Monday, February 13, 2017

Lexmark's harm requirement shields XYZ's comparative claims

Verisign, Inc., v. XYZ.com LLC, No. 15-2526 (4th Cir. Feb. 8, 2017)

Verisign sells internet domain names and operates the popular .com and .net top-level domains. In 2014, XYZ launched “.xyz,” a new top-level domain. As part of its marketing push, XYZ, and its CEO Daniel Negari, touted the popularity of the .xyz domain and warning of a scarcity of desirable .com domain names. Verisign for false advertising, and here the court of appeals affirmed the district court’s grant of summary judgment.  Verisign couldn’t show that XYZ’s self-promoting statements caused it harm, and its statements about the availability, or lack thereof, of  .com domain names weren’t shown to be false or misleading.

XYZ made “a series of affirmative statements about .xyz, promoting .xyz’s popularity and touting its high registration numbers.” For example, by August 2015, XYZ had secured over one million .xyz registrations.  Although this was literally true, Verisign argued that it was false or misleading because the numbers included not only registrations bought and paid for by consumers – indicating actual consumer demand – but also 375,000 registrations given away for free through an agreement between XYZ and Web.com.

Also, Verisign challenged statements such as, “All of the good real estate is taken. The only thing that’s left is something with a dash or maybe three dashes and a couple numbers in it.” Another statement was that “nine out of ten .com searches show up as unavailable.” A YouTube ad compared a new Audi with a .xyz license plate to a dilapidated Honda with a .com plate, and stated, “With over 120 million .coms registered today, it’s impossible to find the domain name that you want.”

“[A] Lanham Act claimant may not mix and match statements, with some satisfying one Lanham Act element and some satisfying others.”  Verisign argued that XYZ used deception to create the appearance of a “gold rush” for .xyz domains, including claiming that NPR had dubbed it the “next .com.”  The court of appeals affirmed the rejection of these claims based on Verisign’s failure to prove “an injury flowing directly from the challenged statements”—hellooo, Lexmark.  Verisign’s harm expert was excluded because her methods were “questionable” and her conclusions were “not reliable,” primarily because her analysis failed to distinguish between correlation and causation.  Her testimony was properly excluded; that left Verisign with nothing.  While her report showed that Verisign experienced a drop in .net registrations after .xyz – along with other new top-level domains – became available, it didn’t show “anything other than a temporal link between XYZ’s statements and the drop-off.”  This failure wasn’t surprising, since “XYZ’s boasts about its registration numbers and NPR interview were distributed to a narrow audience, comprised mostly of readers of XYZ’s blog and a small percentage of registrars.”  This gave them “limited potential to influence the domain-name market, particularly at a time when hundreds of new top-level domains were clamoring for attention in a newly competitive market.”

The court of appeals then agreed that claims that “all of the good [.com] real estate is taken,” or that it is “impossible to find the domain name that you want” were nonfactual opinion or puffery.  The statement that it is “impossible to find the domain name that you want” wasn’t verifiable, in part because of “the indefinite nature of the referenced ‘you.’” 

So too with the claim that “[a]ll of the good real estate is taken,” because what a “good” domain name is, is a matter of opinion. Verisign argued that the next sentence in the relevant interview – “The only thing that’s left is something with a dash or maybe three dashes and a couple of numbers in it” – was literally false, because there were at least some available .com names that didn’t include dashes and numbers. But in context, the overall message was an opinion that the available .com names weren’t “good” because they involve dashes and numbers. 

While XYZ’s CEO claimed that these were the “only” .com names left, “that is precisely the kind of puffery or bluster on which no reasonable consumer would rely,” especially in a spoken statement, which might be offered more casually than a written statement.  In such statements, “we must take care not to label as ‘literally false’ what really is no more than a colloquial exaggeration, readily understood as such.”  In a footnote, the court of appeals pointed out that Verisign argued that the relevant market was registrars who purchase domain names and then resell them to end users, making it “especially unlikely that these savvy industry players would construe XYZ’s claims about .com availability as factual statements and rely on them accordingly.”


The claim that “99% of all registrar searches today result in a ‘domain taken’ page” was verifiable, but verifiably true. Verisign argued that this number was a “na├»ve” metric of unmet demand because it included automated searches undertaken by registrars looking for high-demand, previously registered domain names. The court of appeals wasn’t convinced—given that registrars were battling “fiercely and on a daily basis over a limited supply of desirable .com names,” the statistic seemed to convey the difficulties of registering a .com name.  Anyway, Verisign didn’t provide a consumer survey about reactions to this claim, nor did it provide any other evidence of deceptiveness.

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