Toys "R" Us, Inc. v. Step Two, S.A.

• Decision Date: 27 January 2003
• Docket Number: No. 01-3390.,01-3390.
• Citation: 318 F.3d 446
• Parties: TOYS "R" US, INC.; Geoffrey, Inc., Appellants v. STEP TWO, S.A.; Imaginarium Net, S.L.
• Court: U.S. Court of Appeals — Third Circuit

318 F.3d 446

TOYS "R" US, INC.; Geoffrey, Inc., Appellants v. STEP TWO, S.A.; Imaginarium Net, S.L.

No. 01-3390.

United States Court of Appeals, Third Circuit.

Argued: September 12, 2002.

Filed: January 27, 2003.

COPYRIGHT MATERIAL OMITTED

Paul Fields (Argued), Robert S. Weisben, Heather C. Wilde, Darby & Darby, New York, NY, for Appellants.

Susan H. Farina, Mark G. Matuschak (Argued), Elizabeth M. Reilly, Hale & Dorr, Boston, MA, for Appellees.

Before ALITO and FUENTES, Circuit Judges, and OBERDORFER,^* District Judge.

OPINION OF THE COURT

OBERDORFER, District Judge.

Toys "R" Us, Inc. and Geoffrey, Inc. ("Toys") brought this action against Step Two, S.A. and Imaginarium Net, S.L. ("Step Two"), alleging that Step Two used its Internet web sites to engage in trademark infringement, unfair competition, misuse of the trademark notice symbol, and unlawful "cybersquatting," in violation of the Lanham Act, 15 U.S.C. § 1501 et seq., and New Jersey state law. The District Court denied Toys' request for jurisdictional discovery and, simultaneously, granted Step Two's motion to dismiss for lack of personal jurisdiction. We hold that the District Court should not have denied Toys' request for jurisdictional discovery. We therefore reverse and remand for limited jurisdictional discovery, relating to Step Two's business activities in the United States, and for reconsideration of personal jurisdiction with the benefit of the product of that discovery, with a view to its renewing administration of the case, in the event the District Court finds that it does have jurisdiction.

I.

Toys, a Delaware corporation with its headquarters in New Jersey, owns retail stores worldwide where it sells toys, games, and numerous other products. In August 1999, Toys acquired Imaginarium Toy Centers, Inc., which owned and operated a network of "Imaginarium" stores for the sale of educational toys and games. As part of this acquisition, Toys acquired several Imaginarium trademarks, and subsequently filed applications for the registration of additional Imaginarium marks. Prior to Toys' acquisition, the owners of the Imaginarium mark had been marketing a line of educational toys and games since 1985 and had first registered the Imaginarium mark with the United States Patent and Trademark Office in 1989. Toys currently owns thirty-seven freestanding Imaginarium stores in the U.S., of which seven are located in New Jersey. In addition, there are Imaginarium shops within 175 of the Toys "R" Us stores in the U.S., including five New Jersey stores.

Step Two is a Spanish corporation that owns or has franchised toy stores operating under the name "Imaginarium" in Spain and nine other countries. It first registered the Imaginarium mark in Spain in 1991, and opened its first Imaginarium store in the Spanish city of Zaragoza in November 1992. Step Two began expanding its chain of Imaginarium stores by means of a franchise system in 1994. It has registered the Imaginarium mark in several other countries where its stores are located. There are now 165 Step Two Imaginarium stores. The stores have the same unique facade and logo as those owned by Toys, and sell the same types of merchandise as Toys sells in its Imaginarium stores. However, Step Two does not operate any stores, maintain any offices or bank accounts, or have any employees anywhere in the United States. Nor does it pay taxes to the U.S. or to any U.S. state. (JA 135-36.) Step Two maintains that it has not directed any advertising or marketing efforts towards the United States. The record does, however, indicate some contacts between Step Two and the United States: for example, a portion of the merchandise sold at Step Two's Imaginarium stores is purchased from vendors in the United States. Additionally, Felix Tena, President of Step Two, attends the New York Toy Fair once each year. (JA 314.)

In the mid-1990s, both parties turned to the Internet to boost their sales. In 1995, Imaginarium Toy Centers, Inc. (which Toys later acquired) registered the domain name and launched a web site featuring merchandise sold at Imaginarium stores. In 1996, Step Two registered the domain name , and began advertising merchandise that was available at its Imaginarium stores.¹ In April 1999, Imaginarium Toy Centers registered the domain name , and launched another web site where it offered Imaginarium merchandise for sale. In June 1999, Step Two registered two additional "Imaginarium" domain names, and . In May 2000, Step Two registered three more domain names: , , and .² Step Two's web sites are maintained by Imaginarium Net, S.L., a subsidiary of Step Two, S.A. formed in 2000.

At the time this lawsuit was filed, four of the aforementioned sites operated by Step Two were interactive, allowing users to purchase merchandise online.³ When buying merchandise via Step Two's web sites, purchasers are asked to input their name and email address, as well as a credit card number, delivery address, and phone number. At no point during the online purchase process are users asked to input their billing or mailing address. The web sites provide a contact phone number within Spain that lacks the country code that a user overseas would need to dial. Moreover, the prices are in Spanish pesetas and Buros, and goods ordered from those sites can be shipped only within Spain. Step Two's Imaginarium web sites are entirely in Spanish.

Visitors to the four sales-oriented Step Two web sites may elect to receive an electronic newsletter, or sign up for membership in "Club Imaginarium," a promotional club with games and information for children. Each registrant for Club Imaginarium is required to provide a name and an email address. At the time this suit was filed, there was a section for "voluntary information," including the registrant's home address, on the Club Imaginarium registration page. This optional portion of the page required users to choose from a pull-down list of Spanish provinces, and did not accommodate mailing addresses in the United States.⁴ After joining Club Imaginarium via the web site, registrants receive an automatic email response.

Mr. Tena submitted an affidavit stating that Step Two had not made any sales via its web sites to U.S. residents. (JA 136.) Toys, however, adduced evidence of two sales to residents of New Jersey conducted via Step Two's Imaginarium web sites. These purchases were initiated by Toys. Lydia Leon, a legal assistant in the Legal Department of Geoffrey, Inc., made the first purchase. Ms. Leon, a resident of New Jersey, purchased a toy via on January 23, 2001. (JA 167-69.) The second purchase was made in February 2001 by Luis M. Lopez, an employee of Darby & Darby P.C., attorneys for Toys. Mr. Lopez is also a resident of New Jersey, and accessed to make his purchase. (JA 207-14.)

For both of these sales, the items were shipped to Angeles Benavides Davila, a Toys employee in Madrid, Spain; Ms. Benavides Davila then forwarded the items to the offices of Geoffrey, Inc. in New Jersey. Both purchases were made with credit cards issued by U.S. banks. Additionally, both purchasers received in New Jersey an email confirming their purchases, and a subsequent email with a login and password to access Club Imaginarium. One of the two purchasers also separately registered for Club Imaginarium, exchanged emails with a Step Two employee about his purchase, and received a copy of an email newsletter from Step Two. Aside from these two sales, there is no evidence in the record of a sale to anyone in the United States. After learning of these two sales, Mr. Tena submitted a second affidavit stating that his company does not know where its purchasers reside, as that information is not apparent from a purchaser's email address, and Step Two keeps records only of shipping addresses. (JA 310-11.)

On February 7, 2001, Toys filed the instant complaint against Step Two in federal district court. Step Two moved to dismiss for lack of personal jurisdiction on April 10, 2001. Toys opposed the motion, and requested discovery on the issue of jurisdiction. After hearing oral argument on July 30, 2001, the District Court denied the discovery request and granted the motion to dismiss. Toys appealed these decisions on August 28, 2001.

II.

In the following discussion, we first consider the standard for personal jurisdiction based upon a defendant's operation of a commercially interactive web site, as articulated by courts within this circuit and other Courts of Appeals. In light of that standard and the arguments presented in the proceeding below, we then assess the propriety of the District Court's denial of jurisdictional discovery.

A. Personal Jurisdiction Based on the Operation of a Web Site

The advent of the Internet has required courts to fashion guidelines for when personal jurisdiction can be based on a defendant's operation of a web site. Courts have sought to articulate a standard that both embodies traditional rules and accounts for new factual scenarios created by the Internet. Under traditional jurisdictional analysis, the exercise of specific personal jurisdiction requires that the "plaintiff's cause of action is related to or arises out of the defendant's contacts with the forum." Pinker v. Roche Holdings Ltd., 292 F.3d 361, 368 (3d Cir.2002). Beyond this basic nexus, for a finding of specific personal jurisdiction, the Due Process Clause of the Fifth Amendment requires (1) that the "defendant ha[ve] constitutionally sufficient `minimum contacts' with the forum," id. (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985)), and (2) that "subjecting the defendant to the court's jurisdiction comports with `traditional notions of fair play and substantial justice,'" id. (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945)). The first requirement, "minimum contacts," has been defined as "`some act by which the...