Small California Winery Cannot Be Sued in Wisconsin Based on “Passive” Web Site and Isolated Wisconsin Sales

March 11, 2010

In a recent federal court decision that has implications for all Wisconsin businesses, Judge Barbara Crabb ruled that Trek Bicycle Corporation could not sue California-based Trek Wine Company, LLC for trademark infringement in federal court in Wisconsin. The Court ruled that the small, family-owned California wine company did not have a sufficient connection to Wisconsin to be sued in this state. The Court did not rule on whether Trek Winery was infringing upon the “TREK” trademark.

Trademark Dispute Goes to Court
One of Wisconsin’s best-known companies, Trek Bicycle, sued Trek Winery in federal court in Wisconsin for infringing its federal trademarks to the word “TREK” after the California company refused to change its name or enter into a licensing agreement with Trek Bicycle. Trek Bicycle alleged that Trek Winery’s use of the name “Trek” in California and its shipment of small amounts of wine for sale in Wisconsin would cause customer confusion in the marketplace.

Trek Bicycle is one of the world’s largest manufacturers of bicycles and bicycle-related goods and services. It has over 1,600 dealers nationwide and sells its products and services in all 50 states. Trek Bicycle began using the trademark “TREK” on its goods and services in 1976. In 2003, Trek Bicycle licensed the name “Trek Travels” to a company that offers bicycling vacations around the world, including vacations in California’s wine country.

Trek Winery was formed in 2007 and is owned by a husband and wife—the only employees of the business. The business is based in California and sells small quantities of wine to businesses and individuals (only 226 cases in 2009). Most of its customers are located in California. It is a participant in a local association that allows people from across the country to order wine manufactured by Trek Winery under the association’s label (the label indicates the wine is manufactured by Trek Winery). Trek Winery maintains a “passive” Web site consisting of six “static” web pages. The Web site is accessible by customers in any state, but it does not contain an online order form; rather, customers wishing to purchase wine must contact the company’s owner directly through an email address listed on the site.

One of the Trek Winery owners has family members living in Wisconsin. In 2009, Trek Winery made two sales of wine to these family members. It sent complimentary promotional literature and paraphernalia along with each shipment. Because Trek Winery did not possess the necessary licenses and permits to sell alcohol in Wisconsin, it contacted the Wisconsin Department of Revenue to come into compliance with state regulations. However, the owners of Trek Winery have no intention of obtaining a license to sell wine in Wisconsin. In preparation for its lawsuit, the spouse of a Trek Bicycle employee ordered a case of wine, which Trek Winery shipped to Wisconsin along with promotional literature and paraphernalia.

Trek Winery moved to dismiss the lawsuit in Wisconsin, claiming the Court did not have personal jurisdiction over the company. Trek Bicycle countered that the winery’s small number of sales to Wisconsin, its shipment of wine and promotional materials to this state, its Internet advertising and participation in the trade association’s nationwide wine program was a sufficient connection to Wisconsin.

Isolated Sales and Passive Web Site Do Not Subject a Foreign Company to Suit in Wisconsin
Judge Crabb agreed with Trek Winery and dismissed Trek Bicycle’s lawsuit, ruling that the winery did not have sufficient minimum contacts with Wisconsin to be subject to suit in this state. The Court explained that allowing the suit to proceed would violate the Due Process Clause of the Fourteenth Amendment because Trek Winery had not done sufficient business in this state such that it could reasonably expect to be sued in Wisconsin.

In reaching its decision, the Court ruled that Trek Winery’s small number of isolated sales to Wisconsin were “nothing like the ongoing and repeated sales to a customer” that allowed out-of-state companies to be sued in Wisconsin in other cases. The Court stated, “[the] plaintiff cannot argue seriously that three isolated sales show that defendants have made such purposeful availment of the benefits of Wisconsin’s laws that they could reasonably anticipate being haled into court in this state.” The Court also maintained that Trek Bicycle could not “manufacture” personal jurisdiction by ordering the winery’s products for shipment into Wisconsin.

Additionally, the Court found it significant that the winery’s Web site was “passive”—that is, it did not allow customers to order products directly through the site. “Although it is true that a finding that a defendant uses the internet to engage in repeated commercial transactions may support the exercise of personal jurisdiction, there must be a corresponding finding that the defendant is expressly targeting residents of the forum state and not just making themselves accessible to everyone regardless of location.”

The Court also rejected Trek Bicycle’s argument that the winery was advertising in this state because it sent promotional material along with the shipments of wine to Wisconsin. The Court stated that Trek Winery merely “sen[t] two existing customers additional information” about its business. Further, both sales were to the owner’s relatives. Finally, the Court stated that Trek Bicycle could not show that the winery’s activities directly harmed its business in Wisconsin.

Whether a court in this state has personal jurisdictional over a business located in another state involves a complex analysis of state and federal law and depends upon the activities of the out-of-state business in Wisconsin. Under the decision in this case, it will be more difficult to sue an out-of-state business in Wisconsin that does not directly market to Wisconsin residents or allow direct sales through its Web site and that makes only minimal, isolated sales to customers in this state.

The decision is Trek Bicycle Corporation v. Trek Winery, LLC, No. 09-CV-603, 2010 WL 744252 (W.D. Wis., Mar. 2, 2010).