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Financial Consequences of Cybersquatting: A Cautionary Tale

Except for the time and expense of having to defend claims of infringement there are no severe financial consequences of cybersquatting under the Uniform Domain Name Dispute Resolution. The UDRP is essentially a summary proceeding for evicting domain names from their cyber spaces, either cancelling registrations of infringing domain names or transferring the registrations to the trademark owners. The Anticybersquatting Consumer Protection Act (which is nested in the Trademark Act of 1946, the Lanham Act) is different in a number of ways, one of which is that infringement can be costly in damages and reasonable attorney’s fees.

The financial consequences are illustrated in a number of challenged UDRP awards in U.S. federal courts. In Lahoti v. VeriCheck, Inc., 586 F.3d 1190 (9th Cir. 2009) and Web-Adviso v. Trump, 11-cv-1413 (E.D.N.Y March 7, 2013) statutory damages were awarded against the domain name holders who had been the losing parties in the UDRP proceedings. In neither case were respondents educated about the evidentiary demands  to defend against cybersquatting under the UDRP or prevail in a claim of reverse domain name hijacking under the ACPA.

The financial consequences of cybersquatting under the ACPA can be substantial, up to $100,000––15 U.S.C. § 1117(d)–– and significantly greater if the award includes damages for trademark infringement. The point is illustrated In Nguyen v. Biondo, 11-cv-81156 (S.D. FL) where the District Court awarded damages in the amount of $850,000 plus another significant amount for attorney’s fees and costs for trademark infringement and cybersquatting (aff’d 508 F. App’x 932 unpublished decision (11th Cir. 2013 ). The underlying premise of damages under the Lanham Act is the accused party’s intentional and malicious acts of infringement. Section 1117(e) provides that “a violation … shall be a rebuttable presumption that the violation is willful for purposes of determining relief….”

The consequences resulting from an infringement award could be lessened if damages were dischargeable in bankruptcy, but that is not the case for statutory damages as is clear from the decision in the subsequent bankruptcy case, 13-2333 (Bankr. S.D. FL, West Palm Beach Div. June 13, 2014). The question was whether any part of Nguyen’s award is excepted from discharge pursuant to section 523(a)(6) of the Bankruptcy Code. Section 523(a)(6) provides that an individual debtor is not discharged from any debt “for willful and malicious injury … to another entity or to the property of another entity.”

The Bankruptcy Court noted that “[a]n act is ‘malicious’ within the meaning of section 523(a)(6) if it is wrongful and without just case, or excessive even where there is no ill will.” Further, “statutory damages, as opposed to actual damages, may constitute a debt for purposes of section 523(a)(6).” Trademark infringement and cybersquatting are essentially intentional acts, and as such qualify as “malicious” injury. “[I]ntentional infringement does not have uncertain or variable outcomes––it always result in harm,” Nguyen, citing Star’s Edge, Inc. v. Braun (In re Braun), 327 B.R. 447, 450 (Bankr. N.D. Cal. 2005) (“Statutory damages for copyright infringement are also indicative of injury and, therefore, are nondischargeable in bankruptcy.”)

The District Court made detailed findings that Biondi “acted with the intent to infringe the Plaintiff’s property, that [he] knew his acts would cause harm, and there was no justification for [his] wrongful acts.” Biondo argued in the Bankruptcy Court that “he acted with just cause or excuse because his actions were based on advice of counsel.” In general, reliance on advice o counsel is not a defense to an action under section 523(a)(6). “This is particularly true in a case such as this where the District Court made specific findings of intent to hard [Nguyen’s] property and bad faith.” Moreover, “when a debt is nondischargeable pursuant to 11 U.S.C. § 523(a)(6), the attorney’s fees and costs associated with that debt are likewise nondischargeable,” Nguyen at 16, citing other bankruptcy decisions.

Mr. Levine is the author of a treatise on trademarks, domain names, and cybersquatting, Domain Name Arbitration, A Practical Guide to Asserting and Defending Claims of Cybersquatting under the Uniform Domain Name Dispute Resolution Policy. (2015, 558 pages). Learn more about the book at Legal Corner Press. Available from Amazon and Barnes & Noble.  Ongoing Supplement here

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