Court Opinion

ID: 2967329
Source: CourtListenerOpinion
Date Created: 2015-09-22 02:22:19.196706+00
Date Added: 2024-06-11T15:02:16.140062
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT

VIRTUAL WORKS, INCORPORATED,           
                Plaintiff-Appellant,
                 v.

                                       
VOLKSWAGEN OF AMERICA,
INCORPORATED; VOLSWAGEN                           No. 00-1356
AKTIENGESELLSCHAFT,
              Defendants-Appellees,
NETWORK SOLUTIONS, INCORPORATED,
                       Defendant.
                                       
           Appeal from the United States District Court
        for the Eastern District of Virginia, at Alexandria.
              Claude M. Hilton, Chief District Judge.
                         (CA-99-1289-A)

                      Argued: October 30, 2000

                      Decided: January 22, 2001

      Before WILKINSON, Chief Judge, and MICHAEL and
                 TRAXLER, Circuit Judges.

Affirmed by published opinion. Chief Judge Wilkinson wrote the
opinion, in which Judge Michael and Judge Traxler joined.

                             COUNSEL

ARGUED: William Herbert Bode, BODE & BECKMAN, L.L.P.,
Washington, D.C., for Appellant. Thomas Rex Lee, HOWARD,
2            VIRTUAL WORKS v. VOLKSWAGEN OF AMERICA
PHILLIPS & ANDERSEN, P.C., Salt Lake City, Utah, for Appellees.
ON BRIEF: Gregory D. Phillips, HOWARD, PHILLIPS & ANDER-
SEN, P.C., Salt Lake City, Utah; John F. Anderson, RICHARDS,
MCGETTIGAN, REILLY & WEST, Alexandria, Virginia, for Appel-
lees.

                              OPINION

WILKINSON, Chief Judge:

   Volkswagen challenges Virtual Works, Inc.’s use of the domain
name vw.net under the 1999 Anticybersquatting Consumer Protection
Act (ACPA). Volkswagen claims that Virtual Works registered vw.net
with the purpose of one day selling it to Volkswagen. The district
court agreed, holding that Virtual Works had a bad faith intent to
profit from the vw.net domain name and that its use of vw.net diluted
and infringed upon the VW mark. Virtual Works, Inc. v. Network
Solutions, Inc., 106 F. Supp.2d 845 (E.D. Va. 2000). The district court
therefore ordered Virtual Works to relinquish to Volkswagen the
rights to vw.net. Because the district court did not err in holding that
Virtual Works violated the ACPA, we affirm the judgment.

                                   I.

   On October 23, 1996, Virtual Works registered the domain name
vw.net with Network Solutions, Inc. (NSI). At that time, NSI was the
only company authorized by the government to serve as a registrar for
Internet domain names. A domain name tells users where they can
find a particular web page, much like a street address tells people
where they can find a particular home or business. Domain names
consist of two parts: the top level domain name (TLD) and secondary
level domain name (SLD). The TLD is the suffix, identifying the
nature of the site. The SLD is the prefix, identifying the site’s owner.
Thus in the domain name Duke.edu, ".edu" is the TLD, identifying
the site as affiliated with an educational institution. "Duke" is the
SLD, identifying the owner as Duke University. There are various
other TLDs. The most common are .com, .net, and .org for commer-
cial users and .gov for governmental entities. At one point there was
             VIRTUAL WORKS v. VOLKSWAGEN OF AMERICA                   3
a distinction between the .com, .org, and .net TLDs. The .net TLD
was reserved for Internet service providers (ISPs). The .org TLD was
reserved for non-commercial or non-profit users. In September 1995,
however, NSI stopped enforcing these distinctions. Thus, after 1995,
commercial businesses could register domain names with the .net,
.org, or .com TLD.

  At the time Virtual Works registered vw.net, two of its principals,
Christopher Grimes and James Anderson, were aware that some Inter-
net users might think that vw.net was affiliated with Volkswagen.
According to Grimes, he and Anderson "talked about Volkswagen
and decided that [they] would use the domain name for [the] com-
pany, but if Volkswagen offered to work out a deal for services or
products, that [they] would sell it to [Volkswagen] for a lot of
money." When Virtual Works registered vw.net, many other domain
names were available for its use. For instance, vwi.net, vwi.org, virtu-
alworks.net, and virtualworks.org, were still available.

   Virtual Works used the vw.net domain name for approximately two
years as a part of its ISP business. In December 1998, various Volks-
wagen dealerships contacted Virtual Works and expressed an interest
in purchasing the rights to the vw.net domain name. Virtual Works,
in turn, called Volkswagen, offering to sell vw.net. The terms of Vir-
tual Works’ offer, however, were somewhat unusual. Anderson left a
voice mail message for Linda Scipione in Volkswagen’s trademark
department. In the message, Anderson stated that he owned the rights
to vw.net. He also said that unless Volkswagen bought the rights to
vw.net, Virtual Works would sell the domain name to the highest bid-
der. Anderson gave Volkswagen twenty-four hours to respond.

   In response to what it perceived as a threat to the VW mark, Volks-
wagen invoked NSI’s dispute resolution procedure. NSI in turn told
Virtual Works that Virtual Works would lose the vw.net domain name
unless it filed a declaratory judgment action against Volkswagen. Vir-
tual Works complied. Volkswagen subsequently counterclaimed,
alleging trademark dilution, infringement, and cybersquatting under
the ACPA. 15 U.S.C. § 1125(d). The district court granted Volks-
wagen’s motion for summary judgment on its cybersquatting, dilu-
tion, and infringement counterclaims and dismissed Virtual Works’
cross-motions on the same. Accordingly, the district court ordered
4            VIRTUAL WORKS v. VOLKSWAGEN OF AMERICA
Virtual Works to relinquish to Volkswagen the rights to the vw.net
domain name. Virtual Works appeals.

                                  II.

                                  A.

   The ACPA was enacted in 1999 in response to concerns over the
proliferation of cybersquatting — the Internet version of a land grab.
According to the Senate Report accompanying the Act: "Trademark
owners are facing a new form of piracy on the Internet caused by acts
of ‘cybersquatting,’ which refers to the deliberate, bad-faith, and abu-
sive registration of Internet domain names in violation of the rights
of trademark owners." S. Rep. No. 106-140, at 4 (1999). Cybersquat-
ting is the practice of registering "well-known brand names as Inter-
net domain names" in order to force the rightful owners of the marks
"to pay for the right to engage in electronic commerce under their
own brand name." Id. at 5. See also H.R. Rep. No. 106-412, at 5-7
(1999). Cybersquatting is profitable because while it is inexpensive
for a cybersquatter to register the mark of an established company as
a domain name, such companies are often vulnerable to being forced
into paying substantial sums to get their names back. Sporty’s Farm,
L.L.C. v. Sportsman’s Market, Inc., 202 F.3d 489, 493 (2d Cir. 2000).

   Congress viewed the practice of cybersquatting as harmful because
it threatened "the continued growth and vitality of the Internet as a
platform" for "communication, electronic commerce, education,
entertainment, and countless other yet-to-be-determined uses." S.
Rep. No. 106-140, at 8. New legislation was required to address this
situation because then-current law did not expressly prohibit the act
of cybersquatting and cybersquatters had started to take the necessary
precautions to insulate themselves from liability under the Federal
Trademark Dilution Act. Id. at 7. Accordingly, Congress passed, and
the President signed, the ACPA in 1999. Pub. L. No. 106-113, 113
Stat. 1536 (codified at 15 U.S.C. § 1125(d)).

                                  B.

   Under the ACPA, a person alleged to be a cybersquatter is liable
to the owner of a protected mark if that person:
             VIRTUAL WORKS v. VOLKSWAGEN OF AMERICA                    5
      (i) has a bad faith intent to profit from that mark . . .; and

      (ii) registers, traffics in, or uses a domain name that—

            (I) in the case of a mark that is distinctive . . .,
         is identical or confusingly similar to that mark;

            (II) in the case of a famous mark . . ., is identical
         or confusingly similar to or dilutive of that mark;

15 U.S.C. § 1125(d)(1)(A). With respect to the bad faith determina-
tion, the statute provides that:

    (B)(i) In determining whether a person has a bad faith intent
    . . . a court may consider factors such as, but not limited to

      (I) the trademark or other intellectual property rights of
    the person, if any, in the domain name;

       (II) the extent to which the domain name consists of the
    legal name of the person or a name that is otherwise com-
    monly used to identify that person;

      (III) the person’s prior use, if any, of the domain name in
    connection with the bona fide offering of any goods or ser-
    vices;

      (IV) the person’s bona fide noncommercial or fair use of
    the mark in a site accessible under the domain name;

      (V) the person’s intent to divert consumers from the mark
    owner’s online location to a site . . . that could harm the
    goodwill represented by the mark, either for commercial
    gain or with the intent to tarnish or disparage the mark . . .;

      (VI) the person’s offer to transfer, sell, or otherwise
    assign the domain name to the mark owner or any third
    party for financial gain without having used . . . the domain
    name in the bona fide offering of any goods or services . . .;
6            VIRTUAL WORKS v. VOLKSWAGEN OF AMERICA
       (VII) the person’s provision of material and misleading
    false contact information when applying for the registration
    of the domain name . . .;

      (VIII) the person’s registration or acquisition of multiple
    domain names which the person knows are identical or con-
    fusingly similar to marks of others . . .; and

      (IX) the extent to which the mark incorporated in the per-
    son’s domain name registration is or is not distinctive and
    famous . . . .

15 U.S.C. § 1125(d)(1)(B)(i). In addition to listing these nine factors,
the Act contains a safe harbor. The safe harbor provision states that
bad faith intent "shall not be found in any case in which the court
determines that the person believed and had reasonable grounds to
believe that the use of the domain name was fair use or otherwise
lawful." 15 U.S.C. § 1225(d)(1)(B)(ii).

   A court is not limited to considering these nine factors when deter-
mining the presence or absence of bad faith. 15 U.S.C.
§ 1125(d)(1)(B)(i). The Second Circuit, in the first court of appeals
case addressing the ACPA, noted that the most important grounds for
finding bad faith "are the unique circumstances of th[e] case, which
do not fit neatly into the specific factors enumerated by Congress but
may nevertheless be considered under the statute." Sporty’s Farm,
202 F.3d at 499.

   The remedies available under the ACPA depend on when the
unlawful activity took place. A person who unlawfully registers, traf-
fics in, or uses a domain name after the ACPA’s date of enactment,
November 29, 1999, can be liable for monetary damages under 15
U.S.C. § 1117(d) and can have the domain name transferred to the
owner of the mark or canceled under 15 U.S.C. § 1125(d)(2)(D)(i).
The only remedy available for ACPA violations that occurred before
November 29, 1999, however, is to have the domain name transferred
to the owner of the mark or canceled. Anticybersquatting Consumer
Protection Act, Pub. L. No. 106-113, § 3010, 113 Stat. 1536. Since
Virtual Works’ alleged cybersquatting occurred before the ACPA’s
              VIRTUAL WORKS v. VOLKSWAGEN OF AMERICA                    7
date of enactment, Volkswagen sought only the right to use vw.net for
itself.

                                   III.

   Having discussed the statutory purpose and framework of the
ACPA, we must now determine whether Virtual Works violated the
Act. The district court found that a number of the ACPA’s nine bad
faith factors supported Volkswagen’s claim that Virtual Works’ regis-
tration of vw.net constituted cybersquatting under the Act. Virtual
Works, 106 F. Supp.2d at 848. With respect to the first and second
factors, for example, the district court held that Virtual Works had no
right to or interest in the VW mark and that Virtual Works had never
been referred to or done business under the name VW. Id. at 847.
With respect to the fifth factor, the district court held that the dispar-
aging comments posted by Virtual Works harmed the goodwill of the
VW mark. Id. Finally, the district court found that, under the ninth
factor, the famousness of the VW mark also favored Volkswagen. Id.
The district court thus granted summary judgment to Volkswagen,
which we review de novo.

                                   A.

   The first inquiry under the ACPA is whether Virtual Works acted
with a bad faith intent to profit from a protected mark. 15 U.S.C.
§ 1125(d)(1)(A)(i). Virtual Works claims that the district court erred
in holding that it did. We need not, however, march through the nine
factors seriatim because the ACPA itself notes that use of the listed
criteria is permissive. As the Second Circuit noted in Sporty’s Farms,
the factors are "expressly described as indicia that ‘may’ be consid-
ered along with other facts." 202 F.3d at 498 (citing 15 U.S.C.
§ 1125(d)(1)(B)(i)).

   We are mindful that the instant case comes to us on summary judg-
ment and involves a contested determination of Virtual Works’ intent.
Unfortunately for Virtual Works, however, there is both circumstan-
tial and direct evidence establishing bad faith. The following uncon-
tested facts all provide circumstantial evidence of Virtual Works’ bad
faith with respect to the VW mark: 1) the famousness of the VW
mark; 2) the similarity of vw.net to the VW mark; 3) the admission
8             VIRTUAL WORKS v. VOLKSWAGEN OF AMERICA
that Virtual Works never once did business as VW nor identified
itself as such; and 4) the availability of vwi.org and vwi.net at the time
Virtual Works registered vw.net. Notably, either of these domain
names would have satisfied Virtual Works’ own stated criterion of
registering a domain name that used only two or three letters and
would have eliminated any risk of confusion with respect to the VW
mark.

   We consider such circumstantial factors cautiously, however. We
do not suggest that these four facts would alone resolve the question
of Virtual Works’ intent on summary judgment. The fact that a
domain resembles a famous trademark, for example, hardly in and of
itself establishes bad faith. Moreover, domain names that are abbrevi-
ations of a company’s formal name are quite common. To view the
use of such names as tantamount to bad faith would chill Internet
entrepreneurship with the prospect of endless litigation.

   Volkswagen, however, points to direct evidence regarding Virtual
Works’ intent — the statements made at registration. Grimes’ deposi-
tion reveals that when registering vw.net, he and Anderson specifi-
cally acknowledged that vw.net might be confused with Volkswagen
by some Internet users. They nevertheless decided to register the
address for their own use, but left open the possibility of one day sell-
ing the site to Volkswagen "for a lot of money." Volkswagen claims
that this is sufficient to establish bad faith registration in violation of
the ACPA.

   Viewing the facts in the light most favorable to Virtual Works, as
we must on summary judgment, the statement at registration estab-
lishes that Virtual Works had a dual purpose in selecting vw.net. Con-
trary to Virtual Works’ claim, the fact that it used vw.net for two
years as a part of an ISP business is not dispositive of the question
of intent. Virtual Works chose vw.net over other domain names not
just because "vw" reflected the company’s own initials, but also
because it foresaw the ability to profit from the natural association of
vw.net with the VW mark. Indeed, it is obvious even to a casual
observer that the similarity between vw.net and the VW mark is over-
whelming.

  Moreover, the facts in the summary judgment record affirmatively
support the claim that Virtual Works had a bad faith intent to profit
              VIRTUAL WORKS v. VOLKSWAGEN OF AMERICA                    9
when it attempted to sell vw.net to Volkswagen. It is true that a mere
offer to sell a domain name is not itself evidence of unlawful traffick-
ing. H.R. Conf. Rep. No. 106-464, at 111 (1999). The ACPA was not
enacted to put an end to the sale of all domain names. This case, how-
ever, involves much more than a plain vanilla offer to sell a domain
name.

   Indeed, the second piece of direct evidence regarding Virtual
Works’ intent is the terms of its offer to Volkswagen. Virtual Works
told Volkswagen that vw.net would be sold to the highest bidder if
Volkswagen did not make an offer within twenty-four hours. Virtual
Works also stated that others would jump at the chance to own a valu-
able domain name like vw.net because Internet users would instinc-
tively associate the site with Volkswagen. Virtual Works knew, both
when it registered vw.net and when it offered to sell the site, that con-
sumers would associate vw.net with Volkswagen. It sought to maxi-
mize the advantage of this association by threatening to auction off
the site. And it hoped that in an effort to protect its mark, Volkswagen
would respond with a hefty offer of its own.

   Likewise, Virtual Works cannot take refuge in the ACPA’s safe
harbor provision. The safe harbor is only available when the defen-
dant both "believed and had reasonable grounds to believe that the use
of the domain name was fair use or otherwise lawful." 15 U.S.C.
§ 1125(d)(1)(B)(ii). The openly admitted hope of profiting from con-
sumer confusion of vw.net with the VW mark disqualifies Virtual
Works from the ACPA’s safe harbor. A defendant who acts even par-
tially in bad faith in registering a domain name is not, as a matter of
law, entitled to benefit from the Act’s safe harbor provision. Virtual
Works knew it was registering a domain name bearing strong resem-
blance to a federally protected trademark. And it did so, at least in
part, with the idea of selling the site "for a lot of money" to the mark’s
owner.

   Just as we are reluctant to interpret the ACPA’s liability provisions
in an overly aggressive manner, we decline to construe the safe harbor
so broadly as to undermine the rest of the statute. All but the most
blatant cybersquatters will be able to put forth at least some lawful
motives for their behavior. To hold that all such individuals may qual-
ify for the safe harbor would frustrate Congress’ purpose by artifi-
10            VIRTUAL WORKS v. VOLKSWAGEN OF AMERICA
cially limiting the statute’s reach. We do not think Congress intended
the safe harbor to protect defendants operating, at least in part, with
unlawful intent.

   The ACPA allows a court to view the totality of the circumstances
in making the bad faith determination. 15 U.S.C. § 1125(d)(1)(B)(i).
Here, that means looking at the purely circumstantial indicia of bad
faith, as well as the direct evidence of the statements made at the time
of registration and the direct evidence regarding terms of the sale.
Whether our decision would be the same in the absence of any partic-
ular piece of evidence is a question we need not address. Viewed in
its totality, the evidence establishes that at the time Virtual Works
proposed to sell vw.net to Volkswagen, it was motivated by a bad
faith intent to profit from the famousness of the VW mark. This is the
sort of misconduct that Congress sought to discourage.

                                   B.

   The second inquiry under the ACPA is whether Virtual Works 1)
registered, trafficked in, or used a domain name; 2) that is identical
or confusingly similar to a distinctive mark; or 3) is identical, confus-
ingly similar to, or dilutive of a famous mark. 15 U.S.C.
§ 1125(d)(1)(A)(ii). There is no dispute that Virtual Works registered,
trafficked in, and used vw.net. There is also no dispute that the VW
mark is famous. The sole point of contention is whether vw.net is
identical, confusingly similar to, or dilutive of Volkswagen’s famous
VW mark.

   Virtual Works claims it is not similar because there is a distinction
between the .net and .com TLD. According to Virtual Works, Volks-
wagen could not have registered vw.net in October of 1996 because
it is an automaker and not an Internet service provider. This claim,
however, is unavailing in light of the fact that NSI stopped enforcing
the .com/.net distinction over a year before Virtual Works registered
vw.net. The claim is also undermined by Virtual Works’ admission
that at the time of registration it was aware of the potential confusion
with the VW mark, and by its statement to Volkswagen that users
would instinctively use the vw.net address to link to Volkswagen’s
web site. Cf. Shade’s Landing, Inc. v. Williams, 76 F. Supp.2d 983,
990 (D. Minn. 1999) ("Because all domain names include one of
              VIRTUAL WORKS v. VOLKSWAGEN OF AMERICA                   11
these extensions, the distinction between a domain name ending with
‘.com’ and the same name ending with ‘.net’ is not highly signifi-
cant."). The district court was correct, therefore, in holding that vw.net
is confusingly similar to the famous VW mark.

                                   IV.

   The remedy that Volkswagen sought in district court was the right
to use vw.net for itself. The ACPA allows a court to order "the trans-
fer of the domain name to the owner of the mark" if the Act is vio-
lated. 15 U.S.C. § 1125(d)(2)(D)(i). Because Virtual Works’ violation
of the ACPA supports the remedy Volkswagen seeks, we need not
address Volkswagen’s claims of trademark infringement or dilution.

   The ACPA was not enacted to give companies the right to fence
off every possible combination of letters that bears any similarity to
a protected mark. Rather, it was enacted to prevent the expropriation
of protected marks in cyberspace and to abate the consumer confusion
resulting therefrom. The resolution of this case turns on the unique
facts and circumstances which it presents. Ultimately, we believe the
evidence is sufficient to establish that, as a matter of law, Virtual
Works attempted to profit in bad faith from Volkswagen’s famous
mark. 15 U.S.C. § 1125(d)(1)(A). The district court thus did not err
in ordering Virtual Works to turn over vw.net to Volkswagen. For the
foregoing reasons, we affirm the judgment.

                                                             AFFIRMED