Internet domain name-grabbing, or cyber-squatting: an analysis of remedies under federal law.

• Author: Swerdloff, Nicolas

With the explosive growth of commercial activity on the Internet, companies have rushed to set up "web sites" on the World Wide Web (essentially, electronic storefronts). Before a company can do so, it must first register its own unique Internet address (technically called a "domain name") so that Internet users can access the site. However, given the current first-come, first-served system for registration of domain names, a thorny problem has surfaced: When a company with a well-known trademark attempts to register its mark as a domain name, it is told that someone else has beaten it to the punch. Upon further investigation, the mark's rightful owner learns that the registrant is not a bona fide commercial user of the domain name, but rather is merely a domain name-grabber, or "cyber-squatter"; that is, a person who registers a domain name using a well-known, trademark before the legitimate trademark owner has had an opportunity to do so in the hope of extracting a quick payoff from the owner.

One notorious cyber-squatter has registered as domain names hundreds of well-known trademarks, such as "yankeestadium.com," "saturdaynight live.com," "statueofliberty.com," "us steel.com," and "daffyduck.com." Traditional trademark theories and especially the recently enacted Federal Trademark Dilution Act of 1995 are available to remedy this wrong in cyberspace.

This article will first provide an overview of the Internet and the domain name registration system. It will then discuss potential legal claims that may be asserted against cyber-squatters under federal law, focusing particularly on the first reported federal decisions invoking the new federal dilution statute to stop cyber-squatters in their tracks.

Overview of Internet and Domain Name Registration

The Internet has become the world's largest computer network--a "web" of thousands of independent networks connecting several million host computers on a worldwide basis.(1) Each host computer has a unique electronic Internet address to enable computer users to access the host computer.

There are two types of electronic addresses on the Internet: a numeric address and an alphanumeric domain name. While numeric addresses are primarily used by computers to locate other host computers, they are not used by Internet users because such addresses, like phone numbers, are difficult to remember. Domain names, on the other hand, are quite memorable, consisting of an identifying word, brand name, or trademark commonly associated with a particular user, followed by one of the five top-level domains, .com, .org, .gov, .edu, or .net.(2) While an Internet domain name functions in a manner similar to that of a telephone number, domain names are of greater relative importance since there is virtually no satisfactory Internet equivalent of a telephone directory or directory assistance, and domain names can often be guessed.(3) As a result, corporations seek and highly value domain names corresponding to their corporate names or products, such as "mcdonalds.com" or "coke.com."(4)

Domain names are registered with the Internet Network Information Center ("InterNIC"), through one of its contractors, Network Solutions, Inc. (NSI), on a first-come, first-served basis. This conflicts with trademark law, which provides for registration of a trademark by its rightful owner based on the date the mark was first used in commerce.(5) NSI has adopted a formal policy for the resolution of disputes over the use of a domain name. Importantly, this policy allows a trademark owner to challenge another's use of its mark as a domain name and, upon the owner's proof of a valid federal trademark registration (coupled with the domain name registrant's failure to produce its own valid federal trademark registration), authorizes NSI to place the disputed domain name on "hold" status--meaning that no one can use it--until the dispute is resolved.(6)

Potential Legal Claims Under Federal Law

Owners of registered and unregistered trademarks have a wide array of potential claims against cyber-squatters. The principal source of protection is the federal Lanham Act, which provides causes of action for 1) infringement of marks, 2) federal unfair competition (termed "false designation of origin"), and 3) dilution of marks. Similar actions, with similar elements, are typically available under state law.(7)

The law in this area, however, is largely uncharted and does not neatly apply where the infringer is using the domain name not to conduct commercial activities but to hold a trademark hostage. The first two reported federal decisions in such cyber-squatter cases provide a roadmap for future claims.

* Trademark Infringement and False Designation of Origin Under [subsections] 32 and 43(a) of the Lanham Act

Section 32 of the Lanham Act establishes a cause of action for infringement of a registered trademark upon proof that: 1) another used in commerce; 2) without the consent of the registrant of a trademark; 3) a reproduction, counterfeit, copy, or colorable imitation of the registered trademark; 4) in connection with the sale, offering for sale, distribution, or advertising of any goods or services; and 5) in a manner which is likely to cause confusion, or to cause mistake, or to deceive. 15 USC [sections] 1114. The courts typically examine, in one form or another, seven factors in considering whether the unauthorized use of a trademark poses a likelihood of confusion: 1) the type of mark infringed; 2) the similarity of the marks; 3) the similarity of the goods or services the marks represent; 4) the similarity of the parties' retail outlets and customers; 5) the similarity of advertising media used; 6) the defendant's intent; and 7) the extent of actual confusion.(8)

Section 43(a) of the Lanham Act also provides a broad cause of action for federal unfair competition, under the rubric "false designation of origin." 15 USC [sections] 1125(a). Section 43(a) encompasses claims of infringement, the...