Virtual Works, Inc. v. Volkswagen of America, Inc.
238 F.3d 264 (2001)
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Rule of Law:
A defendant who registers a domain name with a dual purpose—intending to use it for a legitimate business but also contemplating its future sale to a trademark owner for a significant profit—acts with a 'bad faith intent to profit' under the Anticybersquatting Consumer Protection Act (ACPA). Acting even partially in bad faith disqualifies the defendant from the ACPA's safe harbor provision.
Facts:
- On October 23, 1996, Virtual Works, Inc. registered the domain name 'vw.net' with Network Solutions, Inc.
- At the time of registration, Virtual Works' principals, Christopher Grimes and James Anderson, acknowledged that internet users might confuse 'vw.net' with Volkswagen.
- Grimes and Anderson decided to use the domain for their company but also discussed that if Volkswagen made an offer, they would sell it to them 'for a lot of money.'
- Other domain names that included the company's initials, such as 'vwinet' and 'vwi.org', were available at the time of registration.
- Virtual Works used the 'vw.net' domain for its internet service provider business for approximately two years.
- In December 1998, Anderson of Virtual Works left a voicemail for Volkswagen's trademark department offering to sell 'vw.net'.
- In the message, Anderson stated that unless Volkswagen purchased the domain name within 24 hours, Virtual Works would sell it to the highest bidder.
Procedural Posture:
- Volkswagen initiated a dispute resolution procedure with Network Solutions, Inc. (NSI), the domain registrar.
- To prevent losing the domain name, Virtual Works filed a declaratory judgment action against Volkswagen in the U.S. District Court for the Eastern District of Virginia.
- Volkswagen filed a counterclaim against Virtual Works for trademark dilution, infringement, and cybersquatting under the ACPA.
- The district court granted summary judgment in favor of Volkswagen on its counterclaims and ordered Virtual Works to transfer the 'vw.net' domain name to Volkswagen.
- Virtual Works, as the appellant, appealed the district court's judgment to the U.S. Court of Appeals for the Fourth Circuit.
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Issue:
Does registering a domain name that corresponds to the registrant's initials but is also confusingly similar to a famous trademark, with the admitted dual purpose of using it for business while also intending to potentially sell it to the trademark owner for a large sum, constitute a 'bad faith intent to profit' in violation of the Anticybersquatting Consumer Protection Act (ACPA)?
Opinions:
Majority - Chief Judge Wilkinson
Yes. Registering a domain name with even a partial bad faith intent to profit from a famous trademark violates the Anticybersquatting Consumer Protection Act. The court found direct and circumstantial evidence of Virtual Works' bad faith. The direct evidence included the admission by Virtual Works' principal that at the time of registration, they contemplated selling the domain to Volkswagen 'for a lot of money.' Further direct evidence was the coercive nature of the sales offer to Volkswagen, which included a 24-hour deadline and a threat to sell to the highest bidder. The court reasoned that this was not a 'plain vanilla offer to sell' but an attempt to profit from the consumer confusion it knew the domain would create. Consequently, Virtual Works could not benefit from the ACPA's safe harbor provision, as it requires a reasonable belief that the use was lawful, which is negated by an admitted intent to profit from a trademark's goodwill.
Analysis:
This decision significantly clarifies the 'bad faith intent to profit' standard under the ACPA, establishing that a 'dual purpose' for registration does not shield a cybersquatter from liability. By holding that even partial bad faith intent is sufficient to violate the Act, the court narrows the scope of the statutory safe harbor. This precedent makes it more difficult for cybersquatters to create a veneer of legitimate use for a domain name while secretly intending to extort the trademark holder. Future cases will likely focus on the totality of the circumstances, including statements made at registration and the nature of any subsequent sales offers, to determine intent.
