E. & J. Gallo Winery v. Spider Webs

Citation:' E. & J. Gallo Winery v. Spider Webs Ltd., 129 F. Supp. 2d 1033 (S.D. Tex. 2001), aff’d, 286 F.3d 270 (5th Cir. 2002).

Factual Background
Plaintiff, owner of the registered mark ERNEST AND JULIO GALLO for alcoholic beverages, sued defendant for various trademark violations regarding its registration and use of the domain name “ernestandjuliogallo.com.” Defendant was a domain-name speculator that owned numerous other domain names consisting of famous company names. Six months after this action was filed, defendants used the “ernestandjuliogallo.com” domain name for a website about this litigation and the risks associated with alcohol use. Defendant later webforwarded the domain name to a third-party site featuring anticorporate articles and opinions, including commentary on alcohol use.

Trial Court Proceedings
The court granted plaintiff’s motion for summary judgment on its claims under the Texas Anti-Dilution Statute and the ACPA. Defendant’s actions constituted dilution by blurring because, inter alia, the “ernestandjuliogallo.com” domain name appeared on every page printed off the website accessed by that name, and defendant was not free to use this particular mark as a domain name. The court also appeared to find dilution by tarnishment, based on the negative content and poor quality of defendant’s website. Accordingly, the court ordered defendant to domain name transfer to plaintiff and enjoined defendant from using any domain name containing the word “Gallo” or the words “Ernest” and “Julio” in combination.

Regarding plaintiff’s ACPA claim, defendant’s posting of a website after the litigation began did not constitute a bona fide offering of any goods and services, especially because the content disparaged plaintiff. Plaintiff elected to recover statutory damages and sought the maximum award of $100,000. Although defendant acted in bad faith, the court found that it did not “do anything as egregious as. . . using the web site to sell poor quality wine or to market tawdry items bearing the Gallo name.” Nor did plaintiff establish any loss of business. Accordingly, the court found that an award of statutory damages of $25,000 was just. Finally, the court held that the ACPA was not unconstitutional.

Appellate Court Proceedings
The Fifth Circuit affirmed the lower court’s decision. First, defendant argued that it had not acted with a bad-faith intent to profit from plaintiff’s trademark as required by the ACPA. But the appeals court rejected this argument, noting that seven of the nine statutory factors strongly supported a finding of bad faith. In particular, there was uncontradicted evidence that defendant was in the business of selling domain names, including domain names containing other well-known business names, and hoped to sell the “ernestandjuliogallo.com” name some day. Indeed, defendant admitted that the domain name was valuable and that it hoped that plaintiff would contact it regarding the name. In addition, defendant’s protestations of good faith were undermined by its failure to use the domain name until after the lawsuit was filed.

Second, defendant argued that the award of $25,000 in statutory damages was improper because plaintiff did not suffer any actual injury, but the appeals court upheld the trial court’s finding that defendant’s actions put the plaintiff at risk of losing business and of having its business reputation tarnished. Moreover, the court noted that the ACPA’s statutory-damages provision is similar to the provision of the Copyright Act, and that statutory damages under the Copyright Act are intended not only to compensate the rights owner but also to discourage wrongful conduct. And there is no requirement that the court consider the duration of the infringement when calculating statutory damages under the ACPA.

Third, the appeals court agreed with the trial court that defendant’s use of the domain name violated the Texas Anti-Dilution Statute because it was likely to dilute plaintiff’s trademark.

Finally, defendant argued that the trial court’s injunction was overly broad, citing to Bally Total Fitness in which the court held that the owner of a website who had used “Bally Sucks” on his website but not in his domain name had not infringed or dilute d the plaintiff’s mark. The appeals court rejected this argument, noting that the Bally’s court had expressly distinguished its holding from cases like this one in which the defendant used the plaintiff’s registered mark in the defendant’s actual domain name. The court acknowledged that it was “conceivable” that the defendant could have a legitimate use for a domain name containing the words “Gallo” or “Ernest” and “Julio.” Should such a legitimate need arise, however, defendant could ask the district court to modify the injunction.

This page uses content from Finnegan’s Internet Trademark Case Summaries. This entry is available under the GNU Free Documentation License.