Federal Appeals Court Rejects Contributory Liability Claims

Federal Appeals Court in California Rejects Contributory Liability Claims Under Anticybersquatting Act

Most of the domain-savvy community is well aware of ICANN's Uniform Domain Name Dispute Resolution Policy (UDRP) for trademark disputes related to domain names. Conversely, those outside the United States aren’t aware of its own version of the UDRP, the Anticybersquatting Consumer Protection Act (ACPA). Passed in 1999 by Congress to provide new causes of action in part to help trademark owners battle cybersquatting, the ACPA was an amendment to the Lanham Act, the U.S. trademark statute that codified existing common law. While not used as frequently by trademark holders as the UDRP, likely due to the potential legal expense, the statute provided for remedies and damages not available under the UDRP and has been an element in many important domain cases.

In a landmark decision for domain and trademark law, the Federal Appeals Court for the Ninth Circuit in Northern California announced a decision on December 4th that “the ACPA does not provide a cause of action for contributory cybersquatting” in a case between domain registrar GoDaddy and the Malaysian oil giant, Petronas. The oil company had sued GoDaddy after they learned in 2009 that a domain registrant was using GoDaddy’s domain forwarding service to point petronastower.net and petronastowers.net to adult websites. The appeals court affirmed the district court’s grant of summary judgment for GoDaddy that it was not liable because despite the allowance for claims for contributory liability elsewhere in the Lanham Act, the ACPA itself does not.

The court lists three primary reasons for rejecting Petronas’ claims: the text of the ACPA does does not provide a cause of action for contributory cybersquatting; the U.S. Congress intended to create a new and distinct cause of action; and because finding a cause of action for contributory cybersquatting would not further the goals of the statute.

In interpreting Congress’ intent, the court explains: "Consistent with their distinct purposes, claims under traditional trademark law and the ACPA have distinct elements. Traditional trademark law only restricts the commercial use of another’s protected mark in order to avoid consumer confusion as to the source of a particular product… Cybersquatting liability, however, does not require commercial use of a domain name involving a protected mark… Moreover, to succeed on a claim for cybersquatting, a mark holder must prove “bad faith” under a statutory nine factor test… No analogous requirement exists for traditional trademark claims… These differences highlight the fact that the rights created in the ACPA are distinct from the rights contained in other sections of the Lanham Act, and do not stem from the common law of trademarks. Accordingly we decline to infer the existence of secondary liability into the ACPA based on common law principles.”

While some U.S. district courts have recognized a cause of action for contributory liability when the plaintiff can show “exceptional circumstances”, the court rejects that approach by again looking at the intent of Congress when the ACPA was drafted: "Congress enacted the ACPA in 1999 in order to “protect consumers . . . and to provide clarity in the law for trademark owners by prohibiting the bad-faith and abusive registration of distinctive marks . . . .” The ACPA is a “carefully and narrowly tailored” attempt to fix this specific problem… To this end, the statute imposes a number of limitations on who can be liable for cybersquatting and in what circumstances, including a bad faith requirement, and a narrow definition of who “uses” a domain name… Imposing secondary liability … would expand the scope of the Act and seriously undermine both these limiting provisions.”

Bringing home the rationality of their decision in a way many domain investors can appreciate, the court reasoned that, "Moreover, imposing contributory liability for cybersquatting would incentivize “false positives,” in which the lawful use of a domain name is restricted by a risk-averse third party service provider that receives a seemingly valid take-down request from a trademark holder. Entities might then be able to assert effective control over domain names even when they could not successfully bring an ACPA action in court.”

Time will tell whether or not other U.S. Circuit Courts will follow the Ninth Circuit’s logic, but there’s little doubt GoDaddy and other domain service providers will be pleased with the ruling.