Wednesday, March 18, 2009
Court Upholds Infringement Claim, Injunction on Domain Name
By SHERRI M. OKAMOTO, Staff Writer
An internet service provider’s trademark infringement claim against a competitor filed over six years after the company became aware of the competitor’s existence was not barred by the doctrine of laches, the Ninth U.S. Circuit Court of Appeals ruled yesterday.
A divided panel concluded Internet Specialties West Inc. had not diligently pursued its trademark claim, but upheld the district court’s finding that Milon-Digiorgio Enterprises Inc. had not been prejudiced by the delay because it had not spent the interim time developing brand recognition of the contested mark.
Internet Specialties registered the domain name “ISWest.com” in May 1996. Two years later, Milon-Digiorgio registered the domain name “ISPWest.com.”
Both companies offered customers internet access and Web site hosting services, but at that time, Internet Specialties offered customers higher speed DSL and T1 internet connections nationwide and Milon-Digiorgio only offered a slower dial-up connection to customers in southern California.
The chief executive officer of Internet Specialties testified that the company was not concerned about Milon-Digiorgio’s similar mark when the company learned of it in 1998 because Milon-Digiorgio did not offer comparable services and the market for internet technology start-ups was so volatile that most companies were expected to go out of business.
It was only after Milon-Digiorgio expanded its services nationwide in 2002 and began offering a high speed DSL internet connection in 2004 that Internet Specialties filed suit alleging that Milon-Digiorgio’s use of the name “ISPWest” constituted trademark infringement in violation of the Lanham Act.
A bifurcated trial was held before U.S. District Court Judge Florence-Marie Cooper of the Central District of California.
During the first phase, a jury found that Milon-Digiorgio had infringed on Internet Specialties’ trademark, but found no damages from the infringement. In the second phase Cooper rejected Milon-Digiorgio’s laches defense and issued an injunction barring the company from any use of the “ISPWest” mark.
Writing for the appellate court, Senior Judge Betty B. Fletcher explained that the doctrine of laches is an equitable defense to Latham Act claims where a plaintiff’s unreasonable delay in bringing suit has prejudiced the defendant and that a presumption against the defense applies if the plaintiff filed suit within the four-year statute of limitations period.
As the trademark claim was based on the likelihood on confusion between its “ISWest.com” mark and Milon-Digiorgio’s mark, and both companies were offering Internet services in the same geographic area under similar names, Fletcher reasoned the limitations period began when Internet Specialties’ learned of the “ISWest.com” mark.
She dismissed Internet Specialties’ argument that the infringement took place when Milon-Digiorgio expanded its service to include DSL as meritless, instead characterizing Milon-Digiorgio’s development as “a natural growth of its existing business.”
Fletcher emphasized that Internet Specialties “was not entitled to wait until MDE’s business grew large enough to constitute a real threat, and then sue,” concluding that Internet Specialties had not been diligent in pursuing its claim.
But Fletcher said Milon-Digiorgio had not been prejudiced by the delay. Noting the uncontested evidence at trial showing that the majority of Milon-Digiorgio’s advertising was in the form of “pay-per-click” advertisements, through which potential customers were directed to the company’s Web site from other sites, that did not include the name “ISPWest,” Fletcher reasoned such advertising had created little to no brand awareness of the company’s mark.
As other evidence also demonstrated that Milon-Digiorgio had previously changed its name, internet service providers frequently change their names due to consolidations and mergers, and the costs of registering new domain names are minimal,
Fletcher concluded laches did not bar Internet Specialties lawsuit.
Judge Johnnie B. Rawlinson joined Fletcher in her opinion, but Judge Andrew J. Kleinfeld dissented.
Kleinfeld argued that Fletcher’s opinion “defies circuit precedent” to create “a new and unfair standard for prejudice in trademark law” and “eviscerate the defense of laches.”
He noted that Milon-Digiorgio expansion from 2,000 customers in 1998 to 13,000 in 2004 demonstrated the company had developed a valuable business around its trademark while Internet Specialties delayed and asserted the “five to sixfold expansion” of Milon-Digiorgio’s business was “more than enough to establish prejudice.”
In the alternative, Kleinfeld contended that even if laches did not bar Internet Specialties’ claim, Cooper’s injunction placed an impermissible burden on the public.
Because the injunction required Milon-Digiorgio to abandon its “ISPWest” domain name, Kleinfeld asserted that it imposed a burden on the company’s 13,000 customers to change their e-mail addresses, and on “tens of thousands more” who correspond with those customers.
“The public has an interest in not being burdened with difficulties caused by a long-standing infringement it had nothing to do with,” he wrote. “Failure to give that public interest any consideration at all makes the injunction an abuse of discretion.”
Beverly Hills attorney William E. Lloyd represented Milon-DiGiorgio, while Jason H. Wilson of Willenken Wilson Loh & Lieb LLP represented Internet Specialties.
The case is Internet Specialties West, Inc. v. Milon-Digiorgio Enterprises, Inc., 07-55087.
Copyright 2009, Metropolitan News Company