Blue Note Web suit loses appeal

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The mere establishment of a Web site in one state–without engaging in activities such as Internet commerce–does not expose the host to lawsuits filed in other states, a New York federal appeals court has ruled.

The ruling follows a separate decision in Minnesota last Friday, which stated that the state’s attorney general has legal standing to sue the owner of a Nevada Web site that allows Minnesota residents to gamble online. (See related story)

Attorneys watched the New York case closely because it was the first to test whether the mere presence of Web site in one state is grounds for being sued in another. As demonstrated by the Minnesota ruling, however, the New York decision, handed down yesterday by the U.S. Court of Appeals for the Second Circuit, is not the last word on the matter.

Yesterday’s opinion upholds a lower court’s ruling, tossing out a trademark lawsuit brought by a popular jazz nightclub in Manhattan called the Blue Note. The establishment objected to a Missouri man’s Web site that advertised a separate jazz spot by the same name.

The Internet and electronic commerce subject companies to increased liability for trademark infringement. In the physical world, such liability is often limited by geographical boundaries. Hence, a restaurant called Joe’s may exist in many different locations. Because litigation is so expensive, Internet companies have feared that their mere presence on the Web may expose them to lawsuits filed anywhere in the world.

The Blue Note in New York sued the Missouri club of the same name for trademark infringement. But because the Web site didn’t engage in “interstate commerce,” the case was rightfully dismissed, the appellate court ruled yesterday.

“The acts giving rise to [the plaintiff’s] lawsuit–including the authorization and creation of [the defendant’s] Web site, the use of the words ‘Blue Note’ and the Blue Note logo on the site…were performed by persons physically present in Missouri and not in New York,” the three-judge panel held. “Even if [plaintiff] suffered injury in New York, that does not establish a tortious act in the state of New York.”

Before the decision, “there was uncertainty as to whether people could be sued just about anywhere if they put up a Web site that somebody somewhere else objected to,” said Bob Bourque, an attorney at Simpson Thacher & Bartlett, who represented the defendant in the case. “What this opinion does is lay that concern to rest a great deal.”

But he and other attorneys were quick to add that it was unlikely it would apply to the vast majority of jurisdictional disputes that arise on the Internet.

The Blue Note Cyberspot merely provides information about the Missouri club and even requires patrons reserving tickets to pick them up in person. Most Web sites peddling wares on the Internet, on the other hand, attempt to bridge geographical boundaries by distributing their goods over the Net, U.S. mail, or other means.

“What our clients are wanting to do is sell over the Internet to anyone,” said Eric Schlachter, an attorney at Cooley Godward who counsels Internet companies. He added there was a sharp difference between the Blue Note case and the case involving the online gambling service, known as Wager Net. In that case, the Web site allowed visitors to gamble wherever they happened to be.

“[Wager Net] would have been a lot more like Blue Note if they had said, ‘We are advertising our casino. However, you can only gamble if you come to our territory,'” Schlachter said.

Alex Gigante, an in-house attorney with publisher Penguin Putnam, agreed that the ruling would have minimal impact on Internet disputes. “It’s one circuit involving one case that had very specific facts, and it doesn’t necessarily set a rule in those cases where it can be shown that the defendant’s Web site had a more direct impact in the jurisdiction the plaintiff is trying to choose,” said Gigante, who writes about Internet law.

At least one attorney specializing in Internet issues called the ruling “very important” because it is one of the only appellate court decisions dealing with Internet jurisdiction.

“We have a whole bunch of lower court opinions [on Net jurisdiction], most of which say that jurisdiction is very widespread, and you can be hauled into court almost anywhere for your activity on the Web,” said Dan Burk, a professor at Seton Hall University School of Law. “Some people may try to dismiss it on the facts and say it’s very narrow, but the authority of the higher court is going to be very compelling.”

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Tory donor Richard Desmond is now bidding to run the National Lottery

The Tory donor at the centre of a ‘cash for favours’ row should not get special treatment in his bid to run the National Lottery, Labour will tell gambling watchdogs.

Richard Desmond is expected to challenge Camelot for the operating licence when the franchise renewal process begins in the autumn.

But the Government is facing questions over its closeness to the billionaire after Housing Secretary Robert Jenrick rushed through approval of a £1billion property development after sitting next to him at a Tory fundraising dinner.

Labour have pleaded that Tory donor Richard Desmond (pictured right next to Prime Minister Boris Johnson at the Savoy) is not given special treatment in his bid to run the National Lottery

Labour have pleaded that Tory donor Richard Desmond (pictured right next to Prime Minister Boris Johnson at the Savoy) is not given special treatment in his bid to run the National Lottery

Mr Desmond, who donated £12,000 to the party in January, two weeks after receiving planning permission, was also pictured with Boris Johnson at the event and attended a drinks party in No 10 last year.

Jo Stevens, Labour’s culture spokesman, will meet the Gambling Commission next month before it launches the process to award the next lottery licence. 

She will say a ‘fit and proper person’ must be found to take on such an ‘important and lucrative’ role. 

‘There are serious questions to answer about the cosy relationship between Richard Desmond and the Government,’ she said.

‘It is of real concern that Mr Desmond is bidding for the licence for the national lottery – one of the most profitable draws in the world.

With 44,000 retail outlets across the country and between 15 and 45million tickets sold each draw, the responsibility involved in running it is huge.’

Camelot has run the National Lottery since its creation in 1994 and last year generated a record £7.9billion in ticket sales.

Its licence is due to expire in 2023.

Mr Desmond, 68, has announced his intention to bid for the next licence and called for it to be returned to British hands.

Camelot was acquired for £389million by the Ontario Teachers’ Pension Plan in 2010.

Mr Desmond has run the rival Health Lottery since 2011 – a collection of 12 local society lotteries that raise funds for health-related good causes.

He says he sought to persuade Mr Johnson to change gambling rules so that he could raise the jackpot prize for his lottery to £1million. It is officially capped at £400,000.

Yesterday it was reported that he hired a PR firm co-owned by Ben Elliot, the co-chairman of the Conservative Party, to help lobby for the change.

Mr Desmond’s company Northern and Shell employed Hawthorn Advisors in January when Mr Elliot was a director of company. 

Hawthorn said it worked with Mr Desmond ‘for a brief period between January and March 2020 on the Health Lottery’s campaign to increase the jackpot’.

It said that Mr Elliot had no contact with clients and had stood down as a director in April, putting his shares in a trust to avoid a conflict of interest.

No 10 yesterday refused to answer questions about the extent of contacts between Mr Johnson and Mr Desmond.

In an interview with the Daily Mail last week, the billionaire played down their relationship, saying: ‘I’ve met the guy half a dozen times over ten years.’

Downing Street did not comment on questions about Mr Desmond (right)'s relationship with the Prime Minister (left) but the tycoon did reveal he has met Mr Johnson 'half a dozen times over ten years'

Downing Street did not comment on questions about Mr Desmond (right)’s relationship with the Prime Minister (left) but the tycoon did reveal he has met Mr Johnson ‘half a dozen times over ten years’

Mr Jenrick has been under pressure to resign for approving Mr Desmond’s development at the former Westferry printing works in east London.

The decision, which was later quashed, came in time to save the billionaire from the threat of a £45million council levy.

In a text exchange with Mr Jenrick, the businessman said: ‘We don’t want to give Marxists loads of doe [sic]’.

Mr Desmond, who has an estimated £2billion fortune, started out in 1974 as a publisher, becoming a porn baron with the purchase of Penthouse UK in 1983.

A decade later he launched celebrity magazine OK!

before buying the Daily Express and Daily Star in 2000 and Channel 5 in 2010.

Mr Desmond sold the broadcaster four years later and disposed of his newspaper and magazine titles in 2018.

He now focuses on his lottery and property developments.

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