Israel Supreme Court Precedent Allows Social Network Users to Sue in Israel

Israel’s Supreme Court has handed down a precedent ruling whereby a legal dispute between a social network and its Israeli users will be adjudicated in the court in Israel, notwithstanding the fact that the social network’s terms of use contain a jurisdiction stipulation vesting sole jurisdiction to the court in California.

The ruling was handed down within the scope of a class action filed against Facebook, which alleged the social network is infringing on its users’ privacy. Facebook filed a motion to dismiss, with the argument that its terms of use stipulate that any dispute between Facebook and its users is to be adjudicated in the court in California and according to the laws of the State of California.

The Supreme Court ruled that Facebook’s terms of use constitute a uniform contract, and that the jurisdiction clause deprives the rights of the consumers, since it deters those wishing to sue Facebook from initiating a legal proceeding against it. The court rejected Facebook’s arguments that the provision of its services for free and the concern of compelling litigation everywhere in the world justify the determination that the jurisdiction clause should not be struck down. The court’s rejection of the latter relied, inter alia, on Facebook’s significant volume of business in Israel. Thus, the court ruled that the jurisdiction stipulation is invalid, and allowed the class action to proceed in Israel.

Concurrently, the Supreme Court ruled that the choice of law stipulation applying to the legal proceeding (California law) should be honored, since the plaintiff did not prove that litigation according to California law would deny him the possibility of raising legal arguments. However, one of the members of the panel of judges ruled that the choice of law stipulation should be honored, provided that it is not used in order to circumvent cogent provisions of Israeli law, such as the Consumer Protection Law.

This court ruling constitutes the Supreme Court’s first decision addressing jurisdiction and choice of law clauses prescribed in foreign websites’ terms of use, and it exposes foreign internet companies to litigation in Israel. Furthermore, although the ruling accepts the validity of the choice of law clause, it appears that this is not the final word – whether because in other lawsuits the plaintiff may succeed in proving the restrictions imposed on him/her according to the foreign law, or because foreign internet companies may seek to evade the application of protections provided to consumers under Israeli law.

This development requires internet companies offering products and services to residents of Israel to properly plan ahead in order to minimize the legal exposure deriving from this precedent.