• by Ross Fadner , May 3, 2004

The 9th U.S. Circuit Court of Appeals will reconsider a ruling made by the District Court for the Northern District of California in September 2003 in favor of L.L. Bean versus Gator Corp.--now called Claria Corp.--which had filed a declaratory action against the Maine-based retailer.

Gator wanted the State of California to rule that the pop-up ads it serves don't infringe upon L.L. Bean's trademarks, or represent unfair competition, trade practices, or false advertising. The Calif.-based company filed the action after L.L. Bean had written a cease and desist letter to the company.

In September, The District Court in Northern California dismissed the case, with U.S. Magistrate Judge Maria Elena-James citing a lack of jurisdiction over the operations of Maine-based L.L. Bean. Later that month, a unanimous three-member panel from the 9th Circuit reversed Judge James' ruling.

Last Thursday, the decision was marked for official reconsideration by the 9th Circuit on the grounds that L.L. Bean does a significant amount of business in the state of California through its catalog, Web site, and telephone sales. The court found that "the nature of L.L. Bean's commercial presence in California is substantial enough that it approximates a physical presence," according to Dean A. Morehous, author of the Thelen Reid Report, a report put out by Thelen Reid & Priest LLP, attorneys at law.

The three-member panel ruling stated that L.L. Bean has a "'highly interactive'--as opposed to 'passive'--Web site, from which very large numbers of California consumers regularly make purchases and interact with L.L. Bean sales representatives."

The 9th Circuit will now reconsider the ruling en banc, which means that all the members of the appellate court will sit in on the ruling, as opposed to just three members, placing greater significance on the ruling. An "en banc" outcome could also help settle a multitude of outstanding legal disputes involving companies that sell their products all over the world through the Internet.

Judge Warren Ferguson, one of the panelists who reversed Judge James' previous decision, made the following statement in the panel's 17-page decision:

"With the advent of 'e-commerce,' businesses may set up shop, so to speak, without ever actually setting foot in the state where they intend to sell their wares. Our conceptions of jurisdiction must be flexible enough to respond to the realities of the modern marketplace."

According to the Thalen Reid Report's author, Judge Ferguson's words "ring ominously for online retailers"--and perhaps favorably for adware providers like Claria.