Illustrating the significant recovery available to trademark owners under the Lanham Act’s Anti-Cybersquatting Consumer Protection Act (ACPA) versus the arbitration process pursuant to the Uniform Domain-Name Dispute-Resolution Policy (UDRP), the U.S. Court of Appeals for the Ninth Circuit upheld a jury’s damages verdict of over $150,000 to a trademark owner whose domain name was held for ransom by a former employee. DSPT Int’l, Inc. v. Nahum, Case No. 08-55062 (9th Cir., Oct. 27, 2010) (Kleinfeld, J.)
Plaintiff DSPT is a designer, manufacturer and importer of men’s clothing owned by Paolo Dorigo, an Italian living in the United States. In 1999, the plaintiff began a new clothing line named EQ. Mr. Dorigo enlisted his friend, defendant Lucky Nahum, to work in the business. At that time, Mr. Dorigo and defendant decided to create an Internet website at eq-Italy.com to advertise the plaintiff’s clothing. Nahum registered the domain name to himself. By 2005, the website had become indispensable to the plaintiff, serving as its catalog to retailers and individual customers.
In August 2005, the plaintiff sought to renew the defendant’s contract, but Nahum had accepted employment with a competitor and declined. Shortly thereafter, the plaintiff’s website disappeared. In place of plaintiff’s clothing catalog, the website merely stated that “all fashion related questions” were to be directed to Nahum at a specific email address. Nahum then informed Dorigo that Nahum would transfer control of the website to Dorigo upon resolution of unpaid commissions the defendant claimed were owed to him. DSPT suffered significant harm, as without a website, it could not sell its goods to retailers with anywhere near its prior efficiency. DSPT expended substantial funds replacing its website and attempting to salvage its reputation with retailers.
The plaintiff then sued the defendant for trademark infringement and cybersquatting under the Lanham Act. Upon trial to a jury, the jury found that, among other things, EQ was a valid trademark owned by DSPT; that Nahum “registered, trafficked in, or used the eq-italy.com domain name”; that the domain name was identical or confusingly similar to the plaintiff’s trademark; and that Nahum committed the acts “with a bad faith intent to profit from [Plaintiff’s] mark.” The jury awarded DSPT $152,000 in damages. On appeal, the defendant argued that the ACPA did not apply to this case because, among other reasons, “EQ-Italy” was not identical or confusingly similar to the plaintiff’s marks, there was no evidence of bad faith intent to profit and insufficient evidence existed to justify the damages award.
Nahum argued that the ACPA did not apply to his conduct. He argued that he registered the domain name legitimately to develop the website for the plaintiff and that he only retained it to use as leverage to obtain from DSPT monies he was allegedly entitled to, not to sell anything under DSPT’s mark or sell the domain name to the plaintiff. The court disagreed, recognizing that while the ACPA was designed to address situations where one registers a well-known trademark in order to sell the domain name back to the trademark owner (classic cybersquatting) or divert business from the trademark holder, the statute is written more broadly to cover other circumstances. Ultimately, the court determined that the statutory factors for “bad faith intent” establish that using a domain name to get leverage in a business dispute can establish a violation of the ACPA. In affirming the judgment against Nahum, the court noted that the defendant was not eligible for the safe harbor provisions of the ACPA, as he not have reasonably believed that he could lawfully use eq-Italy when he no longer worked for DSPT. Further, the court noted that the “intent to profit” element is met even if, as the defendant claimed, Nahum was owed money by the trademark holder, as “profit” does not require that Nahum receive more than what he was allegedly owed, but merely means “an attempt to procure an advantageous gain or return.”
With respect to the plaintiff’s damages, the court noted that the case was one of intentional infringement, in which a “crude” measure of damages may be used. The court noted that it was impossible to make a precise determination of the plaintiff’s actual damages, because The defendant’s wrong, in the nature of destroying DSPT’s website, made it impossible to know with any precision what the plaintiff’s clothing sales would have been had Nahum not committed the wrong. As such, the jury’s estimation, based upon rough information such as receipts for costs to create a new website and financial statements showing a loss of DSPT’s gross profits after the website was removed was sufficient to support the jury award.
Practice Note: Trademark owners should require that their domain names are registered in their name only and prohibit any domain name from being held in the name of an advertising company, graphic designer, website host or licensee. Further, employees responsible for creation and maintenance of an employer’s website should be on notice that they will be found liable under the ACPA if they hold a domain name for ransom post-employment. The ownership and goodwill conferred by a domain name and associated website flows only to the trademark owner.