Wecome to Legal Monday! I wanted to kick off 2008 by discussing an exciting, developing case on domain tasting. This case has three things that I think make for a sexy case. (1) It involves at least one well known party. (2) It exposes a cunning money-making scheme or business plan. (3) Finally, It’s obvious that this scheme should be illegal, but it’s not obvious which law is being broken.
Dell has stepped in where I-CANN and Verisign have feared to tread by filing suit against one of the largest domain tasting networks. Dell did everything right to put itself in a good position for this lawsuit. Unfortunately, documents filed with the court last Friday, January 5, 2008 indicate that Dell may lose the case despite its efforts.
Part I of this post talks about Dell v BelgiumDomains, LLC.
Part II of this post asks a few questions about domain tasting.
Part I
Dell v. BelgiumDomains et al., 1:07-cv-22674-AJ (SD Fla. 2007)
Let’s recap the facts for those of you who haven’t been following this case over the past two months:
In the Southern District of Florida, Dell filed suit against three domain registrars, ten John Does, and a gentleman who goes by the name of JP Vasquez. Dell alleges that these defendants were involved in a domain tasting network that registered and used over sixty-four million domain names. According to John Levine and Jay Westerdal, these three registrars have been responsible for about 72.5% of the 255 million domains tasted in the past six months and have the most egregious history of domain churning.
According to Dell’s Complaint filed in October 2007, the registrars acted in concert with several shell corporations scattered around exotic locations with liberal banking laws, such as the West Indies, the Caribbean, Mauritius, Panama, and Argentina. Dell cannot yet identify who owns these registrars and shell companies (hence the John Doe defendants), but it does know that Mr. JP Vasquez managed the registrars out of Florida. Like smaller scale domain-tasting rackets, the network passed around profitable domain names like a hot potato in order to take advantage of I-CANN’s five-day refund policy. If you keep passing around your domain names in an endless loop, you never have to pay for the privilege of owning and using the web addresses. Meanwhile, the profitable sites bring in pay-per click dollars. If you want more information about how the scheme works, I commend to your attention the Washington Post article outlining the facts more fully.
No One Knows Who the Man Behind the Curtain Is.
Vasquez, a man of simple means, does not appear to be the mastermind behind this international scheme. All that is certain is that the Dr. Evil orchestrating this plot must have extremely deep pockets. Keeping millions upon millions of domain names registered, even if only for brief, temporary intervals, takes substantial amounts of cash.
Dell v. BelgiumDomains, LLC et al was originally filed “under seal” (that’s a term of art meaning “in secret”) so that Dell could swoop in with its forensic experts, image the hard drives, and freeze the defendants’ U.S. assets before they even realized they had been nailed. Dell needed this information to build its case and find out who is behind the domain-tasting network.
While Vasquez originally claimed that he would cooperate by preserving and turning over valuable evidence, it appears that Vasquez changed his mind.
Dell Accuses Defendants of Destroying Evidence
Dell filed a request for sanctions last Friday, January 5, 2008, accusing the defendants of willfully and in bad faith erasing information from nine out of twenty-two servers. Allegedly, the defendants began erasing data only three days after they were instructed by the Judge to preserve evidence and hand it over to Dell. The defendants, who had remote access to the servers, used BCWipe to permanently and selectively delete information on at least five of the servers.
Dell is Seeking a Default Order Against the Defendants for Spoliation of Evidence.
In response, Dell is asking the Court to enter a default judgment (in other words, to give them an automatic win) as punishment for spoiling the evidence. You can read the Motion for Sanctions and the supporting declarations of the forensic experts here and here.
Granting a default judgment for spoliation of evidence is an extraordinary remedy and the chances of it being granted are slim. However, the defendants’ conduct is certain to inspire rancour in the judge hearing the case. It is more likely the court will award monetary sanctions than hand Dell a freebie win.
Dell’s claims may not survive without the missing evidence. There is solid evidence that the registrars are involved. However, without proof that the registrars and the foreign shell companies were acting in concert and owned by the same person/s, Dell’s case weakens.
Dell May Encounter Collection Problems Even if the Court Grants its Request for Default Judgment.
Further, even if the Court does award a default judgment or monetary sanctions, it is not clear whether Dell will be able to collect on the judgment. Having a slip of paper signed by a judge that states someone owes you money doesn’t put the cash in your bank account. You’ve got to chase it down. Dell probably doesn’t have much of a chance of getting to Dr. Evil’s assets.
The Defendants are Seeking to Dismiss the Case, including Dell’s Big-Money Trademark Counterfeit Claim.
In addition to destroying evidence, the defendants are also trying to use legal means to avoid responsibility in this case. They have requested dismissal of Dell’s claims. They claim that Dell’s claims are inapplicable and improperly pleaded. Most of Dell’s claims against the defendants are what you would expect in a domain tasting case: trademark infringement, trademark dilution, unfair business practices, etc. However, one of Dell’s claims, trademark counterfeit, is considered by many to be a novel claim that would expand the purview of trademark law. The U.S. law on trademark counterfeit can be found at 15 U.S. Section 1114(1).
Dell Has the Chance to Win Multi-Millions in Damages if the Court Allows the Counterfeit Claims to Go Forward.
Why bring in a counterfeit claim at all, you may be asking? The difference between a counterfeit claim and a regular infringement claim is hundreds of thousands of dollars in damages. Check out this math: If Dell proves its infringement claims, it can “win” up to $100,000 per domain. That sounds substantial, but it’s nothing compared to the damages for trademark counterfeit. If Dell proves its counterfeit claims, it can earn up to 1 million dollars per violation.
The defendants argue in their Motion to Dismiss that there is no such claim as trademark counterfeit in the domain tasting context. Hosting ads on an infringing domain name, the defendants argue, is not like selling fake Gucci bags on the street. Instead, it is a bona fide business model. The defendants claim they are offering a search service. Well, that’s one way to look at keyword advertising, I suppose.
Dell, on the other hand, argues that counterfeit is not limited to mislabeled physical products. Rather, trademark counterfeit should be defined broadly as occurring whenever a deceptive commercial practice involves an “identical or substantially indistinguishable” mark.
These are very different visions of counterfeit. It will be interesting to see whether the court will be willing to expand the law and hold that mass cyber- and typo-squatting amounts to counterfeit. There hasn’t been a ruling on either the request for sanctions or the request for dismissal. I’ll keep you posted as those decisions come in.
Part II
The Domain Tasting Debate
People have divergent, passionate views on domain tasting. Most people agree that registering and using web addresses that include trademark infringements or typographical errors, such as many of those in the Dell case, should be off limits. No one except Dell should be allowed toe use DellFinancialServices.com.
However, people disagree passionately about domain tasting purely descriptive, non-infringing sites, such as icecream.com.
Domain tasting is not illegal or against I-CANN policy so long as there are no trademark issues. Regardless, some people believe that I-CANN should take immediate action to curtail domain tasting. They believe it stresses the registries’ resources and harms legitimate businesses by hoarding all of the good domain names. Further, small business owners, lacking the resources to do any medium to large scale tasting of their own, are disproportionately shut out from valuable web addresses. The big fish keep getting bigger and it doesn’t trickle down from those off-shore banks.
The Public Interest Registry (PIR) that registers dot-org web addresses has eliminated free trial periods for some registrars in order to discourage domain tasting. David Marher, PIR’s Senior Vice President, told The Washington Post that PIR was “being hit by a few registrars that were tasting millions of domains but literally deleting 99.9 percent of their domains so they wouldn’t have to pay for them.” PIR decided to take action because domain tasters were straining the automated systems and hoarding domain names from ‘legitimate’ users. In June 2006, PIR instituted a five cent surcharge for registrars that deleted 90% or more of their domains within the five-day grace period. The policy was successful. Almost overnight domain tasters abandoned dot-org domains.
Despite PIR’s success, there is no similar policy for companies managing other top level domains. Verisign, for example, has no current plans to institute a similar program. There is speculation that Verisign refuses to take action because it makes money off the domain tasters [gasp]. However, Verisign claims that it is waiting for ICANN to issue a universal policy for all registries. [Don’t hold your breath.]
Jay Westerdal has started an excellent post listing some pros and cons of domain tasting. There is also a good thread with well-made points on both sides of the domain tasting debate at webmasterworld.com.
As always, thanks for your attention. Please let me know if you have any questions or concerns.
Very truly yours,
Sarah
