California Statute – 17538, which imposes substantial penalties on proprietors of businesses, whether they are located in California or not, raises an issue often overlooked by new Web-based entrepreneurs: jurisdiction. The legal issue of jurisdiction determines which courts have the right to adjudicate issues raised by a particular legal claim, whether that claim is brought to a court within the United States or another nation.
According to John Fellas, a senior associate at Hughes Hubbard & Reed LLP, “the looming and growing risk for people doing business on the Internet is that they may find themselves subject to the jurisdiction of courts and countries they never anticipated.”
The jurisdiction issue is not new. Large international corporations have been dealing with it in interstate and international trade for decades. The Internet creates a new twist however, because the relatively harmless creation of a Web storefront could possibly create new legal issues for businesses in completely unanticipated jurisdictions anywhere in the world. The California Statute is only one example of what may become a myriad of legal traps for the unwary entrepreneur in the future.
It is important for Web-based entrepreneurs to be aware that claims properly litigated in a foreign jurisdiction and won by a foreign litigant against a U.S.-based Web storefront can be enforced in the United States under principles of international comity. Consult with your lawyer for further information if you think your business could attract such foreign claims.
