Monday, November 30, 2015

Verisign fails to enjoin XYZ's statements about .xyz versus .com domains

Verisign, Inc., v., LLC, 2015 WL 7430016, No. 14-cv-01749 (E.D. Va. Nov. 20, 2015)
Verisign is the industry leader in domain name registration, with over 120 million registrations in the <.com> and <.net> space. XYZ entered the market in 2014 offering registrations in the <.xyz> space. Verisign alleged false advertising in 1) statements regarding <.com> availability; 2) non-public statements about XYZ’s revenue; 3) statements about XYZ’s registration numbers; and 4) statements about XYZ’s marketing budget.
In an NPR interview, XYZ representative Negari said “[a]ll the good real estate is taken. The only thing that is left is something with a dash or maybe three dashes, and a couple numbers in it. Did you know that 99% of all registrar searches today result in a ‘domain taken’ page? [O]n average, nine out of - nine out of ten .com searches show up as unavailable.”  Further, NPR described XYZ as the next <.com>. In a YouTube video, XYZ claimed, “ is for the next generation of the internet.” The video showed a dirty old Honda with a license plate that read <.com>, next to a shiny new Audi with a license plate that read <.xyz>. The narrator continued, “with over 120 million dot corns registered today, it’s impossible to find the domain name that you want. It’s 2014 and the next generation of domain names is here.”
As for statements about revenue, made between Negari and business partners and between XYZ employees and media consultants, Verisign challenged, “[m]y company has received 775,000+ registrations and ... generated over $5 million in revenue ...”; “[w]e’ve sold over 600,000 domains just in the four months that we’ve been live”; “[w]e’ve sold about 800,000 dot XYZ domain names since we’ve launched...”; and “[o]ur wholesale price is around $8.”  Further, in e-mail and blog posts, XYZ allegedly falsely claimed to be the top-selling new Top-Level Domain (‘TLD‘) at various times, misrepresenting the number of registrations and confusing consumers into thinking free-trial domain names were actually sold at a wholesale price.  While XYZ claimed that “[t]he .xyz registry has put a multi-million dollar awareness campaign in place to educate users on what .xyz is...,” Verisign contended that, in fact, XYZ’s marketing budget consisted primarily exchangin domain names for advertising credit.
First, the statement that “all the good real estate is taken” was nonactionable opinion, not a verifiable fact. NPR did in fact describe XYZ as the next <.com>, so XYZ reporting that fact in advertising wasn’t a false statement. Moreover, Verisign’s own data showed that <.com> names are largely unavailable. In a given month, Verisign received about two billion requests to register <.com> domain names, yet fewer than three million are actually registered, mostly because the requested names were unavailable. Likewise, the YouTube video was puffery and opinion. “The message communicates Defendants’ opinion of itself as a shiny new sports car and nothing more.”
The statements about XYZ’s revenue and registrations were factual statements that were verifiable, but there was no evidence of falsity.  XYZ made a deal with in which purchased 375,000 domain names for a price of $8 each: $3 million. XYZ bought advertising from in the form of 1,000 impressions for $10 each, also for a total of $3 million, so paid with advertising credit, and gave the .xyz domain names away as free trials to their subscribers. An independent audit by a reputable accounting firm found that this exchange was for fair value. The court thus found that the statements regarding the Defendants’ revenue, registration numbers, and marketing budget were true.  Likewise, when XYZ claimed to be a market leader in new TLDs, it told the truth.
Furthermore, the court found that Verisign failed to show materiality.  Even had Verisign shown an intent to deceive the receiving audience, that wasn’t enough to show actual deception. Verisign’s survey tested whether consumers thought that .xyz domain name registrations were purchases, but that didn’t itself show deception.
Verisign also failed to show a causal connection between the alleged false statements and its claimed economic damages. Dot-com registrations actually increased after XYZ’s statements, although they coincided with a decline in .net registrations.  But correlation isn’t causation, and Verisign’s expert “failed to account for the over 700 competitors in the <.net> space during the same time period, failed to account for the decline in Plaintiff’s <.net> sales prior to Defendants’ statements, and failed to account for changes in Plaintiff’s own advertising and promotion.”  These were fatal flaws.
As for alleged harm to goodwill, that couldn’t lead to a presumption of irreparable harm, given eBay and Winter, though the Fourth Circuit hasn’t (yet) so decided.  Verisign didn’t show evidence of economic or reputational harm, and thus there was no irreparable harm.

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