On behalf of its client Umbro International,Inc. (“Umbro”), Alston & Bird secured an important victory in Virginia State Court last week that could have a significant impact in combating domain name piracy. In a case of first impression, the Circuit Court of Fairfax County, Virginia held on February 3, 1999, that domain names are “property” and therefore subject to judicial sale to satisfy a monetary judgment against the registrant. For the reasons discussed below, we believe the Court’s opinion offers trademark owners a significant new tool to help resolve domain name infringement matters short of litigation and to achieve efficient, economic relief in many situations where litigation still proves necessary.
Umbro is one of the world’s oldest and most widely recognized marketers and distributors of soccer equipment, footwear and apparel. In May 1997, a Canadian corporation named 3263851 Canada, Inc. registered the domain name “umbro.com”. The registrant was not using the domain name in any manner at the time Umbro discovered the infringement; however, the registrant owned twenty-seven other domain names, most of which were either being used to identify for-profit pornographic web sites (such as “pornsugar.com”) or were clearly intended to be used for such purposes (such as “sexxx.com”).
Naturally concerned about their famous mark being in the hands of an Internet pornographer, Umbro contacted the registrant to secure the transfer of the domain name. The registrant refused to do so unless Umbro paid $50,000 to its sole shareholder and an Internet charity of its choosing and agreed to provide its shareholder with a free, life-time supply of Umbro equipment and apparel. Umbro responded by filing a lawsuit for trademark infringement and dilution against the registrant and its shareholder in the United States District Court for the District of South Carolina, accompanied by a motion for temporary restraining order. The Court entered the TRO, and then, when the defendants failed to answer the Complaint, granted Umbro a default judgment. As part of the default judgment, the Court awarded Umbro recovery of approximately $25,000 in attorney’s fees and costs.
Neither of the defendants had any assets in the United States – other than the corporation’s twenty-seven other domain name registrations. Umbro therefore domesticated the South Carolina judgment in Virginia and instituted a garnishment proceeding against Network Solutions, Inc. (“NSI”) in the Circuit Court of Fairfax County to force the judicial sale of the domain names.1 NSI responded by denying that it held any money or garnishable property of the domain name registrant. Umbro countered with a motion seeking to require NSI to show cause why it had not deposited control of the domain name registrations into the registry of the Court for judicial sale. NSI vigorously opposed Umbro’s motion.
The basic issue before the Court on Umbro’s motion was whether domain names are property capable of garnishment and judicial sale. In an opinion letter dated February 3, 1999, the Court held that domain names are property under Virginia law and that NSI is obligated to transfer the domain names at issue into the registry of the Court for judicial sale by the Sheriff to the highest bidder.2
Impact of the Decision
It is unclear how much money Umbro will actually recover from the judicial sale of the domain names at issue. Nevertheless, Alston & Bird views the case as having greater impact with regard to resolving domain name infringements short of litigation. Moreover, even where litigation still proves necessary, Alston & Bird believes the decision will enhance the ability of its clients to achieve efficient, economic relief.
a. A Tool to Combat Piracy Short of Litigation
Many trademark owners are reluctant to file suit when their marks are infringed or diluted in domain names because of the expense of instituting litigation. This fact is not lost on most domain name pirates, who routinely refuse to transfer a domain name voluntarily unless they are paid several thousand dollars, an amount they know to be less than the cost to the trademark owner of filing litigation and pursuing it to a judgment. Most domain name pirates also discount the consequences of being sued because they believe their maximum realistic exposure is that the Court will order NSI to transfer the domain name at issue to its rightful owner. Foreign domain name registrants often feel even more insulated from any real risk because of the expense and uncertainty of domesticating and enforcing any judgment obtained in the U.S. in their home country. All of these factors have contributed to our seeing domain name piracy continue at a virtually unabated pace.
To stem the tide, trademark owners need additional leverage over the pirates. We believe the Umbro decision will help provide that leverage. What is true in almost every case of domain name piracy we encounter is that the pirate also owns registrations for numerous other domain names. It is not uncommon for pirates to own 50 or 100 other registrations. At $75 per registration, these pirates have a good deal of personal money tied up in their registrations. The typical domain name pirate is also earning money off at least some of its other domain names, either by linking them for cash to other web sites or by operating for-profit web sites of their own under the domain names.
After the Umbro opinion, a domain name pirate who forces a trademark owner to litigation is now facing the risk of losing not just the infringing or dilutive domain name registration at issue, but also every other domain name registration it owns. For pirates operating commercial sites over the Internet, such a result would effectively put them out of business. If revenue generated from the judicial sale of a pirate’s domain names is insufficient to satisfy the judgment against it, the pirate may also be blocked from having a presence on the Internet in the future because any additional domain names it seeks to register would likewise be subject to garnishment until the judgment is satisfied. The specter of this situation will almost certainly be sufficient to persuade many recalcitrant domain name pirates to transfer infringing and dilutive domain names to their rightful owner rather than risk losing their entire portfolio of domain names.
b. An Effective Litigation Tool
We believe the Umbro decision will also be an important tool in many situations in which a domain name pirate forces a trademark owner to litigation. Savy domain name pirates are now registering domain names under bogus names and addresses to evade identification. In these situations, it can be both difficult and expensive to find the registrant for purposes of service of process.
Recognizing this fact, the German automobile manufacturer Porsche recently filed an in rem action in the Eastern District of Virginia against a number of domain name registrants that had registered under bogus names and addresses domain names which included the famous PORSCHE mark. The jurisdictional basis for Porsche’s action is that the domain names are property, the location (or “res”) of which is at NSI’s headquarters in Herndon, Virginia. Porsche petitioned the Court to serve the defendants by mail, and the Court granted the motion.
Although Porsche’s action is novel, the jurisdictional basis for the action depends upon the Court agreeing that domain names are property – a risky proposition that was untested anywhere in the country at the time of filing. The Circuit Court’s opinion in the Umbro case squarely resolves the issue in Porsche’s favor. Porsche’s in rem action thus now appears to offer trademark owners a reliable and relatively inexpensive means of securing the transfer of domain names registered by third parties under bogus names and addresses. It seems unlikely in most of these cases that the domain name registrant would reveal its identity and location by answering the Complaint. Thus, many of these cases are likely to end in quick default judgments, perhaps with an award of attorney’s fees and almost certainly with an award of costs. In that case, the trademark owner would also have a monetary judgment that could be satisfied by garnishing the registrant’s other domain names.
The business of domain name piracy has forced trademark owners to devote substantial additional time and money over the past several years to protecting their marks from infringement and dilution. The Umbro decision may finally provide trademark owners with practical leverage in many situations to effect the speedy transfer or deletion of problem domain names without being forced to either give into a pirate’s hostage demands or file litigation. For further information regarding the Umbro case and the ways in which you can use it to your advantage, please contact David Stewart, Chris Roblyer, or any other member of Alston & Bird’s Intellectual Property Litigation Practice Group or E-Commerce Practice Team.
The full text of the Court’s Order can be found on Alston & Bird’s web site, located at “www.alston.com”.