How the 9th Circuit Veered Off Course in Petroliam Nasional Berhad (Petronas) v. GoDaddy.com

The Misapplication of Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A. (Central Bank)

Posted on September 3, 2014

We’ve had a lot to say — and with good reason — about Petroliam Nasional Berhad (Petronas) v. GoDaddy.com, Inc. (GoDaddy),[1] the Ninth Circuit decision that held there is no cause of action for contributory cybersquatting[2] under the Anti-Cybersquatting Consumer Protection Act (ACPA),[3] which was passed as an amendment to the Lanham Act in 1999. This ruling was no mere “development”; it was a great upheaval in the law. The court’s analysis is at odds with the plain meaning of the statute, its legislative history, and the contributory liability case law construing it. We first reported the decision as a blog post here. A lengthier analysis appeared in the Winter 2014 issue of Bloomberg BNA’s Books Monitor. And the case gets the million-dollar treatment in the upcoming 2014 Supplement to Secondary Trademark Infringement. Each time we looked at the opinion, it became harder to understand it.

In addition to the issues we’ve already addressed is the less obvious but equally problematic dependence by the court on Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A (Central Bank) [4], which involved aiding and abetting liability under the SecuritiesExchange Act of 1934 (the “Exchange Act”).The GoDaddy court relied on that Supreme Court case[5] to help answer an old question that had already been answered, albeit not in the cybersquatting context[5a]: Should courts apply common law principles of secondary liability to the Lanham Act?

Both the Supreme Court and subsequent circuit courts have done so for decades. The Supreme Court resolved the validity of such common law principles under the Lanham Act in 1982 when it set the modern standard for contributory liability in Inwood Labs., Inc. v. Ives Labs., Inc.[6] Inwood Labs.’s two-part test for contributory trademark infringement[7] has been consistently followed by subsequent courts, including the Ninth Circuit.[8] Years later, the question of whether common law principles of agency should apply to the Lanham Act came before the Third Circuit in the landmark case of American Tel. & Tel. Co. Winback & Conserve Program, Inc. (AT &T).[9]There the court acknowledged the validity of vicarious liability (through the paradigm of agency) under the Lanham Act. [10] That case, though not controlling in the 9th Circuit, is nonetheless instructive because the AT &T court considered at length whether the Supreme Court’s ruling in Central Bank should apply to the Lanham Act.

In Central Bank, the Supreme Court had rejected the application of aiding and abetting liability to the Exchange Act. Adhering to the plain meaning of the statute, the Court reasoned that an action cannot be maintained for aiding and abetting securities fraud under the Exchange Act because its text did not provide for one.[11] In AT &T, however, the court declined to extend Central Bank to trademark infringement because it did “not believe that the [Central Bank] Court’s restrictive reading of the Exchange Act impact[ed] on the determination of the scope of liability under the Lanham Act.” [12]

Central Bank had no bearing on the inquiry in AT &T, the Third Circuit reasoned, because the Supreme Court in that case “primarily was concerned with broadening the range of unlawful conduct beyond that specifically proscribed by the [Exchange] Act.”[13] Aiding and abetting, the Supreme Court explained, constituted a separate cause of action beyond the scope of the Act.[14] This is not so however, regarding agency liability, the AT&T court reasoned, for “courts imposing liability on agency theories are not expanding the category of affirmative conduct proscribed by the relevant statute; rather, they are deciding on whose shoulders to place responsibility for conduct indisputably proscribed by the relevant statute.”[15]

But the AT&T court did not stop there. In distinguishing Central Bank, it held:

[B]eyond this, it is quite clear under Central Bank ‘s reasoning, the Supreme Court was concerned with the Exchange Act itself under which the private right of action already had been judicially implied. Accordingly, we think that the Court did not intend to overrule settled constructions of other statutes that relied on common law doctrines to determine the scope of liability. Thus, in contrast to the Court’s restrictive reading of the Exchange Act, the Court has endorsed and applied a theory of secondary liability for trademark infringement that comes very close to aiding and abetting. The Court first enunciated the rule over 70 years ago, prior to the enactment of the Lanham Act, when the Court was concerned with constructing and enforcing a common law of unfair competition. … The theory of “contributory infringement”, as it came to be called, survived into the statutory era.[16]

Thus, Central Bank did not affect the scope of liability under the Lanham Act, for two reasons: One was that agency can be distinguished from and aiding and abetting. More fundamentally, though, the Supreme Court itself had already allowed for vicarious liability under the Lanham Act. It did so in Inwood Labs., where it validated another common law theory – contributory liability – that closely approximated aiding and abetting.[17]

How, then, in light of the settled law, could the GoDaddy court have concluded that there is no cause of action for contributory cybersquatting under the Lanham Act? The answer, in large part, is that the court insisted on viewing cybersquatting as “a new cause of action that is distinct from traditional trademark remedies[sic],”[18] thereby casting the ACPA outside the purview of the Lanham Act. This dubious conceit has no basis in the statute or its legislative history.[19] It then chose the wrong vehicle, Central Bank, in which to drive its analysis. But even if Central Bank did apply, the legislative history[20] shows that Congress regarded cybersquatting as a new means to an old end, one “indisputably proscribed” by the Lanham Act: trademark infringement.

———-

[1] 737 F.3d 546 (9th Cir. 2013), petition for cert. filed, 2014 WL 1510251 (U.S. Apr. 14, 2014).

[2] As discussed in the Main Volume, Chapter 4, cybersquatting is a form of trademark infringement involving the bad-faith registration of another’s trademark-protected domain name with the intent to profit.

[3] 15 U.S.C. § 1125(d). See also the discussion in the Main Volume, Chapter 4, Section II.A.1.

[4] 511 U.S. 164 (1994). The court’s reliance on Central Bank is also noted in Chapter 4 of the 2014 Supplement to the Main Volume.

[5] GoDaddy, 737 F.3d at 550, 551, and 552.

[5a] As discussed in Chapter 4 of the Main Volume and this earlier post, several district courts have recognized a cause of action for contributory cybersquatting.

[6] 456 U.S. 844, 854 (1982)(Inwood Labs.). See also the discussion of Inwood Labs. in the Main Volume, Chapter 2, Section III.

[7] The Court held:

if a manufacturer or distributor [1] intentionally induces another to infringe a trademark, or if it [2] continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorially responsible for any harm done as a result of the deceit.

Id. at 854 (citing William R. Warner & Co. v. Eli Lilly & Co., 265 U.S. 526, 530–31 (1924)).

Note that in the service-provider context, a modified form of the test applies. In those cases, “[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 for contributory infringement.” Lockheed Martin Corp. v. Network Solutions Inc. 194 F.3d 980, 984 (9th Cir. 1999).

[8] See, e.g., Perfect 10, Inc. v. Visa Int’l Serv. Ass’n, 494 F.3d 788, 807, 83 USPQ2d 1144 (9th Cir. 2007); Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 983, 52 USPQ2d 1481 (9th Cir. 1999); Polymer Tech. Corp. v. Mimran, 975 F.2d 58, 64, 24 USPQ2d 1189 (2d Cir. 1992); David Berg & Co. v. Gatto Int’l Trading Co., 884 F.2d 306, 311, 12 USPQ2d 1116 (7th Cir. 1989); Sealy, Inc. v. Easy Living, Inc., 743 F.2d 1378, 1381–82, 224 USPQ 364 (9th Cir. 1984); Tiffany (NJ) Inc. v. eBay, Inc., 576 F. Supp. 2d 463, 502 (S.D.N.Y. 2008), affirmed in part and remanded in part, 600 F.3d 93, 105­–06, 94 USPQ2d 1188 (2d Cir.) (assuming without deciding that Inwood Labs. applied in service context), cert. denied, 131 S. Ct. 647 (2010); Monotype Imaging, Inc. v. Bitstream Inc., 376 F. Supp. 2d 877, 889–90, 77 USPQ2d 1424 (N.D. Ill. 2005); Monsanto Co. v. Campuzano, 206 F. Supp. 2d 1271, 1274 (S.D. Fla. 2002); Fare Deals, Ltd. v. World Choice Travel.com, Inc., 180 F. Supp. 2d 678, 687 (D. Md. 2001); Medic Alert Found. U.S., Inc. v. Corel Corp., 43 F. Supp. 2d 933, 940, 51 USPQ2d 1024 (N.D. Ill. 1999); National Basketball Ass’n v. Sports Team Analysis & Tracking Sys., Inc., 939 F. Supp. 1071, 1108, 41 USPQ2d 1549 (S.D.N.Y. 1996); MDT Corp. v. New York Stock Exch., Inc., 858 F. Supp. 1028, 1033, 30 USPQ2d 1849 (C.D. Cal. 1994).

[9] 42 F.3d 1421 (3rd Cir. 1994).

[10] Id. at 1433-34 (liability based on common law agency principles is appropriate under the Lanham Act).

[11] 511 U.S. at 177.

[12] AT&T, 42 F.3d at 1430.

[13] Id.

[14] Id.

[15] Id. at 1430-31.

[16] Id. at 1432. (emphasis added)(citations omitted).

[17] See id. at 1432-33 (discussing Inwood Labs. and its progeny).

[18] 737 F.3d at 550.

[19] See the discussion of the legislative history of the ACPA in both the Main Volume, Ch. 4, Section II.A.1 and in Chapter 4 of the 2014 Supplement. As mentioned above, the ACPA passed as an amendment to the Lanham Act in 1999.

[20] Id.

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