Publications

New Tools And Strategies For Protecting Your Place In Cyberspace: Understanding The Anticybersquatting Consumer Protection Act,

January 2000

Co-Authors: John I. Stewart Jr. and Michael D. Bednarek.

A similar version was published under the title "Cyberpirates, beware," The National Law Journal, January 31, 2000, p. C 1.

Summary

As the World Wide Web has grown into a mass market medium, domain names - the unique identifiers that allow the routing of Internet communications to their intended destinations - have been transformed from merely functional addresses into increasingly valuable business assets. This emergence of domain names as an alternative to trademarks for business identification in the network economy has also predictably led to the emergence of domain name profiteers - dubbed "cybersquatters" or "cyberpirates".

Until now, courts have been forced to stretch established legal doctrines such as trademark dilution, trademark infringement, and unfair competition to address the obvious injustice of acts of cyberpiracy. Despite this mounting body of case law, however, the remedies available under the established legal doctrines have not significantly impeded the practice of cyberpiracy. The Anticybersquatting Consumer Protection Act, signed into law by President Clinton on November 29, 1999, expands the prior legal doctrines and provides new tools for deterring cyberpiracy. But the Act does not solve all problems resulting from the new commercial importance of domain names.

To preserve their place in cyberspace, businesses must understand both what the Act does and what it does not do, and must consider its potential impact on their trademark selection and Internet domain name strategies.

The Emergence of Domain Names and Cyberpiracy

The Internet domain name system (DNS) was developed by a handful of Internet pioneers little more than fifteen years ago. Despite their recent vintage, Internet domain names have come to compete with trademarks as business identifiers. In the network economy, companies now often seek to establish their "place" in the business world by securing a domain name, usually with the coveted ".com" suffix, before looking to (if not totally ignoring) traditional trademark protection.

The emergence of domain names as commercially important identifiers has led to a variety of problems for businesses, large and small. Most such problems result from conflicts between the separate trademark legal system and domain name assignment system. Disputes arise when one party asserts or acquires rights to a domain name that is the same as another party's trademark or trade name. Since domain names must be unique in order to function as Internet addresses, only one party's Web site can use the particular domain name.

Domain name/ trademark disputes often involve one of three patterns: (1) a party registers a domain name that is the same or confusingly similar to a pre-existing trademark of another party; (2) a party intentionally obtains a domain name registration for a company's trademark for the purpose of selling it "back" to the trademark owner (this is what is most often referred to as "cybersquatting."); or (3) two companies with independent and valid trademark rights in the same trademark (for goods that are sold through distinct channels of trade) seek the same domain name.

The Anticybersquatting Consumer Protection Act

The Act, passed as part of the Intellectual Property and Communications Omnibus Reform Act of 1999, provides a new set of tools specifically crafted for companies that encounter difficulties as they attempt to register their name or mark as a domain name. Prior to passage of the Act, companies had to rely on the more general and sometimes partially inadequate provisions of trademark, unfair competition, false advertising, or dilution law, or other remedies under counterfeiting statutes. Under the Act, companies may now be able to obtain forfeiture, cancellation or transfer of a domain name held by a registrant, as well as damages under certain circumstances.

Specifically, the Act imposes liability on any person who registers, traffics in, or uses a domain name that is identical or confusingly similar to a mark that is distinctive or famous at the time the domain name is registered, and who has a bad faith intent to profit from the mark. The Act outlines nine factors a court may consider in determining whether bad faith exists:

  • The intellectual property rights of the registrant in the domain name;
  • The extent to which the domain name is the same as the registrant's own name or nickname; The registrant's prior use of the domain name in connection with offering goods and services;
  • The registrant's noncommercial or fair use of the mark in a Web site accessible under the domain name;
  • The registrant's intent to divert customers away from the trademark owner's Web site to a Web site that could harm the goodwill of the owner's mark;
  • The registrant's intent to sell the domain name rather than using it for any bona fide purpose, or a prior pattern of such conduct;
  • The registrant's provision of material and misleading false contact information when applying for the domain name, or a prior pattern of such conduct;
  • The registrant's acquisition of multiple domain names which the registrant knows are identical or confusingly similar to, or dilutive of, others' marks; and
  • The extent to which the mark incorporated in the domain name is distinctive or famous.

The owner of the affected mark (including an owner of common law rights in an unregistered mark) may seek actual or statutory damages (from $1,000 to $100,000 per domain name) and a court order against the cyberpirate for forfeiture, cancellation or transfer of the domain name.

If the offending domain name registrant cannot be located, the Act provides for in rem jurisdiction against the domain name itself, allowing the trademark owner to file suit in the U.S. District Court where the domain name authority that registered or assigned the domain name is located. In the United States, most domain names have been registered by Network Solutions, the domain name authority located in Northern Virginia. Thus, most in rem actions will be filed in the U.S. District Court for the Eastern District of Virginia, a court that had previously rejected in rem jurisdiction for domain name disputes. The Eastern District (a/k/a "the Rocket Docket") is known for its fast track procedure, which should be desirable for companies that want to resolve domain name disputes quickly.

The Act is retroactive, in that it applies to domain names registered before the date of enactment, November 29, 1999. Damage remedies are not available, however, with respect to acts of cyberpiracy that occurred before that date. Mark owners can still seek injunctive remedies, as well as damages for acts of cyberpiracy that continue thereafter.

Until now, companies have been forced to rely on an assortment of sometimes ill-suited causes of action to fend off cyberpirates. The most frequently asserted causes of action have been dilution (for famous marks), trademark infringement, and unfair competition, under both the Lanham Act and various state laws. Of these, dilution cases were generally the most successful.

A review of selected cases shows that mark owners generally have had good success in obtaining injunctive relief using traditional remedies. But the reported decisions fail to tell the whole story. To begin with, for every reported decision, there are numerous instances of businesses that simply pay the cyberpirates to avoid the cost and uncertainty of litigation. Moreover, cyberpirates have rarely been required to pay monetary damages. Thus, even with the consistent victories being won by mark owners in court, a cyberpirate's risk/benefit analysis might still generally conclude that cyberpiracy was a profitable venture.

The Act dramatically alters that risk/benefit analysis. Now cyber-pirates can be forced to pay (and businesses can recover) actual or statutory damages. In addition, the cyberpirate can lose its investment in the domain name through forfeiture, cancellation or transfer, even if it manages to avoid being subject to personal jurisdiction.

Because it thus alters the risk/benefit analysis, the Act is likely to diminish, if not end, the most egregious forms of cyberpiracy. The cyberpirate can no longer demand payment for assigning the offending domain name back to the legitimate owner of the mark. Indeed, the bad-faith cyberpirate who registers another's mark is now subject to losing all rights to the domain, as well as being held liable for damages, without even getting to demand a ransom.

Problems Not Addressed by the Act

While the Act provides important new tools for fighting cyberpiracy, it does not address all problems resulting from the emergence of domain names as an alternative to trademarks. The Act does not, for example, address the third problem identified above: the desire of two distinct parties that have legitimate rights in a mark to register the same domain name. The trademark law permits two companies to use the same trademark for different goods and services (DELTA for faucets and DELTA for airline services, for example). In contrast, each domain name must be unique to a single owner in order to carry out its Internet function. It is in this context that businesses have been most surprised to find that their well-established trademark rights are trumped by those who first recognized the value of domain names. The Act does not extend to innocent domain name registrations by those who are unaware of another's rights in the name or who do not have a bad-faith intent to profit from the registration.

The Act also does not address the problem of "warehousing" domain names -- registering words in which no one else has rights at the time of registration with the intent of selling the domain names at a later date for a profit. One likely consequence of the Act will be a sharp increase in the practice of "warehousing" common or otherwise desirable words (to the extent any are left), as reformed cyberpirates look for new sources of domain name profiteering and companies look to stake out parcels of cyberspace for future expansion. The problem with warehousing is that it removes desirable names from the public sphere even where the domain names are not put into use by their registrants.

While there are theoretically an unlimited number of available domain names, the number of practical and desirable domain names under the current domain name system is limited. Most businesses covet a single type of domain name: an easily-remembered brand or word followed by ".com". The desirability of "dot com" domain names will only continue to intensify as the expression "dot com" becomes even more thoroughly engrained in the commercial lexicon.

Domain names have moved rapidly from cyberspace to "real space," cropping up on television and radio commercials, billboards, and magazine ads. The increasing desirability of memorable "dot com" names is being exacerbated by two factors. First is scarcity, resulting from the fact that domain names must be unique. Second is the fact that it is common for Internet users, in the absence of effective directories, to guess at domain names. Thus, domain names based on intuition have inherent value as corporate assets, since they can bring traffic to a site without as great a necessity for advertising and promotion.

The problems associated with both "warehousing" and the desire by two legitimate parties for the same domain name result not from an inherent flaw in the DNS system but from the fact that domain names, which were originally intended to serve as mnemonic means of locating computers, have taken on this new significance as business identifiers. While the current domain name system is robust and scalable as a way of uniquely identifying networked computers, it is flawed as a way of securing rights in business identifiers.

Domain names in the generic Top Level Domains ("gTLDs") are registered on a first-come, first-served basis. Thus, anyone can register a domain name as long as it has not been registered by someone else before them. Various legal and technical solutions have been proposed to "improve" the current DNS. Proposed legislative solutions have included:

  • The International Ad Hoc Committee (IAHC) Proposal, which calls for an increase in the number of gTLDs (e.g., ".com", ".org" and ".net") by adding new ones, such as: ".firm," ".store," ".Web," ".arts," ".rec," ".info" and ".nom."
  • Random Numbers with Directory -- a system that would use random numbers to function as address locators for Internet sites.
  • Random Numbers and Vanity Names -- a hybrid system that would combine features of the present NSI policy of personalized or "vanity" domain names with a system of assigning random domain numbers.
  • International (Nice) Trademark Classification System -- a system that would use the two-digit codes for the 42 international classes currently used to classify trademarks in most countries around the world as TLDs to differentiate domain names in different industries.
  • Standard Industrial Classification Codes -- a system that would use SIC codes to identify the specific nature of the domain name owner's products or services.

In considering these proposals, one wonders whether adding new top level domains that are desirable will just lead to another, more intense, "land grab." Likewise, proposals that make domain names less user-friendly may discourage users and lessen the value of domain names as business identifiers, to the ultimate dismay of those who have established equity in their domain names.

One technical solution for companies with similar marks used in different lines of commerce would involve "sharing" a home page, with links to each party's separate site. This presupposes an amicable resolution between competing parties, however, which is unusual where the stakes are sufficiently high.

Others have suggested that a use requirement be imposed to minimize warehousing of domain names. A similar approach (mandated by the Federal Communications Commission) has helped somewhat to alleviate warehousing of toll free telephone numbers. In the context of domain names, however, it would be relatively easy (and inexpensive) to establish token "use."

While legislative and technical solutions will continue to be explored, the harsh reality is that the problems most businesses face in this area arose because they were slow to recognize the emergence of domain names as powerful business identifiers (but then, who wasn't?). Now, however, no one should be surprised.

Conclusion

Businesses participating in the network economy should reassess their branding, trademark selection and Internet domain strategies in light of the Act. To begin with, businesses should aggressively enforce their rights against attempted cyberpiracy using the tools made available in the Act. Businesses should also pursue coordinated trademark selection and domain name registration strategies: don't select a trademark without registering the appropriate domain names, and don't rely on a domain name registration alone. Trademark clearance searches should include a review of domain name registration.

In the world of tangible real estate, it is often said that nothing is more important than location. In the intangible cyberworld, domain names have become equivalent to location. Understanding this simple equation is a key to recognizing the value of brands and domain names in the network economy. Notwithstanding proposals for changes to the domain name system itself, major overhaul will become increasingly unlikely as brand equity continues to be built in online locations at great expense. It seems more likely that domain name rights thus established in these formative years of the Internet will create enormous wealth in the future. But who will be the real estate magnates of the network economy?

Those who protect their location in cyberspace may well be the 21st century real estate barons, while those who let their rights slip away could take the place of the Lenape Indians, who are said to have sold Manhattan to the Dutch for $24. One explanation of the Lenape's sale of Manhattan is that the notion of "property ownership" was foreign to them. Will the same be said of those who fail to secure their place in cyberspace?

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John I. Stewart Jr.
Partner – Washington, D.C.
Phone: +1 202.624.2685
Email: jstewart@crowell.com