Generally, suing a company in state court is fairly easy. For the state to exercise jurisdiction over the company, the company must have “minimum contacts” with the state. This usually means that it has employees in the state, or conducts a large amount of business there. The company can also easily be sued in the state in which it is incorporated, or where it has its principal place of business. Many online companies also have a clause in their user contracts stating where any disputes will be heard. Facebook, for example, directs all legal disputes to courts in Santa Clara, California.
While this “minimum contacts” test is fairly easy to apply to companies that do their business in the physical world, it becomes far more complicated when the company’s business exists solely, or primarily, in cyberspace. This is especially true when a lawsuit arises out of a company’s online activities. Many online companies also have a clause in their user contracts stating where any disputes will be heard. Facebook, for example, directs all legal disputes to courts in Santa Clara, California.
When the business of the company is not physically embodied in any location, it is far more difficult to determine what, if any, contacts it has with a given state. This makes suing a web-based company a complicated endeavor.
If a user logs onto a company’s website whose server is located in another state or country, it is difficult to say if the website has directed any activity to the user’s state, if the user decides to sue the web-based company.
The general test for determining if a state has jurisdiction over a web-based company is the “active/passive” distinction. A website is “active” if the user interacts with it, such as by providing personal information and/or money in exchange for products or services. A passive website is more like a one-way conduit; the user goes to a website, reads text, looks at pictures or videos with no interaction between the user and the website.
If a user accesses an active website, and suffers some legal wrong as a result, it will be far easier for him or her to sue that website in the user’s state. A passive website will be far more difficult to sue.
Making false statements about someone in print is a crime known as libel. Libel, even that which occurs online, can be prosecuted criminally or civilly. There are precedents of a court hearing a case of online libel, even though the website is based in another state. Although is the website was "passive," the website in question committed an injury against the plaintiff, and in doing so made itself liable.
Since most web-based company lawsuits are interstate affairs, they taken place in more than one state, it would be wise to find an experienced business lawyer as any area of law involving more than one state can become complex very quickly.