The Internet as we know it today is not yet 50 years old, but its profound influence on modem business practices, especially intellectual property, is unmistakable. Unlike in the brick-and-mortar world where consumers purchase products and services in physical stores and thus have clear context as to where, what, and from whom they are purchasing, online consumers have far fewer certain indicators of origin. Accordingly, online consumers must, to a large extent, rely on trademarks and other forms of brand recognition to identity specific goods and those responsible for their manufacture. As the number of global Internet users continues to rise, the need for corporations to maintain an online presence has similarly increased. In fact, growing numbers of businesses have become entirely Internet-based. Accordingly, trademarks serve as uniquely important identifiers in the online environment.
Just as brand names can hold significant value for their owners, so too can domain names. Often corresponding or relating to a company’s trademarks or products, domain names serve as an integral marketing and customer communication portal and offer consumers a means of easily identifying the online location of information and products of a particular business. As such, a viable domain name is not simply a luxury in today’s economy, but rather a corporate necessity without which a business is unable to effectively compete in the marketplace. The inability of a company to acquire a meaningful domain can therefore directly influence the success or failure of that business. The effort by many businesses to stake a claim within the World Wide Web is being waylaid by online privateers who register and hold domain names in the hopes of later ransoming them to companies who wish to utilize the names for legitimate and productive purposes. The result of this practice is the frustration of corporate opportunity for those unable or unwilling to pay the sums demanded by these domain-name marauders.
Anticipatory cybersquatting is the practice of registering domain names with minimal present value in the hopes that these names will become desirable, and therefore increasingly valuable, in the future. Specifically, anticipatory cybersquatters register domains that have no connection with the registrant for the sole purpose of selling them at a later stage to companies that have a legitimate connection to that domain, and at a much higher price than for which it was originally purchased. The result is that new businesses often find that many, if not all, of the domain names that correspond to their trademarks, products, or services have already been registered by one of these domain-name privateers. Such businesses face a difficult dilemma: pay the inflated sums demanded by the domain holder or settle for a more obscure domain name that has not yet been registered. It is important to note, however, that not all instances of anticipatory cybersquatting quash legitimate business opportunity. Specifically, as the harms associated with this practice derive primarily from an interference with a trademark holder’s trademark rights, the registration of domain names that cannot be trademarks in the first place (such as generic terms) do not compromise corporate opportunity.
Although at first glance anticipatory cybersquatting might appear to be no different from other legitimate speculative practices, anticipatory cybersquatting is indeed unique in that it directly obstructs corporate opportunity and prevents rights holders from fully exploiting those rights. If a domain name under which a company wishes to offer its products has already been claimed, it must settle for a less desirable domain name that may be less effective in attracting customers. Accordingly, the practice of anticipatory cybersquatting in many respects seems more akin to ticket scalping––the practice of purchasing large numbers of tickets to popular events and then reselling those tickets at inflated prices.
Like scalpers, anticipatory cybersquatters purchase domain names hoping that a later demand for those names will enable them to resell the domains for a profit, but a significant difference exists in the impact of these practices. Attending an event is largely a form of entertainment. A business’s inability to secure a domain name that sufficiently relates to its name or products, however, might well have a significant effect on its very existence. Although scalpers have long argued that their practices are simply those of free-market merchants, the U.S. Supreme Court and more than half of state legislatures do not agree. Indeed, 29 states have enacted legislation restricting the manner in which event tickets may be resold, and the U.S. Supreme Court has upheld antiscalping legislation as a legitimate constitutional exercise of the state’s police power. Like tickets to an event, domain names are finite in number, and, like scalpers, anticipatory cybersquatters purchase large quantities of these resources for the sole purpose of reselling them for profit. Although a great many states prohibit ticket scalping, however, none prohibit anticipatory cybersquatting.
Similarly, the warehousing, hoarding, or brokering of toll-free vanity telephone numbers has long been prohibited under the Communications Act. A vanity phone number is essentially a mnemonic device designed to facilitate the recollection of a string of numbers by associating them with a word. Like domain names, vanity numbers are unique and have distinct value as a business-marketing device. Unlike domain names, however, the hoarding of vanity numbers is specifically prohibited as an unreasonable practice contrary to the public interest. If anticipatory squatting of telephone numbers is recognized as an activity sufficiently detrimental to justify interdiction, then it requires no stretch of the imagination to infer that the similar act of anticipatory cybersquatting likewise warrants prohibition.
Although both the Anti-Cybersquatting Consumer Protection Act and ICANN’s Uniform Domain Name Dispute Resolution Policy were introduced in an attempt to alleviate domain-name extortion, neither is particularly adept at combatting anticipatory cybersquatting. Specifically, both tools were originally designed to battle those forms of cybersquatting prevalent in the late 1990s––that is, the registration of domain names corresponding to recognized famous names and existing well-established trademarks. At that time, the Internet was not yet viewed by the business world as a tool for success; few companies had any online presence, let alone a domain name. Cybersquatters took advantage of the corporate world’s slow adoption of the Internet and began registering domain names identical or similar to the names of products of well-known businesses.
One of the cases of first impression relating to domain-name registration was Panavision lnt’l, L.P. v. Toeppen. 141 F.3d 1316 (9th Cir. 1998), aff’g 945 F. Supp. 1296 (C.D. Cal. 1996).
In 1995, the defendant registered about 200 Internet domain names, including names similar to well-known companies and popular trademarks. One of these domain names was “panavision.com,” the name of a well-known motion picture equipment company. When the defendant attempted to sell the domain name to Panavision for $13,000, Panavision brought suit under the Federal Trademark Dilution Act. The court ruled in favor of Panavision because the defendant was in the business of registering trademarks as domain names and then selling them back to the rightful trademark holders, and this constituted commercial use of the domain name. Further, the court found that the defendant had diluted Panavision’s mark under the rationale that a domain name is not simply an address marker, but also serves to identify the entity that owns the website.
In the years since Panavision, cybersquatting has taken on various new permutations, including the practice of anticipatory cybersquatting. Given that the majority of policies and legislation relating to cybersquatting were enacted nearly two decades ago, however, significant gaps in the thwarting of cybersquatting now exist. Today, victims of anticipatory cybersquatting are not entirely without remedy, but most current solutions unfortunately are rather indirect in their approach.
Anti-Cybersquatting Consumer Protection Act of 1999
The Anti-Cybersquatting Consumer Protection Act (ACPA) was enacted in 1999 in an attempt to prevent cybersquatters from registering Internet domain names containing trademarks for the purpose of selling those domain name back to the trademark owner. Specifically, the ACPA is an addition to the Lanham Act (the primary federal trademark statute in the United States) and allows for a civil cause of action against the bad-faith registration of domain names that are either identical or confusingly similar to (or dilutive of) distinctive or famous marks. Thus, in order to receive relief under the ACPA, the name in question must have been distinctive, famous, or both at the time of the domain name’s registration, and such registration must have occurred in bad faith. In evaluating this requisite bad-faith element, the ACPA puts forth nine, nonexhaustive factors that may be considered by the court, including a registrant’s prior history of selling domain names and a registrant’s history of registering names identical or confusingly similar to existing marks. Thus, although the ACPA contemplates the purchase of domain names for resale to established trademark owners, it does not contemplate the modern practices of registering domain names with minimal present value in the hopes that these names will become desirable, and therefore increasingly valuable, in the future.
Ironically, although the ACPA is codified as part of trademark law, it nonetheless fails to apply one of the key tenets of that law to domain names, making the ACPA a largely ineffectual tool to address anticipatory cybersquatting. Specifically, trademark rights in the United States are tied directly to use in commerce. Ownership of a mark belongs to the first-to-use, not the first-to-file. If a trademark owner stops using a mark without intending to resume using it in the future, the mark is deemed abandoned. Notably, nonuse of a trademark for three consecutive years creates a rebuttable presumption of abandonment of the mark. Thus, inherent in trademark law is the principle that someone who is not using a particular trademark should not be able to block productive use of that trademark by another party. Anticipatory cybersquatters similarly fail to put the domain name in question to use in a meaningful way and simultaneously prevent others from making use of it. As such, anticipatory cybersquatting is entirely at odds with the public policy behind established trademark law. Nonetheless, cyberquatting remains largely uncurtailed by the ACPA.
Indeed, such limitations of the ACPA are reflective of a larger problem in the approach taken by many with respect to the resolution of domain-name disputes––that is, treatment of domain-name disputes as purely trademark matters. Although likelihood of confusion is certainly a consideration in domain-name disputes (e.g., when “peta.org” was registered not by People for Ethical Treatment of Animals but by People for Eating Tasty Animals), larger issues in anticipatory cybersquatting often include the obstruction of business opportunity and unfair competition. Thus, framing a domain-name dispute solely in the context of established trademark law (as the ACPA does) in many ways is simply an attempt to fit a “new” problem within the definition of an “old” law.