DSPT International, Inc. v. Lucky Nahum
624 F.3d 1213 (2010)
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Rule of Law:
Under the Anticybersquatting Consumer Protection Act (ACPA), a person is liable for cybersquatting if they use a domain name with a bad faith intent to profit from a protected mark, even if the initial registration was not in bad faith. Using a domain name as leverage to extract payment in a business dispute constitutes a 'bad faith intent to profit' under the Act.
Facts:
- DSPT, a men's clothing company owned by Paolo Dorigo, created the 'EQ' brand name in 1999.
- Dorigo's associate, Lucky Nahum, arranged for his brother to create a website, 'www.eq-Italy.com', exclusively for DSPT's business.
- Although the website was for DSPT, Nahum registered the domain in his own name, which Dorigo was unaware of at the time.
- The business relationship soured, and in August 2005, Nahum left DSPT to work for a competitor.
- In October 2005, after his departure, Nahum took down all of DSPT's content from the website and replaced it with a screen directing all inquiries to himself.
- Nahum informed his new employer that he was holding the website as leverage to get DSPT to pay him disputed commissions he claimed were owed.
- The loss of its website, which functioned as its primary catalog, caused a crisis for DSPT, resulting in a severe drop in sales and substantial costs to create a replacement.
Procedural Posture:
- DSPT sued Nahum in federal district court (court of first instance) for cybersquatting under the Lanham Act.
- Nahum filed a counterclaim seeking $14,936.86 in unpaid commissions.
- The case was tried before a jury, which returned a special verdict in favor of DSPT on the cybersquatting claim and awarded $152,000 in damages.
- The jury found that DSPT did not breach its contract with Nahum and that he was owed nothing on his counterclaim.
- The district court denied Nahum's post-trial renewed motions for judgment as a matter of law, remittitur, and new trial.
- Nahum (appellant) appealed the district court's judgment to the U.S. Court of Appeals for the Ninth Circuit, with DSPT as the appellee.
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Issue:
Does a person violate the Anticybersquatting Consumer Protection Act by using a domain name, which was initially registered permissibly, with a subsequent bad faith intent to profit by holding it for ransom in a business dispute, rather than to sell the domain or divert customers?
Opinions:
Majority - Kleinfeld
Yes. A person violates the Anticybersquatting Consumer Protection Act (ACPA) by using a domain name with a bad faith intent to profit from a protected mark, even if the domain was not originally registered in bad faith. The court reasoned that the statute's plain language prohibits one who 'registers, traffics in, or uses' a domain name with bad faith intent. The disjunctive 'or' means that subsequent bad faith use is a standalone basis for liability. The court determined that Nahum's act of holding the website 'for ransom' to extract payment for a disputed commission claim constituted a 'bad faith intent to profit.' This intent to profit does not have to be from the goodwill of the mark itself; it can be any attempt to procure an advantageous gain or return, such as leverage in a financial dispute. The court referenced the ACPA's statutory factors for determining bad faith, highlighting factor (VI), which indicates bad faith when a person offers to transfer a domain for financial gain without having used it for a bona fide offering of goods.
Analysis:
This decision clarifies that the Anticybersquatting Consumer Protection Act's (ACPA) scope is broader than the paradigmatic scenario of registering a famous mark solely to sell it back to the trademark owner. The court established that liability can attach for bad faith use that arises long after a lawful registration. This precedent significantly expands the Act's utility, making it a tool for businesses to combat former employees, contractors, or partners who leverage control over a domain name as a bargaining chip in a subsequent dispute, thereby protecting a company's online identity from internal or quasi-internal threats.
