Verisign, Inc. v. Xyz.Com, LLC, Civil Action No. 1:14-cv-01749

• Decision Date: 20 November 2015
• Docket Number: Civil Action No. 1:14-cv-01749
• Court: United States District Courts. 4th Circuit. United States District Court (Eastern District of Virginia)
• Parties: VERISIGN, INC. Plaintiff, v. XYZ.COM, LLC, ET AL Defendants.

VERISIGN, INC. Plaintiff, v. XYZ.COM, LLC, ET AL Defendants.

Civil Action No. 1:14-cv-01749

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA Alexandria Division

November 20, 2015

MEMORANDUM OPINION

THIS MATTER comes before the Court on Defendants XYZ.COM, LLC and Daniel Negari's ("XYZ" or "Defendants") Motion for Summary Judgment.

Plaintiff Verisign, Inc. ("Verisign" or "Plaintiff") is a Delaware corporation with its principal place of business in Reston, Virginia. Defendant XYZ is a Nevada corporation with its principal place of business in Carson City, Nevada. Defendant Daniel Negari is the Chief Executive Officer ("CEO") and founder of XYZ. This Court has jurisdiction pursuant to 28 U.S.C §§ 1331 as the action arises out of alleged violations of the Lanham Act. See 15 U.S.C. § 1125(a). Venue is proper in this Court pursuant to 28 U.S.C. § 1391 because a substantial part of the events occurred in this District.

Plaintiff and Defendant are in the business of internet domain name registrations. Plaintiff is an industry leader with over 120 million registrations in the <.com> and <.net> space. Defendant is a new competitor that entered the market in 2014 offering registrations in the <.xyz> space. Plaintiff alleges that Defendants made numerous false statements in violation of 15 U.S.C. § 1125 that can be categorized as follows: 1) statements regarding <.com> availability; 2) non-public statements about Defendants' revenue; 3) statements about Defendants' registration numbers; and 4)statements about Defendants' marketing budget.

Plaintiff alleges that statements made by Negari in a National Public Radio ("NPR") interview were false as it relates to <.com> availability. Specifically, Plaintiff alleges Negari said,

"[a]ll the good real estate is taken. The only thing that is left is something with a dash or maybe three dashes, and a couple numbers in it. Did you know that 99% of all registrar searches today result in a 'domain taken' page? [O]n average, nine out of - nine out of ten .com searches show up as unavailable."

Plaintiff alleges that XYZ engaged in false advertising when it stated that NPR described XYZ as the next <.com>. Plaintiff also alleges that false statements were made in a 35-second video posted on the video-sharing site YouTube titled "MoveOver.com--.xyz is for the next generation of the internet."¹ The video shows a dirty old Honda with a license plate that reads <.com>, next to a shiny new Audi with a license plate that reads <.xyz>. The narrator claims "with over 120 million dot corns registered today, it's impossible to find the domain name that you want. It's 2014 and the next generation of domain names is here."

Plaintiff alleges that Defendants made non-public² false statements about Defendants' revenue. Specifically, Plaintiff alleges that Negari's following statements convey a statement about revenue: 1) "[m]y company has received 775,000+ registrations and ... generated over $5 million in revenue ...;" 2) "[w]e've sold over 600,000 domains just in the four months that we've been live;" 3) "[w]e've sold about 800,000 dot XYZ domain names since we've launched...; and 4) "[o]ur wholesale price is around $8."

Plaintiff alleges that Defendants made false statements via e-mail and blog posts regarding its registration numbers when it claimed to be the top-selling new Top-Level Domain ("TLD") at various times. Specifically, Plaintiff alleges that Defendants misrepresented the number of registrations and confusedconsumers into thinking free-trial domain names that were allegedly given away were actually sold at a wholesale price.

Plaintiff alleges that Defendants falsely posted online that "[t]he .xyz registry has put a multi-million dollar awareness campaign in place to educate users on what .xyz is..." Specifically, Plaintiff alleges that Defendant's marketing budget consisted primarily of a roundtrip transaction where domain names were exchanged for advertising credit.

Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment is appropriate if the pleadings and evidence before the Court show no genuine dispute as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). While the Court will view the facts and inferences drawn in the light most favorable to the nonmoving party, the party opposing the motion for summary judgment must put forth specific facts showing a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "[I]t is ultimately the nonmovant's burden to persuade us that there is indeed a dispute of material fact. It must provide more than a scintilla of evidence—and not merely conclusory allegations or speculation—upon which a jury could properly find in its favor." Design Res., Inc. v. Leather Indus. Of Am., 789 F.3d 495, 500 (4th Cir. 2015) (citations andquotations omitted). In presenting "more than a scintilla of evidence," a party may use expert witnesses. Rule 702 of the Federal Rules of Evidence states in pertinent part that "a witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if ... the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue." Rule 702 assigns "the judge the task of ensuring that an expert's testimony both rests on a reliable foundation and is relevant to the task at hand." Daubert v. Merrell Dow Pharm., Inc. 509, U.S. 579, 580 (1993).

When making a claim under the Lanham Act, a plaintiff must prove that:

"(1) the defendant made a false or misleading description of fact or representation of fact in a commercial advertisement about his own or another's product; (2) the misrepresentation is material, in that it is likely to influence the purchasing decision; (3) the misrepresentation actually deceives or has the tendency to deceive a substantial segment of its audience; (4) the defendant placed the false or misleading statement in interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the misrepresentation, either by direct diversion of sales or by a lessening of goodwill associated with its products." Design Res., Inc., 789 F.3d at 501 (quoting PBM Products, LLC

v. Mead Johnson & Co., 639 F.3d 111, 120 (4th Cir. 2011).

"Because the plaintiff must establish all five elements of the claim, failure to establish any one element is fatal to the claim." Id.; see also Celotex 477 U.S. at 323.

A factual statement is capable of "empirical verification." Design Res., Inc. 789 F.3d at 502, 505. "In analyzing whether an advertisement ... is literally false, a court must determine, first the unambiguous claims made by the advertisement ... and second, whether those claims are false." Scotts Co. v. United Indus. Corp., 315 F.3d 264, 274 (4th Cir. 2002) (quoting Norvartis Consumer Health, Inc. v. Johnson & Johnson-Merck Consumer Pharm. Co., 290 F.3d 578, 586 (3rd Cir. 2002)). "A literally false message may be either explicit or conveyed by necessary implication when, considering the advertisement in its entirety, the audience would recognize the claim as readily as if it had been explicitly stated." Id.

However, an opinion is not actionable under the Lanham Act and conveys a subjective, rather than empirical viewpoint. EndoSurg Med., Inc. v. EndoMaster Med., Inc., 71 F. Supp. 3d 525, 554 (D. Md. 2014); see also Pizza Hut, Inc. v. Papa John's Int'l, Inc., 227 F.3d 489, 498-99 (5th Cir. 2000), cert denied, 532 U.S. 920; Osmose, Inc. v. Viance, LLC, 612 F.3d 1298, 1311 (11th Cir. 2010).

Puffery is a type of opinion statement and "exists in two general forms: (1) exaggerated statements of bluster or boastupon which no reasonable consumer would rely; and (2) vague or highly subjective claims of product superiority, including bald assertions of superiority." See Am. Italian Pasta Co. v. New World Pasta Co., 371 F.3d 387, 390-91 (8th Cir. 2004); see also Pizza Hut, 227 F.3d at 496-97. In Imagine Medispa, LLC v. Transformations, Inc., the court cited cases from across the country in deciding puffery as a matter of law. 999 F. Supp. 2d 873, 881 (S.D.W. Va. 2014).

Negari's statements in the NPR interview that "all the good real estate is taken" is an opinion, not a verifiable fact. Even Plaintiff's own <.com> availability expert Andrew Simpson admitted that whether a domain is a "good" domain is subjective to the registrant. Further, NPR did in fact describe XYZ as the next <.com>. XYZ reporting this fact in advertising is not a false statement. Further, according to Plaintiff's own data, <.com> names are largely unavailable. In a given month, Plaintiff reports that it receives about two (2) billion requests to register <.com> domain names, yet fewer than three (3) million are actually registered. Most of the requests fail because the requested <.com> name is unavailable. Three (3) million out of two (2) billion is less than one percent (1%); thus, more than ninety-nine percent (99%) of <.com> names are unavailable. The statements made during the NPR interviewconsisted of statements of fact, opinion, and puffery, and the statements of fact have not been shown to be false.

The video posted to YouTube is puffery and opinion. It displays no actual domain names, and communicates a subjective measure of value and superiority, not capable of being proven false. The message communicates Defendants' opinion of itself as a shiny new sports car and nothing more. See C.B. Fleet Co., Inc. v. SmithKline Beecham Consumer Healthcare, L.P. 131 F.3d 430, 435-37 (4th Cir. 1997) (holding comparative superiority claims must be facts capable of being disproven).

The statements regarding Defendants' revenue and number of registrations are statements of fact that are verifiably true. The communications cited by Plaintiff were internal exchanges between Negari and XYZ employees, and...