Category Archives: Cybersquatting

The Innocent Purchaser Defense as it Relates to Aquiring Domain Names

On April 6, 2010, the Ninth Circuit Court of Appeals sitting in California held that more facts needed to be developed before a lawsuit respecting the wrongful acquisition of domain names could be decided. In the course of that holding, the Court in  CRS Recovery, Inc. v. Laxton, 600 F.3d 1138 (9th Cir. 2010), analyzed the legal principal called the important “innocent purchaser defense” under California law.
The Court’s analysis was as follows. It stated that “[u]nder California law, ‘[c]onversion is generally described as the wrongful exercise of dominion over the personal property of another.” Fremont Indem. Co. v. Fremont Gen. Corp.,148 Cal.App.4th 97, 55 Cal.Rptr.3d 621, 638 (2007). The common law rule thus holds that so long as [the defendant] exercised conscious dominion and control over [the domain at issue], he assumed the risk on the question of whether he is correct about the true title holder. Poggi v. Scott,167 Cal. 372, 139 P. 815, 816 (1914). Further, where a person entitled to possession demands it, the wrongful, unjustified withholding is actionable as conversion. See 5 Witkin Summary of Cal. Law Torts,§ 712(2) (10th ed.2005).

California does, however, recognize an innocent purchaser defense. ‘As a general rule, an innocent purchaser for value and without actual or constructive notice that his or her vendor has secured the goods by a fraudulent purchase is not liable for conversion.’ ” Express Media Group, LLC v. Express Corp.,No. C 06-03504, 2007 WL 1394163, at *5 (N.D.Cal. May 10, 2007) (quoting Witkin, supra, at § 716 (Innocent Buyer)). The law distinguishes between a purchaser whose vendor obtained title by fraud and a purchaser whose vendor obtained title by theft, because an involuntary transfer results in a void title, whereas a voluntary transfer, even if fraudulent, renders the title merely voidable. Id. (citing Cal. Com.Code § 2403(1)); see also State Farm Mut. Auto. Ins. Co. v. Dep’t of Motor Vehicles,53 Cal.App.4th 1076, 62 Cal.Rptr.2d 178, 181 (1997). Therefore, “an innocent purchaser for value and without notice, actual or constructive, that his vendor had secured the goods by a fraudulent purchase, is not liable for conversion.” 

 Oakdale Vill. Group v. Fong,43 Cal.App.4th 539, 50 Cal.Rptr.2d 810, 814 (1996)… .

“The key determination was thus whether [the original domain owner] lost control of [the domain at issue] as the result of theft or fraud. …”  On that basis, the Court “remand[ed] to the district court for further fact-finding to resolve Laxton’s claims that Mayberry lost rl.com due to fraud.” 

Id. at 1145-6

Comments/Questions: ljm@gdnlaw.com

© 2009 Nissenbaum Law Group, LLC

The Confines of a Cybersquatting Claim: Western District of New York Case Emphasizes Limitations

Cybersquatting: The United States District Court for the Western District of New York recently found that cybersquatting had not occurred in connection with the registration of a similar domain name. In Dudley v. HealthSource Chiropractic, Inc., 2008 WL 4507714, the Court found that even though the mark at issue was protectable; and even though the allegedly infringing domain name was similar to the protected mark; the plaintiff could nevertheless prevail on a claim arising out of a violation of the Anti-cybersquatting Consumer Protection Act (ACPA).

The ACPA is a federal statute instituted in connection with federal trademark law. The ACPA specifically prohibits the registration of a domain name that incorporates a famous or distinctive mark when that registration was conducted with a bad faith intent to profit from the registration. The most common example of cybersquatting is when a company or person beats the legitimate trademark owner to the registration punch and then offers to sell the domain name at an exorbitantly inflated rate to the trademark owner. For instance, if someone registered www.dietcoke.com, before the Coca-Cola company did and then approached Coca-Cola with an offer to sell the domain to the company for hundreds of thousands of dollars, that would be a clear example of cybersquatting. However, the bad faith intent to profit can often be demonstrated in other, less obvious, ways as well. For example, an argument could be made that the operation of a commercial website on the allegedly infringing domain would likewise be considered an “intent to profit.” Similarly, arguments have been made that even if the website is not commercial in and of itself, but it sells advertising space, that the infringer arguably is using the infringing aspects of the domain with a “bad faith intent to profit.”

Nevertheless, the Court in Dudley, indicated that there are some limitations on the use of the ACPA. Dudley was based on a claim by a chiropractor who had been operating in Rochester, New York under the business name HealthSource Chiropractic. In connection with that business, he had registered the domain name healthsourcechiropractic.com. Mr. Dudley then sued the defendant based on its use of the business name “HealthSource Chiropractic” and its adoption of the domain name healthsourcechiro.com. In making its determination, the Court noted that Dudley was the prior user to the mark and accordingly had senior rights. Importantly, this was despite the fact that HealthSource Chiropractic, Inc., the defendant, had registered the mark with the USPTO first. This underscores the important legal principle that prior use trumps registration.

The Court noted that the defendants’ domain name was confusingly similar to the plaintiff’s common law trademark. It is important to note that the Court distinguishes the standard that is applied for this purpose. Specifically, the Court noted that “for purposes of a claim made under the ACPA, ‘‘[c]onfusingly similar’ is a different standard from the ‘likelihood of confusion’ standard for trademark infringement’ . . . [U]nder the ACPA, ‘whether a domain name is confusingly similar to a trademark is to be evaluated ‘without regard to the goods or services of the parties.’” The Court further noted that for ACPA evaluation purposes, the Court compares the plaintiff’s mark and the defendant’s domain name. In this regard, the factors that are reviewed include “their intrinsic sounds, sight, and meaning, without reference to goods or services with which the domain name is associated by the parties’ use.”

Notwithstanding the fact that applying this test the Court found that the mark and domain name were similar, the Court determined that the defendant had not engaged in cybersquatting. This decision was specifically based on a determination that the defendant had not had the requisite bad faith intent to profit. The Court then proceeded to analyze various factors to determine whether or not the bad faith intent was present. The factors examined include: (a) whether the defendant has trademark rights in the domain name; (b) whether the domain name consists of a legal name; (c) prior use of the domain name in connection with the bona fide offering of services; (d) bona fide noncommercial or fair use of the mark; (e) intent to divert consumers; (f) offer to transfer, sell, or otherwise assign the domain name to the mark owner or any third party for financial gain; (g) information when applying for registration of the domain name; (h) acquisition of multiple domain names which are identical or confusingly similar; and (i) whether the mark incorporated into the domain name is a distinctive and famous mark.

However, critical to the Court’s determination was its conclusion that the defendant’s acts were not that which had been targeted by the ACPA. Again, the Court noted that the ACPA’s focus was aimed at those who “‘register well-known brand names as Internet domain names in order to extract payment from the rightful owners of the marks, . . . register well-known marks to prey on consumer confusion by misusing the domain name to divert customers from the mark owner’s site to the cybersquatter’s site, and target distinctive marks to defraud customers, . . .’ Here, it is clear that the defendants did not purchase a domain name for the purpose of holding it ransom so as to later extract payment from the ‘rightful’ owner of the mark.” The Court specifically noted in this determination that the defendant’s own use of the mark had commenced prior to it learning of the plaintiff’s use. In other words, the mere fact that the domain name incorporated a trademark, and that the two were “confusingly similar” was not enough.

Comments/Questions: ljm@gdnlaw.com

© 2009 Nissenbaum Law Group, LLC