I spoke recently with the owner of an Irish company that sells its products online to purchasers in the US and other countries. The US isn’t a true focus of this company’s expansion efforts, but the US market is a nice added benefit to the company’s revenue stream. They don’t have a US-specific website, but if you go to their order page you can enter a US address for delivery. In discussing their sales efforts, I asked what the company does in terms of US-focused terms/conditions of sale and related agreements. Nothing, I was told, because the company isn’t ‘doing business’ in the United States. In a limited way, that answer is correct. But, that answer also is wrong, and dangerously so.
This post won’t talk about the tax issues associated with permanent establishment—maybe I’ll get to that in a later post. This post will briefly consider the question of whether an Irish/NI company with little to no physical presence in the US could be subject to the jurisdiction of a US court for a products liability or another claim. I’ll also suggest some risk mitigation strategies.
Irish and Northern Irish companies should be aware of the stream of commerce theory. This theory proposes that a foreign company who places goods into the stream of commerce benefits economically from the eventual sale or distribution in a state and, thus, avails itself of that state’s jurisdiction (and the jurisdiction of Federal courts as necessary). Plaintiff’s lawyers have successfully used this theory to subject foreign companies to the jurisdiction of US courts on a variety of claims.
It’s not always necessary that the commercial activity in question specifically target a specific state—courts, at times, have found jurisdiction where a foreign company ‘generally’ sells to US customers. Selling from non-US websites isn’t a shield either—although website-based jurisdictional determinations are on a sliding scale, having a site that allows US purchasers to buy your products (even if the products are made/sourced outside the US, the site is hosted outside of the US, and orders are fulfilled by mailing to the US) has been held to be sufficient contacts to confer jurisdiction under the stream of commerce theory. In other words, if you sell products to the US market, you need to consider whether your activity is subject to the jurisdiction of US courts—and what to do about it.
If you get sued in the US, you can fight the jurisdictional question. You can argue the substance of the case. Even if you win on either point, you’re still out the time and expense of hiring a US lawyer to argue your case. You could ignore the US case but you run the risk of having a US-based plaintiff enforce a default judgment in Irish or NI courts (and that enforcement action may not speak to the merits of the underlying case).
Irish and NI companies should attack this issue head-on. The most important way to mitigate the risk of being subject to the jurisdiction of a US court is to consistently use “US-style” terms and conditions/agreements that you develop. Don’t ask your customer to develop them, and don’t assume that state law will help you out in the event you have no agreement. Those terms and conditions are a contract that can, among other things, specify the substantive law applicable to the underlying transaction as well as the venue for any dispute. It’s not a bullet-proof answer but terms and conditions, in general, are respected and enforced by US courts.
In tandem with the consistent use of terms and conditions, Irish and NI companies should consider the appropriate corporate affiliate or distributorship structure for its efforts. Irish and NI companies can protect themselves by selling through an independent distributor (not to the exclusion of proper terms and conditions, though). Irish and Northern Irish companies may form a US subsidiary to ‘handle’ their sales activities, but should be mindful to (i) fully observe all US corporate formalities; and (ii) beware of the single entity concept and the risks of agency (wherein, if the Irish/NI parent exercises too much control over the US affiliate, a US court will disregard the US affiliate as just a part of a single entity). Last but not least, maintain appropriate insurance.
Smart exporting suggests the consistent use of US-style terms and conditions, and other contracts/agreements. It’s a small front-end investment that can avoid significant expense later. With some thought, Irish and NI companies can access the US market without risking their own investment or capital.