DSPT International v. Nahum

Citation
DSPT Int’l v. Nahum, Case No. 08-5506 (9th Cir., Oct. 27, 2010) (full-text).

Factual Background
DSPT, founded by Paolo Dorigo, has designed, manufactured, and sold clothes since 1988 under the brand name “Equilibrio.” In 1999, DSPT created the “EQ” brand name to appeal to a younger market and Dorigo brought his friend Lucky Nahum into the business to set up the company’s website. The EQ brand, and associated “www.eq-Italy.com” domain, florished and the importance of online orders for DSPT continued through 2005 when Nahum informed Dorigo by e-mail that he would not be renewing his contract with DSPT. Following Nahum’s resignation, he removed the eq-Italy.com website and uploaded a page stating merely: “All fashion related questions to be referred to Lucky Nahum at: lnahum@yahoo.com.” Nahum admitted that the placeholder page was intended to induce DSPT to pay him money he was owed.

Nahum was able to upload the page with his contact email because he had been one of the employees responsible for creating and maintaining the DSPT website, but DSPT was unable to remove the site or make any changes because the domain had originally been registered by Nahum in 1999. While an individual employee registering a company domain in their name may not be standard practice, it is all too common for a third party developer or marketing company to register websites and social networking accounts on behalf of their clients but in their own name. Some of these registrations take place in this manner because developer contracts require the developer to have control of the site in order to ensure payment and some are registered in this manner because logistically it is just easier for the third party to register the site and transfer access at a later date. For DSPT, however, Nahum having full control of the company website lead to significantly decreased sales and substantial damages.

Trial Court Proceedings
DSPT eventually brought an action against Nahum for cybersquatting and trademark infringement and Nahum countersued for the $14,936.86 he claimed he was owed in past commissions. The cased was tried to a jury, which returned a special verdict finding that “EQ” and “Equilibrio” were valid trademarks owned by DSPT and that “Lucky Nahum registered, trafficked in, or used the www.eq-Italy.com domain name”; that the name was identical or confusingly similar to DSPT’s distinctive trademark; and that “Lucky Nahum commit[ed] the acts with a bad faith intent to profit from DSPT’s mark.” The jury found that DSPT’s damages were $152,000 and found that with respect to Nahum’s counterclaim, that DSPT had not breached its contract with him and owed him nothing.

The district court denied Nahum’s renewed motions for judgment as a matter of law, remittitur, and a new trial. Nahum appealed.

Appellate Court Proceedings
On appeal, Nahum argued that “the anti-cybersquatting statute has no application to the conduct in this case, that DSPT did not own the trademarks and that EQ-Italy was not identical or confusingly similar to DSPT’s marks, that there was no evidence of bad-faith intent to profit, and that there was insufficient evidence to support the damages award."

The Anti-Cybersquatting Consumer Protection Act (“Act”) creates civil liability for cyberpiracy where a plaintiff proves that:


 * (1) the defendant registered, trafficked in, or used a domain name;
 * (2) the domain name is identical of confusingly similar to a protected mark owned by the plaintiff; and,
 * (3) the defendant acted in bad faith with intent to profit from the mark.

Nahum’s primary argument in defense of his actions was that the Act did not apply because he could not have been shown to have bad faith at the time of registration and that the Act was enacted to prevent a bad faith registrant from registering a domain with the intent to profit from another’s mark, or to sell the mark to the trademark holder for a profit.

The court noted that while the wrongs that Nahum describes as the intent of the Act may have been at the core of the legislature’s intent when enacting the Act, its application is actually much broader. While there was

"no evidence of anything wrong with Nahum’s registration of the domain name to himself, the evidence supported a verdict that Nahum subsequently, years later, used the domain name to get leverage for his claim for commissions."

Under the statute, “use” alone is enough to support a verdict, “even in the absence of violative registration or trafficking.”

The Act enumerates nine factors evidencing bad faith and provides that a court may consider such factors but is not limited to them. The court focused on factor VI, which describes a person offering to transfer the domain name to the owner of the mark after never actually using or intending to use the domain name for bona fide sales of goods. The court interpreted this factor to include a situation where a domain name is held for ransom in an attempt to get money from the trademark owner rather than to sell goods, which is exactly what Nahum had done. Even though his “intent to profit” was aimed at receiving money he felt he was already entitled, his use of the domain was for reasons other than bona fide sales.

While there was no showing of any customers or profits diverted by Nahum’s hijacking of the DSPT website, the record was sufficient for the jury to calculate DSPT’s lost profits. DSPT’s financial statements showed gross profits down around $620,000 in 2006 after an excellent start in early 2005 but a decline after the website was removed.

"Proof of a decline in sales combined with evidence tending to discount the important of other market factors, such as the evidence of positive business conditions and the success of similar businesses not subject to the defendant’s tortious conduct, can be sufficient to establish a causal connection between plaintiff’s decline in sales and the misconduct of the defendant."

After upholding the jury’s verdict, the court concluded that

"[e]ven if a domain name was put up innocently and used properly for years, a person is liable under 15 U.S.C. § 1125(d) if he subsequently uses the domain name with a bad faith intent to profit from the protected mark by holding the domain name for ransom."