Good Faith and Bad Faith Analyzed in N.D.C.A. Cybersquatting Claim Brought Under the ACPA – Rearden LLC., v. Rearden Commerce

July 23rd, 2010

Judge Patel presiding over this case in front of the Northern District of California’s District Court provides Internet Lawyers and lay readers alike with a few great examples of conduct that does / does not constitute ‘good faith’ in a cybersquatting claim brought under the ACPA.

1) A presumption of bad faith flows directly from any indication that a domain name owner, after already being accused of cybersquatting on a mark, registered additional domain names infringing (potentially) on the complainant’s mark to exacerbate the conflict. Instead, any party registering domain names that may potentially be infringing should register those domain names ‘as part of its program to connect with customers’.

2) A presumption of conduct indicating good faith is supported when a domain name owner accused of cybersquatting immediately ceases use of the infringing (allegedly) domain name after the cybersquatting allegations are brought to the domain owner’s attention.

3) (carrying the most weight in this opinion) A domain name owner accused of cybersquatting or trademark infringement can demonstrate ‘good faith’ by offering to unconditionally transfer the (possibly) infringing domain names to the complaining party.

Overview;

Plaintiff in this suit is Rearden LLC (Rearden), founded by Steve Perlman. Rearden owns the federal registered trademark for ‘REARDEN’ – Serial No. 77194957.

The Defendant, Rearden Commerce Inc., (RC), adopted that name in January 2005. RC owns the federal registered trademark for ‘REARDEN COMMERCE’ – Serial No.76632927.

At issue in this ACPA lawsuit are the following domain names; ReardenInc.net, ReardenInc.org, ReardenInc.us, ReardenCo.com, ReardenCo.net, ReardenCo.org, ReardenCo.us, ReardenC.net, ReardenC.org, ReardenC.us, ReardenLLC.com, ReardenLLC.net, ReardenMobile.com and MobileRearden.com.

Brief background history of this suit and of the Parties involved;

Steve Perlman is an intellectual property entrepreneur and inventor who co-founded WebTV and acted as the former president & CEO of OnLive. Perlman also founded Rearden Steel, Inc. in 1999 and later changed the company’s name to Rearden LLC. Through Rearden LLC, Perlman registered and has continually used rearden.com since 2001 and has since then procured federal trademark registrations for ‘REARDEN’, ‘REARDEN STEEL’ (no longer a live mark), ‘REARDEN STUDIOS’, ‘REARDEN COMMUNICATIONS’ and ‘REARDEN COMMERCE EMAIL’ among others.

Defendant RC registered the following families of domain names on March 4, 2005: ReardenInc (ReardenInc.net, ReardenInc.org and ReardenInc.us); ReardenCo (ReardenCo.com, ReardenCo.net, ReardenCo.org and ReardenCo.us) and ReardenC (ReardenC.net, ReardenC.org and ReardenC.us).

On October 8, 2006, RC opened up dialogue with Rearden about purchasing the Rearden.com domain. Two days later, Perlman replied stating:

1) the domain name was not for sale;

2) he had obtained an extension of the review period for RC’s “Rearden Commerce” trademark application; and

3) he was considering seeking a further extension to decide whether to oppose the application.

Later that October, after receiving Rearden’s negative reply to its offer to purchase Rearden.com, RC instructed its employees to register both ReardenLLC.com and ReardenLLC.net.

Judge Marilyn Hall Patel, presiding over this Northern California District Court case, acknowledged in the opinion that Sandoval (as RC’s counsel) may have been on tenuous ground by registering ReardenLLC.com;

“At this time, Sandoval was aware both that Perlman’s company was a limited liability company (“LLC”) and that RC was not and had never been an LLC. Nor were there any plans regarding RC becoming an LLC. Indeed, RC does not and has not ever used the phrase “Rearden LLC” to refer to or describe its business, and neither party has applied for a federally registered trademark for “ReardenLLC.” Sandoval testified that “there’s no written policy” for registering domains, “processes were informal,” “a lot of it’s haphazard,” and “there was no rhyme or reason to it.”

Defendant RC didn’t stop there, in November 2006 it went on to register ReardenLLC.net, ReardenMobile.com and MobileRearden.com.

Plaintiffs filed suit on November 30, 2006.

Rearden LLC, et al., v. Rearden Commerce, Inc., No. 06-7367, N.D. Calif.; 2010 U.S. Dist. Lexis 65567

In this opinion, decided on July 1, 2010, Judge Patel decided both parties’ cross-motions for summary judgment regarding impermissible cybersquatting under the Anti-Cybersquatting Consumer Protection Act (“ACPA”), 15 U.S.C. § 1125(d), and unfair competition under California Business and Professions Code section 17200 as it relates to cybersquatting.

Plaintiff Rearden moved for summary judgment regarding the ReardenLLC domain names under the ACPA and California’s unfair competition law, and Defendant RC moved for summary judgment regarding all fifteen ‘Rearden’ domain names claiming its acquisitions did not violate the ACPA.

Cybersquatting under the ACPA;

Anti-Cybersquatting Consumer Protection Act, 15 U.S.C. § 1125(d), was passed by Congress in 1999 and is designed to defend against cybersquatting. Judge Patel painted a nice characterization of cybersquatting in the opinion as she noted;

“Cybersquatting is the Internet version of an unlawful land grab. Cybersquatters register well-known brand names as Internet domain names in order to force the rightful owners of the marks to come forward and pay for the right to engage in electronic commerce under their own name.” Interstellar Starship Servs., Ltd. v. Epix, Inc., 304 F.3d 936, 946 (9th Cir. 2002).

The ACPA protects both federal registered trademarks and common law marks (established through use). Violations of the ACPA arise where a person uses a trademark owned by a third party and that person;

(A) has a bad faith intent to profit from that mark, and
(B) registers, traffics in, or uses a domain name [that is confusingly similar to another’s mark or dilutes another’s famous mark].

In order to prevail on a claim under the ACPA, a valid trademark owner must establish that;

(1) it has a valid trademark entitled to protection;
(2) its mark is distinctive or famous;
(3) the defendant’s domain name is identical or confusingly similar to, or in the case of famous marks, dilutive of, the owner’s mark; and
(4) the defendant used, registered, or trafficked in the domain name…
(5) with a bad faith intent to profit.” Bosley Medical Inst., Inc. v. Kremer, 403 F.3d 672, 681 (9th Cir. 2005)

(Prongs (1) and (5) were at issue but (1) was quickly resolved in favor of Plaintiff Rearden)

Bad Faith v. Good Faith (prong 5);

Judge Patel enumerated a number of factors in regards to whether RC used, registered, or trafficked in the domain name with a bad faith intent to profit.

As noted earlier, RC didn’t register ReardenLLC.com and ReardenLLC.net until after its offer to purchase Rearden.com from Plaintiff Rearden was rejected and Rearden put RC on notice that it may contest RC’s federal trademark registration of ‘REARDEN COMMERCE’.

In spite of this (remember that RC is not a LLC and has no plans to become one), Judge Patel, examining the facts according to a summary judgment standard, found that RC’s conduct conclusively demonstrates good faith.

In reaching this good-faith determination, Judge Patel pointed to a number of factors. She asserted that a jury could reasonably find that RC had not earlier considered ReardenLLC domain names during its ‘initial registration frenzy’ and instead registered them when it became aware of them as part of its program to connect with customers (and that this does not constitute bad faith). Also, Patel stated that RC’s immediate cessation of use of the ReardenLLC domain names when the alleged cybersquatting activity was brought to RC’s attention demonstrates good faith. Finally and conclusively in support of RC’s conduct in registering the ReardenLLC domains in good faith, Patel stated that;

“RC’s recent offer to unconditionally transfer the ReardenLLC domain names to Rearden conclusively demonstrates RC’s good faith.”

After finding that Rearden was unable to satisfy the (5) prong to succeed on a claim brought under the ACPA, Patel awarded summary judgment in favor of RC with respect to the ReardenLLC domain names and then expanded this ruling to apply to all of the RC’s registered domain names at issue in this suit.

Unfair Competition;

California’s Unfair Competition Law defines unfair competition as “any unlawful, unfair or fraudulent business act or practice.” Cal. Bus. & Prof. Code § 17200

Plaintiffs’ arguments regarding the unlawful prong of the UCL are identical to their cybersquatting arguments; thus, for the reasons stated above, summary judgment on this prong is granted in favor of defendant.

Conclusion;

Judge Patel ruled that Plaintiff Rearden’s summary judgment motion is denied and Defendant’s summary judgment motion is granted;

“Here, plaintiffs have presented no evidence of harm, save their argument that the cybersquatting “likely impacted Rearden LLC’s ability to connect with potential clients, investors, members of the media, and jobseekers.” Docket No. 276 (Reply) at 11:11-17. Pure argument, with no supporting evidence, is insufficient to meet the summary judgment standard. Moreover, in light of the court’s prior ruling that there does not exist a strong likelihood of confusion, it is unclear how this misdirection was “unfair.” Indeed, it is unclear whether plaintiffs suffered any harm whatsoever from RC’s actions. Consequently, summary judgment on this prong is granted in favor of defendant.”

For related articles on good faith and cybersquatting under the ACPA;

UDRP Panel Recognizes that where a Registrant Reasonably Believed that what He was Doing was Legitimate, then Registrant’s Domain Name Registration Cannot be in Bad Faith

Bad News for Google, Facing Typo-squatting Lawsuit After its Motion for Summary Judgment was Denied

California District Court Finds in Favor of Intel Corporation, Denying ANIPs Motion to Dismiss in Trademark Infringement and Cybersquatting Lawsuit Brought to Protect the Intel Trademark