Cybersquatting, the bad-faith registration of a domain name that includes or is confusingly similar to a trademark, is damaging to the stability of the Internet and harmful to members of the Internet community.
If there is any doubt as to the impact of cybersquatting on brand owners, one only has to look at the numbers. A good way to value the cost of cybersquatting is to assess the value of lost impressions. Consider the impact of cybersquatting on the well-known social networking site “MySpace.com.” This hugely popular Web site may collect millions of advertising dollars per day in the near future because its pages are prime real estate visited by millions daily. Now consider that the misspelling “Mypsace.com” receives more than 300,000 visitors per month. Ideally, MySpace would own this name and would reroute Web traffic to its intended destination, providing Internet users with their desired content and MySpace with profit. Instead, a third party owns Mypsace.com, and earns referral fees when visitors click ads on their adult-oriented Web site. In other words, the domain owner and the ad sellers that set up advertisements on Mypsace.com are siphoning potentially positive impressions and user experiences – as well as money – from MySpace.
What is the opportunity cost to MySpace? Taking a conservative number like 10 cents per impression and multiplying it by the annualized number of visitors, the value of lost opportunities for this one domain name is just under $400,000 per year.
For companies that rely on product sales and the continued trust of their customers, the losses would be even greater. With the growing assault of cybersquatters on brand owners and their customers, it is time for brand owners to go on the offensive to protect their businesses and consumers by effectively making use of the best options available to them.
In the first decade of the Internet, cybersquatting was little more than a get-rich-quick scheme pursued by opportunistic individuals operating with minimal technical sophistication. The practice was generally limited to the bad-faith registration of domain names incorporating or imitating well-known brands in hopes that they would one day be sold to the trademark owner for a large sum of money. Cybersquatters took chances that sometimes yielded a payday, but this practice had not yet become a business that provided a source of steady income.
Before 1999, a brand owner seeking to combat cybersquatting could bring a lawsuit for trademark infringement and/or brand dilution, but those claims were ill-fitting tools for the job. In 1999, Congress enacted the federal Anticybersquatting Consumer Protection Act (ACPA).
The statute creates a remedy specifically targeted at cybersquatting, which it defines as the bad-faith registration of a domain name that is identical or confusingly similar to a legitimate trademark. The ACPA authorizes courts to transfer domain names from the cybersquatter to the trademark owner. In addition, in a case of proven cybersquatting, a trademark owner can elect to recover either the actual damages it has suffered as a result of the defendant's conduct (e.g., lost revenues or harm to reputation) or statutory damages (damages that do not require any proof of actual loss) of between $1,000 and $100,000 per domain name. Although it is not a perfect remedy, the ACPA made it much simpler for trademark owners to combat cybersquatters.
Times have changed. In the last several years, cybersquatting has evolved into a sophisticated business and cybersquatters are no longer dependent on domain name sales for profit. Instead, they siphon traffic created by direct navigation, which is the practice of typing an address directly in the browser address bar. Cybersquatters have developed numerous methods to monetize that traffic, including pay-per-click sites, domain name tasting and domain name kiting. Pay-per-click sites include sponsored advertisements syndicated by the larger search engines that generate revenue from page views whenever users click ads. Tactics like domain tasting and kiting allow cybersquatters to test the profitability of domain names before paying for them.
In recent years, the most notable change in cybersquatting has been the scale on which it occurs. Automated programs acquire domain names and establish pay-per-click sites with minimal human involvement. As a result, it is possible for operators to control and monetize hundreds of thousands, or even millions, of domain names. Not all of those names infringe the rights of brand owners, but inevitably a large number of them do. With that many domain names in their portfolio, cybersquatters can make a significant profit even if each name generates just a modest profit.
Faced with this new breed of cybersquatter, trademark owners looking to protect their brands are faced with some difficult choices.
If a trademark owner has found (i) that a person has registered a domain name that is identical or confusingly similar to a trademark or service mark in which the trademark owner has rights; (ii) that person has no rights or legitimate interests in the domain name; and (iii) the domain name has been registered and is being used in bad faith, the trademark owner has the option of filing a claim under the Uniform Domain Name Dispute Resolution Policy (UDRP).
A UDRP proceeding can be a relatively inexpensive and quick way to reclaim a domain name in certain cases.
UDRP proceedings are the most effective when there is a clear case against a cybersquatter who would not be able to pay significant damages or who has only a handful of infringing domain names. In that situation, the brand owner is simply trying to gain control of the domain name in order to reduce the future loss of revenue and decrease harm to the brand’s reputation that may be caused by the name.
For trademark owners that are the victims of notorious cybersquatters with a record of bad-faith infringements and the ability to pay monetary damages, a claim under the ACPA can be an attractive option.
Because the ACPA allows not only the transfer of domain names to the trademark owner but also imposition of damages and future injunctive relief, the potential rewards to the trademark owner – and the threat to the cybersquatter – can be significant.
In a case against a large-scale cybersquatter, the brand owner is not just seeking to recover the infringing domain names. The key to making the ACPA work is to win substantial damages that will cripple the offending party and deter future misconduct by that party and others in a similar position. Without the threat of significant monetary sanctions, mass cybersquatters are unlikely to be deterred solely by the prospect that they will have to surrender domain names at the end of the proceeding.
By far the most common monetary remedy sought by trademark owners has been statutory damages. This is not surprising, because such damages do not require proof or quantification of actual harm to the owner, which are often hard to establish. However, the mere availability of statutory damages has not deterred the new breed of cybersquatter. According to Bob Shaughnessy of Williams & Connolly LLP, a Washington, D.C. litigator who has represented trademark owners against cybersquatters, experience under the ACPA shows that courts have generally not assessed statutory damages at the upper end of the $1,000 to $100,000 range, at least not in cases where cybersquatters have actively defended themselves. As a result, recoveries generally have not been large enough to cover the trademark owner’s litigation costs or to deter cybersquatters. In order to generate large recoveries, Shaughnessy observes that "trademark owners must do either or both of two things: assert a large number of infringements in a single case, and, where possible, develop persuasive evidence of substantial actual damages." This evidence might include demonstration of lost revenue from diverted traffic, as in the "Mypsace.com" example noted above.
In the interest of increasing monetary awards and making a positive impact on the Internet community, it is time for brand owners to consider banding together, pooling their resources, and going after some of the most problematic cybersquatters.
In other settings, intellectual property owners have achieved economies of scale and litigation success by banding together as plaintiffs against infringers. This is possible because antitrust laws permit competitors to cooperate with each other in joint litigation. For example, the major recording and motion picture companies have often joined forces as plaintiffs in copyright lawsuits against Internet "file sharing" operators and other infringers.
In the cybersquatting context, increasing the number of plaintiffs means increasing the number of domain names under challenge, which in turn increases the prospect for a substantial damages award against the cybersquatter. If a lawsuit contests 300 domain names, the statutory damages would total $6 million if the court awarded only $20,000 per name. However, the cybersquatter would face a $30 million judgment if the court awarded the maximum damages per domain name. Joint litigation also allows plaintiffs to share the costs of investigating and prosecuting the case. The evidence of the cybersquatter’s bad faith—key to a successful lawsuit—is likely to be the same for all the trademark owners involved.
The Coalition Against Domain Name Abuse (CADNA) is a registered 501(c)(6) non-profit organization. Its objective is to facilitate dialogue, effect change, and spur action on the part of policymakers to address the gaps in both the law and ICANN policies that enable massive domain name abuse and consumer frauds. In doing so, CADNA seeks to decrease occurrences of cybersquatting in all of its forms by requesting anti-cybersquatting legislation updates and ICANN policy reforms. With pro-abuse groups already organized in Washington, CADNA is the only coalition of trademark owners that has a sharp focus on Internet issues.
Follow in the footsteps of the recording and motion pictures trade associations to work within your industry to raise the profile of cybersquatting issues among those who can effect positive change.
Work on your own or with an expert to pool intelligence and be vigilant about scanning for abuse. In addition, make good choices regarding infringement prioritization and choose the most appropriate action in each case, whether it be a united effort, independent lawsuit, UDRP proceeding, cease and desist letter, or other action.
At the end of the day ACPA has not proven to be much of a deterrent to large-scale cybersquatters. In order for ACPA to be more effective, there needs to be a new damage presumption for large infringers. Brands should be able to seek higher levels of damages and the offenders should be penalized according to the scale of their infringements. However, the penalties should not stop with the infringers. ACPA should be expanded to hold those who benefit from and enable infringers culpable as well. There is no question that ad networks, registrars and offshore companies working in concert with infringers should be categorized as bad-faith actors and be made susceptible to litigation.
While ACPA has a provision that considers a cybersquatter's offer to transfer or sell the domain name to be evidence of bad faith, it should also contain a clause that establishes attempts to solicit an offer of purchase as evidence of bad faith. Furthermore, the registration of a domain name for any period of time should be considered a full registration. There should be no distinction made between the legitimacy of a name that was registered and kept and one that was registered and then dropped within the 5-day AGP. Categorizing all registrations in the same way would encourage registrants to be more selective in their registration and would decrease the instances of infringement that occur in the first place.
Finally, there needs to be a concerted effort to establish an international enforcement protocol and harmonize penalties. A large portion of cybersquatting activity takes place offshore, making it critical for the international community to actively communicate their Internet use policies and ensure that they are consistent.
Beyond the scope of ACPA, a number of ICANN changes need to be made to effectively deter cybersquatting. ICANN needs to make it mandatory for registrants to provide accurate Whois information so that cybersquatters are unable to easily evade detection. In addition, it is of the utmost importance that ICANN closes the add grace period (AGP) to tasting and kiting so that abusers can no longer test-drive domain names for their traffic and consumer deception potential. The recent proposal from ICANN to institute a 20-cent fee for each "add" is simply not adequate. Finally, ICANN must require more accountability from registrars, registries, and others that benefit from cybersquatting. In an ideal world, all of these changes would be quickly enacted and the Internet would be much safer for consumers and brand owners alike. However, given the current state of affairs brand owners need to fight with the tools that are available and work together to resolve these issues.
By pooling their interests, trademark owners can drive the most notorious cybersquatters out of business. Businesses truly can effect change by banding together. It is important that they do so, particularly in the face of mounting opposition as domain name abusers attempt to define the policy debate.
This paper has been prepared by FairWinds Partners on behalf of the Coalition Against Domain Name Abuse (CADNA). CADNA is a focus group for brand owners dedicated to raising awareness and affecting change.
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