Lahoti v. Vericheck, Inc.

• Decision Date: 16 November 2009
• Docket Number: No. 08-35001.,08-35001.
• Citation: 586 F.3d 1190
• Parties: David LAHOTI, an individual, Plaintiff-Appellant, v. VERICHECK, INC, a Georgia Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

586 F.3d 1190

David LAHOTI, an individual, Plaintiff-Appellant, v. VERICHECK, INC, a Georgia Corporation, Defendant-Appellee.

No. 08-35001.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 9, 2009.

Filed November 16, 2009.

Derek A. Newman, Randall Moeller, and John Du Wors, Newman & Newman, Attorneys at Law, LLP, Seattle, WA, for the plaintiff-appellant.

Shannon M. Jost and Aviva Kamm, Stokes Lawrence, P.S., Seattle, WA, for the defendant-appellee.

Appeal from the United States District Court for the Western District of Washington, James L. Robart, District Judge, Presiding. D.C. No. CV-06-01132-JLR.

Before: WILLIAM A. FLETCHER, RONALD M. GOULD, and RICHARD C. TALLMAN, Circuit Judges.

GOULD, Circuit Judge:

David Lahoti appeals the district court's bench trial judgment that his use of the "VeriCheck" Georgia state service mark owned by Vericheck, Inc. violated the Anti-Cybersquatting Consumer Protection Act ("ACPA"), 15 U.S.C. § 1125(d), the Lanham Act, 15 U.S.C. §§ 1051 et seq., the Washington Consumer Protection Act ("WCPA"), Wash. Rev.Code § 19.86, and various Washington common law doctrines. Lahoti, who has previously been found liable for cybersquatting activities, obtained the domain name "vericheck.com," but did not use the website to offer any goods or services. We conclude that the district court's factual decision that the "VeriCheck" mark was a distinctive, legally protectable mark under the ACPA and federal trademark law was based in part on reasoning contrary to federal trademark law and based in part on reasoning that could support the district court's conclusion. Because we believe the district court should decide the issue of distinctiveness in light of the principles we explain, we vacate the district court's opinion and remand for further proceedings not inconsistent with this opinion.

I

Vericheck, Inc. ("Vericheck") is a Georgia corporation that provides electronic financial transaction processing services, including check verification, check guarantee, check collection, account verification, automated check handling, and payment processing services. Vericheck has advertised itself on its website as "[t]he leader in Check Verification and Guarantee Services," and check verification underlies a large part of its operations. Vericheck operates a website at vericheck.net and also owns the domain names vericheck.org, vericheck.cc, vericheck.us and vericheck.biz. Vericheck unsuccessfully attempted to secure the vericheck.com domain name (the "Domain Name") from a Canadian company in 1999.

In 2001 Vericheck gained a Georgia state registration for its service mark,¹ which consists of a checkmark over the word "VeriCheck" (the "Disputed Mark"). The Georgia registration states that the mark is used in connection with "Check Verification and Check Collection Services." Vericheck tried to obtain federal registration of the Disputed Mark, but in 2003 the United States Patent and Trademark Office ("PTO") denied the application because an Arizona company (the "Arizona Company") had already registered a "Vericheck" trademark (the "Arizona Mark") for use with "check verification services." The Arizona Company first obtained federal registration in 1975 and renewed its mark in 1996. The Arizona Company did not use the Arizona Mark in connection with services that compete with Vericheck, and there is no evidence that the Arizona Mark was used on the Internet. The Arizona Company did not further renew its registration in 2006, and its mark expired while this case was pending.

David Lahoti considers himself an "Internet entrepreneur." Lahoti claims that in the late 1990s he contemplated going into the business of transaction verification and security. As a preliminary move, as he tells it, he began registering a number of domain names with the "veri-" prefix. Lahoti successfully acquired the vericheck.com domain name in 2003, but he never developed a transaction verification service. Instead, the vericheck.com website consisted only of a few lines of code redirecting visitors to a different website with search result links, including links to Vericheck's competitors. Lahoti earned income when visitors to vericheck.com clicked on links at the website to which they were redirected.

Vericheck frequently received calls from its customers complaining that they were confused because they visited vericheck.com but could not find information on Vericheck. Lahoti told the district court that before registering the Domain Name in 2003 he performed a trademark search and Internet search and he concluded that his use of the Domain Name would not be a trademark issue. He also said that when he reserved the Domain Name he was not aware of Vericheck's existence.

This case does not reflect the first time Lahoti has registered domain names that were similar to the names or trademarks of other companies.² Lahoti had previously registered more than four hundred domain names containing the trademarks of other companies, including nissan.org, 1800 mattress.com, and ebays.com. In at least two cases, the United Nations World Intellectual Property Organization ordered Lahoti to give up control of some of his domain names because they infringed on a trademark. In 2000 the United States District Court for the Central District of California in E-Stamp Corp. v. Lahoti (the "E-Stamp Case"), No. CV-99-9287, 2000 WL 33732808, concluded that Lahoti was a "cybersquatter" and that his registration, attempted sale, and use of the estamps.com domain name violated federal trademark law and the ACPA.

In 2004 Vericheck contacted Lahoti and offered to purchase the vericheck.com domain name. Doubtless this fit into Lahoti's business plan as an Internet entrepreneur. Lahoti first asked for $72,500, and then reduced his demand to $48,000, but negotiations soon ended. In 2006 Vericheck filed an arbitration complaint pursuant to the Uniform Domain-Name Dispute-Resolution Policy. The arbitrator ordered the transfer of the Domain Name to Vericheck, but instead of complying, Lahoti sought a declaratory judgment in the district court that he did not violate the Lanham Act's cybersquatting or trademark infringement provisions. Vericheck counterclaimed that Lahoti's actions violated the Lanham Act, the ACPA, the WCPA, and Washington state common law. Thus the issues were first framed in the district court.

Both parties moved for summary judgment. The district court granted summary judgment to Vericheck, but only on the question of whether Lahoti acted in bad faith. The district court found that Lahoti did not use the Domain Name to sell goods or services or for a legitimate non-commercial use, and it stated that the Domain Name linked to several of Vericheck's competitors. It also noted Lahoti's past cybersquatting activities. The district court concluded that Lahoti "acted in a bad faith attempt to profit" from his use of the Domain Name and that no reasonable jury could decide otherwise.

After a bench trial on the remaining issues, the district court decided for Vericheck on all claims and counterclaims. The district court determined that the Disputed Mark was inherently distinctive, which was necessary for Vericheck to prevail on any of its trademark or ACPA claims. The district court concluded that Vericheck had established the other elements of its counterclaims, granted Vericheck injunctive relief and statutory damages, and awarded Vericheck attorneys' fees under both the WCPA and the Lanham Act. Lahoti appeals the district court's merits decision and its award of attorneys' fees.

II

This case turns in large part on the standard of review. We have previously held that a district court's classification of a trademark's strength is a factual determination to which we apply clear error review. See Jockey Club, Inc. v. Jockey Club of Las Vegas, Inc., 595 F.2d 1167, 1168 (9th Cir.1979) (stating that "the strength or weakness of the mark in question" is a "factual issue[ ]" that is "not to be set aside unless clearly erroneous"); Norm Thompson Outfitters, Inc. v. Gen. Motors Corp., 448 F.2d 1293, 1294 (9th Cir.1971) (reviewing "[w]hether the trial court was clearly erroneous in finding as facts ... [t]hat the slogan is descriptive, rather than a suggestive slogan, or a coined, arbitrary, or fanciful slogan").³

Under the clear error standard, "we defer to the lower court's determination unless, based on the entire evidence, we are possessed of a `definite and firm conviction that a mistake has been committed.'" SEC v. Rubera, 350 F.3d 1084, 1093 (9th Cir.2003) (quoting Easley v. Cromartie, 532 U.S. 234, 242, 121 S.Ct. 1452, 149 L.Ed.2d 430 (2001)). "So long as the district court's view of the evidence is plausible in light of the record viewed in its entirety, it cannot be clearly erroneous, even if the reviewing court would have weighed the evidence differently had it sat as the trier of fact." Id. at 1093-94 (citing Anderson v. City of Bessemer City, 470 U.S. 564, 573-74, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985)).

When reviewing for clear error, we do not defer to a district court's categorization of a mark if its decision is based on incorrect law. See Forum Corp. of N. Am. v. Forum, Ltd., 903 F.2d 434, 439 (7th Cir.1990) (stating that a review of a district court's trademark classification must "toe a line between reweighing the evidence and disregarding our responsibility to make sure that the district court's trademark classification was based on correct legal standards"); Anheuser-Busch Inc. v. Stroh Brewery Co., 750 F.2d 631, 635-38 (8th Cir.1984) (reviewing the district court's trademark categorization de novo for legal error before applying clear error review). Although we may affirm on "any ground supported by the record, even if it differs from the district court's rationale," Lambert v. Blodgett, 393 F.3d 943, 965 (9th Cir.2004), where it is unclear whether the district court relied on proper law, we...