Legal Definitions - stream-of-commerce theory

The term "stream-of-commerce theory" refers to two distinct but related legal principles, primarily concerning product liability and a court's ability to hear a case.

1. Personal Jurisdiction (When a court can hear a case)

This principle determines when a court in one state can exercise authority (personal jurisdiction) over a defendant, such as a company, located in another state or country. It applies if the defendant:

• Places a product into the general marketplace (the "stream of commerce"),
• Knows or reasonably anticipates that the product will be sold or used in various states,
• The product causes injury or damage in the specific state where the lawsuit is filed (the "forum state"), AND
• The defendant has taken additional actions specifically aimed at establishing a connection with that forum state, beyond merely placing the product into the general flow of commerce. These additional actions might include advertising in the state, establishing distribution channels there, or having sales agents present.

Examples illustrating Personal Jurisdiction:

• Example 1: International Component Manufacturer

  A company based in Taiwan manufactures specialized microchips for high-end gaming consoles. They sell these chips to a console manufacturer in California, who then incorporates them into consoles sold across the United States. The Taiwanese company also maintains a dedicated English-language website promoting its chips to North American electronics manufacturers and regularly sends representatives to major electronics trade shows held in Las Vegas, Nevada, to solicit business. A gaming console containing a defective Taiwanese chip malfunctions and causes a fire in a consumer's home in Nevada.

  How it illustrates the term: The Taiwanese company placed its chips into the stream of commerce, knowing they would be incorporated into products sold in the U.S. The injury occurred in Nevada. The company's targeted website for North America and its regular presence at trade shows in Nevada demonstrate additional actions establishing a connection with the U.S. market, including Nevada, making it potentially subject to personal jurisdiction in a Nevada court.

• Example 2: Out-of-State Online Retailer with Targeted Marketing

  A small, independent clothing designer in Oregon creates unique denim jackets and sells them exclusively through their online store. While they ship nationwide, their website includes a feature allowing customers to sign up for email newsletters specifically tailored to events and promotions in their state. A customer in Florida purchases a jacket, and due to a defect in the fabric dye, suffers a severe skin rash. The designer had previously run a targeted social media ad campaign specifically for Florida residents promoting their new line.

  How it illustrates the term: The Oregon designer placed the jacket into the stream of commerce via online sales. The injury occurred in Florida. The targeted email newsletters and specific social media ad campaign for Florida residents could be seen as additional acts demonstrating an intent to serve the Florida market, potentially allowing a Florida court to exercise personal jurisdiction.

• Example 3: Regional Food Producer with National Distribution

  A specialty sauce company in Louisiana produces a popular hot sauce and distributes it through a national food distributor. The distributor ensures the sauce is available in grocery stores across all 50 states. The Louisiana company also maintains a national toll-free customer service line and has a dedicated section on its website listing retailers by state, including several in Ohio. A batch of the sauce is contaminated, and a consumer in Ohio becomes seriously ill after consuming it.

  How it illustrates the term: The Louisiana company placed its product into the stream of commerce through national distribution. The injury occurred in Ohio. The national customer service line and the specific listing of Ohio retailers on their website demonstrate an intent to serve and connect with the Ohio market, potentially subjecting them to personal jurisdiction in Ohio.

2. Strict Liability (Who is responsible for defective products)

This principle holds that anyone involved in the chain of distribution of a defective product can be held responsible for harm caused by that product, regardless of whether they were negligent. It focuses on the product itself being defective and causing harm, rather than on the fault or carelessness of any specific party.

• A party participates in placing a defective product into the general marketplace (the "stream of commerce").
• The product causes harm or injury.
• That party can be held "strictly liable," meaning they are responsible for the damages even if they did not directly cause the defect or were not negligent in handling the product.

Examples illustrating Strict Liability:

• Example 1: The Distributor of a Faulty Appliance

  A manufacturer produces a batch of coffee makers with a design flaw that causes them to overheat and short-circuit. A large national appliance distributor purchases these coffee makers in bulk and sells them to various retail stores across the country. A customer buys one of these defective coffee makers from a retail store, and it overheats, causing minor property damage.

  How it illustrates the term: The distributor, by selling the defective coffee makers to retailers, participated in placing them into the stream of commerce. Even if the distributor was unaware of the design flaw and handled the products correctly, they can be held strictly liable for the damage caused by the defective product, alongside the manufacturer.

• Example 2: The Retailer of Contaminated Food

  A local grocery store sells pre-packaged salads supplied by a major food producer. Unbeknownst to the grocery store, one batch of these salads is contaminated with bacteria due to an issue at the producer's facility. A customer purchases a contaminated salad from the grocery store and becomes severely ill.

  How it illustrates the term: The grocery store, as the retailer, placed the defective (contaminated) product directly into the hands of the consumer in the stream of commerce. They can be held strictly liable for the customer's illness, even though the contamination originated with the food producer and the store had no way of knowing about it.

• Example 3: The Wholesaler of Defective Building Materials

  A company manufactures roofing shingles that contain a hidden defect causing them to degrade rapidly when exposed to sunlight. A wholesaler buys these shingles from the manufacturer and sells them to various construction companies and hardware stores. A construction company uses these defective shingles on a new housing development, and within a year, the roofs begin to leak, causing significant damage to the homes.

  How it illustrates the term: The wholesaler introduced the defective roofing shingles into the stream of commerce by selling them to other businesses for use in construction. Even if the wholesaler was unaware of the hidden defect, their role in distributing the product makes them strictly liable for the damages caused by the faulty shingles.