Virtual Works v. Volkswagen of Am.

Decision Date30 October 2000
Docket NumberNo. 00-1356,00-1356
Citation238 F.3d 264
Parties(4th Cir. 2001) VIRTUAL WORKS, INCORPORATED, Plaintiff-Appellant, v. VOLKSWAGEN OF AMERICA, INCORPORATED; VOLSWAGEN AKTIENGESELLSCHAFT, Defendants-Appellees, NETWORK SOLUTIONS, INCORPORATED, Defendant. . Argued:
CourtU.S. Court of Appeals — Fourth Circuit

Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria.

Claude M. Hilton, Chief District Judge. (CA-99-1289-A) [Copyrighted Material Omitted] COUNSEL: ARGUED: William Herbert Bode, BODE & BECKMAN, L.L.P., Washington, D.C., for Appellant. Thomas Rex Lee, HOWARD, PHILLIPS & ANDERSEN, P.C., Salt Lake City, Utah, for Appellees. ON BRIEF: Gregory D. Phillips, HOWARD, PHILLIPS & ANDERSEN, P.C., Salt Lake City, Utah; John F. Anderson, RICHARDS, MCGETTIGAN, REILLY & WEST, Alexandria, Virginia, for Appellees.

Before WILKINSON, Chief Judge, and MICHAEL and TRAXLER, Circuit Judges.

Affirmed by published opinion. Chief Judge Wilkinson wrote the opinion, in which Judge Michael and Judge Traxler joined.

OPINION

WILKINSON, Chief Judge:

Volkswagen challenges Virtual Works, Inc.'s use of the domain name vw.net under the 1999 Anticybersquatting Consumer Protection Act (ACPA). Volkswagen claims that Virtual Works registered vw.net with the purpose of one day selling it to Volkswagen. The district court agreed, holding that Virtual Works had a bad faith intent to profit from the vw.net domain name and that its use of vw.net diluted and infringed upon the VW mark. Virtual Works, Inc. v. Network Solutions, Inc., 106 F. Supp.2d 845 (E.D. Va. 2000). The district court therefore ordered Virtual Works to relinquish to Volkswagen the rights to vw.net. Because the district court did not err in holding that Virtual Works violated the ACPA, we affirm the judgment.

I.

On October 23, 1996, Virtual Works registered the domain name vw.net with Network Solutions, Inc. (NSI). At that time, NSI was the only company authorized by the government to serve as a registrar for Internet domain names. A domain name tells users where they can find a particular web page, much like a street address tells people where they can find a particular home or business. Domain names consist of two parts: the top level domain name (TLD) and secondary level domain name (SLD). The TLD is the suffix, identifying the nature of the site. The SLD is the prefix, identifying the site's owner. Thus in the domain name Duke.edu, ".edu" is the TLD, identifying the site as affiliated with an educational institution. "Duke" is the SLD, identifying the owner as Duke University. There are various other TLDs. The most common are .com, .net, and .org for commercial users and .gov for governmental entities. At one point there was a distinction between the .com, .org, and .net TLDs. The .net TLD was reserved for Internet service providers (ISPs). The .org TLD was reserved for non-commercial or non-profit users. In September 1995, however, NSI stopped enforcing these distinctions. Thus, after 1995, commercial businesses could register domain names with the .net, .org, or .com TLD.

At the time Virtual Works registered vw.net, two of its principals, Christopher Grimes and James Anderson, were aware that some Internet users might think that vw.net was affiliated with Volkswagen. According to Grimes, he and Anderson "talked about Volkswagen and decided that [they] would use the domain name for [the] company, but if Volkswagen offered to work out a deal for services or products, that [they] would sell it to [Volkswagen] for a lot of money." When Virtual Works registered vw.net , many other domain names were available for its use. For instance, vwi.net, vwi.org, virtual works. net, and virtual works. org, were still available.

Virtual Works used the vw.net domain name for approximately two years as a part of its ISP business. In December 1998, various Volkswagen dealerships contacted Virtual Works and expressed an interest in purchasing the rights to the vw.net domain name. Virtual Works, in turn, called Volkswagen, offering to sell vw.net. The terms of Virtual Works' offer, however, were somewhat unusual. Anderson left a voice mail message for Linda Scipione in Volkswagen's trademark department. In the message, Anderson stated that he owned the rights to vw.net. He also said that unless Volkswagen bought the rights to vw.net, Virtual Works would sell the domain name to the highest bidder. Anderson gave Volkswagen twenty-four hours to respond.

In response to what it perceived as a threat to the VW mark, Volkswagen invoked NSI's dispute resolution procedure. NSI in turn told Virtual Works that Virtual Works would lose the vw.net domain name unless it filed a declaratory judgment action against Volkswagen. Virtual Works complied. Volkswagen subsequently counterclaimed, alleging trademark dilution, infringement, and cybersquatting under the ACPA. 15 U.S.C. S 1125(d). The district court granted Volkswagen's motion for summary judgment on its cybersquatting, dilution, and infringement counterclaims and dismissed Virtual Works' cross-motions on the same. Accordingly, the district court ordered Virtual Works to relinquish to Volkswagen the rights to the vw.net domain name. Virtual Works appeals.

II.
A.

The ACPA was enacted in 1999 in response to concerns over the proliferation of cybersquatting -the Internet version of a land grab. According to the Senate Report accompanying the Act:"Trademark owners are facing a new form of piracy on the Internet caused by acts of `cybersquatting,' which refers to the deliberate, bad-faith, and abusive registration of Internet domain names in violation of the rights of trademark owners." S. Rep. No. 106-140, at 4 (1999). Cybersquatting is the practice of registering "well-known brand names as Internet domain names" in order to force the rightful owners of the marks "to pay for the right to engage in electronic commerce under their own brand name." Id. at 5. See also H.R. Rep. No. 106-412, at 5-7 (1999). Cybersquatting is profitable because while it is inexpensive for a cybersquatter to register the mark of an established company as a domain name, such companies are often vulnerable to being forced into paying substantial sums to get their names back. Sporty's Farm, L.L.C. v. Sportsman's Market, Inc., 202 F.3d 489, 493 (2d Cir. 2000).

Congress viewed the practice of cybersquatting as harmful because it threatened "the continued growth and vitality of the Internet as a platform" for "communication, electronic commerce, education, entertainment, and countless other yet-to-be-determined uses." S. Rep. No. 106-140, at 8. New legislation was required to address this situation because then-current law did not expressly prohibit the act of cybersquatting and cybersquatters had started to take the necessary precautions to insulate themselves from liability under the Federal Trademark Dilution Act. Id. at 7. Accordingly, Congress passed, and the President signed, the ACPA in 1999. Pub. L. No. 106-113, 113 Stat. 1536 (codified at 15 U.S.C. S 1125(d)).

B.

Under the ACPA, a person alleged to be a cybersquatter is liable to the owner of a protected mark if that person:

(i) has a bad faith intent to profit from that mark . . .; and

(ii) registers, traffics in, or uses a domain name that-(I) in the case of a mark that is distinctive . . ., is identical or confusingly similar to that mark (II) in the case of a famous mark . . ., is identical or confusingly similar to or dilutive of that mark;

15 U.S.C. S 1125(d)(1)(A). With respect to the bad faith determination, the statute provides that:

(B)(i) In determining whether a person has a bad faith intent . . . a court may consider factors such as, but not limited to

(I) the trademark or other intellectual property rights of the person, if any, in the domain name;

(II) the extent to which the domain name consists of the legal name of the person or a name that is otherwise commonly used to identify that person;

(III) the person's prior use, if any, of the domain name in connection with the bona fide offering of any goods or services;

(IV) the person's bona fide noncommercial or fair use of the mark in a site accessible under the domain name;

(V) the person's intent to divert consumers from the mark owner's online location to a site . . . that could harm the goodwill represented by the mark, either for commercial gain or with the intent to tarnish or disparage the mark . . .;

(VI) the person's offer to transfer, sell, or otherwise assign the domain name to the mark owner or any third party for financial gain without having used . . . the domain name in the bona fide offering of any goods or services . . .;

(VII) the person's provision of material and misleading false contact information when applying for the registration of the domain name . . .;

(VIII) the person's registration or acquisition of multiple domain names which the person knows are identical or confusingly similar to marks of others . . .; and

(IX) the extent to which the mark incorporated in the person's domain name registration is or is not distinctive and famous . . . .

15 U.S.C. S 1125(d)(1)(B)(i). In addition to listing these nine factors, the Act contains a safe harbor. The safe harbor provision states that bad faith intent "shall not be found in any case in which the court determines that the person believed and had reasonable grounds to believe that the use of the domain name was fair use or otherwise lawful." 15 U.S.C. S 1225(d)(1)(B)(ii).

A court is not limited to considering these nine factors when determining the presence or absence of bad faith. 15 U.S.C. S 1125(d)(1)(B)(i). The Second Circuit, in the first court of appeals case addressing the ACPA, noted that the most important grounds for finding bad faith "are the unique circumstances of th[e] case, which do not fit neatly into the specific factors enumerated by Congress but may...

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