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False Expectations: Attorney’s Fees and Statutory Damages in ACPA Actions

There is a degree of dread in the investor community that prized domain names will be forfeited to trademark owners in proceedings under the Uniform Domain Name Dispute Resolution Policy (UDRP). Since the UDRP has no internal appeal mechanism to correct errors of law or judgment, the sole recourse is an action in a court of competent jurisdiction as spelled out in UDRP paragraph 4(k). In the U.S., this would be a district court under the Anticybersquatting Consumer Protection Act (ACPA). The “dread” of forfeiture is not an imaginary concern; it has a real basis stemming from a number of negative experiences with UDRP awards that have only been “corrected” by commencing actions and settling claims of reverse domain name hijacking in ACPA actions. I discussed settlements in an earlier essay, Prudential Settlements for Alleged Cybersquatting/ Reverse Domain Name Hijacking under the ACPA. Settlements are one thing, but what if there are genuine contested issues that resist settlement and proceed to summary judgment, trial and judgment? What precisely are the remedies, are they automatic to the prevailing party, or if not, what proof is sufficient for attorney’s fees and statutory damages?

There is (I think) a mistaken belief in the investor community, formed perhaps as a rationalization should the dread be actualized, that the prize for prevailing in an ACPA challenge to a UDRP award includes not just injunctive relief but also attorney’s fees and statutory damages. This belief should be shelved. A look back at the few ACPA cases that have been tried to judgment (see other ACPA essays on <circleid.com>) and particularly the latest experience in Black v. Irving Materials, Inc., 17-CV-06734-LHK (N.D. Cal 2019/2020) should settle the question. The not-surprising answer is that remedies must be earned. Plaintiffs get no more than they can prove; and if they lack proof, there is nothing to get. There were a number of motions in Black before and after trial. While an advisory jury did rule in Black’s favor that he registered <imi.com> in good faith, that the registration was (to use the ACPA term) “not unlawful”, this marvelous result came at a significant monetary cost: Black’s motion for attorney’s fees was denied. The reasons are important and discussed below. He was ineligible for statutory damages because the claim that would have supported the remedy was dismissed from the complaint in an early motion.

As a general observation, Panels appointed to arbitrate under the UDRP mainly reach the right result—approximately 92% to 93% of cybersquatting claims are indefensible and generally not defended—but within the other 7% to 8% a good number of accused respondents are registrants who have superior rights. For further context, UDRP awards are rarely challenged. Few have actually gone the distance to summary judgment or trial in U.S. federal courts, but for those that have the decisions sketch out the disappointments under the ACPA. When the challenge moves to federal court standards and remedies change. The evidentiary demands tighten. Unless complaints are well-drafted, some claims (the kind that must necessarily be sustained for statutory damages and attorney’s fees) are not likely to survive motions to dismiss.

The basic remedy under both the UDRP and the ACPA is injunctive relief: in the simplest terms, the penalty for cybersquatting is forfeiture (UDRP and ACPA); and relief against UDRP error for reverse domain name hijacking is restoration of the domain name to registrant (§1114(2)(D)(v)). If a registration is found to have been lawful under this section, there could have been no violation of §1125(d) (the ACPA). Under the Lanham Act, though, there are two additional remedies, namely attorney’s fees (§1117(a) and statutory damages (§1117(d)). However, unless the companion provision to §1114(2)(D)(v) is pled (that is (D)(iv)) and survives dismissal, there can be no statutory damages. To prevail under §1114(2)(D)(iv) requires proof of “knowing and material misrepresentation,” in essence a fraud claim; otherwise, the only remedy is injunctive relief for reverse domain name hijacking, but the prevailing party is not automatically eligible for attorney’s fees and can be shut out of statutory damages.

In Black the Court dismissed the (D)(iv) (fraud) claim. In practical terms, the best Black could hope for was recuperation of his attorney’s fees, but to prevail on attorney’s fees, the case must be exceptional. The Supreme Court defines “exceptional” as the “rare case” that “stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated”. Octane Fitness, LLC v. Icon Health and Fitness, Inc., 572 U.S. 545, 555 (2014). It will be noticed that there are two elements: there must be “substantive strength” to a party’s litigating position and the manner in which the case is litigated. Either weakness of a party’s litigating position or the unreasonable manner in litigating the claim can sink a motion for attorney’s fees. Black lost on both counts.

Two investors in earlier cases have been caught with unlawful registrations and marked as cybersquatters, Gregory Ricks (once as plaintiff and once as defendant)—Ricks v. BMEzine.com, LLC, 727 F.Supp.2d 936 (D. Nevada 2010) and Bulbs 4 E. Side, Inc. v. Ricks, 199 F.Supp.3d 1151 (S.D. Tex., Houston Div. July 18, 2017)—and David Lahoti (Lahoti v. Vericheck, Inc., 636 F.3d 501, 510-11 (9th Cir. 2011). The Court found Lahoti a “rare” case. It was exceptional because

Lahoti’s willful registration and use of the www.vericheck.com domain name, his “attempt to extort thousands of dollars from Vericheck,” his disregard for Vericheck’s trademark rights, his “pattern and practice of cybersquatting, including a pattern and practice of abusive litigation practices,” and his “disregard for the submission of inaccurate answers to interrogatories.” Having found the case exceptional, the district court ordered Lahoti to pay Vericheck $78,109.95 in fees and costs.

But, in BMEzine.com, the Court denied the defendant’s request for attorneys’ fees because it has “shown only that Ricks is not entitled to prevail on any of his claims against the LLC. Defendant has not established Ricks’ conduct was malicious, fraudulent, deliberate, or willful as to Defendant LLC with respect to the claims upon which Defendant LLC has prevailed at this stage of the proceedings.”

When we turn to domain name holders as plaintiffs or defendants, the stake is higher because litigating in federal court is expensive, and even if the plaintiff is right, the cost could be prohibitive. One should distinguish good faith registrants (investors and other legitimate businesses) from bad faith registrants (properly labeled cybersquatters). The latter as plaintiffs have incurred either or both attorney’s fees and statutory damages. Ricks, for example in BMEzine, but several other domain name holders having no actionable claim rolled the dice and paid the piper. But, good faith registrants are in a predicament: unless they are able to recoup their legal fees, there will be nothing to offset the cost of litigation. In Black, attorney’s fees (allegedly close to $500,000 dollars) went unrecouped; the pleasure of prevailing and the unhappiness of paying for it. In another action still pending, Dent v Lotto Sport Italia S.p.a, cv-17-00651 (District of Arizona) plaintiff will be seeking attorney’s fees, and the same fate or happiness may be waiting since in that case also the (D)(iv) fraud claim was dismissed early in the case.

It is not all bad news, but the alignment of facts has to support either or both remedies, attorney’s fees, and statutory damages. In AIRFX.com v. AirFx LLC, CV 11-01064-PHX-FJM (D. Ariz. March 7, 2013) and Joshua Domond and Harold Hunter, Jr v. PeopleNetwork APS d/b/a Beautifulpeople.Com, Beautiful People, LLC, Greg Hodge, and Genevieve Maylam, 16-24026-civ (S.D. FL. Miami Div. 11/9/17), and No. 17-15222, Non-Argument Calendar.(11th Cir. 2018) the domain name registrants prevailed in UDRP proceedings and prevailed again as defendants in the ACPA actions: on the uncontested facts, plaintiffs had no actionable claim, but they sued anyway which is one of the foundations for attorney’s fees, and on those grounds, the courts awarded attorney’s fees in both cases.

In Airfx, attorney’s fees which amounted to over $100,000 dollars were imposed because

[A.] defendant’s counterclaims were groundless and unreasonable…. [And B] defendant’s trademark infringement counterclaim was groundless and unreasonable. The claim was groundless because the defendant did not present any evidence that plaintiffs’ use of the AirFX mark was commercial.

To this was added an additional strike in that plaintiff’s litigating manner (per Octane Fitness) was clearly unacceptable to the Court:

On August 24, 2012 we granted plaintiffs’ motion for summary judgment on defendant’s counterclaim. Neither the factual basis for our conclusion, nor the law compelling it, were genuinely subject to dispute. On October 20, 2011, before defendant filed its counterclaims, we informed the parties that the original registration date of airfx.com was the determinative issue in connection with any ACPA claims…. [While] t is unclear from the record whether defendant knew the original registration date of the airfx.com domain name at the time it filed its counterclaims ... by the time the parties filed their motions for summary judgment, it was undisputed that airfx.com was originally registered more than two years before the AirFX mark existed. It was unreasonable for defendant to pursue its ACPA counterclaim once it discovered that the airfx.com was originally registered before the AirFX mark. (Emphasis added)

From this, it is reasonable to draw another general observation that should alert plaintiffs to proceed with caution before filing an ACPA claim: the facts must align with their theory of the case. It appears from the Court’s trial decision that Black had damages, but they were inadmissible as evidence for statutory damages since the Court had dismissed the (D)(iv) claim. On the final motion, for attorney’s fees, the Court cited Octane to the effect that “Black’s success on the subsection (v) declaratory relief claim does not independently render the instant case exceptional” and explained the reasons why:

Irving notes that throughout the instant case, “this Court has clearly and unequivocally warned [Black] that he does not have either a claim for reverse domain name hijacking or any other affirmative claim against” Irving. Opp’n at 19. Notwithstanding this fact, Black repeatedly “ignored this warning,” which militates against the award of attorney’s fees in the instant case. Id. The Court agrees. The “unreasonable manner in which the case was litigated” by Black is an equitable factor that militates against the award of attorney’s fees.

There is surely a lesson here; there must be both proof and decorum. The Supreme Court held that it matters, and the Courts in Airfx and Black underlined the consequences. The other lesson is this: in order to prevail in both protecting one’s assets and coming out whole in money terms, domain name plaintiffs must earn their right to attorney’s fees and statutory damages. By earned, I mean having the factual evidence to support the remedies. These observations about earning the desired result, incidentally, apply equally to UDRP proceedings. Panels assess rights based on the submitted record; if there’s a stumble in their assessment, it can come in applying the wrong factors and giving the complainant-trademark owner the benefit of the doubt on the issue of bad faith.

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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