Thursday, October 28, 2010
Ninth Circuit Upholds ‘Cybersquatting’ Judgment
By STEVEN M. ELLIS, Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday upheld a “cybersquatting” verdict against a man who set up the domain name for his employer’s website innocently and used it properly for years, only to later hold it for ransom in a dispute over pay.
A three-judge panel rejected Lucky Nahum’s argument that the law applied only to those who register domain names in an effort to sell them back to, or divert business from, a mark’s legitimate owner. Senior Judge Andrew J. Kleinfeld wrote that “the statute, like so many, is written more broadly than what may have been the political catalyst that got it passed.”
Enacted in 1999, the federal Anticybersquatting Consumer Protection Act establishes civil liability for “cyberpiracy” where a plaintiff proves that a defendant registered, trafficked in or used a domain name that is identical or confusingly similar to a protected mark owned by the plaintiff, and that the defendant did so “with bad faith intent to profit from that mark.”
DSPT International Inc.—which designs, manufactures and imports men’s clothing under the brand names Equilibrio and EQ—sued Nahum in the U.S. District Court for the Central District of California after he changed the company’s website at “www.eq-italy.com” in 2005 to display a message referring “all fashion related questions” to himself after he accepted a job with a competitor.
Paolo Dorigo, DSPT’s founder and owner, began selling clothing under the Equilibrio mark in 1988 and adopted the EQ brand in 1999, near the time when he brought Nahum into the business. They decided to set up a website for the company and Nahum, who worked exclusively for DSPT, paid a $25 fee and registered the domain name to himself.
The domain name chosen referred to the brand and the origin of Dorigo and DSPT.
Six years later, the company was selling clothes to between 500 and 700 retailers, relying on the website to display designs and to solicit and process orders. However, Nahum’s relationship with Dorigo soured, and he decided not to renew his contract with DSPT.
Instead, Nahum joined a competitor and in October 2005 DSPT’s website abruptly changed, displaying Nahum’s message. Nahum made no further use of the website, but allegedly told his new boss that he had placed the message in order to get DSPT “to pay him funds that were due to him.”
The company claimed the change wreaked havoc on its fourth-quarter sales, forcing it to go back to the old way of sending out samples, a practice retailers were no longer willing to accept, and leaving it with unsold inventory. It said that it spent nearly $32,000 to explain the situation to customers and to replace the website and stationary, and contended that it lost another $240,000 in profits.
DSPT sued for “cybersquatting” and trademark infringement, and Nahum counterclaimed for nearly $15,000 in commissions he said he was owed, but a jury found that Nahum acted in bad faith with an intent to profit from the company’s mark. Awarding the company $152,000 in damages, jurors also rejected Nahum’s claim.
Nahum appealed, but Kleinfeld rejected his argument that the anti-cybersquatting law did not apply. Commenting that the evidence supported the jury’s conclusion that Nahum used the domain name to get leverage for his claim of unpaid commissions, the judge explained:
“The statute says ‘registers, traffics in, or uses,’ with ‘or’ between the terms, so use alone is enough to support a verdict, even in the absence of violative registration or trafficking.”
Kleinfeld then rejected Nahum’s contentions that the evidence was not sufficient to support the jury’s conclusion that the EQ mark was a distinctive mark, and that the domain name was confusingly similar to plaintiff’s mark in the context of men’s shirts.
The judge further said that sufficient evidence supported the damages award where the amount of expense for recreating the website was a natural and foreseeable consequence of holding it for ransom, and where the remaining $120,000 the jury awarded for lost profits was reasonable based on financial statements DSPT provided.
Senior Judge Cynthia Holcomb Hall and Judge Barry G. Silverman joined Kleinfeld in his opinion.
John C. Gorman of Gorman & Miller P.C. in San Jose represented Nahum on appeal, while Woodland Hills attorney Andres F. Quintana represented DSPT.
The case is DSPT International, Inc. v. Nahum, 08-55062.
Copyright 2010, Metropolitan News Company