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Quintessential and Other Acts of Bad Faith in Acquiring Domain Names

There are two essential differences between the Uniform Dispute Resolution Policy (UDRP) and the Anti-Cybersquatting Consumer Protection Act (ACPA), one procedural and one substantive. The procedural difference is quite minor, a mere quirk that Panels adopted by consensus in the early days of the UDRP and deserves no more than a footnote. Under the UDRP, complainants have standing on proof that they have trademark rights when they file their complaints, whether or not they can establish priority to challenge a domain name registrant. The perversity of granting standing to a party whose rights accrue later in time to the party challenged is that complainants have standing but no actionable claims because they are unable to prove bad faith registration even if respondents have no right or legitimate interests in the domain name.

This conundrum at the threshold of proceedings is eliminated under the ACPA because the statute limits standing to owners whose marks are “distinctive [or famous] at the time of registration of the domain name.” This statutory requirement of priority was fatal, for example, in New World Solutions, Inc. v. Namemedia Inc., 11-cv-2763 (S.D.N.Y. December 15, 2015) where plaintiff’s application for trademark registration stated that its first use of the mark in commerce occurred later than the registration of the domain name, which defendant used against the Complainant as an admission against interest.

The other difference is of major importance: the UDRP is a conjunctive model—complainants have to prove both registration in bad faith and use in bad faith; while the ACPA is a disjunctive model—proof of either is sufficient for judgment in plaintiff’s favor. An ICANN group is about to examine possible improvements or modifications to rights protection mechanisms that could determine whether to amend the UDRP to a disjunctive model. But, this is for the future. In conceiving the regimes policy makers focused on two quintessential acts of infringement, namely 1) purchasing domain names identical or confusingly similar to trademarks, and then offering to sell the names to the trademark owners at an extortionate price, and 2) using domain names to divert customers from trademark owners’ websites to their own, where those consumers could purchase defendant’s products or services instead of the trademark owners’.

These quintessential acts still account for the vast majority of today’s disputes and represent a very high percentage of cancellations and transfers. We should regard respondents fixated on these business models as retro-preneurs because the models are dead ends. Legitimate entrepreneurs have moved on to more profitable business models, holding and monetizing vast inventories of domain names, creating in effect supermarkets of names. This obviously creates a problem for emerging trademark owners who register marks (sometimes unwittingly but not always!) only to discover that corresponding domain names are already taken and can be prohibitively costly to purchase.

This has led to a small percentage of cases under the UDRP by trademark owners arguing that it is bad faith to register domain names for resale to later acquiring trademark owners who have a better right to them. There is no merit to this contention. Thus, while plaintiff in New World Solutions owns NEW WORLD SOLUTIONS it can claim no right to <newworldsolutions.com> because the domain name was already taken when it acquired its trademark.

Similarly, and more spectacularly because the case was snuffed out in a motion to dismiss, is Office Space Solutions, Inc. V. Kneen, 15-cv-4941 (S.D.N.Y. July 14, 2015). In this case, plaintiff discontinued its action with prejudice after Judge Kaplan stated that “quite obviously [the plaintiff] just went out and registered a mark that he undoubtedly knew was nearly identical to the domain name registered and used by the defendant for many years for perfectly legitimate reasons.” “There are” said the Judge “good cybersquatting cases and there are bad ones. And this is really one of the bad ones.”

What is a good one? Good cybersquatting cases first of all are disputes in which trademark owners have priority of right which is what gives them standing. Where New World Solutions and Office Space illustrate the situation in which domain name holders have priority, Web-Adviso v. Trump, 927 F.Supp.2d 32 (E.D.N.Y. 2013) exhibits the retro-preneur working with the quintessential business models. Plaintiff (the Respondent in an earlier UDRP proceeding which it lost) commenced the ACPA action for declaratory judgment that his domain names incorporating defendant’s trademarks were not unlawful. In its counterclaim defendant demanded judgment that the registrations were unlawful under the ACPA with the expected result that the holder lost again, this time with a judgment against him for damages and attorneys fees. So we see that although the quintessential examples are not dead, they are certainly dead ends.

Good cybersquatting cases under the ACPA also include one or the other quintessential act with exculpatory narratives attempting to justify the registrations. For example, in Alpha Recyclying, Inc. v. Timothy Crosby, 14-cv-5015 (S.D.N.Y. March 23, 2016) the parties started out in a business relationship that soured when the defendant registered domain names virtually identical to plaintiff’s trademark and began diverting consumers to his own website offering competing services. Defendant justified itself by claiming that Alpha “had taken away a very large portion of [Crosby’s] business and it was the only way [he] thought to get back at them.” Even if this were true, it is not a defense that defendant “was motivated by malice, but not profit.” This view is equally applicable to conduct under the UDRP.

Where cybersquatting claims have merit courts will grant injunctive relief. In Mrs. U.S. Nat’l Pageant, Inc. v. Miss United States Org., LLC, 875 F.Supp.2d 211 (W.D. N.Y. 2012) the court granted a preliminary injunction against use of <missunitedstates.com> that incorporated plaintiff’s trademark. There were additional trademark components to the case. In Natural and Tasty, LLC v. Moshe Parnes, 15-cv-4388 (D.N.J. August 10, 2015) the court found that “[g]iven that Plaintiff’s website is an important method of communicating to customers about its brand, the potential for harm to Plaintiff’s reputation is likely if the website is left in the control of Defendant.”

Finally, we have disputes where UDRP Panels find in favor of trademark owners on grounds vigorously contested by entrepreneurial domain name holders. There is an open question as to what extent high-volume registrants are chargeable with knowledge or awareness of an existing trademark. Ordinarily, plausible denial can rebut bad faith (absent persuasive evidence to the contrary), but there is a limit to plausibility. Vacuuming multiple numbers of domain names using algorithmic criteria exceeds that limit when there is no human intervention to assure compliance with registrants’ representations and warranties.

This issue of high-volume registration without searching databases for trademark infringement will finally be resolved in federal court under the ACPA. In Blue Ridge Fiberboard, Inc. v. Domain Asset Holdings, LLC, FA160200-1661150 (Forum March 20, 2016) the Panel awarded <soundstop.com> to Complainant. On April 11 the Respondent filed an ACPA complaint in the Western District of Washington at Seattle. In that complaint plaintiff alleged that “[a]t the time the Domain Name was acquired, Plaintiff was purchasing upwards of 500 domain names per day.” It alleged that factors the algorithms considered included —

whether a domain name would be of value to Plaintiff’s customers [taking into account] the number of characters in the domain name, whether the domain name includes common terms, and whether the domain name has features that would make it marketable and easy to remember, such as the use of alliteration.

What’s at stake in this ACPA action is whether high-volume registrants claiming immunity on the grounds that they are in the business of registering generic domain names for resale are chargeable with constructive notice of trademarks, a concept that has not hitherto been officially recognized under UDRP. The answer lies in the strength of the trademark and priority of right, whether in this particular case the phrase “sound stop” is really generic because each of the elements are dictionary words. This is an action we will be keeping an eye on.

By Gerald M. Levine, Intellectual Property, Arbitrator/Mediator at Levine Samuel LLP

Information about the firm can be found on the Firm’s website at iplegalcorner.com. Mr. Levine has a litigation and counseling practice representing clients in Intellectual Property rights and management, Internet and Cyberspace issues, domain names and cybersquatting, as well as a diverse range of legal and business matters from working with client to resolve commercial disputes, to copyright and trademark counseling and registrations. He is the author of a treatise on Trademarks, Domain Names, and Cybersquatting, Domain Name Arbitration: A Practical Guide to Asserting and Defending Claims of Cybersquatting Under the Uniform Domain Name Dispute Resolution Policy. A Second Edition of the treatise was published July 2019 and is available from Amazon or from the publisher, Legal Corner Press (LCP). For inquiries to LCP write to .(JavaScript must be enabled to view this email address) or Mr. Levine at .(JavaScript must be enabled to view this email address).

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