Domainer Loses Cybersquatting Lawsuit–Verizon v. Navigation Catalyst

By Eric Goldman

Verizon California, Inc. v. Navigation Catalyst Systems, Inc., 2008 WL 2651163 (C.D. Cal. June 30, 2008). The Justia page. A page with some of the early filings.

[Sorry for the delay blogging this–it just showed up on my radar screen]

This is an extremely interesting and potentially precedent-setting case regarding domaining and domain name tasting. The court condemns both practices, leading to a preliminary injunction against the domainer and its registrar based on the Anti-Cybersquatting Consumer Protection Act (ACPA). As far as I can recall, this is the first time that a domainer has lost an ACPA lawsuit in court, and it provides an important data point confirming that domaining can be cybersquatting (a previously unresolved issue). I also believe that this is the first time a domain name registrar has lost an ACPA lawsuit. Although the court wasn’t asked to assess damages (it was just an injunction request), it’s clear from the strongly worded opinion that Verizon will get paid if the case gets that far. As a result, this is a major loss for domainers and might very well force them to change their practices.

The defendants are Navigation Catalyst, a domainer, and Basic Fusion, its registrar. Navigation Catalyst engaged in some common domainer practices, including:

* high volume automated domain name tasting. Many of the registered domains have nothing to do with anyone’s trademark, but some were typographical error versions of Verizon’s trademarks (allegedly, nearly 1400 were variations of Verizon’s trademarks)

* trademark “scrubbing” of domain names during the tasting period (both an automated blacklist and a manual review)

* disabling ads on any challenged domains and offering to transfer those domain names to the trademark owner

Despite the scrubbing, Navigation Catalyst registered and kept 126 domain names that Verizon alleges infringe its trademark. Navigation Catalyst also tasted nearly 1300 other challenged domains, and as the court points out, made some money from those domains during the tasting period.

Navigation Catalyst’s main defense is that it merely reserved the domains during the tasting period instead of “registering” them (the ACPA statutory requirement) because they hadn’t paid for the domains prior to the end of the grace period. Not surprisingly, the court is completely unimpressed with this sophistry.

Further, the court determines that domain tasting is a bad faith intent to profit under the ACPA:

It is clear that their intent was to profit from the poor typing abilities of consumers trying to reach Plaintiffs’ sites: what other value could there be in a name like Further, the sites associated with these names often contained links to products directly competitive with Plaintiffs’ cellphone and internet businesses, potentially diverting consumers who would otherwise have purchased goods or services from Plaintiffs away from Plaintiffs.

Finally, the defendants tried to argue that Verizon had unclean hands because of Verizon’s monetization of wildcard traffic in its FIOS service. Despite some pretty apparent duplicity on Verizon’s part, this argument also fell on deaf ears.

While this is a big loss for the domainer, it’s a shocking ruling against the registrar. After all, the ACPA specifically limits injunctions against domain name registrars (see 15 USC 1114(2)(d)(i)(II)), and the court did not discuss this section at all or otherwise why an injunction against the registrar was appropriate. I suspect the registrar should be able to get the court to clarify or reconsider its ruling if it asks.

It will be interesting to see how this ruling affects the domainer industry. There is absolutely no good news for them in this ruling. This court rejected the standard risk-management that domainers claim protect them from cybersquatting liability. Further, the big win will only encourage Verizon–already one of the most aggressive plaintiffs against domainers–to keep suing, and it might spur other trademark owners to join the party. Although a single ruling like this often doesn’t change an industry overnight, I wouldn’t be surprised if we look back in a couple of years and point to this ruling as the beginning of the end of standard domaining practices circa 2007-08.