A .com domain name increases a company's exposure to foreign lawsuits, rules ECJ

Out-Law News | 10 Dec 2010 | 2:49 pm | 4 min. read

Companies using a .com or .eu domain name, or displaying international codes for phone numbers, are more likely to be 'directing' their activities at foreign consumers, affecting where they can sue or be sued, the Court of Justice of the EU has ruled.

Consumers can demand that contract disputes are heard in the courts of their own country if a company in another EU Member State has directed its business at consumers in that state or all EU Member States.

The ECJ said, though, that merely operating a website which foreigners can access is not enough to qualify as a company directing its activities to other countries.

"It does not follow ... that the words ‘directs such activities to’ must be interpreted as relating to a website’s merely being accessible in Member States other than that in which the trader concerned is established," said the ruling

The ECJ ruled on two cases together which both concerned the use of the internet to book or reserve services abroad.

In one case, Austrian resident Peter Pammer sought a refund from German shipping company Reederei Karl Schlüter for a voyage that he booked but did not take. He argued that the ship did not match the website's description. The shipping company said his action should be heard in Germany, not Austria.

In the other case, German resident Oliver Heller booked rooms in Hotel Alpenhof in Austria but left without paying his bill due to complaints about the accommodation. The hotel tried to sue him in an Austrian court and Heller argued that any action should be in Germany.

An EU Regulation of 2001 on jurisdiction, known as the Brussels I Regulation, says that, generally, a consumer can sue a foreign business either in his own Member State or in the business's, while a business must sue a consumer in the consumer's Member State. This consumer protection will apply in most cases, but only when a trader 'directs' its activities to the EU Member State the consumer lives in or to several countries including that Member State.

In the two cases it was claimed that because the consumers used the internet to access the foreign operators' services, those services were directed to the consumers' countries. The ECJ was asked to determine the criteria by which a trader's activity on its website or on an intermediary's site can be said to be directing its activity to a Member State.

The ECJ said that the 2001 Regulation on jurisdiction had loosened the law in response to changing technology so that it would apply to more businesses.

"This change, which strengthens consumer protection, was made because of the development of internet communication, which makes it more difficult to determine the place where the steps necessary for the conclusion of the contract are taken and at the same time increases the vulnerability of consumers with regard to traders’ offers," said its ruling.

Having said that the mere fact of having a website does not count as directing activities to every country from which it is accessible, the ECJ outlined the factors that do point towards activity being directed at foreign countries.

"The trader must have manifested its intention to establish commercial relations with consumers from one or more other Member States, including that of the consumer’s domicile," said the ruling. "Clear expressions of such an intention on the part of the trader include mention that it is offering its services or its goods in one or more Member States designated by name."

"The same is true of the disbursement of expenditure on an internet referencing service to the operator of a search engine in order to facilitate access to the trader’s site by consumers domiciled in various Member States, which likewise demonstrates the existence of such an intention," it said.

The ECJ listed factors that, "possibly in combination with one another," are capable of demonstrating the existence of an activity 'directed to' a consumer's Member State.

"The following features ... would, subject to the relevant national court ascertaining that they are present, constitute evidence of an activity ‘directed to’ one or more other Member States," it said. "The international nature of the activity at issue, such as certain tourist activities; mention of telephone numbers with the international code; use of a top-level domain name other than that of the Member State in which the trader is established, for example ‘.de’, or use of neutral top-level domain names such as ‘.com’ or ‘.eu’; the description of itineraries from one or more other Member States to the place where the service is provided; and mention of an international clientele composed of customers domiciled in various Member States, in particular by presentation of accounts written by such customers."

"If ... the website permits consumers to use a different language or a different currency, the language and/or currency can be taken into consideration and constitute evidence from which it may be concluded that the trader’s activity is directed to other Member States," it said.

According to the ruling, then, if a company operates websites at addresses using other country's top level domains, such as .uk when used by a French company, or if it uses non-geographic top level domains such as .com, this indicates a directing of activity at other countries.

The ruling said, though, that the mere presence of " email address or geographical address, or of its telephone number without an international code " does not prove that the site is directed outside of its country's borders because these details are needed for domestic, as well as international, customers.

The ruling also warned companies that the nature of sites run by agents or business partners could also determine whether consumers can force legal action to be taken in their home country.

"The fact that the website is the intermediary company’s and not the trader’s site does not preclude the trader from being regarded as directing its activity to other Member States, including that of the consumer’s domicile, since that company was acting for and on behalf of the trader," it said. "It is for the relevant national court to ascertain whether the trader was or should have been aware of the international dimension of the intermediary company’s activity and how the intermediary company and the trader were linked."