Plane tickets, music, office supplies–you name it, you can buy it on the web. In Europe and throughout the world, consumers frequently purchase goods and services based outside their home countries. But when a consumer or a company from different countries are unhappy with an online transaction and decide to sue, determining which litigant gets home court advantage may be confusing.

Until recently, Europe has relied on a vague section of the 2001 Brussels I Regulation to help figure it out. The law says a business has to sue a consumer in the consumer's home country if the business “directs its activities [toward] that consumer's state.” No one was sure, however, if merely operating a website constituted sufficient direction to compel jurisdiction in the consumer's home country.

On Dec. 7, 2010, the European Court of Justice (ECJ) issued a joint ruling on two cases that will help national courts within the European Union decide who should handle international e-commerce disputes.

“The mere fact that you are selling via website doesn't automatically expose you to jurisdiction in European countries,” says Bernd Graf, of counsel at Dorsey & Whitney. “There must be some other connecting factor.”

The two cases, Pammer v. Reederei Karl Schl?ter and Hotel Alpenhof v. Heller, dealt with directly opposing scenarios. In the first case, Peter Pammer, an Austrian, booked a voyage by freighter through a German company on the Internet. He was dissatisfied with the conditions on the ship, did not take the voyage and sued when the company did not give him a full refund. In the second case, the Austrian Hotel Alpenhof sued a German customer who left without paying his bill.

Both cases faced appeals on the proper jurisdiction, and the ECJ responded by creating a non-exhaustive list of factors to help local courts figure out who should handle this kind of dispute (see “Defining Direction”).

“For a long time, people had been wondering what the court would rule for websites,” says Gilles Cuniberti, Professor of Law at the University of Luxembourg.

Passive Purchasing

Resolving the uncertainty surrounding website sales has been an ongoing concern because so many people buy and so many companies sell products and services on the Internet.

“These two cases are really into the core of daily life, what we would encounter as normal citizens,” says Patrick van Eecke, a partner at DLA Piper. “Booking a trip online–it's something that we all do.”

In Europe, consumer contract law protects “internationally passive” consumers, Cuniberti explains. If a business tries to market to a consumer abroad, he can go to court in his home country. But the business gets home court if the consumer actively seeks an international transaction.

“The idea is that an active consumer does not deserve special protection,” says Cuniberti, who is also an editor at ConflictofLaws.net.

The question then became: How do you apply the criteria of “directing” foreign activity to a website? Would it be enough that a website is simply accessible to anybody in Europe?

“If that were the case, the distinction between passive and active consumers would become meaningless,” Cuniberti says. “All consumers would become passive.”

Nothing Shocking

The ECJ handled the question well, using common sense and avoiding any big surprises, Graf says. And although the list of factors doesn't add anything “massively new” to the table, Matthew Arnold & Baldwin Partner Mark Weston says it still resolves a large chunk of
the confusion.

Cuniberti says Pammer/Hotel Alpenhof's pragmatism is surprising because it feels like a common law decision–not the system under which most of Europe functions.

“It's laying down a test, which is flexible,” Cuniberti says. “Typically continental countries are not used to this kind of test.”

In a nutshell, if a website mentions a specific country–via phone numbers, currency, language, mailing addresses or testimonials from people within the country–it might be directing business there. Similarly, a general international tone–generic top-level domains such as .eu and inclusion of international phone codes–could be broadly interpreted as marketing to all of Europe.

The list is not exclusive, and the factors are equally important. Local courts will have discretion to use the ECJ guidance and make their own decisions about whether a website reaches the appropriate threshold of direction.

“[Companies] should realize that whenever they localize websites it could have legal implications,” van Eecke says. “Let's say you're a travel agency and you say, 'Let's also translate it into Portuguese.' It could mean that when there is a dispute between one of your Portuguese consumers and yourself, you will have to go to Portugal to defend your interests.”

Manage Your Web

When European in-house attorneys are consulting their clients' web development, Pammer/Hotel Alpenhof will help answer fundamental questions regarding company web presence.

“It doesn't alter the advice flowchart in-house counsel would give,” Weston says. “It allows us to tie down, more specifically, the factors involved in giving advice: Don't use an international code, don't use an international domain.”

American counsel across the pond should know that the ruling only applies within the European Union. Pammer/Hotel Alpenhof will only affect American companies that operate European branches. For those companies, counsel should take the same steps as other European businesses to avoid litigation in unfamiliar countries.

Although it's important for businesses to effectively manage web “direction,” most companies do not need to overhaul their Internet presences. Weston notes that the high cost and small gain of suing individual consumers makes web-based consumer contract suits relatively infrequent. He mentions that both Pammer and Hotel Alpenhof dealt with sums of only about EUR5,000. That money is just a drop in a big company's bucket.

“Consumer contracts tend not to be large value. To litigate internationally is expensive,” Weston says. “Because of that, most companies are not willing to work the time and expense of fighting jurisdictional points in court.”

In any case, companies should also consider putting a disclaimer on the site explaining exactly which locales the business serves.

“If you have a disclaimer on your website, than obviously it's a strong [indicator] that you didn't really want to do business with the other countries,” Graf says. “Having said that, it must not only be a theoretical or paper disclaimer. It must be observed in practice.”