A panel of the Ninth Circuit last week released an opinion in DSPT Int’l, Inc. v. Nahum, 2010 WL 4227883, (CV-06-00308-ODW)(Oct. 27, 2010), opinion here, that's worth a brief review for its various holdings in a “cybersquatting” trademark and domain name dispute.   What’s interesting about this case? For starters the result the Court reached under the Anticybersquatting Consumer Protection Act (the “ACPA”) is very different from what would have occurred had a Uniform Domain-Name Dispute Resolution (UDRP) procedure been followed.

The ACPA was enacted in 1999 and codified at 15 U.S.C. §1125(d) to thwart trademark dilution resulting from bad faith domain name registrations by those other than the trademark’s owner. But what about the 1995 Federal Trademark Dilution Act (FTDA)? Well, in practice squeezing the round hole of domain names into the square peg of the FTDA proved less than ideal, because the FTDA protects only “famous” trademarks.  Additionally, the FTDA has been sidestepped today for many purposes by the 2006 Trademark Dilution Revision Act (TDRA), passed in the wake of the Supreme Court’s opinion in Moseley v. V Secret Catalogue, Inc., 527 US 418 (2003), which held the FTDA required proof of actual dilution.

Fast forward to 2010. Or rather flashback to 1999.

Background

In 1999 the plaintiff, DSPT International, Inc., launched a new “EQ” brand extension to its existing line of men’s clothing.   In connection with the EQ introduction the owner of DSPT hired a friend, the defendant Nahum, to set up a website for DSPT at the domain http://www.eq-Italy.com, which combined the new brand line, EQ, and DSPT’s original home country and the source of its fashion style, Italy.  Importantly Nahum registered the domain under his own name, paid the registration fee himself, and then set up the website which grew steadily as a source of orders for DSPT until 2005 when the relationship between the parties took a turn for the worse.  Nahum thereafter declined to renew his contract with DSPT and ultimately went to work for a DSPT competitor.

As an aside, the “EQ” mark used by DSPT was never federally registered as a trademark; a reminder to many who are unaware that the Lanham Act protects not only federally registered trademarks but common law marks as well. In contrast, the U.S. Copyright Act requires that a work be registered with the Copyright Office in order to gain access to the courts (see 17 U.S.C. §411(a)).

After the falling out, Nahum claimed DSPT still owed him nearly $15,000 in fees and commissions, and to put pressure on DSPT to pay up he changed the DNS entries to redirect the domain from DSPT’s website to a page that said, and still says as of this writing, “All fashion related questions to be referred to Lucky Nahum ….”  In response DSPT brought suit against Nahum and his then new employer (which succeeded in having itself dismissed from the action) for a variety of claims, including violations of the ACPA. The lower district court found for DSPT after a jury trial, and the jury assessed damages against Nahum in the amount of $152,000 for lost profits and costs associated with recreation of the website. Nahum appealed to the Ninth Circuit on the basis of the lower court’s denial of his renewed motions for judgment as a matter of law, remittitur and a new trial based upon his argument that the ACPA incorrectly applied the ACPA to his facts.

Given the jury trial below, there’s obviously no written court opinion detailing application of the ACPA and the Ninth Circuit's panel focused solely on the scope of the ACPA, with some interesting observations and holdings.  The lower court's published opinions deal solely with the issue of Naphum's new employer efforts, ultimately successful, to have itself dismissed as a party.

The Opinion

The ACPA, at 15 U.S.C. §1125(d)(1)(A), specifies that:

“A person shall be liable in a civil action by the owner of a mark, including a personal name which is protected as a mark under this section, if, without regard to the goods or services of the parties, that person—

(i) has a bad faith intent to profit from that mark, including a personal name which is protected as a mark under this section; and
(ii) registers, traffics in, or uses a domain name that—

(I) in the case of a mark that is distinctive at the time of registration of the domain name, is identical or confusingly similar to that mark;
(II) in the case of a famous mark that is famous at the time of registration of the domain name, is identical or confusingly similar to or dilutive of that mark; or
(III) is a trademark, word, or name protected by reason of section 706 of title 18 [marks used by the America Red Cross] or section 220506 of title 36 [dealing with marks related to the Olympics and Olympic committees].”

(emphasis added).

After detailing the basic facts, the Court reviewed the defendant’s argument that the ACPA applies “only to one who registers a well-known trademark as a domain name, and then attempts to profit in bad faith by either (1) selling the domain name back to the trademark holder, or (2) using the domain name to divert business from the trademark holder.” It is undisputed the defendant did not register the domain name in bad faith back in 1999; nor did he attempt to sell it back to DSPT after their dispute began. In response the Court stated “[h]is arguments are not implausible, but we conclude they are mistaken.”

While the Court took notice of the Sixth Circuit’s observation that “[t]he paradigmatic harm that the [ACPA] was engaged to eradicate [was] the practice of cybersquatters registering several hundred domain names in an effort to sell them to the legitimate owners of the mark,” it opined further that “the statute, like so many, is written more broadly than what may have been the political catalyst that got it passed.”

Notably, the Court spent very little time on how the defendant's actions met the plain requirement of (d)(1)(A)(II)(I), highlighted above, that the mark be distinctive “at the time of registration of the domain.” It’s unclear whether the defendant, at least from the record provided by the Ninth Circuit, registered the domain before DSPT’s first use of the mark in commerce in the fall of 1999 or after such use.  Certainly the mark was distinctive in 2005, when the defendant redirected the website, but the court never clearly explored the plain language requirement specifying the “time of registration” of the domain as a trigger date.  I can only either speculate the full record at the Court's disposal revealed use such that the mark was distinctive before the domain registered or elided parsing this portion of the statute.

Another interesting point the decision highlights is how an action brought under the ACPA differs from what would be the expected normal result in a UDRP Policy proceeding where there was a legitimate registration followed by subsequent abuses. Unlike under the ACPA, in a UDRP proceeding, which all U.S. registrars must follow, bad faith in BOTH the registration and use of the domain name is required (see cases at Index of WIPO UDRP Panel Decisions). 

The ACPA takes broader aim, by looking at bad faith of a party who “registers, traffics in, or uses” a domain that is identical or confusingly similar to another's trademark (15 U.S.C. §1125(d)(1)(a)(ii)), and the Court emphasized these are each standalone alternatives, stating “use alone is enough to support a verdict, even in the absence of violative registration or trafficking.”  Compare the UDRP’s Para. 4(a)(3) language, which requires a showing of bad faith both in the registration and use of the domain name (the so-called “conjunctive” requirement). 

Other dispute resolution policies used by other countries for various top-level domains split on the conjunctive requirement. For example, the dispute resolution policies that apply to .uk (United Kingdom) and .au (Australia) domain names (auDRP), allow a complainant to demonstrate bad faith in either the registration or the use of the domain name, whereas the dispute policy applicable to .ca (Canada) domain names (CDRP) permits argument of bad faith only in the registration of the domain name.

Additionally, UDRP proceedings are always geared toward an end result of cancellation of a domain registration or transfer of the domain to the trademark holding - not assessment of damages. Here DSPT appears, curiously, to have not urged for transfer or cancellation of the domain name, which is provided for under 15 U.S.C. §1125(d)(1)(c)(ii).

The last point of note in the opinion is the Court’s discussion of the bad faith intent factors, specifically factor VI, 15 U.S.C. §1125(d)(1)(B)(i)(VI), that provides it can be indicative of bad faith if there is an "offer to transfer, sell, or otherwise assign the domain name to the mark owner . . . for financial gain without having used, or having an intent to use, the domain name in the bona fide offering of any goods or services.”  The Court viewed this factor “may fairly be read to mean that it is bad faith to hold a domain name for ransom, where the holder uses it to get money from the owner of the trademark rather than to sell goods. * * *  Though there was no direct evidence of an explicit offer to sell the domain to DSPT for a specified amount, the jury could infer the intent to give back the site to DSPT only if DSPT paid Nahum the disputed commissions.”

The Takeaway

What's the lesson from this case?  If there is a bedrock moral, beyond ACPA/UDRP differences and the broad scope applied in the Ninth Circuit in such ACPA contexts, it’s that a solid webdesign and services contract and reasonable procedures can avoid years of litigation. Here the defendant would have saved himself from a sizable six figure judgment (consider that he counterclaimed for only $15,000) and DSPT might have avoided the $240,000 it claimed were spent in mitigation and given up as lost profits.

As a result, the ultimately lesson here is that a solid web services and design contract is key and any domains used should be registered in the actual company’s name and not by or in the name of a website designer or contractor. These last points will be explored further in a future post where I’ll be touching on web service contracting and copyright issues.