Court Allows Microsoft’s Claims for Contributory Cybersquatting and Dilution to Move Forward — Microsoft v. Shah

[Post by Venkat Balasubramani]

Microsoft Corp. v. Shah, et al., C10-0653 (W.D. Wash.; Jan. 12, 2011)

WSJ’s Law Blog reports that Judge Martinez in the Western District of Washington (Seattle) issued an order allowing Microsoft to proceed on a novel theory of cybersquatting. Judge Martinez rejected defendants’ motion to dismiss and held that Microsoft properly alleged claims for contributory cybersquatting and contributory trademark dilution.

The court’s discussion of the background facts is brief (I’ve uploaded Microsoft’s amended complaint to Scribd, which you can access here):

Defendants are alleged to have registered domain names containing Microsoft trademarks in order to drive traffic to their website. Consumers seeking a Microsoft website or product are mistakenly drawn to Defendants’ website through Defendants’ alleged use of Microsoft trademarks. Consumers who believe they are downloading a Microsoft product are then allegedly tricked into interacting with Defendants, who in turn solicit users to download emoticons. Defendants allegedly receive payment when a visitor clicks on links or advertisements displayed on their website, or when a visitor downloads or installs a product such as the emoticon toolbar.

Moreover, Defendants are alleged to have induced others to engage in infringement and cybersquatting by providing instruction on how to misleadingly use Microsoft marks to increase website traffic. Further, Defendants also allegedly sold a product that contained software to allow buyers to easily create websites incorporating Microsoft marks. This product allegedly included a video narrated by Defendant Shah.
[emphasis added]

Contributory Cybersquatting: Defendants moved to dismiss on the basis that claims for contributory cybersquatting and dilution are “not recognized.” The court looks to two prior cases (Ford Motor v. Greatdomains.com and Solid Host v. Namecheap) and concludes that plaintiffs can assert claims for contributory cybersquatting. In Greatdomains, the district court discussed the “flea market” analysis but also found that since the cybersquatting statute required bad faith, a claim for cybersquatting would require a heightened standard – a cause of action against “cyber-landlords” would only be available in “exceptional circumstances.” The court in Greatdomains declined to hold the defendant liable for contributory cybersquatting. Solid Host is a case where domain proxy registration services declined to turn over the identity of alleged thief and Solid Host brought contributory cybersquatting claims against the entity offering the proxy registration services. As an earlier blog post from Professor Goldman notes, the court there cited to the knowledge and control standard from the Ninth Circuit’s Lockheed case, under which a plaintiff was required to prove:

that the defendant had knowledge and ‘[d]irect control and monitoring of the instrumentality used by the third party to infringe the plaintiff’s mark’.

In addition to these two cases, the court also cites to a recent case where the Ninth Circuit held – based on its view of an expansive reach of the ACPA – that a defendant who held on to a domain name to gain leverage in a business dispute (where the defendant claimed he was owed money) could be held liable under the ACPA. (“Holding on to a Domain Name to Gain Leverage in a Business Dispute Can Constitute Cybersquatting — DSPT Int’l v. Nahum.”)

Oddly, the court’s discussion of the facts doesn’t connect the dots. The court several times cites to the fact that the defendants sought to profit from “teaching others how to trade off the . . . recognition of [Microsoft's] mark in order to drive traffic to a given website,” but the complaint doesn’t seem to say that defendants sold any domain names to these third parties or helped these third parties acquire any domain names. The facts actually remind me of the SEO/web designer case Professor Goldman blogged about a couple of weeks ago where contributory trademark claims based on counseling and coaching were allowed to proceed against a web designer/SEO firm. (See “SEO/Web Design Consultant Faces Contributory Trademark Liability for “Copycat” E-Commerce Site–Roger Cleveland Golf v. Price“.) Unless you have some revenue sharing arrangement going on, or benefit from the exploitation, it doesn’t seem like giving someone the tools that would allow them to infringe should on its own subject you to liability.

Contributory Dilution: The court also declined to dismiss the cause of action for contributory dilution based on defendants “encourage[ment] of others to utilize the famous Microsoft mark in such a way that could cause dilution of the . . . mark.” Plaintiffs consistently push for contributory dilution claims, and courts are not receptive to them. (See, e.g., the Second Circuit’s result in Tiffany v. eBay: “eBay Mostly Beats Tiffany in the Second Circuit, but False Advertising Claims Remanded.”) It’s less than satisfying here for the court to recognize the cause of action, but treat the discussion of it as an afterthought.

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The court gives lip service to the heightened test that is appropriate for a cause of action for contributory cybersquatting, but seems to give Microsoft a pass applying either of the tests to the allegations. It’s tough to say whether this cause of action will alter the landscape for either cybersquatting or dilution, or whether this is a scenario where the court let the contributory claims move forward since Microsoft alleged primary claims for cybersquatting that on their face look strong. (Courts seem to have this bad habit.) If it sticks, it seems like a broadening of the scope of ACPA liability, which courts in the Ninth Circuit seem willing to do.

Other coverage:

On Microsoft and ‘Contributory Cybersquatting’” (WSJ Law Blog)

Microsoft Gets Green Light for Suit Asserting Novel Expansion of Cybersquatter Liability” (Law.com)

Western District Denies Dismissal of Novel Trademark Theories” (Mike Atkins)

Related posts:

Contributory Cybersquatting and the Impending Demise of Domain Name Proxy Services?–Solid Host v. NameCheap

Holding on to a Domain Name to Gain Leverage in a Business Dispute Can Constitute Cybersquatting — DSPT Int’l v. Nahum

SEO/Web Design Consultant Faces Contributory Trademark Liability for “Copycat” E-Commerce Site–Roger Cleveland Golf v. Price

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