Internet.[75] The worry is founded, but remote. In the context of auction sites, the purpose of forum selection and arbitration clauses is largely procedural. The substantive issues, whether criminal or tortuous with respect to intellectual property law, are not altered merely by the practice of identifying at the outset a forum in which to resolve potential conflicts.

An alternative to the troubling dichotomy--territorial jurisdiction over corporeal people, or anonymous and placeless legal persons--is presented by the Virtual Magistrate Project. A pilot project, the Virtual Magistrate has been established "to rule on online disputes, via e-mail, that would give those with claims regarding the application of online rules a chance to have their cases heard by a neutral party."[76] "The subject matter accepted by the Virtual Magistrate consists of: messages, postings, and files allegedly involving copyright or trademark infringement, misappropriation of trade secrets, defamation, fraud, deceptive trade practices, inappropriate (obscene, lewd, or otherwise violative of system rules) materials, invasion of privacy, and other wrongful content."[77] Similarly, "cyber-juries" might be increasingly utilized as an accompaniment to wider recognition of cyber-communities. "The Seventh Amendment entitlement to jury trial in civil cases [ ] is a potentially serious problem, but at least for initial consideration, juries should be allowed and they could be 'cyber-juries'.[ ]"[78] Cyber juries "could be impaneled through the Internet and would participate electronically."[79]

Conceivably, the Virtual Magistrate could replace traditional forms of adjudication, rendering obsolete the necessity of a judge's physical presence, as well as that of the parties to a dispute. As territory loosens its stranglehold over jurisdiction vis-à-vis cyberspace, balancing interests for fairness and due process analysis is simplified.

Of course, the Virtual Magistrate might operate, at least in the early stages as far as a user is concerned, just like self-regulation. After all, the "Virtual Magistrate Project is an online application of arbitration."[80] Access to a network could be conditioned upon agreeing that the Virtual Magistrate would resolve disputes, just like an auction site's user agreement would require acceptance of a forum selection or arbitration clause. While virtual magistrates or cyber-juries grapple in a unique and novel manner with the particular problems presented by cyberspace, they do not provide much in addition to what an auction site can already do for itself. Further, the Virtual Magistrate Project is essentially little more than the creation of a new Internet jurisdiction, characterized by an online persona as arbiter. The Project does not solve problems unique to the Internet in any particular way, it merely provides a more convenient forum for their adjudication, and leaves the creation of new substantive law in its present neo-natal stage.

Auction sites, even when considered as potential forums for crimes like illegal sales, do not present a special argument for the creation of a new Internet jurisdiction. These sites are sufficiently interactive to self-regulate successfully. Further, imposing clear liability on companies that run the sites and take money from their users (like eBay) may provide incentive for those companies to adopt registration procedures for users that confer personal jurisdiction (perhaps to the state where the company's principle place of business is located) or impose arbitration when disputes arise, as a matter of contract.

The decision to participate in an online auction is voluntary, unlike involuntary subjugation to territorial laws imposed by local sovereigns. Because auction sites can subject their users to a particular jurisdiction during registration, there is no need for, say, governmental regulation: the cyber-community and the site can self-regulate.

Of course, self-regulation is not feasible for all Internet-related activities. However, its limited application as described in the context of auction sites avoids the distasteful connotations of broad regulation.