Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

UBID v. THE GODADDY GROUP (September 29, 2010).

The GoDaddy Group operates a domain name registration site called GoDaddy.com. GoDaddy has taken significant steps to limit its physical presence to Arizona. It is incorporated there, it is headquartered there, its computer servers are all located there, and the great majority of its offices and employees are there. Its non--physical presence is another story. It advertises nationally (including on the last six Super Bowls), it sponsors professional race car driver Danica Patrick and professional golfer Anna Rawson, and it advertises in sports arenas (including those of the Chicago-based Cubs, White Sox, Bulls, and Blackhawks). It has hundreds of thousands of Illinois customers and millions of dollars of Illinois revenue annually. Chicago-based uBID, an Internet excess-inventory auctioneer, brought suit against GoDaddy for violating the Anti-Cybersquatting Consumer Protection Act. The GoDaddy conduct that uBID complains of is its practice of selling domain names that are confusingly similar to existing domain names (including uBID’s), selling advertising on those websites, and profiting from the confusion it has created. Judge Kocoras (N.D. Ill.) dismissed the complaint for lack of personal jurisdiction. uBID appeals.

In their opinion, Judges Flaum, Manion, and Hamilton reversed and remanded. The Court first considered and rejected the existence of general jurisdiction. General jurisdiction requires such extensive contacts that a defendant is considered to be present for all purposes. Here, although GoDaddy's contacts are extensive, they are limited to its domain name services. The Court concluded that it would be unfair to consider GoDaddy present for all conceivable claims. With respect to specific jurisdiction, the Court noted that the question has not changed since International Shoe -- is it "fair and reasonable" to require the defendant to respond to the claim? The analysis is a three-part test addressing the sufficiency of the contacts, the relationship between the contacts and the claim, and International Shoe's requirement that it not offend notions of "fair play and substantial justice." With respect to the sufficiency of the contacts, the Court relied heavily on Keeton. In that case, the Supreme Court upheld jurisdiction in New Hampshire over Hustler Magazine. Hustler had no offices or employees in New Hampshire, did not particularly target the state, and very little of its revenue came from the state. But Hustler "continuously and deliberately" exploited the market. That was enough for the Supreme Court to permit jurisdiction. The Court concluded that GoDaddy continuously and deliberately exploited the Illinois market and reached the same conclusion. The fact that GoDaddy can do that in a virtual, rather than physical, sense does not dictate a different result. With respect to the relationship between the contacts and the claim, the Court applied a proportional and foreseeable test (declining to endorse either the but-for or proximate causation tests relied upon by some courts -- and also declining to adopt or reject the Zippo test). The Court concluded that the relationship was close enough. In fact, it found the contacts and the claims "intimately related." Finally, the Court considered the "substantial justice" factors. Some of them favored the exercise of jurisdiction; none of them favored GoDaddy. Requiring GoDaddy to answer the claim in Illinois is not unfair.

Judge Manion concurred. Although he agreed that personal jurisdiction was proper, he disagreed with the Keeton test applied by the majority. In his view, the claim does not arise out of Go Daddy's advertisements at sporting events or out of its hundreds of thousands of relationships with Illinois residents. Instead, it arises out of its cybersquatting -- profiting from advertisements that it places on domain names that allegedly infringe uBID’s trademark. Instead of Keeton, Judge Manion would look to the intentional harms test from Calder. Each of the three prongs of the Calder test are satisfied here: a) the conduct was intentional, b) the conduct was aimed at Illinois since it was targeted correctly at uBID, and c) GoDaddy knew that uBID would be harmed in Illinois. 

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CAPITOL INDEMNITY CORP. v. ELSTON SELF SERVICE WHOLESALE GROCERS, INC. (March 12, 2009)

Elston Self-Service Wholesale Grocers, Inc. ("Elston") is a wholesale cigarette distributor. Lorillard Tobacco Co. ("Lorillard") filed a complaint against Elston, alleging that it sold counterfeit cigarettes bearing a Lorillard trademark. Elston was insured by Capitol Indemnity Corp. When Elston claimed coverage, Capitol Indemnity disclaimed any duty to indemnify or defend. Capitol Indemnity sought a declaratory judgment that it had no such duty. The district court ruled that Capitol Indemnity had an obligation to defend Elston in the Lorillard litigation. Capitol Indemnity appeals.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Manion affirmed. The Court addressed the policy provisions. At issue was an exclusion to the policy's coverage of "advertising injury." The policy excluded from coverage any injury arising out of the publication of “material” whose first publication took place before the policy period. Capitol Indemnity argued that Elston's years of lawful sales of Lorillard cigarettes before the beginning of the policy term constituted a prior publication. The counterfeit packaging was nearly identical to the Lorillard packaging. The Court rejected Capitol Indemnity’s position. It interpreted the term "material" in the policy exclusion to refer to the same wrongful material alleged in the complaint. Because there was no allegation of counterfeit sales prior to the policy term, there was no prior publication. Under Illinois law, Capitol Indemnity is required to defend Elston if the underlying complaint potentially falls within the scope of coverage. Having found that the prior publication exclusion does not apply, the Court affirmed the district court’s finding of a duty to defend.

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THOROGOOD V. SEARS, ROEBUCK & CO.  (October 28, 2008)

Steve Thorogood bought a dryer at Sears, Roebuck & Co. (“Sears”). Sears’ point-of-sale literature stated that the drum inside the dryer was made of stainless steel. In fact, part of Sears’ dryer drum was made of a coated, non-stainless steel. Thorogood filed a class action on behalf of himself and other purchasers of the dryer in 28 states and the District of Columbia. He alleged that he thought that the entire drum was made of stainless steel, that the non-stainless part rusted and stained his clothes, and that Sears’ advertising was deceptive. Thorogood based his claim on the Tennessee Consumer Protection Act. The district court certified the class. Sears appeals.

In their opinion, Judges Posner, Kanne, and Evans reversed and remanded for decertification. The panel started by observing some of the benefits of the class action procedure, as well as some of its downsides. One particular downside of some class actions, according to the Court, is the undermining of federalism. Thorogood’s case presented a good example. Thorogood was attempting to litigate 500,000 claims of residents of 29 jurisdictions in one federal court. These claims would be “wrested from the control” of those jurisdictions and their laws. The Court was troubled that certain procedural rules that govern the relief to which those 500,000 claimants would be entitled would be ignored. Specifically, for example, Tennessee’s consumer protection act does not allow a class action in state court. Although the Court recognized that the Tennessee rule did not prevent the class action from proceeding under federal law, the expansion of available relief did trouble the Court. The Court’s concerns led it to approach the class action aspect of the case with caution.

The Court found the case to be a particularly poor candidate for class action treatment. Not only did common issues of fact not predominate over individual issues of fact, the Court stated that there were no common issues of fact. Thorogood’s concerns about rust were “idiosyncratic.” The Court doubted that any of the other 500,000 claimants believed as he did. Each class member would have to individually establish, at a hearing, his or her: a) understanding of the meaning of the stainless steel advertising, b) reliance on the advertising’s meaning that the stainless steel drum would prevent rust stains, and c) damages. Since there was no common, single understanding of the advertising, the class should not have been certified. The Court did note a certain difficulty in determining individual relief as well. That difficulty could have been managed through an aggregate class relief approach, had the case been otherwise suitable for class treatment.  

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