Affiliates Sufficient for Jurisdiction over Principal


Recently, the United States District Court for the District of Maryland heard arguments in the matter of Beyond Systems v. Keynetics. The Plaintiff, Beyond Sysytems, a Maryland Internet service provider, alleged that Keynetics, based in Idaho, is liable for the bulk e-mailing practices of its affiliates, thus conferring personal jurisdiction over Keynetics in Maryland. Keynetics maintains the “Clickbank Marketplace,” described as a “virtual mall” where individual affiliates can choose electronic products and services to market on their websites, mailing lists, or other marketing methods.


Beyond Systems provided materials showing Keynetic’s ability to control and influence its affiliates, who were based in locations all over the world, including Maryland. Affiliates were required to sign an agreement allowing Keynetics to terminate the affiliate memberships at any time. Affiliates were further subject to numerous restrictions as to payments, marketing practices, and other requirements. Beyond Systems also provided archived copies of the Clickbank website that showed Keynetics “featuring” products promising to “e-mail millions without spamming” and similar products available to promote in the Clickbank Marketplace .


Keynetics defended itself by aligning itself as a separate entity whose affiliates were simply independent contractors. Keynetics maintained that it was solely a clearinghouse where producers and marketers could meet. While all of the products sold in the Clickbank Marketplace were required to use Keynetics’ patented payment processing system, hosted on Keynetics web servers, Keynetics attempted to show that it had no control over the process via which affiliates marketed products found in the marketplace. Keynetics also noted that it occasionally suspended or terminated affiliates who were found to be spamming.


Beyond Sysytems alleged that Keynetics was subject to both general and specific jurisdiction in Maryland.


The Court found that Keynetics’ control over its affiliates was more substantial than an independent contractor relationship based on the control exerted via the agreements and the terminations. The fact that Keynetics “encouraged” certain products was also relevant to the decision, because it showed Keynetic's ability to direct, formally or not, the marketing behavior of its affiliates. This was sufficient to find personal jurisdiction over Keynetics based on an agency-principal relationship. Given that the various affiliates had sent hundreds of thousands of e-mails promoting the Clickbank marketplace into Maryland, Keynetics could be hailed into court in Maryland.


Because Keynetics was already subject to jurisdiction based on the specific jurisdiction analysis, the Court did not reach the question of general jurisdiction.


Bottom Line: The Court’s decision to maintain jurisdiction over Keynetics was correct. Failing to do so would have meant that anyone inundated with spam from Keynetics affiliates would have had to bear the burden of traveling to Idaho to maintain a claim against Keyentics. While personal jurisdiction was deemed proper, the Plaintinff still has a long way to go to prove Keynetics’ liability in one of the most defendant friendly circuits in the nation.

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