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

[Post by Venkat]

DSPT International v. Nahum, Case No. 08-5506 (9th Cir.; Oct. 27, 2010)

This case involves the familiar story of a company leaving the domain name registration in the hands of someone who performed web design services (in this case, the registration was left in the name of the web designer’s brother) and the registrant later refusing to turn over the domain name due to a dispute over unfulfilled obligations to the registrant.

DSPT is men’s clothing importer which was founded by founded by Paolo Dorigo. Dorigo “brought his friend Lucky Nahum into the business.” To serve a “younger market with somewhat ‘trendier, tighter fitting fashion,’ the company created the EQ brand name in 1999.” Lucky’s brother handled the web design, and the domain name for DSPT’s website (eq-italy.com) was registered in Lucky’s name. Over time, the website grew in importance to DSPT’s business. In 2005, Lucky and Dorigo did not see eye to eye on the terms of their relationship and parted ways. Lucky declined to renew his agreement with DSPT and went to work for a competitor. Shortly thereafter, DSPT’s website disappeared, and when customers who went to access the website saw the following message:

All fashion related questions to be referred to Lucky Nahum at: lnahum@yahoo.com.

DSPT sued Lucky alleging a variety of claims, including for cybersquatting. Lucky turned around and counter-claimed for the $14,936.86 in commissions that he claimed he was owed. The jury found for DSPT and awarded it $152,000.00. It also rejected Lucky’s claim for unpaid commissions.

On appeal, the key question was whether Lucky’s actions fit the statutory definition of cybersquatting – i.e., whether the domain name was registered or used with a “bad faith intent to profit from the plaintiff’s mark.” Lucky argued that there was no “bad faith intent to profit” from DSPT’s trademark because he only used the domain name to try to get money which he was rightfully owed, and even if he intended to profit from something, it was not from DSPT’s goodwill in the mark. The Ninth Circuit disagreed, construing the statute broadly, to find that holding the domain name hostage “to get leverage in a business dispute can establish a violation.” The court notes that while the initial registration of the domain name was obviously not in bad faith, Lucky’s subsequent “use” of the domain name in bad faith was enough to constitute a violation. Interestingly, the court acknowledged that Lucky never actually offered to “sell” the domain name back to DSPT:

Though there was no direct evidence of an explicit offer to sell the domain to DSPT for a specified amount, the jury could infer the intent to give back the site to DSPT only if DSPT paid Nahum the disputed commissions. The ‘intent to profit’ . . . means simply the intent to get money or other valuable consideration. “Profit” does not require that Nahum receive more than he is owed on the disputed claim. Rather, profit includes an attempt to procure an advantageous gain or return.

Lucky also argued that DSPT’s trademark was not distinctive, the domain name was not confusingly similar to DSPT’s mark, and that there was insufficient evidence to support the jury’s $152,000 verdict. The court doesn’t give much credence to any of these arguments.

__

The court’s conclusion on the core ACPA issue relies on a liberal reading of the statute. One element of the statute is that the defendant must act with “bad faith intent to profit from [the] mark” [emphasis added], and it’s not hard to find cases construing the statute narrowly. (On the other hand, some Ninth Circuit cases have taken a broad view of the ACPA. See, e.g., Bosley Medical Institute v. Kremer (CMLP page).) Here, there was no explicit offer to sell the domain name back to the plaintiff, and it’s far from clear that Lucky “used” the domain name in any way. The court was likely influenced by the equities of the situation and the fact that the jury sided with DSPT. Lucky was allegedly owed approximately $14,000 and after going to work for a competitor, he effectively shuts down DSPT’s website, which is one of DSPT’s main channels of business. Although the precise amount of DSPT’s losses are the subject of dispute, they far eclipsed the $14,000 which Lucky sought to recover.

Another issue which the court did not focus on was whether DSPT’s mark was famous or distinctive at the time of registration of the domain name (as required under the ACPA). Richard Santalesa takes a look at this issue here: “Surprising Cybersquatting Domain Name Dispute in the Ninth Circuit.”

The obvious (but always worth repeating) takeaway is that registration of a company’s domain name should always be in the company’s name. Another would be that holding a domain name hostage to gain leverage in a business dispute is a risky course of action.

Additional coverage:

Richard Santalesa: “Surprising Cybersquatting Domain Name Dispute in the Ninth Circuit.”

Michael Atkins: “Bad Faith Intent to Profit After Innocent Registration Constitutes Cybersquatting.” Mike also covers another factually similar decision (web designer / client dispute) from the Ninth Circuit that arrived at the opposite result. This time the dispute was between the law firm and its web designer, and the law firm lost after a jury trial because it failed to show secondary meaning for the marks in question: “Ninth Circuit Affirms Dismissal of Seattle Law Firm’s Cybersquatting Case.”

UPDATE from Eric: A few analogous cases:

* Web Developer Didn’t “Convert” Website–Conwell v. Gray Loon

* Outdated Whois Information Might Lead to False Light Tort–Meyerkord v. Zipatoni

* Taking Intangible Electronic Files is Criminal Fraud–NM v. Kirby

* Cautionary Tale of Website Co-Ownership–Mikhlyn v. Bove

* Another Cautionary Tale of Joint Website Ownership–TEG v. Phelps