Tuesday, March 15, 2011

In Which We Learn the Difference Between “Being Slow” and “Bad Faith” (Anticybersquatting Consumer Protection Act)

One of the interesting things coming forward in the AntiCybersquatting Consumer Protection Act (ACPA) cases is that even though a defendant can register a domain name in good faith, the use of that domain name can morph into bad faith and violate the ACPA. This commonly occurs when there is a contractual arrangement between the trademark owner and the domain name registrant that eventually “sours.”

In today’s case, In Re Gharbi, Bankruptcy Court, (WDTX, Austin Div. March 3, 2011), Defendant Gharbi was a franchisee of Century 21 Real Estate, as a franchisee he registered several domain names (century21austin.com, texascentury21.com, and www.texasproperties.com/century21capitalteam), and eventually the franchisee agreement lapsed. According to Plaintiff Century 21 Real Estate, Defendant continued to use those domain names and Plaintiff sued. Last year, Plaintiff filed a Motion for Summary Judgment (this is a preliminary procedure where a party says “no relevant facts are in dispute and the court can decide this case on paper”). However, the Court at that time was uncertain, stating

The evidence in this case does not positively establish that the Defendant used the Century 21 mark in his businesses' domain names with the specific intent to profit. Although the evidence could suggest that the Defendant did not change the domain names because he wanted divert consumers from authorized Century 21 realtors to his website, it is also possible that the Defendant was simply slow to act in removing the mark and shutting down the businesses' websites.

In Re Gharbi, Bankruptcy Court (WDTX Austin Div. April 19, 2010) (emphasis added).

So.... was Defendant simply slow to act?

At trial, evidence came forward that the Defendant had hired a webdesigner to manage his websites. After learning that the franchisee agreement had lapsed, Webdesigner

sent a letter to Defendant, informing him that Defendant's websites continued to use Century 21 trademarks and names, which Defendant no longer had a right to do. [Webdesigner] included an agreement for Defendant's signature authorizing [Webdesigner] to remove the web content and "turn off" Defendant's websites. [Webdesigner] testified that Defendant, upon signing the document, added a note next to the signature block reading "Do not turn off the site. Forward it to the new website." The purpose of this instruction, according to [Webdesigner], was to allow the domain names that Defendant used for his Century 21 websites to serve as "pointers," which would direct users to the website of Defendant's new real estate business. ... In a letter dated September 7, 2007, [Webdesigner] advised Defendant against using these domain names as pointers because they appeared to be "possible Century 21 infringements."

Plaintiff produced evidence, partly from archive.org, demonstrating that the websites remained online, pointing to Defendant’s new website.

The court’s ACPA analysis turned on this:

The evidence adduced at trial shows that Defendant acted with the intent to divert consumers from Century 21's online locations (through the use of the websites) to Defendant's new place of business for the purpose of commercial gain. [Webdesigner] testified that Defendant asked about the advisability of using Century 21 names as "pointers" to lead to his website. [Webdesigner] stated that he advised Defendant against the idea and recommended that the domain names be turned off. Defendant, however, provided written instructions to [Webdesigner] not to turn off the domain names, but rather to use those domain names as pointers to Defendant's new website. . . . Defendant's conduct suggests a clear intent from Defendant to use the Century 21 name to direct traffic to his new business for commercial gain. Accordingly, after hearing the arguments of both parties, there is ample evidence to find that Defendant had a bad faith intent to profit in regard to the use of the domain names in question.

With the souring of a relationship, good faith transformed into bad faith and a violation of the ACPA.

In ACPA actions, Plaintiffs can ask for damages in the form of actual damages or statutory damages. Actual damages could be the amount that a defendant profits from the misdeeds or the losses incurred by plaintiff. In lieu of actual damages, plaintiffs can ask for statutory damages in an amount up to $100,000 per violation. Plaintiffs may opt for statutory damages where actual damages may be difficult to establish.

In this case, Plaintiff asked for statutory damages, and the court struggles to determine the appropriate amount of the award. The court noted

The Fifth Circuit has stated that the statutory damage provisions of ACPA are akin to the statutory damages provisions of the copyright laws, which the Supreme Court has said "not merely compel[] restitution of profit and reparation for injury but also [are] designed to discourage wrongful conduct." The Ninth Circuit has stated that the policy behind Section 1117 damages is to "take all economic incentive out of trademark infringement." A District Court in California discussed several factors to take into consideration when determining the amount to award a plaintiff under § 1117(d). Those factors include the egregiousness or willfulness of the cybersquatting conduct, the use of false contact information to conceal its infringing activities, the patterns of infringing conduct by the defendant, and other behavior by the defendant showing an attitude of contempt towards the court or the proceedings.

With that guidance, the Court noted the range of statutory awards that have been established through the limited caselaw:

  • Kiva Kitchen & Bath Inc. p 320-21 5th Cir. 2009: "The Fifth Circuit, in upholding an award for the statutory maximum determined that $100,000 per violation was warranted "in light of [defendant's] bad faith intent to divert potential customers to [defendant's] website and because [plaintiff] is a direct competitor of [defendant] in Dallas," and because "the [defendants] had refused to stop forwarding the infringing domain names or to transfer them to [plaintiff] until just a few weeks before trial.""
  • Electronics Boutique Holding Corp., p 8 EDPa Oct. 30, 2000: "the Eastern District of Pennsylvania awarded a plaintiff the statutory maximum of $100,000 per violation because the defendant had been previously enjoined from similar cybersquatting conduct and stated that the defendant "boldly thumbs his nose at the rulings of this court and the laws of our country. Therefore I find that justice in this case requires that damages be assessed against [defendant] in the amount of $100,000 per infringing domain name...""
  • E & J Gallo Winery, 286 F.3d at 278. Upholding the district court's award of $25,000 in statutory damages when the plaintiff in the case did not present any evidence that it lost any business due to the defendant's actions, but was at risk of losing business and of having its reputation tarnished.
  • Doctors Assoc., D Minn 2010. Awarding $25,000 in statutory damages.
  • Carnivale DDel 2010. Awarding damages of $25,000 in statutory damages.
  • Anlin, EDCA 2007. Awarding damages of $2500 per domain name for five domain names where plaintiff made no showing that it suffered damages.
  • Mattel, p. 5 SDNY Sept 7, 2011. Awarding "a plaintiff the statutory minimum of $1,000 per violation under § 1117(d), stating that "[t]he need for deterrence is not exceptional in this case since little if any actual harm has been done to [plaintiff], considering the minuscule number of web hits and the solitary sale of a pair of stockings." "

In this case, the court notes that Defendant’s use of the domain names was initially permissive, but that in time Defendant lost permission to use the trademarks and was advised that the use of the marks could be illegal. The Court concluded,

“While clearly wrong and intentional, the Court does not believe that Defendant's conduct rises to the level to warrant an award of the statutory maximum. The Court therefore finds that an award of $25,000 per violation, or $75,000 total, is just.“
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