On October 23, 1996, Virtual Works registered the domain name vw.net with Network Solutions, Inc. (NSI). When Virtual Works registered vw.net, many other domain names were available for its use. For instance, vwi.net, vwi.org, virtualworks.net, and virtualworks.org, were still available.
Virtual Works used the vw.net domain name for approximately two years as a part of its ISP business. In December 1998, various Volkswagen dealerships contacted Virtual Works and expressed an interest in purchasing the rights to the vw.net domain name. Virtual Works, in turn, called Volkswagen, offering to sell vw.net.
In response to what it perceived as a threat to the VW mark, Volkswagen invoked NSI's dispute resolution procedure. NSI in turn told Virtual Works that Virtual Works would lose the vw.net domain name unless it filed a declaratory judgment action against Volkswagen. Virtual Works complied. Volkswagen subsequently counterclaimed, alleging trademark dilution, infringement, and cybersquatting under the ACPA. The district court granted Volkswagen's motion for summary judgment on its cybersquatting, dilution, and infringement counterclaims and dismissed Virtual Works' cross-motions on the same. Accordingly, the district court ordered Virtual Works to relinquish to Volkswagen the rights to the vw.net domain name. Virtual Works appeals.
The ACPA was enacted in 1999 in response to concerns over the proliferation of cybersquatting—the Internet version of a land grab. According to the Senate Report accompanying the Act: "Trademark owners are facing a new form of piracy on the Internet caused by acts of 'cybersquatting,' which refers to the deliberate, bad-faith, and abusive registration of Internet domain names in violation of the rights of trademark owners." Under the ACPA, a person alleged to be a cybersquatter is liable to the owner of a protected mark if that person:
With respect to the bad faith determination, the statute [lists several factors]. In addition to listing these nine factors, the Act contains a safe harbor. The safe harbor provision states that bad faith intent "shall not be found in any case in which the court determines that the person believed and had reasonable grounds to believe that the use of the domain name was fair use or otherwise lawful."
A court is not limited to considering these nine factors when determining the presence or absence of bad faith. The Second Circuit, in the first court of appeals case addressing the ACPA, noted that the most important grounds for finding bad faith "are the unique circumstances of th[e] case, which do not fit neatly into the specific factors enumerated by Congress but may nevertheless be considered under the statute."
The first inquiry under the ACPA is whether Virtual Works acted with a bad faith intent to profit from a protected mark. Virtual Works claims that the district court erred in holding that it did. We need not, however, march through the nine factors seriatim because the ACPA itself notes that use of the listed criteria is permissive: the factors are "expressly described as indicia that 'may' be considered along with other facts."
We are mindful that the instant case comes to us on summary judgment and involves a contested determination of Virtual Works' intent. Unfortunately for Virtual Works, however, there is both circumstantial and direct evidence establishing bad faith. The following uncontested facts all provide circumstantial evidence of Virtual Works' bad faith with respect to the VW mark: 1) the famousness of the VW mark; 2) the similarity of vw.net to the VW mark; 3) the admission that Virtual Works never once did business as VW nor identified itself as such; and 4) the availability of vwi.org and vwi.net at the time Virtual Works registered vw.net. Notably, either of these domain names would have satisfied Virtual Works' own stated criterion of registering a domain name that used only two or three letters and would have eliminated any risk of confusion with respect to the VW mark.
We consider such circumstantial factors cautiously, however. We do not suggest that these four facts would alone resolve the question of Virtual Works' intent on summary judgment. The fact that a domain resembles a famous trademark, for example, hardly in and of itself establishes bad faith. Moreover, domain names that are abbreviations of a company's formal name are quite common. To view the use of such names as tantamount to bad faith would chill Internet entrepreneurship with the prospect of endless litigation.
Volkswagen, however, points to direct evidence regarding Virtual Works' intent—the statements made at registration. Grimes' deposition reveals that when registering vw.net, he and Anderson specifically acknowledged that vw.net might be confused with Volkswagen by some Internet users. They nevertheless decided to register the address for their own use, but left open the possibility of one day selling the site to Volkswagen "for a lot of money." Volkswagen claims that this is sufficient to establish bad faith registration in violation of the ACPA.
Viewing the facts in the light most favorable to Virtual Works, as we must on summary judgment, the statement at registration establishes that Virtual Works had a dual purpose in selecting vw.net. Contrary to Virtual Works' claim, the fact that it used vw.net for two years as a part of an ISP business is not dispositive of the question of intent. Virtual Works chose vw.net over other domain names not just because "vw" reflected the company's own initials, but also because it foresaw the ability to profit from the natural association of vw.net with the VW mark. Indeed, it is obvious even to a casual observer that the similarity between vw.net and the VW mark is overwhelming.
Moreover, the facts in the summary judgment record affirmatively support the claim that Virtual Works had a bad faith intent to profit when it attempted to sell vw.net to Volkswagen. It is true that a mere offer to sell a domain name is not itself evidence of unlawful trafficking. The ACPA was not enacted to put an end to the sale of all domain names. This case, however, involves much more than a plain vanilla offer to sell a domain name.
Indeed, the second piece of direct evidence regarding Virtual Works' intent is the terms of its offer to Volkswagen. Virtual Works told Volkswagen that vw.net would be sold to the highest bidder if Volkswagen did not make an offer within twenty-four hours. Virtual Works also stated that others would jump at the chance to own a valuable domain name like vw.net because Internet users would instinctively associate the site with Volkswagen. Virtual Works knew, both when it registered vw.net and when it offered to sell the site, that consumers would associate vw.net with Volkswagen. It sought to maximize the advantage of this association by threatening to auction off the site. And it hoped that in an effort to protect its mark, Volkswagen would respond with a hefty offer of its own.
Likewise, Virtual Works cannot take refuge in the ACPA's safe harbor provision. The safe harbor is only available when the defendant both "believed and had reasonable grounds to believe that the use of the domain name was fair use or otherwise lawful." The openly admitted hope of profiting from consumer confusion of vw.net with the VW mark disqualifies Virtual Works from the ACPA's safe harbor. A defendant who acts even partially in bad faith in registering a domain name is not, as a matter of law, entitled to benefit from the Act's safe harbor provision. Virtual Works knew it was registering a domain name bearing strong resemblance to a federally protected trademark. And it did so, at least in part, with the idea of selling the site "for a lot of money" to the mark's owner.
Just as we are reluctant to interpret the ACPA's liability provisions in an overly aggressive manner, we decline to construe the safe harbor so broadly as to undermine the rest of the statute. All but the most blatant cybersquatters will be able to put forth at least some lawful motives for their behavior. To hold that all such individuals may qualify for the safe harbor would frustrate Congress' purpose by artificially limiting the statute's reach. We do not think Congress intended the safe harbor to protect defendants operating, at least in part, with unlawful intent.
The ACPA allows a court to view the totality of the circumstances in making the bad faith determination. Here, that means looking at the purely circumstantial indicia of bad faith, as well as the direct evidence of the statements made at the time of registration and the direct evidence regarding terms of the sale. Whether our decision would be the same in the absence of any particular piece of evidence is a question we need not address. Viewed in its totality, the evidence establishes that at the time Virtual Works proposed to sell vw.net to Volkswagen, it was motivated by a bad faith intent to profit from the famousness of the VW mark. This is the sort of misconduct that Congress sought to discourage.
The second inquiry under the ACPA is whether Virtual Works 1) registered, trafficked in, or used a domain name; 2) that is identical or confusingly similar to a distinctive mark; or 3) is identical, confusingly similar to, or dilutive of a famous mark. There is no dispute that Virtual Works registered, trafficked in, and used vw.net. There is also no dispute that the VW mark is famous. The sole point of contention is whether vw.net is identical, confusingly similar to, or dilutive of Volkswagen's famous VW mark.
Virtual Works claims it is not similar because there is a distinction between the .net and .com TLD. According to Virtual Works, Volkswagen could not have registered vw.net in October of 1996 because it is an automaker and not an Internet service provider. This claim, however, is unavailing in light of the fact that NSI stopped enforcing the .com/.net distinction over a year before Virtual Works registered vw.net. The claim is also undermined by Virtual Works' admission that at the time of registration it was aware of the potential confusion with the VW mark, and by its statement to Volkswagen that users would instinctively use the vw.net address to link to Volkswagen's web site. The district court was correct, therefore, in holding that vw.net is confusingly similar to the famous VW mark.
The ACPA was not enacted to give companies the right to fence off every possible combination of letters that bears any similarity to a protected mark. Rather, it was enacted to prevent the expropriation of protected marks in cyberspace and to abate the consumer confusion resulting therefrom. The resolution of this case turns on the unique facts and circumstances which it presents. Ultimately, we believe the evidence is sufficient to establish that, as a matter of law, Virtual Works attempted to profit in bad faith from Volkswagen's famous mark. The district court thus did not err in ordering Virtual Works to turn over vw.net to Volkswagen. For the foregoing reasons, we affirm the judgment.
Prepared by Jefferson Scher for Law 227: Trademarks & Unfair Competition, Summer 2005. Substantial portions of the original opinion have been omitted.