Jurisdiction in e-business

Jurisdiction

Jurisdiction is a legal term describing which law is in effect at a given period of time and which court’s decisions will be legally binding. jurisdiction issues arise when parties dispute a contract and try to decide which court has jurisdiction over it. The problem is exacerbated by the fact that in an e-business contract, the question of where the contract was formed becomes daunting.

Jurisdiction benefit in e business

The outcome of the dispute can differ materially if judged under a different set of rules, regulations and laws (Rowe, 1998).
The global reach of the Internet adds yet another layer of complexity:
determining jurisdiction over contracts with international elements.

The key issue of jurisdiction can be simply explained by comparing the spatial distinction of the legal world to the border-less nature of the Internet. The Internet empowers people to engage in e-business activities regardless
of geographical boundaries. In contrast, most of the laws governing contractual relationships, specifically those relating to Construction Law, are limited in one way or another to a certain geographical boundary.
One risk arising from the issue of jurisdiction is unanticipated foreign lawsuits. Foreign in this context means a different state or country. Although the laws regulating e-business vary, the general opinion of the courts imply
that companies engaged in activities or online advertising may have to defend lawsuits in different jurisdictions if those activities violate the local laws (Thelen Reid & Priest LLP, 1997).

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This may very well affect construction companies participating in e-business activities over the Internet, especially in areas such as intellectual property rights and distribution rights.
Companies with local or regional trademarks may find themselves infringing upon others’ trademarks when they advertise their products online. Advertising products on the Internet or engaging in e-business over
the Internet makes the product accessible globally and is not limited geographically, as trademarks are (Thelen Reid & Priest LLP). Similarly, there is a distinction between geographically based (local and regional) distribution
rights and distribution over the Internet through e-business activities.
Distribution of construction materials or products may have only local or regional distribution rights. Would e-business activity constitute a breach if the distribution rights of both the seller and the buyer are within the geographical boundaries? How about if the seller is within the geographical boundaries of the distribution rights and the buyer is outside; or vice versa?

Jurisdiction risks

  • A company can fail to protect its legal rights due to lack of familiarity with a foreign jurisdiction’s
    procedures or, in case of a dispute, where the parties disputing cannot agree on which court has jurisdiction. This is illustrated in the following example:

Jurisdiction example

Consider the case of an Architect, working out of California, employing an Engineering Consulting firm, working out of New York, for the design of a specialty component of a project in Michigan. The Architect and Consulting firm engage in an e-contract and they never physically meet; collaboration and submission of work is completed online. During construction it was discovered that the Consulting firm’s design was faulty and did not meet the Michigan code. The Architect deducts the value of the change from the firm’s pay, the firm is opposed to this and stops
working; a dispute arises.

The question is: which state law has jurisdiction over this dispute?

The issue of jurisdiction in this example may be even more challenging if the error was discovered after construction was complete and the different states involved have differing statutes of limitations and/ or statutes of repose. Enabled by online project collaboration systems, and e-business tools, the probability of occurrence of this risk is
on the rise. The situation is further compounded on global construction projects that involve team members from several countries.

Some of the jurisdiction risks can be avoided by adding choice of law, choice of forum, or arbitration clauses (Thelen Reid & Priest LLP).
Many risks, however, still exist even when such clauses are made part of the agreement. It is also important to note that not all choice of law and choice of forum provisions are enforced by courts (Gallagher, 2000). Is it a possibility that e-business solutions could be programmed to include those provisions and intelligent agents could be made to distinguish between those provisions that are enforceable and those that are not.