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Personal Jurisdiction over Foreign Companies in the eCommerce Space

January 30, 2025
NCAA

In a significant development for businesses in the eCommerce space, the U.S. Supreme Court has declined to review the Second Circuit’s decision in Zembrka v. American Girl LLC, a case that allowed for the exercise of personal jurisdiction over a foreign company engaged in the online sale of alleged counterfeit products. In denying the petition for a writ of certiorari, the Supreme Court leaves intact the Second Circuit’s ruling, which revived American Girl LLC’s lawsuit asserting counterfeiting and trademark infringement claims against Zembrka, a China-based eCommerce company.

Background

American Girl initially filed the lawsuit against Zembrka under the Lanham Act in the Southern District of New York in March 2021, alleging Zembrka sold counterfeit American Girl products through its interactive websites to American Girl’s counsel in New York. Zembrka filed a motion to dismiss on the basis that the District Court lacked personal jurisdiction, which the Court granted, emphasizing Zembrka had not shipped the allegedly counterfeit products to New York. However, the Second Circuit reversed this decision on September 17, 2024, concluding American Girl had provided sufficient evidence to demonstrate Zembrka had transacted business in New York and could be subject to the court’s jurisdiction.

Jurisdictional Issue and the Minimum Contacts Test

Zembrka revolves around the application of New York’s long-arm statute, specifically Sections 302(a)(1) and 302(a)(3)(ii), which allow New York courts to assert personal jurisdiction over non-resident defendants who engage in business within the state or commit tortious acts that cause harm to individuals or property in New York. Zembrka contested the jurisdiction, arguing its website was merely accessible to New York residents but no goods were actually shipped to the state.

The Second Circuit disagreed. It noted Zembrka’s counsel answered in the affirmative when asked whether it was doing business in New York during oral argument. In its decision, the Second Circuit clarified that Section 302(a)(1) does not require the completion of a transaction or the shipment of goods to transact business. The act of operating a “highly interactive” website through which Zembrka advertised, marketed, and sold products to customers in New York is sufficient to establish personal jurisdiction in New York. Moreover, Zembrka accepted payments from New York customers and sent order confirmations to New York residents with New York shipping addresses.

For purposes of due process under the U.S. Constitution, the Court found offering for sale allegedly counterfeit products for which New York customers could order and pay for was enough for Zembrka to be haled in by the Southern District of New York. Additionally, the Second Circuit highlighted New York’s “exceptionally strong interest in protecting consumers and businesses in this state from the flow of counterfeit goods from abroad.”

The Petition Emphasized Diverging Views Across Circuits

The Zembrka ruling diverges from the approach taken by other federal circuits in cases involving ecommerce. In the Sixth Circuit, the operation of a website constitutes the purposeful availment of the privilege of acting in a forum state “if the website is interactive to a degree that reveals specifically intended interaction with residents of the state.” Additionally, the Sixth Circuit has held that a single transaction is not enough for purposes of personal jurisdiction.

The Third Circuit has held that merely offering goods for sale online is insufficient to establish jurisdiction unless there is concrete evidence of sales or distribution to the forum state. The Eleventh Circuit has required the distribution of goods to the forum state consumers. The Eighth Circuit has declined personal jurisdiction over cases where a customer accessed a website to purchase a product with a plaintiff’s logo in the forum state. The Federal Circuit did not find sufficient contracts when a free trial was offered by a defendant on its website to a plaintiff in the forum state.

The inconsistency between the circuits, Zembrka argued, highlighted the need for the Supreme Court to step in and clarify the law on this issue. However, the Supreme Court denied the petition on January 21, 2025.

Implications for eCommerce Companies

The Zembrka case has critical implications for businesses that operate internationally. The Second Circuit’s ruling underscores the increasing reach of U.S. courts over foreign defendants who engage in ecommerce transactions with U.S. consumers. This Second Circuit’s position is a win for U.S. businesses, but there remains a circuit split causing uncertainty.

For guidance on mitigating legal risks and understanding the implications of this ruling, contact KJK’s eCommerce attorneys Alex Jones (AEJ@kjk.com) or TJ Hunt (TJH@kjk.com).