Re-posted from IPAlly – Three Takeaways for Trademark Owners and Third-Party Web Designers from DSPT International, Inc. v. Lucky Nahum

The Ninth Circuit Court of Appeals recently issued its decision in DSPT International, Inc. v. Lucky Nahum, a case that examined the scope of the Anticybersquatting Consumer Protection Act. The Ninth Circuit’s opinion in this case should matter to anyone who outsources their website design or engages in search engine optimization (SEO).

DSPT, the Plaintiff, had common-law trademark rights in the EQ mark. In 1999, the Plaintiff hired the Defendant’s brother to design its firm’s website. The Defendant registered the domain, www.EQ-Italy.com, in his own name. In 2005, as the website became essential to the Plaintiff’s business, the Defendant left the business even though the domain was still registered in his own name. The Defendant felt that the Plaintiff owed him commission payments.yes””> In October 2005, the Defendant removed the Plaintiff’s content from the website and replaced it with the following message: “All fashion related questions to be referred to Lucky Nahum at lnahum@yahoo.com.” The unwanted remodel greatly decreased DSPT’s profitability. (For an excellent analysis of the case and a more thorough recitation of the facts, please see this fantastic article by Richard Santalesa of Information Law Group here: http://bit.ly/cok1Vz)

So, what are the practical applications of this case? The most obvious consequence of DSPT is that businesses that outsource their web design and SEO to third-party providers should know who owns their domains. And when I write “their domains,” I mean those domains that either contain the business’ trade or service marks, or those that have become synonymous with the business. Who owns those domains once the business’ contract with the third-party service provider terminates? Ownership of domains should be negotiated in drafting a service agreement.

While this decision should not only spur business owners to action, the third party service providers should also understand the consequences of maintaining ownership over a domain containing a trademark after the service contract has terminated.yes””> The civil penalties can be substantial.

Unlike ICANN’s UDRP process, the Anti-Cybersquatting Consumer Protection Act permits trademark owners to seek civil damages. Further, while UDRP requires that a domain be registered in bad-faith, the ACPA requires only that an opposing party “use[d]” the domain. The scope given to the word “use” is exceptionally broad. This much lower standard increases the scope of potential plaintiffs, and consequently, defendants.

Additionally, the DSPT court gave broad meaning to the ACPA’s requirement that a defendant must act “with bad faith intent to profit from that mark.” The 9th Circuit stated that any proof that a defendant had “the intent to get money or other valuable consideration” will satisfy the “intent to profit element” of the ACPA. Again, troubling for third party service providers. In DSPT, for example, the court found that the defendant’s demand for unpaid commissions was sufficient to meet this element, even though the defendant did not attempt to profit or otherwise commercialize the disputed domain.

Lastly, and most troubling to third-party providers, is the potential for substantial damage awards to prevailing plaintiffs. The prevailing plaintiff in an action under the ACPA is entitled, much as a plaintiff in any tort case, to damages for the reasonably foreseeable harms caused by the wrong. In DSPT, for example, the 9th Circuit sustained the jury’s award of $152,000. The jury’s award included damages for lost profits and for recreation of its website.

There are three points to take away from DSPT v Nahum for business owners and third party servicers:

1. Define who owns any website falling within the scope of services, that contains the business’ registered or common-law trademarks.

2. Business owners should register their common-law trademarks. While the ACPA, and Lanham Act, protect common-law trademarks, it will be much easier and less expensive to establish your trademark rights if you have registered your trademarks with the USPTO.

3. While a well-drafted limitation of liability clause in a service contract may prevent third-party providers from incurring large liability in the event of an ACPA claim, avoid any “use” of a disputed domain.