Considering a second appeal in a cybersquatting case, the U.S. Court of Appeals for the Ninth Circuit upheld a district court’s finding that the trademark VERICHECK is suggestive (as opposed to descriptive) and is thus protected without a showing of secondary meaning when used in connection with check verification services. Lahoti v. Vericheck, Inc., Case No. 10-35388 (9th Cir., Jan. 13, 2011) (Breyer, J.)

Vericheck provides electronic financial transaction processing services, including check verification. Vericheck has used the service mark “VeriCheck” since 1995 and has advertised its services online at vericheck.net since 1999. Vericheck obtained a Georgia state trademark registration for VeriCheck in 2001. Vericheck had applied for a federal trademark registration for the same mark, but the U.S. Patent and Trademark Office denied the application due to a preexisting registration for “Vericheck,” owned by an Arizona company. In addition to its main site at vericheck.net, Vericheck advertises its services through the domain names vericheck.net, vericheck.org, vericheck.cc, vericheck.us and vericheck.biz. In 1999, Vericheck unsuccessfully attempted to obtain the domain name vericheck.com from a Canadian company.

David Lahoti obtained the domain name vericheck.com in 2003. Although Lahoti claimed that he registered the domain name because he was contemplating entering into the transaction verification business, Lahoti never developed a transaction verification service. Instead, Lahoti used the domain name to host a generic site with third-party commercial links, some of which directed to Vericheck’s competitors. Lahoti earned “click through” income when visitors to the site clicked on the links. In 2004, Vericheck offered to buy the domain name from Lahoti, but Lahoti demanded first $72,500 and then $48,000. In 2006, Vericheck filed an arbitration complaint pursuant to the Uniform Domain-Name Dispute-Resolution Policy. The arbitration panel ordered the transfer of the domain name to Vericheck. Lahoti then sought a declaratory judgment in the district court that he was not liable for trademark infringement or cybersquatting under the Lanham Act. Vericheck counterclaimed for trademark infringement, cybersquatting and violation of the Washington Consumer Protection Act and Washington common law.

The district court granted summary judgment to Vericheck on the question of whether Lahoti acted with “bad faith intent to profit” from use of the mark, a prerequisite to finding a federal cybersquatting violation. After a bench trial on the remaining issues, the district court found for Vericheck on all claims and counterclaims, granted Vericheck injunctive relief and statutory damages and awarded Vericheck attorneys’ fees. Lahoti appealed the court’s merits decision.

In the first appeal, the 9th Circuit affirmed the court’s grant of summary judgment that Lahoti acted in bad faith. The 9th Circuit vacated the court’s judgment for Vericheck however, holding that the court’s finding that the VERICHECK mark was suggestive, and thus protectable without a showing of secondary meaning, was based on improper analysis. The district court’s errors, as noted by the 9th Circuit, were that the court required that, in order to be found descriptive, the mark would have to describe all of Vericheck’s services and could have described services unrelated to Vericheck’s services, when in fact the mark must be evaluated as it is seen on the goods or services. Further, the court improperly declined to consider the mark in its composite parts. The 9th Circuit remanded the case.

On remand, the district court again determined that the VERICHECK mark was suggestive and determined that Lahoti had committed trademark infringement and violated the federal cybersquatting statute. Lahoti again appealed, arguing that the court erred in its analysis of descriptiveness.

On the second appeal, the 9th Circuit concluded that the district court, on remand, had rectified its original errors. 9th Ninth Circuit noted that the court’s finding that “[w]hen viewed in the context of Vericheck’s services, whether in whole or in part, including Vericheck’s check verification services, the VERICHECK mark does not immediately convey information about the nature of Vericheck’s services,” recited the correct legal principles. Further, the 9th Circuit noted that the district court not only found distinctiveness under its own analysis but also relied upon the USPTO’s issuance of a federal trademark registration for VERICHECK to the Arizona company, as courts may properly rely on a federal registration for the same mark as evidence of distinctiveness.

The 9th Circuit also affirmed the district court’s finding of a likelihood of confusion, because the three most relevant factors in trademark disputes in the internet context—the so-called “internet trinity” —all weighed in Vericheck’s favor. First, the disputed domain name and Vericheck’s mark were identical save for the addition of the domain extension “.com.” Second, Lahoti used the domain name to direct to companies offering identical and related services competing with Vericheck. Third, both parties used the internet as a marketing channel.