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Reselling Domain Names on the Secondary Market: Bona Fide Offering, or Not?

On the question of reselling domain names on the secondary market, a dissenting panelist in a 2005 case observed that “[t]here is no doubt Respondent is in the business of being a reseller of domain names that consist of common English words” and then suggested that the “fundamental question before the Panel is whether or not such a business should be allowed under the UDRP.” He concluded that such a business should not be allowed: “I would … find Respondent has engaged in a pattern of preventative domain name registration through its prior conduct of registering domain names that are identical to third-party marks.” Shoe Mart Factory Outlet, Inc. v. DomainHouse.com, Inc. c/o Domain Administrator, FA0504000 462916 (Nat. Arb. Forum June 10, 2005).

The same panelist (again in dissent) in Randall E. Kay v. Sebastian Kleveros / Comcept – Internet Ventures, FA1602001659119 (Forum March 18, 2016) (<nvrt.com>) states

Reselling domain names does not constitute a bona fide offering of goods or services for the purposes of the UDRP. To allow such an absurd construction would eviscerate the UDRP because every respondent could demonstrate rights by simply offering the relevant domain name for sale to the general public at the time of registration. The UDRP could be easily circumvented.

This exaggerates the consequences beyond recognition; buying and selling domain names is neither absurd nor would it eviscerate the UDRP. In fact, it’s legal. Much depends on the timing of the relative registrations, domain name and trademark, strength of the trademark, whether it pre- or postdates the domain name, the content of the website to which the domain name resolves, and the use (that is, content) of the website. The cybersquatting analysis should depend on the particular facts of the case, determined objectively not from a preconceived position. It should not depend on which panelist a provider appoints.

The Majorities in both the cited disputes determined that “shoemark” and the four character string “nvrt” were common even though registrable as trademarks. The expression “engaged in a pattern of preventative domain name registration” (my emphasis) and the language in Randall E. Kay is a minority construction of paragraph 4(b)(ii) of the Policy. The proscription actually reads:

you have registered the domain name in order to prevent the owners of the trademark or service mark from reflecting the mark in a corresponding domain name, provided that you have engaged in a pattern of such conduct.

This wording subsumes intentional misconduct whereas the rephrased clause and the Panel’s language inculpates the industry which by definition (how can it be otherwise!) is in the business of anticipating needs by registering common words and phrases and selling them on the secondary market for amounts often described in colorful terms.

The Panel in Shoe Mart is not alone in questioning domain name resellers’ legitimacy, but he has been one of the more outspoken proponents of this view. The view is limited, of course, to trademarks with priority but applying it to trademarks lacking marketplace reputation when the domain name was registered is stretching the law. The preconceived view (I think) results in fitting a square peg into a round hole. Registering common words and phrases is not condemned. In fact, the consensus rejects the view that trademark owners have a monopoly on common terms, with important qualifications. I have in mind a couple of illustrative cases that I’ll discuss below.

The latest decision from the same Panel (now as a sole panelist), Crown Acquisitions, Inc. v. Stephan Sphire, FA1606001680508 (Forum August 3, 2016) (<crownacquisitions.com> has been met with a chorus of boos. TheDomains (one of the foremost Bloggers in the domain name space) laments that the decision “contains language that should concern any domain investor.” The post concludes with “In my opinion a very bad decision for domain investors.” In the thread of Comments following this opinion the general tenor is critical of the Panel with a couple supporting the decision.

One commentator for example puts the blame on Respondent: “Lazy defending. Didn’t rebut C&D nor pay for three-member panel.” On the three-member panel issue another commentator states: “yes- you do need a three member panel so that collectively all three can vet the case. Absent some process “Panelists will keep straying until the UDRP policy explicitly covers trading in domains and non-use, other dispute policies have those backstops (UK DRS).” By “backstops” the commentator means that the loser should have a right to institute an administrative appeal such as it has under country code policies. The UK DRS is a domain name resolution service administered by Nominet. The latest amendment of its DRS effective October 1, 2016 retains this procedure and it would be a useful addition to parties’ rights to have a similar procedure in place for the UDRP.

What exactly is the “language [in Crown Acquisitions] that should concern any domain investor.” Two facts should be highlighted before I get to the language. First, the Respondent (a Florida resident) registered the domain name in 2006, a few months after Complainant’s (a California corporation) applied for a trademark for CROWN ACQUISITIONS. The Panel lists no evidence that at the time of the registration Respondent had any knowledge of Complainant; it also minimizes the fact that there were numerous businesses using the same phrase (as there are today) . Further, not only are the words “crown” and “acquisitions” common dictionary words but so too is the phrase. True, it is not “merely descriptive” but its commonness is evidenced by its wide-spread use by third parties as a business name.

The suspicion lingers that Panel’s decision simply reaffirms his pronounced bias. Respondent is condemned for registering the domain name without proof that he (in Florida) could have known of a party in California applying for the trademark. It is this I think that troubles TheDomains, and rightly so. However, Crown Acquisitions is also a valuable lesson to registrants: first, in creating a record supported by persuasive evidence that its registration could not have been in bad faith; and secondly, providing a compelling narrative. The record created inadvertently gave the Panel a hook to find abusive registration, partly in the allegations (without compelling evidence) and finally in having false or outdated contact information.

Some of the appended comments to The Domains Blog suggested Respondent should commence an ACPA action; one even offered to chip in but a federal action carries risk as well as reward.  Certainly, a more focused narrative supported by evidence and a stronger account (prior holders and whether the domain name was purchased at auction, for example) could very well result in a more favorable verdict in federal court.

In summary, the consensus favors domain investors for reselling or monetizing where 1) the trademark is weak; and respondent 2) has priority, 3) has no knowledge of the trademark, 4) is not engaged in a deliberate business practice of registering domain names knowing them to be abusive, 5) is using the domain name in its semantic sense or holding it passively for sale as a name as long as it’s suitable for many types of businesses, and 6) has no history of cybersquatting. This follows even if respondent is unable to marshal sufficient evidence for rights or legitimate interests.

This point is illustrated in a number of common word and phrase disputes: “green trust”, “cloud cover”, “fuel for thought” and (from ten years ago) “nature direct.” In Nedbank Limited v. Gregg Ostrick, GNO, Inc., D2016-0515 (WIPO May 15, 2016) the parties resided on different continents and there was no persuasive proof of knowledge of the trademark. In Intocable, Ltd. v. Paytotake LLC, D2016-1048 (WIPO July 29,2016) (a common word dispute “intocable”) the Respondent was Spanish-speaking; the Complainant a well-known musical group had inadvertently allowed its registration to lapse but Respondent claimed no knowledge of the group.  In both cases, Complainants had priority but in neither case was there proof that Respondent’s registered the domain names with knowledge or violated any of the other indicia of bad faith summarized above.

The Panel in Intocable (a unanimous three-member Panel, incidentally) first reflects on the issue of rights and legitimate interests: “[T]he Panel does not regard . . . [reselling domain names] as sufficient to show Respondent’s use of this specific Domain Name “in connection with a bona fide offering of goods or services” under the Policy . . . [and] reaches no decision on this element.” This finding is consistent with the consensus view that respondents of non resolving domain names fail the paragraph 4(a)(ii) test of rights or legitimate interests, but nevertheless prevail on claims of abusive registration if there is no evidence of bad faith registration or use.

The ultimate question is whether there is sufficient evidence of bad faith registration where the only proof is respondent’s status as a domain name reseller. On this question, the Panel finds that there is, with an important “but”:

The question then becomes whether Respondent, especially as a professional in the domain name business, had a duty at the time of registration of the Domain Name to determine whether registration would infringe or otherwise violate the rights of any third party. . . . The Panel concludes that Respondent, especially as a professional in the domain name business, and consistent with paragraph 2 of the Policy, did have a duty to ensure that registration of the Domain Name would not infringe the rights of a third party. It appears from the record that Respondent failed to perform such checks in relation to the term “intocable.”

Now, here’s the “but”:

However, that fact alone is not determinative, since even if Respondent had performed such due diligence, the word “intocable” is not merely an acronym or fanciful term that could refer reasonably only to Complainant and its musical group; it is also a common Spanish language word. . . . Even if Respondent had been aware of Complainant’s trademark rights, this knowledge would not have necessarily prevented Respondent from registering the Domain Name in good faith for its common meaning, so long as the Domain Name is not used by Respondent in a manner that infringes upon Complainant’s trademark rights.

In U.S. Nutraceuticals, LLC v. Telepathy, Inc. c/o Development Services, FA0411000365884 (Forum January 17, 2005) (<naturedirect.com>) the Panel held that

Since Complainant applied for trademark registration prior to the domain name’s registration, Respondent might be said to have had “constructive knowledge” of the Complainant’s application. . . . But as mentioned above the Respondent’s intended use of the domain name doesn’t infringe Complainant’s mark. Importantly, there is no evidence in the record showing that the Respondent has made it a practice of registering pending trademark registrations.

Panels from the earliest decisions have agreed that “constructive knowledge” is not applicable to disputes under the UDRP. As in U.S. Nutraceuticals, “there is [in Crown Acquisitions] no evidence in the record showing that the Respondent has made it a practice of registering pending trademark registrations.” That’s why the outcry!

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. (Legal Corner Press, 2015). Learn more about the book at Legal Corner Press. Available from Amazon and Barnes & Noble.  Ongoing Supplement here.

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