TRADEMARKS AND DOMAIN NAME NIGHTMARES
by Richard Hanes and Tim Schutz

It is difficult to contain your excitement as you sit at your computer screen reviewing the company’s latest sales figures. Revenues are on a pace to exceed last year’s standard by 12%, profits are up 14%. And 1996 was a good year! New markets are being tapped, and for the first time, your foreign sales figures are beginning to rival your domestic numbers.

With all due humility, you realize that the increased sales and profits are attributable, in large measure, to your foresight in convincing management to invest in a company Web site on the World Wide Web. In 1993, while many of your superiors still viewed computers with the same warmth as an IRS audit, and most of your contemporaries saw them as a glorified typewriters, you recognized the marketing potential created by the computer revolution. You were particularly enamored with the opportunities associated with the World Wide Web aspect of the Internet. While your foresight was not perfect, you can honestly say that you are not surprised that here, in 1997, more than 30 million consumers have access to the Internet. And you will not be surprised if, in the year 2000, the number of consumers with access to the Internet actually exceeds the 100 million figure currently being projected.

Not only were you responsible for the decision to create a company Web site, you were primarily responsible for its content and design. You developed numerous graphic and textual depictions of your company’s new product, marketed under the trademark “Widget.” You also had the foresight to select a domain name for your Web site, “widget.com.” Such a name would promote the new product, and be easily remembered by your customers. Today, “widget.com” appears on all company letterhead, business cards and yellow page advertisements. It is prominently featured on all packaging materials, and a national advertising campaign featuring “widget.com” is set to kick off after the first of the year. With that kind of exposure, the company anticipates that in 1998, more than 45% of the its total sales will be attributable to the “widget.com” Web site which you developed.

Yes, life is good as you review your ample e-mail, processing yet more orders from the “widget.com” Web site, all the while fantasizing about the size of your year end bonus. Expectantly, you examine an e-mail message addressed to you as marketing director for the company. The communiqué is from John Q. Lawyer, representing ABC, Inc., a New York corporation. With disbelief, you read that ABC is demanding that your company immediately cease using “widget.com” as its domain name. Mr. lawyer states that ABC has, since 1990, been the owner of a Certificate of Registration issued by the United States Patent and Trademark Office for the trademark “Widget.” The letter acknowledges that ABC, Inc. has no presence on the Internet, and does not even sell widgets. Indeed, it appears that ABC, Inc. is engaged in the business of manufacturing and selling men’s formal wear. The demand suggests however, that if your company does not immediately cease using the “widget.com” domain name ABC will file its objection with NSI. The possibility of protracted trademark infringement litigation in the friendly confines of the federal court for the Southern District of New York is also mentioned. Through the distress of your stomach doing barrel rolls and your vision beginning to blur, it also appears that the message contains some threat of a claim for damages, including all profits your company has derived from the use of the “widget.com” domain name, costs and attorneys fees.

Seeing your fat year end bonus fast slipping away, you immediately call the company’s legal counsel, hoping for a reprieve. He begins by telling you that the registration of domain names is administered by an entity known as Network Solutions, Inc. (“NSI”), pursuant to a contract with the National Science Foundation. NSI has historically registered domain names on a first come, first serve, basis. This registration is made without regard to whether the second level domain name is the registered trademark of a third party. In your case “widgets” is the second level domain name, while the top-level domain name (TDL) is “com,” denoting your company is a business. This practice, you are informed, has lead to a great many abuses, as commercial buccaneers registered domain names such as ibm.com, cocacola.com and the like. These piratical entrepreneurs held the proverbial gun to the head of corporate America, demanding that they be paid handsomely for an assignment of the domain name.

To combat these abuses, your attorney informs you, NSI adopted a policy in 1995 with which all persons applying for registration of a domain name must agree. The policy provides for a procedure that is intended to resolve disputes between the holder of registered domain name and the owner of registered trademark. As you are about to learn, this policy is tilted in favor of the holder of a registered trademark.

If there is a dispute between the owner of a domain name and the owner of a trademark, the trademark owner must first demonstrate that it holds a valid federal or foreign trademark registration for a mark which is identical to the second level domain name at issue. The owner must also show that the trademark registration predates the NSI registration of the disputed domain name. If these criteria are met, the registered trademark owner must contact the owner of the domain name in an attempt to resolve the dispute informally. If the dispute is not resolved, the owner of the registered mark may then contact NSI and request that the domain name be placed on hold until the dispute is resolved through appropriate legal channels. The holder of the domain name is then given thirty days within which to produce a valid federal or foreign registration of the same trademark. The registration must antedate NSI’s request and exist before the date upon which the domain name owner was first notified of the dispute. If the owner of the registered domain name is not able to meet this burden, the domain name is immediately frozen, and neither party may use the domain name until the dispute is resolved through appropriate legal channels.

You are fast translating the practical impact of the “lawyerese” which you are hearing. You realize that your company has never sought trademark registration for “Widget” or any other of its trademarks. You appreciate that the demand letter from ABC, Inc.’s attorney has lit the time fuse. If you are unable to promptly resolve the matter on an informal basis, ABC, Inc. will notify NSI. In short, your priceless domain name will go blank in approximately sixty days.

You begin to calculate the impact of losing the domain name. It is well known by your distributors, suppliers and consumers. The Widget product line has been so successful that “Widget” and “widget.com” are well known identifiers in the industry. If your customers want to find your company, they know it’s as simple as entering “widget.com” on their favorite browser. If the domain name goes dark, it will be analogous to closing the doors on forty percent of your retail business.

And that’s only half of the problem. You have thousands of dollars invested in stationary, business cards, and packaging materials. You have a national advertising campaign scheduled to commence in six weeks, and now you don’t know whether you will be able to promote your existing Web site.

You consider fighting the matter in court. After all, your decision to adopt the “widget.com” domain name was made in absolute good faith. You followed what you thought were all the correct procedures. NSI never objected to the registration of the domain name, and never advised you of any potential risks associated with the same. You adopted the domain name without any intention to trade on the good will of ABC’s trademark. Indeed, it is nearly impossible that your use of the “widget.com” domain name is likely to confuse the consuming public, or lead anyone to believe that your company is associated with ABC, Inc. Your attorney tells you that your arguments have some legal and equitable appeal, and that you may even prevail in the dispute. After all, NSI policy is not law. He also advises you, however, that it will likely cost you in excess of $75,000 to have your day in court, and that day is likely to be in the next millennium. In the meantime, of course, your domain name will remain in Cyberspace limbo.

You realize that your practical options reduce to either buying the rights to the domain name from ABC, or abandoning the “widget.com” domain name in favor of an alternative second level name. Neither option is very palatable.

Ultimately, ABC, Inc. proves impossible to deal with, and your company’s management decides that its only option is to adopt a new domain name. After days of consternation, the marketing department decides on a new trademark, “Gadget” and “gadget.com” as the new domain name for the company’s Web site. While sales will certainly be off during the period it takes to establish the new names, you are hopeful that the transition can be made in six to nine months.

Before embarking upon the necessary new labels, stationary and advertising you decide to contact the company attorney to inquire how the sins of the past can be avoided. You are happy to learn that counsel can easily determine whether some other party owns a federal registration for the “Gadget” trademark that could be used against your company in either a trademark infringement suit, or to strike down your rights to the proposed “gadget.com” domain name. You also learn that counsel can determine whether “gadget.com” or any similar domain name has been registered to any other entity.

Not anxious to repeat previous mistakes, you request that counsel make a search to determine these facts. Subsequently, you are pleased to learn that there are no federal trademark registrations for “Gadget” or any other similar marks, which in the opinion of counsel, are likely to prevent registration of the “Gadget” trademark or are likely to cause infringement problems. He also advises that there are no registrations for “gadget.com.” You register the “gadget.com” domain name, and also instruct your attorney to file an application to register “Gadget” as a federal trademark. Damage control is under way.

The lessons you have learned are simple but profound. First, before deciding on a trademark, service mark or a domain name, spend the money to have an appropriate search made. The cost of a search for a proposed mark or domain name is probably going to be less than $1,200. This small investment in a search is miniscule when compared to the cost and anguish associated with the defense of a trademark infringement suit or a domain name dispute. Second, seek federal registration of your company’s trademarks. The benefits of federal registration extend well beyond priority in a domain name dispute. The cost of trademark registration in the United States, including the filing fee and attorney’s fee, typically range between $800 and $2,000. Given the importance that trademarks and service marks play in our sound bite, symbol conscience world, such an investment will pay rich dividends.

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