2009 WL 1011183 (5th Cir. Apr. 15, 2009)

ABSTRACT

The Fifth Circuit Court of Appeals vacated a preliminary injunction granted by the Northern District of Texas against defendant’s use of confusingly similar domain names for a pay-per-click website. The appeals court held that while the district court did not err in addressing only a few of the statutory bad–faith factors for cybersquatting and referencing a UDRP decision against defendant in finding a bad–faith intent to profit, the district court did abuse its discretion by failing to analyze ACPA’s safe–harbor provision in addressing defendant’s fair–use argument. Moreover, the district court’s determination that defendant’s domain names were “confusingly similar” to plaintiff’s mark under ACPA was not sufficient, by itself, to establish the irreparable harm required for a preliminary injunction.

CASE SUMMARY

FACTS

Plaintiff The Southern Company (“Southern”) provides energy-related services to consumers throughout the southern United States under its federally registered trademark SOUTHERN COMPANY and through its website at southerncompany.com. Defendant Dauben, Inc. (“Dauben”), a registrant of nearly 635,000 domain names, registered the domain names sotherncompany.com and southerncopany.com (the “Domain Names”), both of which connected to a “parking” website providing pay–per–click advertisements (i.e., links to other websites that, when clicked, resulted in a payment to Dauben). The pay–per–click ads included links to real–estate and employment companies located in the southern United States. The only connection with Southern was a link to Georgia Power, a Southern subsidiary.

In 2007, Southern filed a complaint under the Uniform Domain Name Dispute Resolution Policy (“UDRP”) against Dauben. The UDRP panel ruled in Southern’s favor and ordered transfer of the Domain Names to Southern. However, Dauben sued Southern in a Texas state court to stay transfer of the names. A few weeks before the state–court jury returned a verdict in Dauben’s favor, Southern filed this suit in federal court and sought a preliminary injunction, alleging that Dauben violated the Anticybersquatting Consumer Protection Act (“ACPA”).

The federal district court granted Southern’s motion and preliminarily enjoined Dauben from registering, transferring, trafficking in, or using the Domain Names or any confusingly similar names. Dauben asked the district court to reconsider its decision on three grounds. First, its actions constituted fair use under the ACPA’s safe–harbor provision, which states that “bad faith intent shall not be found . . . [if] the court determines that the person believed and had reasonable grounds to believe that the use of the domain name was a fair use or otherwise lawful.” Specifically, Dauben claimed it “employed the words ‘southern’ and ‘company’ in their descriptive sense by providing pay–per–click links to companies located in the South, a use allegedly comparable to a yellow pages phone book.” Second, the district court failed to fully consider the nine statutory bad-faith factors enumerated in the ACPA and instead improperly relied on the UDRP panel’s reasoning regarding bad faith. Third, the district court incorrectly presumed the existence of irreparable injury based on its finding that the Domain Names were confusingly similar to Southern’s mark. Southern countered that Dauben’s use of the misspelled words “sothern” and “copany” were not fair uses and that the majority of the ACPA bad-faith factors supported a finding of bad faith.

The district court denied Dauben’s motion for reconsideration. Although the court acknowledged that Dauben raised ACPA’s safe–harbor provision, it did not consider this provision in its analysis. It also rejected Dauben’s argument related to ACPA’s bad-faith factors, stating that “the most important grounds for finding bad faith are the unique circumstances of the case, which do not fit neatly into specific factors enumerated by Congress but may nevertheless be considered under the statute.” Finally, the court maintained its finding that Southern would suffer irreparable injury without the preliminary injunction. Dauben appealed the preliminary injunction ruling to the Fifth Circuit, while the district court continued forward with the case. The district court ultimately granted summary judgment for Southern while the appeal was still pending, but did not enter final judgment or issue a final remedy.

ANALYSIS

The Fifth Circuit first rejected Southern’s claim that Dauben’s appeal of the preliminary injunction was moot based on the district court’s grant of summary judgment in Southern’s favor. Because the district court had not yet entered a permanent injunction or final judgment, the appeals court could still consider the preliminary–injunction decision. Although the district court stated that “injunctive relief and statutory damages were appropriate,” its stated intentions were not the same as a final judgment.

Turning to the merits of Dauben’s appeal, the court vacated the preliminary injunction, finding that the district court had abused its discretion by conducting an incomplete analysis of both the likelihood of success on the merits of Southern’s claims and the existence of a substantial threat of irreparable injury to Southern absent the preliminary injunction. The Fifth Circuit rejected Dauben’s argument that the district court failed to consider all of the relevant ACPA bad–faith factors and instead substituted the WIPO panel’s finding on bad faith. The court declined to “impose . . . such a formalistic requirement” as mandating consideration of all of ACPA’s bad–faith factors, because the factors are given to courts “as a guide, not as a substitute for careful thinking about whether the conduct at issue is motivated by bad faith intent to profit.” Further, the district court’s reference to the UDRP decision was not, by itself, error. Finally, although the district court referenced the case’s “unique circumstances” without any explanation of what those circumstances were or how they evidenced bad faith, “its stated reasoning in concluding that bad faith actually exists is arguably encompassed in one or more of ACPA’s factors.” The Fifth Circuit thus felt “hard pressed” to conclude that the district court had abused its discretion.

However, the Fifth Circuit did agree with Dauben’s remaining arguments. First, it held that the district court abused its discretion by failing to analyze ACPA’s safe–harbor provision when ruling on Dauben’s fair–use defense. Because the defense of fair use bears on the likelihood of success on the merits, the district court should have addressed ACPA’s safe–harbor provision. Although Southern’s claim that fair use was not possible because Dauben used misspellings of the SOUTHERN COMPANY mark “certainly may weaken” Dauben’s fair–use argument, it is “a question to be considered in the district court’s evaluation of the facts and circumstances surrounding the claim—an evaluation that the court below failed to undertake.”

The Fifth Circuit also held that the district court abused its discretion by determining that a strong likelihood of confusion “almost inevitably establishe[d] irreparable harm” to Southern. The district court based its likelihood-of-confusion determination on its finding that the Domain Names were “confusingly similar” to Southern’s mark, which could lead to consumers being confused as to the sponsorship of the websites hosted at the Domain Names. The Fifth Circuit found this determination flawed in two ways. First, a presumption of irreparable harm was not warranted, because the likelihood-of-confusion test for trademark infringement is different and far more comprehensive than the test for “confusingly similar” under ACPA. Specifically, the likelihood-of-confusion test for infringement requires analysis of factors “beyond the facial similarity of the two marks”—the ACPA test for confusing similarity applied by the district court—that the court did not consider here. Because the district court erred by finding a presumption of irreparable harm based on a less comprehensive standard, the Fifth Circuit found no need to address whether the Supreme Court’s recent decision in eBay v. MercExchange, L.L.C. applied here. Second, the district court failed to describe how Dauben’s “confusingly similar” domain names would irreparably injure Southern. Although it noted the likelihood that a consumer might accidentally come across Dauben’s websites when seeking Southern’s website, the district court made no finding regarding how this “navigational miscue” would injure Southern. Accordingly, the Fifth Circuit held that the district court abused its discretion in finding irreparable harm.

Finally, although the Fifth Circuit vacated the preliminary injunction, it determined that a remand to the district court was unnecessary because the district court sits “primed to issue a final judgment and remedy” in the action based on its decision on the merits of Southern’s claims on summary judgment. Because a permanent injunction would supersede the preliminary injunction, there was no need to delay the proceedings any further by remanding the preliminary–injunction issue to the district court.

CONCLUSION

The Fifth Circuit’s decision, while nonprecedential, suggests that trademark owners seeking a preliminary injunction for cybersquatting should not take the irreparable–harm factor for granted, even if they can make a strong case regarding the likelihood of success on the merits. Trademark owners should present additional arguments and evidence to provide a sufficient showing of irreparable harm. Finally, the Fifth Circuit joined the First, Second, and Eighth Circuits in confirming that the test for “confusingly similar” under ACPA is the more narrow and limited inquiry of “facial similarity” rather than the comprehensive likelihood-of-confusion test for trademark infringement.