Wednesday, April 20, 2011

UDRP victory turns to defeat when registrant ignores its limits

Newport News Holdings Corporation v. Virtual City Vision, Inc., --- F.3d ----, 2011 WL 1467183 (4th Cir.)

NNHC makes women’s clothing and accessories under the Newport News mark. It operates at, but VCV bought before that, in October 1997. NNHC began use of its domain name to sell clothes in 1999. VCV owns at least 31 domain names incorporating geographic locations, consistent with its original business model of providing city-related information. In 2000, NNHC brought an UDRP action against VCV, which VCV won because "visitors to [NNHC's] branded web site, who seek out the latest women's clothing and home fashions would clearly not be confused when seeing a home page of another web site, bearing an identical mark, that explicitly provides city information ... with no connection whatsoever to women's and home fashions." The panel further held that VCV's website provided "bona fide service offerings," and that "given the total absence of competition between the businesses of [NNHC and VCV] ... [VCV] did not register the contested domain name in an effort to cause any likelihood of confusion.", DeC AF-0238.

While continued to provide information about the city of Newport News, in 2004 it began running occasional ads for women’s clothing. Between 2004 and 2007, the website twice ran advertisements for NNHC products on two occasions, once by a company hired by NNCH; when NNHC learned about this it ordered the company to cancel the ads. Then, between February and March 2007, NNHC placed ads on the website in order to measure revenue losses attributable to it. NNCH then offered to buy the domain name, but VCV rejected the offer, asking for a seven-figure amount or for a commission deal.

In fall 2007, the site “shifted from a city focus, similar to that of VCV's other locality sites, to one emphasizing women's fashions. By February of 2008, the homepage was dominated by advertisements for women's apparel.” VCV’s principal Tran began managing the site personally, taking control away from the company that ran VCV’s other local sites. “The changes to the website were lucrative. Tran would later testify that most of VCV's revenue during that time came from the website instead of the locality sites, either individually or in total.”

NNCH sued in 2008 for trademark infringement, false advertising, and related claims. The magistrate judge hearing the case awarded NNCH summary judgment on its ACPA claim, including statutory damages and attorneys’ fees.

First, the court of appeals held that the district court properly exercised personal jurisdiction over Tran and held him personally liable for VCV’s acts by piercing the corporate veil. Tran is the President, the sole employee, and the only participating member of VCV's Board of Directors, and the business is run out of his home; there was a unity of interest and ownership as well as an intent to commit an injustice.

The court of appeals then rejected VCV’s challenges to the validity of NNHC’s mark and the finding of bad faith intent to profit under ACPA. The provision of ACPA that allows use of a descriptive term other than as a mark, fairly and in good faith, does not apply here because Newport News was no longer used to describe VCV’s goods or services or their geographic origin, because the site was primarily dedicated to women’s fashion.

“Most of the items on its homepage, as well as those most prominently placed, related to women's attire. Not only was the site dominated by advertisements for apparel, it also contained dozens of links to shopping websites. The website's references to the city of Newport News became minor in comparison to the fashion-related content. VCV cannot escape the consequences of its deliberate metamorphosis.” The rump provision of information about the city of Newport News was insufficient to be bona fide; an alternate holding would protect cybersquatters who provided some minimal amount of information about a legitimate subject. The court also pointed to the contrast between the website and VCV’s other sites, which were dominated by links and ads for the relevant cities. “[O]nce VCV largely abandoned its city information service, it ceased to have a right to use the name of Newport News to describe such service.” Even some measure of fair use would not preclude liability in these circumstances.

The court also rejected VCV’s argument that, under Lamparello v. Falwell, 420 F.3d 309 (4th Cir.2005), the court had to "determine whether a likelihood of confusion exists by 'examin[ing] the allegedly infringing use in the context in which it is seen by the ordinary consumer.'" That’s a TM standard, not an ACPA standard, where the inquiry is whether the domain name is identical or confusingly similar to NNHC’s mark. The fact that confusion about source or sponsorship could be resolved by visiting the website isn’t relevant.

Also, the district court correctly held that the UDRP decision was further proof of bad faith. [The eResolution arbitration] found VCV’s use proper precisely because its city information business was unrelated to NNCH’s clothing business, relying on "the total absence of competition between the businesses of [NNHC and VCV]." “The fact that, in the face of this cautionary language, VCV later purposefully transformed its website into one that competed with NNHC by advertising women's apparel is a legitimate factor within the totality of the circumstances supporting the district court's finding of bad faith.”

The court of appeals then rejected VCV’s laches defense. Assuming that such a defense applies to an ACPA claim (why wouldn’t it?), it was inapplicable because VCV’s bad faith intent to profit didn’t become obvious until November 2007. “Even when VCV started to place a few apparel ads on its otherwise city-focused website in 2005, VCV's bad faith was not obvious, as VCV was still providing a legitimate city-information service and not competing with NNHC.” NNHC sued within a year of the real transformation.

Similarly, VCV’s acquiescence defense failed, assuming it was available. Though NNHC placed ads on VCV’s site in February 2007, that was before the bad faith developed.

VCV also contested the court’s award of attorney’s fees. There was no abuse of discretion. The district court found VCV’s conduct exceptional because its transformation of the site came after it had been made aware that it was lack of competition that made its use of the domain name legitimate. “Neither during the proceedings below nor in response to repeated questioning at oral argument on appeal was VCV able to provide a legitimate justification for its decision to shift its website's focus to women's clothing, particularly in the face of the ICANN panel's implicit suggestion that to do so courted the risk of a finding of bad faith.”

A statutory damages award of $80,000 was also not an abuse of discretion. The court’s analysis of ACPA statutory damages was guided by their similarity to statutory damages in copyright. Such damages are not merely restitutionary but also designed to discourage wrongful conduct. Damages at the high end of the range (the top is $100,000 per domain name) were appropriate because VCV’s conduct was exceptional and egregious, even though VCV argued that it advertised women’s clothes for over two years before NNHC sued, during which time NNHC profited from advertising on the site and had discussions with VCV not mentioning infringement. When VCV’s wrongdoing crystallized in November 2007, its conduct then was exceptional and egregious, given that it was acting in direct contradiction to the UDRP opinion.

Finally, VCV’s argument that it should have been awarded attorney’s fees as well as costs on NNHC’s abandoned copyright claim. But VCV was not the prevailing party just because the copyright claim was omitted from NNHC’s amended complaint. There was no judicially sanctioned change in the legal relationship of the parties, and thus VCV was not the prevailing party. Costs could be awarded to a non-prevailing party, but only prevailing parties may recover attorneys’ fees as part of costs.


Bret Moore said...

Just a slight correction, ICANN didn't make any determination in the UDRP proceeding, it would be the arbitration provider's panel that did that. (Not sure who handled, I checked WIPO and NAF and didn't see it at either place... a cite would be helpful.) Otherwise, interesting story about how to lose an ACPA case.

RT said...

Good point. I should've fixed the 4th Circuit's description.