Circuit’s Decision Clarifies Law Of Contributory Cybersquatting

October 28, 2014 | Privacy, Data & Cyber Law | Professional Liability | Complex Torts & Product Liability | Intellectual Property

Nearly 15 years ago, Congress passed the Anticybersquatting Consumer Protection Act (“ACPA”).[1] The ACPA amended the federal trademark law known as the Lanham Act by adding two new causes of action aimed at cybersquatting.[2] Under the ACPA, a person may be civilly liable “if … that person has a bad faith intent to profit from that mark … and registers, traffics in, or uses a [protected] domain name.”[3]  Congress also created an in rem action to facilitate recovery of domain names by their rightful owners.[4]

Although courts are clear that the Lanham Act provides for a cause of action for secondary or contributory liability,[5] whether a claim for contributory cybersquatting exists under the ACPA has remained in some dispute. Last year, in Petroliam Nasional Berhad v. GoDaddy.com,[6] the U.S. Court of Appeals for the Ninth Circuit rejected contentions that a contributory cybersquatting claim should be permitted to proceed under the ACPA.[7] With the U.S. Supreme Court’s decision earlier this month denying certiorari in that case, the Ninth Circuit’s ruling is worthy of exploration.

The Case

Although Petrolium Nasional Berhad, an oil and gas company headquartered in Kuala Lumpur, Malaysia, owns the trademark to the name “PETRONAS,” a third party registered the domain names “petronastower.net” and “petronastowers.net” through a domain name registrar in 2003. Several years later, the owner of those names transferred the registration to GoDaddy.com. The registrant allegedly used GoDaddy’s domain name forwarding service, which enables Internet users who type in a particular domain name to arrive at a site specified by GoDaddy’s customer, to direct the two domain names to an adult website, which was hosted on a web server maintained by a third party.

In late 2009, a Petronas subsidiary contacted GoDaddy and requested that it “take action against the website associated with the ‘petronastower.net’ domain name.” Officials from the Malaysian and U.S. governments also contacted GoDaddy regarding the domain name.

GoDaddy investigated the issue, but took no action with respect to the alleged cybersquatting on the grounds that it did not host the site and it was prevented by the Uniform Domain Name Dispute Resolution Policy (“UDRP”) from participating in trademark disputes regarding domain name ownership.

Petronas thereafter sued GoDaddy in the U.S. District Court for the Northern District of California on a number of theories, including cybersquatting and contributory cybersquatting under the ACPA. The district court dismissed all of Petronas’ claims on the pleadings, with leave to amend. Petronas filed an amended complaint in which it continued to allege, inter alia, contributory cybersquatting.

The district court allowed discovery because it said that it “require[d] a record clarifying the mechanics of what GoDaddy did or does with regard to the disputed domain names, and what ‘forwarding’ and ‘routing’ are and whether either or both can be considered part of domain name registration services generally or the services offered by GoDaddy.” Following the completion of limited discovery, the district court granted summary judgment in favor of GoDaddy.

Petronas appealed to the Ninth Circuit only with respect to its claim of contributory cybersquatting, contending that the ACPA provided a cause of action for contributory cybersquatting because Congress intended to incorporate common law principles of secondary liability into the ACPA by legislating against the backdrop of the common law of trademark infringement and by placing the ACPA within the Lanham Act.. The Ninth Circuit’s Decision

The circuit court affirmed, citing three reasons. First, it decided that the ACPA did not include a cause of action for contributory cybersquatting because the text of the ACPA did not apply to the conduct that would be actionable under such a theory. It also determined that Congress did not intend to implicitly include common law doctrines applicable to trademark infringement in the ACPA because the ACPA created a new cause of action that was distinct from traditional trademark remedies. Finally, it ruled that allowing suits against registrars for contributory cybersquatting would not advance the goals of the ACPA.

In its decision, the circuit court explained that the text of the ACPA did notprovide a cause of action for contributory cybersquatting. It pointed out that the statute prohibited the act of cybersquatting, but made no express provision for secondary liability. In the circuit court’s view, extending liability to registrars or other third parties who were not cybersquatters, but whose actions might have the effect of aiding such cybersquatting, “would expand the range of conduct prohibited by the statute from a bad faith intent to cybersquat on a trademark to the mere maintenance of a domain name by a registrar, with or without a bad faith intent to profit.” This cut against finding a cause of action for contributory cybersquatting, in the Ninth Circuit’s view.

Moreover, the circuit court found, the ACPA’s legislative history did not suggest that Congress had intended to include a cause of action for contributory cybersquatting in § 1125(d) – especially given that there were such remedies under “traditional trademark liability” and Congress knew how to impose secondary liability “when it chose to do so.”

Next, the circuit court rejected Petronas’ argument that because contributory liability had been applied to trademark infringement under the Lanham Act, and because Congress had placed the ACPA within the Lanham Act, Congress had intended to include within the ACPA a cause of action for contributory cybersquatting.

The Ninth Circuit acknowledged that Congress had intended to incorporate contributory liability into the Lanham Act, but it found that the circumstances surrounding the enactment of the ACPA did not support the inference that Congress had intended to incorporate theories of secondary liability into the ACPA.

As explained by the Ninth Circuit, before the Lanham Act was enacted, the Supreme Court had incorporated a common law theory of contributory liability into the law of trademarks and unfair competition. Thereafter, the Lanham Act codified the existing common law of trademarks and, in light of that, the Court in Ives concluded that a plaintiff could recover under the Lanham Act for contributory infringement of a trademark.

By contrast, the Ninth Circuit reasoned, the ACPA did not result from the codification of common law, much less common law that included a cause of action for secondary liability. Rather, the circuit court continued, the ACPA had created a new statutory cause of action to address a new problem:  cybersquatting. The circuit court added that, consistent with their “distinct purposes,” claims under the Lanham Act and the ACPA had distinct elements. For one thing, traditional trademark law restricts the commercial use of another’s protected mark to avoid consumer confusion as to the source of a particular product, while cybersquatting liability does not require commercial use of a domain name involving a protected mark. In addition, to succeed on a claim for cybersquatting, a trademark holder must prove “bad faith” under a statutory nine factor test, but no analogous requirement exists for traditional trademark claims.

In the circuit court’s view, these differences highlighted the fact that the rights created in the ACPA were distinct from the rights contained in other sections of the Lanham Act, and did not stem from the common law of trademarks. Accordingly, it declined to infer the existence of secondary liability into the ACPA based on common law principles.

Finally, the Ninth Circuit decided that finding a cause of action for contributory cybersquatting would not further the goals of the ACPA.The law, the circuit court stated, was enacted to “protect consumers … and to provide clarity in the law for trademark owners by prohibiting the bad-faith and abusive registration of distinctive marks.” It was a “carefully and narrowly tailored” attempt to fix this specific problem, imposing a number of limitations on who could be liable for cybersquatting and in what circumstances, including a bad faith requirement, and a “narrow definition” of who “uses” a domain name. According to the Ninth Circuit, imposing secondary liability on domain name registrars “would expand the scope of the [ACPA] and seriously undermine both these limiting provisions.”

The circuit court concluded that limiting claims under the ACPA to direct liability also was consistent with the ACPA’s goal of ensuring that trademark holders could acquire and use domain names without having to pay “ransom money” to cybersquatters.

Conclusion

The Ninth Circuit’s decision to reject a cause of action for contributory cybersquatting protects registrars as well as legitimate holders of domain names and Congress’ goals in adopting the law.

Given that direct cybersquatting requires subjective bad faith, focusing on direct liability spares neutral third party service providers from having to analyze their customers’ subjective intent with respect to each domain name – a nearly impossible task that would force service providers to inject themselves into trademark and domain name disputes. Indeed, if the ACPA imposed contributory liability for cybersquatting on registrars, it very well could lead to “false positives,” in which the lawful use of a domain name was restricted by a risk-averse third party service provider that received a seemingly valid take-down request from a trademark holder. Entities then might be able to assert effective control over domain names even when they could not successfully bring an ACPA action in court.

Perhaps most importantly, trademark holders have sufficient remedies under the ACPA without seeking to impose contributory liability on third party providers. As noted above, the ACPA imposes civil liability on cybersquatters and authorizes an in rem action against a domain name if the registrant is not available to be sued personally.[8]  Trademark holders, of course, also may bring claims for traditional direct or contributory trademark infringement that arises from cybersquatting activities.[9]

Reprinted with permission from the October 28, 2014 issue of the New York Law Journal.  All rights reserved.


[1] 15 U.S.C. § 1125(d).

[2] “Cybersquatting” involves registering a domain name associated with a protected trademark either to ransom the domain name to the trademark holder or to divert business from the trademark holder. See, e.g., DaimlerChrysler v. The Net Inc., 388 F.3d 201 (6th Cir. 2004).

[3] 15 U.S.C. § 1125(d)(1)(A).

[4] 15 U.S.C. § 1125(d)(2)(A).

[5] See, e.g., Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844 (1982) (“Ives“) (“[I]f a manufacturer or distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorially responsible for any harm done as a result of the deceit.”).

[6] 737 F.3d 546 (9th Cir. 2013), cert. denied (U.S., Oct. 6, 2014).

[7] By contrast, a number of district courts have found a cause of action for contributory cybersquatting. See Verizon Cal., Inc. v. Above.com Pty Ltd., 881 F. Supp. 2d 1173 (C.D. Cal. 2011); Microsoft Corp. v. Shah, No. 10-0653 (W.D. Wash. Jan. 12, 2011); Solid Host, NL v. Namecheap, Inc., 652 F. Supp. 2d 1092 (C.D. Cal. 2009); Ford Motor Co. v. Greatdomains.com, Inc., 177 F. Supp. 2d 635 (E.D. Mich. 2001).

[8] 15 U.S.C. § 1125(d)(2)(A).

[9] 15 U.S.C. § 1125(d)(3).

Reprinted with permission from the October 28, 2014 issue of the New York Law Journal.  All rights reserved.

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