Frager Factor

Monday, November 08, 2010

Internet Lawyers Are Taking You Out To A Game and Talking UDRP's Here

"Under the UDRP, if you approach a trademark holder, you're toast. If a trademark holder approaches you, now you've got defenses. What you want to say is anything that's going to suggest that the domain really isn't for sale, but if they want to make an offer, go ahead and you'll run it by your partners. The key message being, I'm not trying to sell you this domain.".

Thanks to Traverse Legal, the Austin Domainer Weekend starting this Friday now includes tickets to the University of Texas vs. Oklahoma State football game on Saturday! If you are in or around Austin you can register here:

This makes it a perfect time to publish part 2 of our 3 part interview with the attorney who opens his heart here and wallet there in Austin: Enrico Schaefer.

Jeff: What about plural versus singular? You speak of phonetics, but,

Enrico: Completely irrelevant. The trademark for Apple, especially on the stronger marks, protects everything around the mark. And so, think of it this way. If the literal spelling was the bull's-eye on a dart board, trademark law is not only going to protect the red in the middle, but it's going to keep going out. And how far becomes the trick, Okay? How far becomes the trick, and those are always fact specific issues, and there are things that lawyers can argue about. And I think we all appreciate that the last thing you want to do is have to deal with a lawyer on these things.

Jeff: Right.

Enrico: It's going to cost you money. It's going to cost you time. It's going to make you lose sleep.

So, you're making a business judgment about how much protection is going to be out there, but if you had or or or any variation around that bull's-eye typo domain, and there's trademark right there and you're showing competing advertisements, your domain is at risk and you personally are at risk, which is probably a good thing for me to mention at this point.

You should definitely be operating under a limited liability company, a LLC or an S Corp with your domain portfolio so you are not personally liable. I will tell you that. There are big companies out there who have decided to give up on threat letters. And they are going hard, and they are going directly into federal court. And you can offer until you're blue in the face to turn over those typo domains, and they don't care. They want you in bankruptcy, and they are not going to stop until you are in bankruptcy.

And you've got a choice, either appearing in the case and defending yourself, and that's going to cost you several hundred thousand dollars, or trying to avoid service, getting defaulted, and having a default judgment against you for $100,000 per domain plus, and then having them chase you, which they will, and your assets. If someone's chasing assets, you definitely want them chasing an LLC's assets, which might be limited to your domain portfolio as opposed to your house and your car.

Jeff: Interesting. A question from the field, and that previous one was a question from the field as well. If I have a domain that might be considered a trademark issue, am I just safer not displaying anything, or am I completely safe? I guess the question is . . .

Enrico: Yes.

Jeff: Go ahead.

Enrico: You're much safer not displaying anything. Okay? So, keep in mind, under both the ACPA and UDRP, the complainant, the trademark holder, is going to have to prove bad faith. In order to get the UDRP, that's what gets the transfer under the order. Under the ACPA, the bad faith element is going to put statutory damages in play. Statutory damages are those $100,000 plus attorneys' fees. Otherwise, they're just disgorging profit, typically, at best which is going to be whatever you made on that domain, not too bad.

So, they have to prove bad faith. The classic ways in which bad faith is proven are, well, a parking page showing competing ads shows bad faith. You soliciting them to sell them their trademark protected domain is evidence of bad faith. And there's nuance there because if they actually contact you and you're in the gray area, you're going to be in decent shape. But, if you reach out to them and say, "Hey, I've got this great domain name that you need," and it happens to be trademark protected, that is evidence of bad faith. So, don't reach out and try to sell it to them. Do not put up a parking page or develop it around their trademark, and you've taken away the big two things that we typically hear as an element of bad faith.

Now, it doesn't completely get you out of the woods, because if you don't use your domain forever and it doesn't appear like you have any legitimate use for the domain and it's sitting on a strong trademark or a typo of a strong trademark, they can come back and say, "Non-use is an element of bad faith." But that's a much tougher argument.

If you really want to know the truth, the best thing to do if you've got a trademark protected domain, develop it in a non-infringing way., for instance, is a perfect example of a non-infringing use of what would otherwise be a trademark protected word. They don't have any risk of losing that domain under law.

And so, the fact that you've got a domain, if you develop it into something legitimate, into produce, now it is perfectly, even if you're not monetizing it, it's perfectly positioned to avoid transfer. There is a legitimate use, so it's not a non-use situation, and perhaps some day Apple will knock on your door and say, "I want to pay you a couple million dollars for that domain."

Jeff: That's why we're in the business.

Enrico: You got it.

Jeff: Absolutely. Talk to me a little bit. Define gray area domains. It's something that was going to come up later. You've mentioned it a couple of times. Get into, how would you straight define gray area domains.

Enrico: Here's the deal on gray area, and this is where most of the battles are, and this is the area which drives domainers crazy. If I've got any variation of the word Microsoft, there's no way I'm going to defend that, because Microsoft is an arbitrary word, and it is a very strong trademark.

The gray area domains are things like . . . we had a client, Breeders Club. Breeders Club was a very well established, very well known dog breeding place. Well, a domainer that we went up against owns I can't remember what my client's name was. It was not as good as that, but the problem was this. The domainer decided to try and sell that domain to one of my client's competitors, and so redirected that otherwise two-word generic, directed it, all that traffic to our competitor. All of a sudden, they're using it in bad faith.

They not only took away from their ability to say, "Hey, wait. It's a two-word generic, and I'm only using it in the two-word generic sense," which would have been a good argument because even if it was in the dog breeding area, it still was describing the advertisements being shown on the page. But they pointed it to the competitor in order to try and sell it to the competitor. That showed the essential element what you need to be thinking about, which is that you're trying to leverage someone else's trademark rights for your own financial benefit. Once you step into that trap, it's impossible to get out. Well, that particular UDRP decision, which we won on behalf of our client, caused a lot of commentary and outrage in the domainer community because it was a two-word generic.

If that's as sophisticated as you are as a domainer, then your business model is fundamentally flawed by your own lack of knowledge, because the rookie mistake that domainer made was actually stepping into the point where they now were using it in bad faith. So, these gray area domains are all these one and two word descriptive or generic domains where someone else has gotten trademark rights.

And let me step back and tell everyone this. Typically, you want to have an arbitrary word as a trademark holder if you happen to be a business owner, right? So, that's fine. If you come up with a word like Microsoft, you've got a great strong trademark. But you can also get a trademark on a word that's otherwise descriptive if you use it in commerce for five years or more and dump enough marketing money in it so that you actually become known as that particular word.

So, I'm in litigation right now on a deal. It's called eFax. The eFax trademark holder is suing my client, and the deal is this. eFax was on the secondary register, which meant that they admitted that it was purely descriptive. It was on the secondary register for many years. Everyone does use that. It's a very weak mark. Everyone uses that to describe Internet fax services. Well, now their position is that eFax has become trademark protected to them only, because they've dumped tens of millions of dollars into marketing and they dominate the market of eFax, etc. So, now it's put them in a position to make the argument, I think a very weak argument, but to make the argument that any use of eFax out there in the world is now trademark infringement against them.

And so, that's how a generic or descriptive word ends up becoming someone else's trademark. So, trademark risks are everywhere.

Jeff: Let's spin it forward. I register a domain name today, and a company trademarks the same name next year. How does that work?

Enrico: You are looking pretty good, because you were first. So, let's do it two ways. Under the UDRP, the complainant has to show that you registered the domain in bad faith. Okay? Registered. So, at the time of registration, there were pre-existing trademark rights. So, if you were first, you have no risk on those limited facts of a transfer order against you.

Where the problem comes is that the clock starts ticking again every time the domain is transferred. So, if you sell the domain to the next person down the line or you're thinking of buying that domain as the next person down the line, you can't say, "Yeah, but the original registrant had it before the trademark rights." The clock starts again every time it's transferred.

Here's the other problem. Under the ACPA, the Anticybersquatting Consumer Protection Act, U.S. federal law which is a trademark law under the Lanham Act, under the ACPA you can show bad faith and trademark infringement at any time. So, even if you didn't register, even if you registered it first, if after someone registers a trademark or obtains trademark rights, you start using it in an infringing way, you're at risk. Because if at any time before or after you register that domain, the domain is used in an infringing way, you have the potential of being pulled into court.

So, that's a big problem, and I will tell everyone, obviously, ACPA litigation is a much rarer phenomenon. It costs a lot of money for trademark holders to pull someone into court. As a practical matter, the numbers just don't add up to make it worthwhile in many instances. In many instances, turning over the domain gets you out of trouble, but not all. And it depends on how many domains you have.

We have one instance now where we've got a trademark holder going against one of our clients. In order to get out of the litigation, which has already been filed against him, he has to turn over his entire portfolio of his domains. In order to have the chance at settling this matter, he has to give them his entire portfolio of domains and certify that it's his entire portfolio.

Well, you know the old commercial, "What's in your wallet?" The credit card? What's in your portfolio? You should know that in federal court and under the approach that many trademark holders are taking, they want to know, "Are you a black hat?" And the only way to know that is by looking at your portfolio. You can have gray area stuff in there for sure, because it's contestable, but if you start accumulating typographical variations of famous marks, they're going to be very difficult for you to ever argue that somehow you ended up with the domain by mistake or that you have viable defenses on a particular domain. So, if you're dabbling in trademark domains, it's probably not worth the risk. If that's your business model, a lot of people get away with it for a long time.

We just filed what is, I think, the biggest ACPA litigation perhaps ever against Navigation Catalysts in the sense that in the Verizon Navigation Catalyst matter, the problem was that Verizon was cybersquatting, the plaintiff. In this one, there's no defense. There's no defense, and they're not going to be able to buy their way out of it. So, Navigation Catalysts has got a lot of money to defend these things and try to buy their way out of it. Most domainers do not. You have to be very careful.

Jeff: Let me ask you. If you, say, someone listening or someone out there just in general . . . is it wise to divide your portfolio under different LLCs? Will that protect it if somebody went and tried to take your entire domain, your entire portfolio? Does that protect your portfolio if you divide it among 2, 3, 5, 10 different LLCs? Real estate people do it all the time. They're developing a new piece of real property, real estate, a development, a commercial property. They'll launch a whole new company for that one property, so the others are protected. Does that work here?

Enrico: You know, I would say that if you're convinced that you want to hold some challenging domains, shall we say. Then, there's no down side to starting a separate LLC and putting those domains there. It's not necessarily going to mean they're not going to get at your entire portfolio if they start taking discovery, etc.

Jeff: Right.

Enrico: But, if they say, "We want to know all the domains that you registered as this registrant," well, then it's pretty easy. You just give them as that registrant.

Photo: Enrico Schaefer profile photo courtesy of Facebook

To be continued.... to contact Enrico visit

About The Author: Owen Frager is an Internet marketing expert ready to help take your company to the next level.

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