Personal jurisdiction link in a blockchain world

Authors: Joy Langford, Allison Goodman Gold Publication | November 5, 2018
Personal jurisdiction link in a blockchain world

Since the inception of cryptocurrencies and blockchain technology, market participants and their attorneys have wondered how the US personal jurisdiction analysis would play out in a blockchain world. Last week, a US District Court Judge in the Southern District of New York provided some reassurance to market participants concerned about being able to bring claims involving blockchain-based transactions against foreign entities in US courts.

In Alibaba Group Holdings Limited v. Alibabacoin Foundation, No. 18-CV-2897 (JPO), 2018 WL 5118638 (S.D.N.Y. Oct. 22, 2018), plaintiff, the parent company of a large “online and mobile commerce group of businesses,” argued that defendants, a “group of Dubai- and Belarus-based companies and individuals involved in the development and marketing of a novel cryptocurrency known as AlibabaCoin or Alibaba Coin,” were impermissibly using plaintiff’s trademarks. Id. at *1. Plaintiff asked the Court to enjoin defendants from “using Alibaba’s protected marks ‘anywhere in the United States, including in connection with the provision of products or services to internet users located in the United States’ during the pendency of [the] suit.” Id.

The Court granted plaintiff’s initial motion for a temporary restraining order, but subsequently denied plaintiff’s motion for a preliminary injunction, concluding plaintiff had “failed to carry its burden of establishing a reasonable probability that the Court has personal jurisdiction” over defendants. Id. at *2 (punctuation omitted). The Court did, however, permit Alibaba to take limited jurisdictional discovery and left open the possibility of Alibaba renewing its motion. Id. Upon completion of the limited jurisdictional discovery, Alibaba renewed its motion for a preliminary injunction, pointing to evidence that at least one email address associated with three transactions appeared to belong to a New York resident and over one thousand New York users had visited Defendants’ website.

The Court began its analysis stating it could assert personal jurisdiction over defendants if “such an exercise comports with both (1) the state’s long-arm statute, N.Y. C.P.L.R. § 302(a); and (2) the Due Process Clause of the U.S. Constitution.” Id. at *3 (citation omitted). As respects the New York long-arm statute, the Court noted the statute permits New York courts to “exercise personal jurisdiction over any non-domiciliary that transacts any business within the state,” and that “proof of one transaction in New York is sufficient to invoke jurisdiction under this provision, so long as the transaction was purposeful and there is a substantial relationship between the transaction and the claim asserted.” Id. (citation and quotations omitted).

Defendants argued their sales “did not occur in the United States because they consist of ledger entries made in Minsk, Belarus, following observation of changes in blockchain data outside the United States.” Id. at *3 (quotations omitted). The Court rejected Defendants’ argument, analogizing to online debit card purchases and stating: “When an individual uses her debit card to make an online purchase from an out-of-state vendor, for example, it would strain common usage to say that the transaction occurs at the potentially remote location of the servers that process the buyer’s banking activities and not at the location where the buyer clicks the button that commits her to the terms of sale.” Id.

Defendants next argued Alibaba had not established Defendants’ “role in the transactions at issue was purposeful.” Id. at *4 (citation and quotations omitted). Defendants contended they should not be subject to personal jurisdiction simply because “unbeknownst to them, New York-based users of their website chose to effectuate cryptocurrency sales by initiating data exchanges with Defendants’ out-of-state electronic ‘apparatus.’” Id. at *4 (punctuation omitted). The Court rejected Defendants’ argument, stating it was contrary to decisions finding personal jurisdiction where foreign defendants sold intangible goods and services online to in-state residents. Id. (citations omitted).

Defendants’ final argument was that “even if its New York-based transactions could support personal jurisdiction under the long-arm statute for some purposes, the trademark and false-advertising claims that Alibaba presse[d]…lack[ed] the requisite ‘substantial relationship’ with those transactions.” Id. at *4 (citation omitted). The Court rejected this argument as well, reasoning: “Given Alibaba’s evidence that over one thousand New York users had visited Defendants’ website by mid-June 2018…, Alibaba has established a reasonable probability that the transactions at issue here are not isolated instances, but rather a part of a larger business plan that involves the purposeful marketing and sale of AlibabaCoin to, among others, New York consumers.” Id. (citation and quotations omitted). The Court further explained:

Ultimately, by adducing evidence that a New York resident has purchased AlibabaCoin through Defendants’ website, Alibaba has demonstrated a reasonable probability that Defendants have transacted business in New York within the meaning of New York’s long-arm statute.

Id. (footnote omitted).

As respects the required Due Process analysis, the Court noted Alibaba argued only for specific (and not general) personal jurisdiction and further stated that where the “prerequisites to the application of New York’s long-arm statute are satisfied, the constitutional requirements of personal jurisdiction are likewise satisfied.” Id. at *5 (citations and quotations omitted). Further, even if satisfaction of the New York long-arm statute did not mean Due Process also was satisfied, the Court stated, the Due Process reasonableness requirement was met because: “Defendants have presented no evidence demonstrating that, in this modern age and for litigants with obvious familiarity with internet communication, subjecting them to litigation in New York would present so great an inconvenience as to constitute a deprivation of due process… New York has a clear interest in protecting in-state consumers from confusion resulting from the misappropriation of trademarks or trade dress… and Alibaba likewise has an interest in safeguarding its corporate reputation among potential New York customers or investors.” Id. (citations and punctuation omitted).

Although the district Court did not issue a definitive ruling that it had personal jurisdiction over defendants, it did hold that there was a “reasonable probability” that the Court had personal jurisdiction over defendants. Id. at *6. Whether this conclusion holds up on a final determination of the merits or on appeal remains to be seen. Also remaining to be seen is what mechanisms will be available to the Court (or to Alibaba) to enforce any rulings or final judgment the Court enters against the foreign defendants.

Read the full decision.


Contacts

Joy Langford

Joy Langford

Washington, DC
Allison Goodman Gold

Allison Goodman Gold

Washington, DC