Tuesday, February 16, 2010

Recent UDRP Decision Shakes Domainer Community: Hayward Industries, Inc. v. WebQuest.com, Inc.

A recent Uniform Domain Name Resolution Policy (“UDRP”) decision has shaken, and possibly stirred, the domain name speculation community.

Domain name speculation is the practice of reserving or purchasing domain names for the purpose of later selling them for profit. Selling – or flipping – domain names are akin to what we saw in the real estate market several years ago. Those electronic “real estate” owners that speculate in domain names are known as “Domainers,” many of which have successfully built businesses around buying and selling domain names.

Domain name speculation should not be confused with cybersquatting. Domain name speculation is the practice of identifying generic or descriptive (not trademarks) domain names and utilizing them to develop web site traffic for purposes of generating revenue from what is known as “pay-per-click” advertising. Domain names may also be re-sold or “flipped” for profit. Much like real estate investment and speculation, Domainers evaluate electronic real estate and decide, based upon available information, what the “property” is worth. The goal: make a profit. No harm, no foul until Domainers use trademarks in domain names in violation of trademark owners’ rights.

Cybersquatters on the other hand reserve or purchase domain names that use someone’s trademark. A cybersquatter may also engage in what is known as “typo-squatting” by reserving domain names of commonly misspelled trademarks for the purpose of capturing misdirected Internet traffic when a user misspells a trademark (i.e., www.Walmrt.com). The definition of a cybersquatter is one that registers, traffics in, or uses a trademark of another in a domain name with bad faith intent to profit from the goodwill belonging to that trademark owner.

When cybersquatters misuse someone’s trademark in a domain name, trademark owners may take action by filing UDRP proceedings. Complainants in UDRP proceedings must establish the following three elements to successfully compel transfer of the disputed domain name(s):

1. The domain name is identical or confusingly similar to a trademark or service mark in which the complainant has rights;

2. The registrant does not have any rights or legitimate interests in the domain name; and

3. The registrant registered the domain name and is using it in "bad faith."

In the recent UDRP case of Hayward Industries, Inc. v. WebQuest.com, Inc., the panel ordered the disputed domain names hayward.com and wwwhayward.com to be transferred from WebQuest.com to the complainant, Hayward Industries, Inc. This decision appears to have shaken the Domainer community for two reasons: (1) a domain name corresponding to a geographic location was awarded to a company that uses the same name (i.e., San Diego, Inc.) and (2) the Panel considered the purchase price of one of the disputed domain names when considering whether that domain name was acquired in bad faith.

This case involves complainant Hayward Industries, Inc., a manufacturer and seller of swimming pool equipment and supplies. Hayward Industries claims to have used the trademark HAYWARD since 1956 and claimed ownership of certain global trademark registrations, including a U.S. registration for the mark HAYWARD.

The respondent, WebQuest.com, is in the business of providing pay-per-click search engines offered through domain names that correspond with geographic names. Pay-per-click is an Internet advertising model that generates revenue for their owners every time users click on ads listed on web pages.

The domain name hayward.com was registered in 1995 by Hayward & Associates, Inc. and later sold to WebQuest.com, Inc. for $20,000 in 2006. Thereafter, WebQuest.com attempted to sell that domain name at auction with a starting price of $100,000. Although not entirely clear, it appears from the decision that WebQuest.com reserved the domain name wwwhayward.com in 2004.

Hayward Industries’ alleged in its complaint that the disputed domain names are confusingly similar to its trademark “Hayward.” Hayward Industries also alleged that (i) WebQuest.com had set up typical minimalist web pages used by cybersquatters for the sole purpose of generating pay-per-click advertising revenues, (ii) the wwwhayward.com domain name had previously been used in connection with a web site that linked to Hayward Industries’ competitors’ and (iii) upon entering the term “hayward” in the provided search bar on the hayward.com web site, the user was inundated with sponsored links to web sites that provide access to Hayward Industries’ competitors’ products. Hayward Industries also alleged that WebQuest.com had not used the disputed domain names in connection with a bona fide offering of goods and/or services or for non-commercial fair use purposes without the intent of profiting from Hayward Industries’ trademark, and that consumer confusion had already occurred as evidenced by the linking to the disputed domain names by third party pool-related web sites.

In response to Hayward Industries’ complaint, WebQuest.com argued that it had a legitimate interest in the disputed domain names because the term “HAYWARD” corresponds to a geographic location and it already holds a large portfolio of geographic domain names. Thus, it has just as much right to the disputed domain names as does Hayward Industries. In other words, first-come, first-served. WebQuest.com also pointed out that the term “HAYWARD” not only refers to Hayward Industries’ but also refers to the city Hayward, California, a lake, a school and an airport. Furthermore, WebQuest.com argued that its pay-per-click sites constitute an offering of bona fide services, since they don’t pass WebQuest.com off as Hayward Industries.

WebQuest.com further argued that it didn’t acquire the disputed domain names in bad faith because it was not aware when it acquired the disputed domain names that a commercial entity could claim exclusive rights in a geographic term. It’s generally a well-known trademark principle that geographic terms may become trademarks once they acquire secondary meaning. Meaning that consumers have come to recognize a geographic term as a source identifier or trademark for certain products and/or services (i.e., Southwest Airlines, Vermont Teddy Bear Company). In my opinion, WebQuest.com likely lost credibility with the Panel with that argument.

After reviewing the facts of the case, the Panel determined the following.

Regarding the first prong of the test, the Panel concluded that the trademark at issue (HAYWARD) and domain names at issue (hayward.com and wwwhayward.com) are confusingly similar. Hayward passed the first leg of the test. That was the easy part.

On the issue of whether WebQuest.com had legitimate interests in the domains, the Panel quickly dismissed WebQuest.com’s claim that it acquired the disputed domain names to use them in connection with Hayward, California. The Panel acknowledged that the term “Hayward” is the name of a city, as argued by WebQuest.com, and domain names used in connection with pay-per-click search sites may qualify as a bona fide use under certain circumstances. The Panel concluded, however, that WebQuest.com used the disputed domain names in connection with sites that contained – or contained –web pages with links offering or leading to pages with links offering goods and services that are competitive with Hayward Industries’ goods and services. Such use clearly indicated to the Panel that the disputed domain names were not used solely for their fair use geographic meaning. While the Panel rightfully noted that WebQuest.com was not obligated to develop the disputed domain names, it also noted that WebQuest.com should not have parked them with pages that permitted it to wrongfully profit off the value of Hayward Industries’ trademarks. Accordingly, in the Panel’s opinion, WebQuest.com did not demonstrate that it had a legitimate interest in the disputed domain names.

Lastly, the Panel considered whether the domain names had been registered in bad faith. The Panel considered the bad faith factors and concluded that WebQuest.com had acquired the disputed domain names with the bad faith intent to attract Internet users to its web site for commercial gain by creating consumer confusion with Hayward Industries’ trademark. The Panel also considered the purchase price of $20,000 for the Hayward.com domain name. In the Panel’s opinion, $20,000 was excessive in light of the expected revenues generated by the disputed geographic domain names.

Based upon the Panel’s finding, it ordered the transfer of the domain names to Hayward Industries.

Domainers appear to be indignant over the Panel’s decision to transfer domain names that correspond to a geographic location, since, as Domainers argue, geographic domains should be available to anyone on the basis of fair use.  They're also outraged because the Panel considered WebQuest.com’s purchase price of $20,000 for hayward.com.

Will panelists begin considering domain name acquisition costs when determining bad faith? Should they? Do Panelist even know how to value domain names?

Domainers should also be concerned with the Panel’s finding that use of pay-per-click search engine sites that generate search result links to a complainant’s competitors’ products may be sufficient evidence to find that Domainers don't have legitimate interest in disputed domain names.  But isn't that what search engines do?

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