Pensacola Motor Sales Inc. v. E. Shore Toyota, LLC

• Decision Date: 21 June 2012
• Docket Number: No. 10–15761.,10–15761.
• Citation: 684 F.3d 1211,23 Fla. L. Weekly Fed. C 1203
• Parties: PENSACOLA MOTOR SALES INC., A Florida Corporation, d.b.a. Bob Tyler Toyota, Plaintiff–Appellant, v. EASTERN SHORE TOYOTA, LLC, an Alabama limited liability company, Daphne Automotive, LLC, an Alabama limited liability company, Shawn Esfahani, an individual, Daphne Enterprises, Inc., an Alabama corporation, Defendants–Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

684 F.3d 1211

23 Fla. L. Weekly Fed. C 1203

PENSACOLA MOTOR SALES INC., A Florida Corporation, d.b.a. Bob Tyler Toyota, Plaintiff–Appellant,

v.EASTERN SHORE TOYOTA, LLC, an Alabama limited liability company, Daphne Automotive, LLC, an Alabama limited liability company, Shawn Esfahani, an individual, Daphne Enterprises, Inc., an Alabama corporation, Defendants–Appellees.

No. 10–15761.

United States Court of Appeals, Eleventh Circuit.

June 21, 2012.

Frank Herrera, Gustavo Sardina, Miami, FL, John S. Derr, Patrick Vernon Douglas, Quintairos, Prieto, Wood & Boyer, PA, Tallahassee, FL, for Plaintiff–Appellant.

J. Nixon Daniel, III, Beggs & Lane, RLLP, Pensacola, FL, for Defendants–Appellees.

Appeal from the United States District Court for the Northern District of Florida.

Before TJOFLAT and CARNES, Circuit Judges, and MICKLE,^* District Judge.

CARNES, Circuit Judge:

People who compete against each other in the same business or profession don't have to dislike one another. A few years back there was even a song lyricizing about “Lawyers in Love.” But no one has ever written a song about “Car Dealers in Love,” and if this case is any indication, no one ever will. These two car dealers are bitter business rivals in overlapping markets. One of them used a software program to compete more aggressively with the other one over the internet. That program produced a multiplicity of mini-websites, a host of hard feelings, and of course litigation. This is the appellate part of that litigation.¹

I.

Shawn Esfahani is a Hyundai and Toyota car dealer who owns Eastern Shore Toyota, Daphne Automotive, LLC, and Daphne Enterprises, Inc. (collectively “Eastern Shore” for short). In the summer of 2009, Esfahani attended a Hyundai dealers' conference, where officials in Hyundai's corporate division introduced dealers to David Vaughan, Jr., who was the corporate division's internet marketing expert. Vaughan offered to help the dealers revamp their websites and spruce up their technology systems. Not that there's anything wrong with that.

Vaughan went further than that, however. Over the next few weeks, he pitched two internet marketing strategies to Esfahani, one defensive and the other offensive. The defensive strategy was for Esfahani, under Vaughan's tutelage, to buy and hold desirable domain names² in order to keep them out of competitors' hands; some of those desirable domain names would incorporate trademarks of his competitors. Those defensive strategy domain names would not be operational because they would not be connected to a web page.

The offensive strategy that Vaughan proposed involved the creation of a large number of mini-websites, or microsites, using a computer program that he would license to Esfahani. By simply entering domain names into that software program and clicking a button, Vaughan could instantly mass produce microsites for Esfahani, each one using a name related in some way to the car business, for example, www. 2009 camry. com. Those microsites would either automatically redirect users who clicked on them to Eastern Shore's official websites or they would display a one-page website advertising Eastern Shore.

Esfahani agreed to both strategy proposals. In July and August 2009 through Eastern Shore, Esfahani signed contracts with Vaughan's company, Advanced Dealer Systems, for marketing services and use of Vaughan's software program. Within a couple of months, Eastern Shore went from owning about 40 domain names to owning around 4,000. The new domain names were purchased from the popular domain name vendor GoDaddy.com, and some incorporated trademarks from Facebook, YouTube, and eBay, for example: www. facebooktoyota. com, www. youtubeusedcar. com, and www. ebayautoprices. com. More to the point of this case, some of the domain names that Eastern Shore purchased incorporated trademarks of its competitors, such as www. bobtylerprices. com.

Eastern Shore's new domain name marketing strategy caught the attention of eBay. The online auction website discovered one of the questionable domain names—www. ebaypreowned prices. com—and it emailed Eastern Shore about that name in September 2009. The email demanded that Eastern Shore stop using eBay's trademark in the domain name, disable any website linked to it, and allow the domain name's registration to expire instead of attempting to sell or transfer it to someone else. Ebay's email warned Eastern Shore that the “registration and use” of a domain name infringing on another's trademark violated the Lanham Act and that the “use, [sale], or offer for sale” of such a domain name violated the Anticybersquatting Consumer Protection Act; it also pointed out that the anticybersquatting act provides for statutory damages of up to $100,000 for each infringing domain name.

After receiving the email from eBay, Esfahani decided to “take it down.” The next day, acting through Vaughan, he gave that domain name back to GoDaddy.com. Esfahani notified eBay that he had complied with its demands. He did not, however, make any effort to review his other domain names to see if they infringed on any other trademarks.

There was more trouble. In October 2009 a sales manager at Bob Tyler Toyota discovered one of Eastern Shore's microsites: www. bobtylerprices. com. That microsite featured a photo of one of the car models that Bob Tyler Toyota sold, and it allowed visitors to enter their email addresses and their financial information to complete a credit application for a car loan. The phone number listed on the site, however, was not Bob Tyler Toyota's. It was Eastern Shore's. Bob Tyler Toyota employees found five other Eastern Shore microsites; all of them had virtually the same design, used some version of the Bob Tyler trademark, and listed Eastern Shore's phone number.

The general manager for Toyota's southeastern division told Eastern Shore that Bob Tyler Toyota objected to the microsites and urged Eastern Shore to disable them. Esfahani was shocked—“shocked,” he said—to learn that those domain names were operational, and he immediately ordered Vaughan to disable the microsites. A few days later, attorneys for Bob Tyler Toyota sent Eastern Shore a cease-and-desist letter identifying six of the infringing microsites, although by then Eastern Shore was already in the process of disabling them. The letter demanded that Eastern Shore forfeit the domain names and threatened to file a lawsuit under the federal anticybersquatting act unless Eastern Shore agreed to pay Bob Tyler Toyota $250,000 within seven days.

After the receipt of that letter, Esfahani and Vaughan blamed each other for the problem. Esfahani sent Vaughan a letter terminating their contracts and accusing Vaughan of having “misled” him into believing that purchasing the domain names was legal. Vaughan countered that Esfahani “went rogue,” purchasing the domain names and hosting the microsites on his own despite Vaughan's warnings that doing so “was a real bad idea[ ].”

Bob Tyler Toyota's cease-and-desist letter was dated October 23, 2009. By the end of the next day, all of the microsites infringing on the Bob Tyler trademark had been disabled, except for two undetected ones.³ On December 17, 2009, Bob Tyler Toyota sent Eastern Shore another letter, this one demanding the return of the domain names and a $1 million payment. A week later Esfahani surrendered to GoDaddy.com all of the domain names that infringed on the Bob Tyler trademark, except for the two undetected ones. A little over a week after that, Bob Tyler Toyota filed this lawsuit against Esfahani and Eastern Shore Toyota, along with Daphne Automotive, LLC, and Daphne Enterprises, Inc. (two related corporations controlled by Esfahani), all of which we are referring to collectively as “Eastern Shore,” except when separate reference is necessary.

II.

In its second amended complaint, which is the operative one, Bob Tyler Toyota brought six claims against Eastern Shore seeking injunctive relief and actual and statutory damages. All of those claims were based on Eastern Shore's registration or use of fourteen domain names that impermissibly incorporated the Bob Tyler trademark. The claims were: (1) false advertising under the Lanham Act, 15 U.S.C. § 1125(a); (2) unfair competition under the Lanham Act, id.; (3) violation of the Anticybersquatting Consumer Protection Act, id. § 1125(d); (4) unfair competition under Florida law; (5) violation of Florida's trademark dilution statute, Fla. Stat. § 495.151; and (6) violation of Florida's “Antiphishing Act,” Fla. Stat. § 668.704. Bob Tyler Toyota moved for summary judgment on all of the claims. In response to that motion, and about a month and a half before trial, Eastern Shore raised for the first time a statutory defense to the anticybersquatting claim: it allegedly “believed and had reasonable grounds to believe that the use of the domain name[s] was a fair use or otherwise lawful,” 15 U.S.C. § 1125(d)(1)(B)(ii). Bob Tyler Toyota replied that Eastern Shore had waived that statutory defense by failing to plead the defense in its answer to the second amended complaint. The district court allowed Eastern Shore to raise the defense. The court also denied in full Bob Tyler Toyota's motion for summary judgment.

In its case-in-chief at trial, Bob Tyler Toyota did not prove any monetary damages resulting from Eastern Shore's registration or use of any of the domain names. Because of that, only injunctive relief was available on the federal false advertising claim, the state and federal unfair competition claims, and the state trademark dilution claim. Even without proof of actual damages, however, Bob Tyler Toyota still had a chance to recover statutory damages on its Florida antiphishing claim, seeFla. Stat. § 668.704(2)(b)(2), and on its federal anticybersquatting claim, 15 U.S.C. § 1117(d).

At the close of its case-in-chief, Bob Tyler Toyota moved for judgment as a matter of law on all of its claims, which the...