Keeping a Website as Leverage Is 'Intent to Profit' Under Cybersquatting Act

Bloomberg BNA’s Patent Trademark & Copyright Journal® is the IP industry’s premier news service, offering customizable, objective, timely, and reliable news coverage and commentary from leading...

Using a domain name with bad faith intent by holding the it for ransom gives rise to liability under the Anti-Cyberquatting Consumer Protection Act, even if a domain name was put up incorrectly and used properly for years, the U.S. Court of Appeals for the Ninth Circuit ruled Oct. 27 (DSPT International Inc. v. Nahum, 9th Cir., No. 08-55062, 10/27/10).

Affirming a jury verdict that a clothing company's former employee caused $152,000 in damages to the company, the court ruled that the employee intended to profitunder the cybersquatting statute by keeping the company's domain name and using it as leverage to get money he said the company owed him. Further, the court said that the jury correctly concluded that the company's domain name, being held hostage by the former employee, was a distinctive mark and that it was confusingly similar to the company's trademark.

Clothing Website Taken Down; Huge Loss.

Paolo Dorigo founded DSPT International, which designs, manufactures, and imports men's clothing. Its brand name since 1988 has been Equilibrio and, in 1999, to company created the EQ brand name.

Dorigo brought his friend, Lucky Nahum, into the business and Nahum arranged with his brother to build a website for the company. The website, www.eq-Italy.com, was created solely for DSPT for the purpose of showing DSPT clothes. Nahum registered the site to himself, unbeknownst to Dorigo.

By 2005, the website served as DSPT's catalog and generated most of the business for the company. However, Dorigo and Nahum's relationship soured and Nahum informed Dorigo by e-mail after a trade show that he was not renewing his contract with DSPT.

Thereafter, in October 2005, DSPT's website disappeared. When a user typed eq-Italy.com a screen that said “All fashion related questions to be referred to Lucky Nahum at: lnahum@yahoo.com” appeared. DSPT sales plummeted without a website, a lot of inventory had to be sold below cost, and DSPT spent over $31,000 writing to customers explaining the situation.

DSPT sued Nahum for cybersquatting and trademark infringement in violation of the Lanham Act. Nahum counterclaimed for around $15,000 in additional commissions he claimed he was owed.

A jury returned a special verdict finding that EQ and Equilibrio were valid trademarks owned by DSPT; that Lucky Nahum registered, trafficked in, or used the www.eq-Italy.com domain name; that the name was identical or confusingly similar to DSPT's distinctive trademark; and that Nahum committed acts with a bad faith intent to profit from DSPT's mark. The jury awarded DSPT $152,000 in damages and found that DSPT had not breached its contract with Nahum and owed him nothing.

Judge Otis D. Wright of the U.S. District Court for the Central District of California denied Nahum's renewed motions for judgment as a matter of law, remittitur, and new trial.

Nahum appealed.

Evidence of 'Intent to Profit.'

The Anti-Cybersquatting Consumer Protection Act, codified at 15 U.S.C. § 1125(d)(1)(A) establishes civil liability for cyberpiracy.

Nahum argued that the statute only applies to one who registers a well-known trademark as a domain name, and then attempts to profit in bad faith by selling the domain back to or using the domain to divert business from the trademark holder. Further, he argued that he cannot owe damages under the statute because 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.

Judge Andrew J. Kleinfeld said that, although Nahum's arguments are not implausible, they are “mistaken.” The court acknowledged that the cybersquatting statute 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 said.

“But the statute, like so many, is written more broadly than what may have been the political catalyst that got it passed,” the court said. “Though there was no evidence of anything wrong with Nahum's registration of the domain name to himself, the evidence supported a verdict that Nahum subsequently, years later, used the domain name to get leverage for his claim for commissions.”

Next, the court said that the statutory factors--the most pertinent of which here, Factor VI, is the person's offer to transfer, sell, or otherwise assign the domain name to the mark owner for financial gain without having used or the intent to use the domain name in the bona fide offering of any goods or services--for bad faith intent establish that use to get leverage in a business dispute can establish a violation. Nahum could not have reasonably believed that he could lawfully use eq-Italy when he no longer worked at DSPT, the court said.

The court also said that Factor VI “may fairly be read to mean that it is bad faith to hold a domain name for ransom, where the holder uses it to et money from the owner of the trademark rather than to sell goods.” The jury in this case had evidence that Nahum was using the domain name as leverage to get DSPT to pay him the dispute commissions, the court said. Further, it does not matter that Nahum's claim for unpaid commissions was meritless, because he could not hold the domain name for ransom even if he had been owed commissions, the court said.

The court concluded its cybersquatting analysis:  

In this case, shortly after DSPT's content disappeared from eq-Italy.com, Nahum e-mailed Dorigo stating that the eq-Italy.com website would be back up under a new format. Nahum testified that he would transfer the domain to DSPT after Nahum and DSPT were able to resolve the “monetary issues regarding [Nahum's] commissions.” Nahum's subsequent employer testified that Nahum told him that DSPT wanted the website returned to them, but Nahum was keeping it to use it as leverage in order to get the money he said DSPT owed him. This is evidence of an “intent to profit” under the Act. 

 

 

Domain Name Confusingly Similar.

Next, Nahum argued that there was no evidence from which a jury could conclude that www.eq-Italy.com was a distinctive mark, or that it was confusingly similar to DSPT's “EQ” mark.

First, the court said that the latter point was meritless because the evidence showed that only DSPT used the mark “EQ” for selling men's shirts. The only other use that was “even arguably confusingly similar was EQ equestrian clothing, but the jury could conclude that retailers shopping for men's shirts are unlikely to be confused by a mark also used for equestrian clothing, and that the style in which the marks were displayed was too different to foster confusion.”

As for whether eq-Italy.com was confusingly similar to EQ, the court said that the jury could have concluded that, at the time Nahum used it, the mark was distinctive and his use of the site after leaving DSPT would confuse retailers trying to shop DSPT's catalog at the website where they had done so before. In fact, the court said that Dorigo had testified that several customers were actually confused by the alteration of the website.

Thus, the court affirmed the distinctive and confusingly similar ruling.

Damages Award Affirmed.

Finally, Nahum argued that there was insufficient evidence to support the damages award of $152,000.

Under the cybersquatting statute, DSPT was entitled to any damages is sustained, the court said. The wronged party also has the burden of proof as to damages, but the nature of the proof required depends on the circumstances of the case. Because Nahum did not, so far as the record indicates, divert trade from DSPT to himself or his new employer, DSPT's profits were not sought and are not at issue, only consequential damages to DSPT, the court said.

“In the circumstances of this case, precision in the calculation of damages is neither necessary nor possible,” the court said. “Nahum's wrong made it impossible to know with any precision what DSPT's sales would have been had he not committed his wrong. … Given the impossibility of precise measurements, the jury had sufficient tools for estimating DSPT's actual damages, including financial statements bracketing the period of the loss and testimony that DSPT spent $31,572.72 recreating its website.”

The court said:  

We must uphold the jury's damages verdict “whenever possible, and all presumptions are in favor of the judgment.” It is quite possible that the jurors believed Dorigo's testimony about the impact on sales of the unavailability of DSPT's website, and some jurors were familiar with financial statements and went through them, showing the other jurors that $150,000 was a reasonable estimate of the lost profits and replacement cost. In closing argument, DSPT's lawyer argued based on the financial statements for lost sales of $1,200,000 for the relevant period, and a profit margin around 20%, plus approximately $32,000 for rebuilding the web site. After subtracting $32,000 from the $152,000 award, only $120,000 of lost profits need to be justified. DSPT's closing argument would suggest a figure of about $240,000 for lost profits (20% of $1,200,000). The jury might reasonably have examined the financial statements, discounted the $240,000 in light of the financial statements and in light of other inferences that might explain some of the loss, and concluded that about one half DSPT's lawyer's argued figure, $120,000, was a fair estimate of its lost profits. That would not be unreasonable. 

 

 

Thus, the court affirmed the district court's award of $152,000 in damages to DSPT.

Judges Cynthia H. Hall and Barry G. Silverman joined the opinion.

Nahum was represented by Andres F. Quintana, Woodland Hills, Calif. DSPT was represented by John C. Gorman, San Jose, Calif.

By Nathan Pollard


Opinion at http://pub.bna.com/ptcj/085506Oct27.pdf