Does the Anticybersquatting Consumer Protection Act impose liability upon cybersquatters who innocently register a domain name and properly use it for many years, but who then use a domain name with a bad faith intent to profit from the protected mark by holding the domain name for ransom? In DSPT Int’l, Inc. v. Nahum, __ F.3d __, 2010 WL 4227883, No. 08-55062 (9th Cir. Oct. 27, 2010), the Ninth Circuit answered in the affirmative.
First, a little background: The Trademark Act of 1946 (“Lanham Act”) prohibits persons from using trademarks, trade names, and trade dress that are likely to cause confusion about the source of a product or service. See 15 U.S.C. §§ 1114, 1125(a). In 1999, Congress enacted the Anticybersquatting Consumer Protection Act (“ACPA”), 15 U.S.C. § 1125(d), as an amendment to the Lanham Act to prohibit cybersquatting. “[C]ybersquatting occurs when a person other than the trademark holder registers the domain name of a well known trademark and then attempts to profit from this by either ransoming the domain name back to the trademark holder or by using the domain name to divert business from the trademark holder to the domain name holder.” Bosley Medical Institute v. Kremer, 403 F.3d 672, 680 (9th Cir. 2005) (quoting DaimlerChrysler v. The Net Inc., 388 F.3d 201, 204 (6th Cir. 2004) (internal quotation marks omitted)).
The ACPA establishes a cause of action for “cyberpiracy” if the plaintiff, as owner of the trademark, proves that (1) the defendant registered, trafficked in, or used a domain name; (2) the domain name is “identical or confusingly similar to” the protected trademark owned by the plaintiff; and (3) the defendant acted with “a bad faith intent to profit from that [trade]mark.” In determining whether a person has a bad faith intent to profit from the trademark, a court may consider factors such as, but not limited to:
(I) the trademark or other intellectual property rights of the person, if any, in the domain name;
(II) the extent to which the domain name consists of the legal name of the person or a name that is otherwise commonly used to identify that person;
(III) the person’s prior use, if any, of the domain name in connection with the bona fide offering of any goods or services;
(IV) the person’s bona fide noncommercial or fair use of the mark in a site accessible under the domain name;
(V) the person’s intent to divert consumers from the mark owner’s online location to a site accessible under the domain name that could harm the goodwill represented by the mark, either for commercial gain or with the intent to tarnish or disparage the mark, by creating a likelihood of confusion as to the source, sponsorship, affiliation, or endorsement of the site;
(VI) the person’s offer to transfer, sell, or otherwise assign the domain name to the mark owner or any third party 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, or the person’s prior conduct indicating a pattern of such conduct;
(VII) the person’s provision of material and misleading false contact information when applying for the registration of the domain name, the person’s intentional failure to maintain accurate contact information, or the person’s prior conduct indicating a pattern of such conduct;
(VIII) the person’s registration or acquisition of multiple domain names which the person knows are identical or confusingly similar to marks of others that are distinctive at the time of registration of such domain names, or dilutive of famous marks of others that are famous at the time of registration of such domain names, without regard to the goods or services of the parties; and
(IX) the extent to which the mark incorporated in the person’s domain name registration is or is not distinctive and famous within the meaning of subsection (c).
15 U.S.C. §§ 1125(d)(1)(B)(i)(I)-(IX). The ACPA also contains a safe harbor provision, which excludes a finding of “bad faith intent” if the court determines that the “person believed and had reasonable grounds to believe that the use of the domain name was a fair use or otherwise lawful.” 15 U.S.C. § 1125(d)(1)(B)(ii).
Now, the specifics of DSPT Int’l, Inc. v. Nahum: There, the plaintiff, DSPT—founded by Paolo Dorigo—was a designer and manufacturer of men’s clothing. In 1999, DSPT had created the EQ brand name to serve a younger market. At around the same time, Dorigo had brought his then friend defendant Lucky Nahum into the business. They had decided to set up a website, www.eq-Italy.com (eq for the brand, Italy for Dorigo’s and the style’s origin), which was created solely for DSPT for the purpose of showing DSPT clothes, but which was registered in Nahum’s name. Unfortunately, in 2005, the friendship between the two soured, as Nahum did not renew his contract with DSPT, instead, moving on with a competitor of DSPT. Shortly thereafter, DSPT’s website mysteriously disappeared, and customers who typed the “eq-Italy.com” URL into their web browsers were taken to a screen which read “All fashion related questions to be referred to Lucky Nahum at: firstname.lastname@example.org.” Although Nahum had no use for the website, he had told his new boss that his goal was to make DSPT pay him commissions that were due to him. After repeatedly but unsuccessfully asking Nahum to give back the site, DSPT sued Nahum for “cybersquatting,” among other claims, and the jury returned a verdict in DSPT’s favor, awarding it damages in the amount of $152,000.
On appeal, Nahum argued that the ACPA did not apply to what he did. Specifically, he argued that the statute applies only to a person 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. Further, he argued that he can’t owe damages under the statute since the evidence shows only that he used DSPT’s mark to gain leverage over DSPT in bargaining for money he claimed he was owed—not to sell under DSPT’s mark or sell the mark to DSPT. Finally, he argued that even if in some sense he had a bad-faith intent to profit, any “intent to profit” under the ACPA must be an intent to profit from the goodwill associated with the mark rather than to gain some other benefit. As the Court summarized, the core of his arguments were “that he did not register the domain name in bad faith, and used it only to get what he was entitled to.”
The Court rejected Nahum’s arguments, and concluded that through his arguments weren’t implausible, they were nonetheless mistaken. Conceding that ACPA was “intended to prevent cybersquatters from registering well-known brand names as internet domain names in order to make the trademark owners buy the ability to do business under their own names,” the Court concluded that the “words of the statute are broader than th[e] political stimulus that led to its enactment.”
The Court stated that while it was true that Nahum had not done anything wrong when he had initially registered the domain name to himself, his subsequent acts—namely, using the domain name to get leverage for his claim for additional commissions—violated ACPA, since the statute prohibits defendants from registering, trafficking in, or using a domain name that is identical to the protected mark. Relying on Lahoti v. VeriCheck, Inc., 586 F.3d 1190, 1202 (9th Cir. 2009) (citation omitted), the Court concluded that using a domain name to get leverage in a business dispute could constitute “bad faith intent” because evidence of bad faith may arise well after registration of the domain name. Further, the Court relied on factor VI from the factors set forth above to determine whether bad faith intent was present. That factor—factor VI—provides that it is indicative of “bad faith intent to profit” from the mark if the person offering to transfer the domain name to the owner of the mark has never actually used or intended to use the domain name for bona fide sales of goods. The Court interpreted that factor to mean that a person who holds a domain name for ransom has a “bad faith intent to profit,” where the holder uses it to get money from the owner of the trademark rather than to sell goods. Indeed, Nahum had testified that he would transfer the domain to DSPT after Nahum and DSPT were able to resolve the “monetary issues regarding [Nahum’s] commissions” and Nahum’s new boss had testified that Nahum told him that he was keeping the domain name as leverage in order to get the money he said DSPT owed him. Finally, the Court held that Nahum could not hold the domain name for ransom even if he had been owed commissions, because “profit” does not require that he receive more than he is owed on his disputed claim; rather, “profit” includes an attempt to procure an advantageous gain or return.
In conclusion, the Ninth Circuit has broadly construed the ACPA such that cybersquatters under the court’s jurisdiction may no longer use a domain name with a bad faith intent to profit from the protected mark by holding the domain name for random, notwithstanding the fact that the domain name was registered innocently and used properly for years.