D. Expansion of Inwood Standard to “Non-Product” Cases: The “Direct Control and Monitoring” Test: 2. Internet Activity: (f) Contributory Cybersquatting (ii) “Bad Faith Intent” and “Exceptional Circumstances”
Though the ACPA is silent as to secondary liability, several courts have recognized contributory cybersquatting as a cause of action. See Microsoft Corp. v. Shah, 2011WL 108954 *2 – *3 (W.D. Wash.); Solid Host, NL v. Namecheap, Inc. 652 F.Supp.2d 1092, 1117 (C.D. Cal. 2009); Ford Motor Co. v. Greatdomains.com, 177 F.Supp.2d 635, 646-647 (E.D. Mich. 2001); see also Petroliam Nasional Berhad v. Godaddy.com, Inc., 2010 WL 3619780 *3 (C.D. Cal)(acknowledging the applicability of contributory infringement standards to actions for contributory cybersquatting, but dismissing the claim with leave to amend). These cases applied the principles of Inwood as extended by Lockheed, and considered the “extent of control exercised by the defendant over the third party’s means of infringement” to determine whether to sustain a claim for contributory cybersquatting. See Solid Host, NL v. Namecheap, supra at 1112, Ford Motor Co. v. Greatdomains.com, supra at 646. See also the discussion in Section II.D.2.
There is one difference, however, between the application of contributory liability analysis in a traditional trademark infringement context and the same analysis as applied to cybersquatting cases. Because the ACPA requires a finding of “bad faith intent” on the part of the defendant, the courts have required the plaintiff to show a corresponding heightened level of knowledge to prove contributory cybersquatting. It has moreover specifically been held that ““exceptional circumstances” must be shown to prove the degree of knowledge required to impose contributory liability for cybersquatting.” Solid Host, NL v. Namecheap, supra at 1116, citing Ford Motor Co. v. Greatdomains.com, supra at 647. What constitutes “exceptional circumstances” has been elucidated by the courts in the cases below.
Thus, where the defendants allegedly induced others to violate the ACPA by providing them with a method that taught them how to use domain names incorporating the plaintiff’s marks to drive traffic to their websites, the court determined that the plaintiff had likely met the heightened “bad faith intent” required by Ford, supra. It therefore sustained the plaintiff’s contributory cybersquatting claim, rejecting the defendant’s motion to dismiss. Microsoft Corp. v. Shah, 2011WL 108954 *3 (W.D. Wash.).
In Microsoft Corp. v. Shah, the plaintiff, “Microsoft,” alleged that the defendants, a group of individuals and companies, had registered domain names containing their trademarks in order to drive traffic to their website. They alleged further that the defendants induced others to engage in infringing activity and cybersquatting by selling them a method for doing so, “providing instruction on how to misleadingly use Microsoft marks to increase website traffic.” Id. at *1. The defendants further allegedly sold a product containing software that “allowed buyers to easily create websites incorporating” the plaintiff’s marks. Included in this material was a video narrated by one of the defendants. Id.
The plaintiff sued the defendants, alleging, inter alia, contributory cybersquatting. Microsoft Corp. v. Shah, supra at *1. The defendants moved to dismiss the contributory cybersquatting claim, arguing that it had not been recognized as a cause of action and that the plaintiff had failed to plead it. Id. The court disagreed and sustained the claim, based both on prior case law and the underlying policy of the ACPA.
In reaching its decision, the court relied on the analytical framework set forth in Ford Motor Co. v. Greatdomains.com, 177 F.Supp.2d 635 (E.D. Mich. 2001), discussed in more detail below. In Ford, the court recognized contributory cybersquatting as a potential cause of action where the plaintiffs sued the owner of a website that auctioned domain names, alleging, inter alia, both direct and contributory liability for cybersquatting. Microsoft, supra at *2, citing Ford. The Ford court acknowledged the “flea market” analysis derived from the Fonovisa-Hard Rock line of cases, extended by Lockheed, and reasoned that the “direct control and monitoring” standard that emerged therefrom could potentially be applied to allegations of cybersquatting. See Microsoft, supra citing Ford at 647. It reasoned further, however, that a cause of action under the ACPA requires the plaintiff to demonstrate “bad intent” on the part of the defendant, which the plaintiff failed to do. See Id., citing Ford. Thus, although the plaintiff’s contributory cybersquatting claim failed as a practical matter, the Ford case nonetheless stands for the proposition that such claims are cognizable causes of action, and the Microsoft court relied on this precedent to sustain Microsoft’s claim. See Id.
Furthermore, the court readily distinguished the defendants’ activity from that of the website owner or “cyber-landlord” in Ford. Whereas the “cyber-landlord” in Ford had “simply provide[d] a marketplace where a trade in domain names [could] take place,” the defendants in Microsoft were much more involved in the direct cybersquatting. They had created a method with a name, the “Magic Bullet System,” the “sole purpose of which was to allow purchasers to profit from the illicit use of [the plaintiff’s] marks.” Microsoft Corp. v. Shah, supra at *2. Unlike the defendants in Ford, the court reasoned further, they either knew or should have known that those who purchased their “Magic Bullet System” could not have had a legitimate reason for doing so. It was therefore likely, the court concluded, that the plaintiff could satisfy the heightened “bad-faith” standard set forth in Ford. Id. Note that the court here misstates Ford’s requirement, concluding that the plaintiff had likely shown the “[d]efendants’ bad faith under the heightened standard employed by the Ford court.” 2011 WL 108954 *2 (W.D. Wash.) (emphasis added). In the context of contributory cybersquatting, however, the defendant’s bad faith is not at issue. Rather, the court must ascertain whether the defendant knew or should have known of the direct infringer’s “bad faith intent.”
The Microsoft court also concluded that the defendants’ conduct was precisely the type of activity the ACPA meant to prohibit, reading that statute broadly to include a cause of action for contributory cybersquatting. See Microsoft Corp. v. Shah, supra at *3. Cybersquatting, like trademark infringement, was a “tort-like cause of action “to which the theory of contributory liability would appear to be naturally suited.” Id. Relying on the Ninth Circuit decision in DSPT Intern’l v. Nahum, which supported a broad reading of the ACPA, the court found that the defendants’ alleged conduct fell “squarely within the statute’s goal of imposing liability on those who seek to profit in bad faith by means of registering, trafficking, or using domain names that contain identical or confusingly similar marks.” Id.; and see DSPT, supra at 624 F.3d 1213, 1219 (9th Cir. 2010) (noting that “the statute … is written more broadly than what may have been the political catalyst that got it passed.”). Citing basic principles of statutory construction that dictate a liberal reading of the statute, the court held that “a defendant who seeks to profit by selling a method that teaches others how to benefit form violating the ACPA should not be able to escape liability by interpreting the statute so narrowly.” Id. (citations omitted)
Where a defendant registrar acted as a registrant as part of its policy providing anonymity to its customers, one of whom was allegedly cybersquatting, the court held that the plaintiff had alleged sufficient facts to plead a claim for contributory cybersquatting. Solid Host, NL v. Namecheap, Inc . 652 F.Supp.2d 1092, 1117 (C.D. Cal. 2009). In doing so, the Solid Host court suggested scenarios which, if further developed by the factual record, could be construed as “exceptional circumstances.” Solid Host, supra at 1116.
As noted above, Solid Host involved a “non-traditional” case of cybersquatting in that the purported cybersquatter allegedly “hacked” the plaintiff’s account with its registrar and “stole” the plaintiff’s domain name. He then allegedly switched the plaintiff’s domain name to a new account with the defendant registrar “NameCheap” which agreed to become the registrant for the plaintiff’s domain name and then, in accordance with its anonymity service, licensed it back to the cybersquatter defendant. Solid Host, supra at 1096-1098, 1103. The plaintiff’s owner reached the cybersquatter defendant who, in turn allegedly demanded $12,000 for it. The plaintiff’s owner refused. Id. It alleged that it next contacted NameCheap to regain control of its domain name. It claimed that it presented NameCheap with evidence in the form of sworn testimony attesting to “relevant facts.” Id. The defendant registrar, however, seeking to “remain neutral” in what it viewed as a dispute between the plaintiff and the alleged cybersquatter, refused to reveal that defendant’s identity. Id.
The plaintiff subsequently sued, among others, the defendant NameCheap, alleging claims that included contributory cybersquatting. See Solid Host, supra at 1111. NameCheap moved to dismiss, arguing that Solid Host had failed to state a claim. Solid Host, supra at 1098. The court disagreed, based on the plaintiff’s allegation that evidence it presented to the defendant should have led the defendant to believe the domain name it registered was “stolen.” That allegation precluded the court from ruling as a matter of law that the plaintiff would not be able to prove exceptional circumstances to satisfy the heightened knowledge standard for contributory cybersquatting. Id. at 1116.
In reaching its decision, the court applied Lockheed’s “direct control and monitoring” test as expanded by the court in Ford Motor Co., supra to require the plaintiff to allege the defendant’s knowledge of the direct infringer’s “bad faith intent.” Solid Host, NL v. Namecheap, Inc . , supra at 1112 -1116. Thus the plaintiff was required to plead, in addition to direct control and monitoring, a heightened level of knowledge beyond what is normally required in a “traditional” infringement case. See Solid Host, NL v. Namecheap, Inc . , supra at 1116.
As to Lockheed’s direct control and monitoring requirement, the court found dispositive the plaintiff’s allegation that NameCheap was able to terminate the alleged direct cybersquatter’s illegal activity simply by returning the domain name to the plaintiff. See Solid Host, NL v. Namecheap, Inc . supra at 1116. Distinguishing Fare Deals and Lockheed, the court reasoned that “NameCheap’s position [was] closer to that of a flea market operator or the owner of the auction site in Ford Motor Co. than it [was] to that of HRN in Fare Deals or a registrar like NSI in Lockheed Martin I.” Id. and see citations therein. Thus, like the defendant in Ford Motor Co., NameCheap was a “cyber-landlord” of the internet real estate – the plainitiff’s domain name – stolen by the alleged direct cybersquatter. Id. “Just as the auction website in Ford Motor Co. provided an essential forum for traffic in domain names, NameCheap’s anonymity service was central to [the] cybersquatting scheme. If NameCheap had returned the domain name to Solid Host, Doe’s illegal activity would have ceased.” Id. This “crucial factor” – i.e. the defendant’s ability to terminate the illegal activity — distinguished NameCheap’s role from the more passive roles of the defendants in Fare Deals and Lockheed and was sufficient to meet the direct monitoring and control requirement necessary to plead contributory liability. Id. Fare Deals is discussed in further detail in II.D.2(b). Lockheed is discussed in detail in II.D.2(a).
To meet the heightened knowledge requirement under Ford Motor Co., supra, Solid Host would have to plead “not only that NameCheap knew that [the alleged cybersquatter] was trafficking in a domain name similar or identical to Solid Host’s mark, but also that knew that Doe was doing so with bad faith intent to profit from Solid Host’s mark.” [sic] Solid Host, NL v. Namecheap, Inc . supra at 1116, citing 15 U.S.C. § 1125(d)(1)(A)(i)-(ii) and Ford Motor Co., 177 F.Supp.2d at 647. However, the court held further, “Namecheap [could not] be expected to analyze the good or bad faith of every customer who [wished] to remain anonymous online.” Id., citing Ford Motor Co. at 647. It was therefore incumbent on the plaintiff to allege “exceptional circumstances” to “prove the degree of knowledge required to impose contributory liability for cybersquatting.” Id. In this case, the plaintiff’s allegation that it had given NameCheap ““evidence, including … a sworn declaration of [its owner] attesting to the relevant facts,” which “would have led a normal and prudent person to conclude that the domain it registered had been stolen[,]”” was sufficient for the court to determine that it could not “conclude, as matter of law, that Solid Host [would] be unable to prove exceptional circumstances satisfying the knowledge requirement for contributory liability.” Id.
In reaching its decision, the court suggested what facts, on a more developed record, might constitute “exceptional circumstances.” Referencing Fare Deals, discussed in detail in II.D.2(b), it determined that in a case of cybersquatting, “mere receipt of a demand from a third party [would] not generally suffice to provide notice of the illegitimate use of a domain name so as to justify the imposition of contributory liability … [because] the demand gives notice only of the third party’s position regarding the matter.” Solid Host, NL v. Namecheap, Inc . supra, citing Fare Deals, 180 F.Supp.2d at 690. Where, however, “the demand is accompanied by sufficient evidence of a violation,” as suggested by Solid Host’s allegations, “the defendant may have a duty to investigate.” Solid Host, NL v. Namecheap, Inc . supra. The court held further that “[t]he extent of that duty … [would] be circumscribed by the relative difficulty of confirming or denying the accusation under the facts of a particular case. Solid Host, NL v. Namecheap, Inc . , supra citing Fare Deals, supra at 690–91.
Where the plaintiffs alleged contributory liability against an “eBay-style” auction site for domain names, the court dismissed the claim, requiring a further allegation of “exceptional circumstances” to demonstrate the defendant’s “bad faith intent” under the ACPA. Ford Motor Co. v. Greatdomains.com, 177 F.Supp.2d 635, 647 (E.D. Mich. 2001).
The plaintiffs in Ford Motor Co. were a group of automobile companies that alleged that numerous domain names registered to a group of individuals and offered for sale at the defendant’s website infringed on their marks. Ford Motor Co. v. Greatdomains.com, supra at 640. They sued both the operator of the “Great Domains” auction site and eighty individuals who allegedly registered the infringing websites, alleging among other things contributory liability against Great Domains for its role in the alleged infringement. Id. at 646.
The plaintiffs based their contributory cybersquatting claims on allegations that the defendant’s business model promoted cybersquatting. They alleged, for example, that the defendant auctioned domain names to the highest bidder through its website and that it collected a commission on the sale of domain names purchased through its website, thus sharing its customers’ interest in selling their domain names at the highest price. Ford Motor Co. v. Greatdomains.com,, supra at 646. The plaintiffs alleged further that the defendant encouraged cybersquatting by explaining on its website that “the value of a domain name is driven by its ability to deliver traffic and revenue,” which ability, the plaintiff urged, would be “greatly enhanced if the domain name incorporate[d] a trademark.” Id. The court rejected the plaintiff’s argument and dismissed the claim against the defendant. Id.
In reaching its decision, the court acknowledged that contributory liability analysis could be applied to allegations of cybersquatting, but would have to be modified to reflect the enhanced showing of “bad faith intent” required by the ACPA. Ford Motor Co. v. Greatdomains.com, supra at 646-647. It referenced the two-part standard in Inwood, imposing contributory liability where the defendant either (1) “intentionally induces another to infringe a trademark” or (2) “continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement.” Id. at 646 (citations omitted). It further recognized that “[w]hile willful blindness is inexcusable under contributory infringement law … there is “no affirmative duty to take precautions against the sale of counterfeits.” Id. (citations omitted).
The court acknowledged further the expansion of the Inwood standard beyond the manufacturer-distributor context, as had been done in the flea market cases, Hard Rock Café and Fonovisa, supra. The court referenced Lockheed II, discussed in Section II.D.2. In that case, the court synthesized the analyses in Hard Rock Café and Fonovisa to conclude that “[d]irect control and monitoring of the instrumentality used by a third party to infringe the plaintiff’s mark permits the expansion of Inwood Lab’s ‘supplies a product’ requirement of contributory infringement.” Lockheed Martin, 194 F.3d 980, 984. The plaintiffs argued that like the flea market defendants, Great Domains had provided “the necessary marketplace” for the individual defendants’ alleged cybersquatting. Ford Motor Co. v. Greatdomains.com, supra at 646.
The court agreed that the “flea market” analysis arguably applied to the allegations of cybersquatting, likening Great Domains, a “cyber-landlord” to the defendants in the flea market cases. See Ford Motor Co. v. Greatdomains.com, supra at 647. It distinguished cybersquatting, however, from traditional infringement, based on the “bad faith intent” required by the ACPA, “a subjective element not required under traditional infringement, unfair competition, or dilution claims.” Id. Thus the contributory liability standard in this context is heightened: it would be insufficient, for example, for the plaintiff to allege that Great Domains was “merely aware that domain names identical or similar to protected marks were being sold over its website.” Id.
Rather, because legitimate uses of others marks are protected under the ACPA, a plaintiff would have to demonstrate that the “cyber-landlord” knew or should have known that its vendors had no legitimate reason for having registered the disputed domain names in the first place. Because an entity such as Great Domains generally could not be expected to ascertain the good or bad faith intent of its vendors, contributory liability would apply, if at all, in only exceptional circumstances.
Id. The court therefore dismissed Great Domains from the case, finding the plaintiff had failed to allege “exceptional circumstances” that would warrant a finding of contributory liability. Id.