Cybersquatting: Good Old American Ingenuity Or High-Tech Extortion?
Some call it opportunism and some call it piracy. As of November 29, 1999, it can be called illegal. "It" is the practice of registering Internet domain names, or web site addresses, in hopes of reselling them to companies or organizations that have a commercial use for them. In short, it is a scheme to extract ransoms from big name corporations. This is commonly referred to as "cybersquatting." Often the domain names are common trademarks or trade names. Some companies have paid hundreds of thousands of dollars to obtain domain names from cybersquatters. Some companies have opted instead to go to court to secure domain names they claim are legally theirs.
Cybersqatting In Practice
An example of cybersquatting occurred recently in New York when executives of Morgan Stanley Dean Witter & Company discovered that the domain name they wanted to use for Morgan Stanley’s web site, "www.msdwonline.com," was being used by a 17-year-old schoolboy with a passion for mountain-bike racing. Typing in the coveted address would not take a person to the land of Wall Street and stock trading but, rather, to a photo of a helmeted cyclist under the title Mud Sweat’s Downhill World.
Although at first blush it appeared to be an innocent mix-up, when Morgan Stanley attempted to buy the domain name for $10,000, it discovered a clever cybersquatter. The boy’s father had registered dozens of domain names, many derived from the names of investment banks, and he allegedly demanded that Morgan Stanley pay him $75,000 to relinquish the rights to the domain name. Morgan Stanley refused and filed suit in the United States District Court in Manhattan. The case is currently pending and visitors to the "www.msdwonline.com" web site are greeted with the message that the site is inactive "until further notice."
Other recognizable domain names that have been registered by cybersquatters include "mcdonalds.com," "exxoncorporation.com," "pepsicola2000.com," "tacobellcorp.com," "deltaairlines.com" and "eddiebauer.com."
Registering Domain Names
So how does someone go about registering a domain name, and how is it possible for an average citizen to own the rights to "mcdonalds.com"? It is possible because the process for registering a domain name is simple and not subject to scrutiny. To register a domain name, a person first goes to the web site for the Internet Corporation for Assigned Names and Numbers (ICANN), a non-profit corporation that oversees the registration of domain names. Once a person arrives at the ICANN site, he or she simply points and clicks on one of the links to an ICANN-accredited domain name registrar. The registrar will then allow a person to register any domain name not currently in use. The fee to register a domain name is $70 for the first two years and $35 for every year after that. Domain names are assigned on a first-come, first-served basis. Apparently, McDonalds and several other big-name corporations were too slow in getting to the World Wide Web and lost their names and trademarks to the forward-thinking cybersquatters.
Corporations who find themselves having to expend thousands of dollars to acquire their own names are understandably upset about this recent trend. Just like in the normal marketplace, having a visible brand name on the Internet can be a competitive advantage for a company. A unique and recognizable name or trademark can facilitate consumer recognition and allow for differentiation in the marketplace. Popular trademarks may be worth billions of dollars in sales because of the value of brand recognition.
Internet sites are especially valuable to corporations as they allow access to potential customers 24 hours a day. Furthermore, Internet advertising revenue exceeded $1 billion annually since 1997. When a corporation is shut out from establishing its own presence on the Internet because a cybersquatter owns the rights to its name in cyberspace, the corporation is missing out on a very lucrative piece of the modern marketplace.
Infringement and Remedies
Most cases involving cybersquatters are filed under traditional trademark law. However, cybersquatters argue that the mere act of registering a domain name without any sale or offer to sell goods or services under that mark is not an unlawful act because under traditional trademark law, to constitute infringement, one must use another’s name in commerce. Nevertheless, a few courts have found that attempting to sell a domain name in and of itself constitutes a commercial use. Most courts have held that the act of cybersquatting violates trademark law either as a form of dilution or confusion or both. Some commentators have questioned whether such holdings stretch trademark protection too far beyond its traditional limits.
Recent steps have been taken to eliminate the problem of cybersquatting. On August 26, 1999, ICANN adopted a policy whereby everyone who registers a domain name must sign an agreement that they are willing to submit to a "mandatory administrative proceeding" in the event that their right to a domain name is challenged. The policy states that the owner of a domain name must submit to arbitration in the event that a third party complains that (1) the domain name is identical or confusingly similar to a trademark in which the third party has rights, (2) the owner of the domain name has no rights or legitimate interests in the name, and (3) the domain name is being used in bad faith.
The policy expressly states that evidence of bad faith includes registering a domain name "primarily for the purpose of selling, renting, or otherwise transferring the domain name registration to the [third party] who is the owner of the trademark or service mark or to a competitor of that [third party], for valuable consideration in excess of documented out-of-pocket costs directly related to the domain name."
The remedies available to the complaining third party are limited to the cancellation of the cybersquatter’s domain name or the transfer of the domain name to the complainant. However, nothing in the ICANN policy prevents either party from submitting the dispute to a court of competent jurisdiction for independent resolution before the mandatory administrative proceeding is commenced or after such proceeding is concluded.
The best way to defeat cybersquatters is to avoid them altogether through registering domain names and trademarks.
On November 29, 1999, as part of the omnibus appropriations bill (S. 1948), President Clinton signed the Intellectual Property and Communications Omnibus Reform Act of 1999 which, among other things, protects trademark and trade name owners from cybersquatters. The marks need not be registered to be entitled to protection. The Act includes what was previously titled the "Anticybersquatting Consumer Protection Act" and amends Section 43 of the Trademark Act of 1946. The Act states that a person may be liable in a civil action by the trademark owner if that person has a bad faith intent to profit from the domain name. In determining whether there is a bad faith intent, a court may consider whether the person has offered to transfer, sell or otherwise assign the domain name for substantial consideration without ever having used the domain name in the bona fide offering of goods or services.
The Act places civil and criminal penalties on those who violate the proposed law and imposes up to $100,000 in civil liability for the "bad faith" registration of domain names. The Act also includes language creating liability for the registration of a domain name that is the name of an existing person in order to profit from the sale of the domain. This was deemed necessary in light of the fact that cybersquatters were registering, among other things, the name of college athletes and new artists with the hope that they would someday become famous. The provisions have garnered criticism from free speech advocates and others who fear they will chill speech by small web site operators and could undermine ICANN’s mandatory arbitration policies.
Avoiding Cybersquatters
As with any other legal morass, the best way to defeat cybersquatters is to avoid them altogether. This can be done in a number of ways. The best way is to register for a domain name now, even if the company is not yet ready to put together a web site. The availability of a domain name can be checked for free by simply going to www.rs.internic.net/whois. Even products in development should be registered to prevent cybersquatters from registering the name first and taking away a very effective advertising tool. Remember, the cost of legal counsel to retrieve a name far exceeds the $70 cost of registering one. Companies should consider federally registering domain names as trademarks to enhance their rights in the event they are forced to pursue cybersquatters. Furthermore, due to the global reach of the Internet, companies should consider registering their trademarks in other countries as well.
Lastly, companies should register related names and common misspellings of their names. When creating the web site for his presidential campaign, George W. Bush registered several variations on his name including Bush2000.com and even Bushsucks.com to prevent adversaries from using his own name against him.
If after taking all of the above precautions, a company still finds its name or a variation of it to be a registered domain name of a cybersquatter, the company should be prepared to negotiate a resolution. Its only alternative is to prepare for the potential legal expense and aggravation of suing for right to use the domain name.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.