By Russell Smith and Brean Shea

"They sold the Internet, and all I got was this lousy cease and desist letter." So says the Domain Name Rights Coalition, which argues that under the regime set up by ICANN and Congress, the Internet to a large extent has been handed over to powerful private corporations and their trademarked names and products, at the expense of free speech and the rights of domain name entrepreneurs. Judging from the statistics of the past year, the critics may have a point. If you open your snail mail to find a letter directing you to turn over a domain name, and to "cease and desist from all further use or attempted sale of our client's trademarked property," it seems likely that after the dust settles, the letter will be all you will have left on the subject.

Starting with ICANN's Uniform Domain Name Dispute Resolution Policy (UDRP) in late October of 1999, and followed a month later by a similar but different federal statute, The Trademark Cyberpiracy Prevention Act, the new procedures for seizing domain names have resulted in thousands of cases and approximately 1200 decisions. Over 900 of the decisions were in favor of claimants.

Some of these decisions, especially rulings against corporate critics or so-called "cybergripers," have shocked industry analysts and First Amendment lawyers. For example, in stripping all rights from the owner of overtly anti-WalMart sites such as WalmartCanadaSucks.com, an arbitrator made the remarkable finding that "the domain names at issue are likely to confuse customers and cause them to believe mistakenly that these domain names are associated with Wal-Mart stores." In a more famous if less controversial case, filed by Madonna (the recording artist, not the Virgin Mary), the arbitrators took away Madonna.com from the owner of a pornography site. They did so in part because of their theory that if you refer to "Madonna" and "sex" in the same breath, you are talking about the Material Girl and her many products.

To a large extent, the battle over domain names reflects the fact that corporate America finally has come to appreciate their enormous value, both as addresses and statements of identity. In luring millions of customers, a handy domain name can reduce the advertising budgets of large companies by as much as 10% per year. As noted by PC/Computing magazine, such names are "location, location, location, and a killer brand name, rolled into one."

The procedures now available to corporations and other claimants who want to obtain domain names by force of law essentially fall into three categories. First, there is the old-fashioned court action for infringement, in which the plaintiff alleges that a domain name is confusingly similar to a trademark. Although this choice gives plaintiffs some tactical advantages, they usually are outweighed by the disadvantages. These include territorial limitations (making it difficult to sue for distant or foreign infringements), the slowness of "the wheels of justice," and the often astronomical cost of litigation.

The second alternative, now by far the most popular, is ICANN arbitration. For a fee ranging from $750 to $4500, a final outcome can be had in less than 60 days, and on the basis of paperwork alone. Although use of a lawyer is highly recommended (due in part to the confusing nature of the ICANN rules), the legal fees can be drastically lower than they are in court litigation. Some law firms charge a flat fee of as little as $1000 for the entire prosecution or defense. One potential drawback for claimants is that the domain name holder can contest the result in court within ten days, but in reality, only a small fraction of losing parties ever do so.

The third procedure is provided in the Trademark Cyberpiracy Prevention Act, passed by Congress as part of the trademark statute to allow claims against "bad faith intent to profit" upon another's trademark, and/or the "intent to tarnish or disparage [such a] mark, by creating a likelihood of confusion...." Although this provision is tougher on defendants than the trademark statute in its previous form, less than 40 cases have been filed so far, as opposed to thousands of ICANN arbitration proceedings. This is perhaps for the same reasons why conventional trademark litigation has fallen out of favor in the domain name area.

A respondent to an ICANN complaint should remember that the arbitrators are not supposed to consider all domain name prospectors to be "cybersquatters" by definition. The ICANN rules require the claimant to prove three things, which in many cases are not all present: 1) that the claimant owns a trademark in the domain name; 2) that the respondent has no "legitimate" interest in that name; and 3) that the respondent acquired and used the name in "bad faith".

The Sting.com case is a good example of a failure to prove the first element of the claim. The panel found that pop star Gordon Sumner did not prove that "Sting" was his trademark (or "service mark"), in part because the word is a generic English word with multiple meanings. "Sting" is in the dictionary, and it is not so associated with the famous singer that one must assume it is synonymous with him. The generic word defense is even more powerful when the name at issue purports to be a trademark for a product described by that word in its ordinary, dictionary meaning. So, for example, in trademark law, "apple" cannot be a registered trademark for an apple farmer, but may be allowed for a computer company (at least where the word in relation to that company has acquired a "secondary meaning," such that members of the public readily associate the word with the company).

Having said all that, a domain name holder never can be absolutely certain whether a generic name defense will or will not succeed. Arbitrators have made decisions that are, frankly, all over the map. For example, in the dispute over esquire.com, the majority of three arbitrators, contrary to a well-reasoned dissent, transferred the domain name to the trademark holder, stating that "esquire" is not a generic word, and noting that "bad faith" was indicated by the respondent's frequent registration of trademarked names. But then there is the case of vz.com, where the name was not transferred from the domain name holder (who registered many two-and three-letter domain names) to the trademark owner of a "vz" trademark because the mark was not shown to be famous enough to be known by the respondent, and because the letters were deemed to be generic and registered along with other generic combinations in hopes that someone, anyone, would need them and pay money for them.

In the sting.com case, the claimant also failed to prove bad faith, because he failed to present evidence that the domain name holder approached him with an offer for the purpose of profiting from the ownership of the domain name. The panel seemed to be persuaded by the fact that Sumner a/k/a "Sting" was first to contact the domain name holder with an offer to buy.

If you registered a generic term hoping to get some money from a particular trademark owner, then it is likely that you will be considered as having registered and used it in bad faith. If you registered the same word with the more vague hope that some unidentified person or entity would want to slap some cash on you for it, then you may be in luck.

The recognition of the generic word defense by many arbitrators has won applause from industry leaders. "There needs to be a clear distinction between a prospector (someone who snaps up generic domain names) and an extortionist (someone who intentionally registers trademarked names)," says Jon Whelan, co-CEO of Afternic.com, now the number one site for domain name buying and selling.

Another element that a claimant must prove in an ICANN proceeding is that the respondent has no "legitimate" interest in the trademarked name. An allegation to this effect sometimes can be difficult to rebut. The domain name holder might do so, however, by showing that he has previously used the name for commercial or social purposes, or that he has some other interest in the name besides cashing in. This is not always easy, but one must remember two things: the claimant has the burden of proving there is no legitimate interest; and this is only one element out of the three that the claimant must prove.

Various factors account for the disparity in the number of cases decided for claimants and for respondents. The two most obvious factors are the lack of responses to a large number of claims (about a third of the cases, with a 98% loss rate), and a lack of a coherent legal arguments supporting retention of the domain names in cases where the domain name holders do respond. A claimant, unlike a respondent, also is more likely to be a corporation and thereby represented by counsel. Although the ICANN procedures place the burden of proof on the claimant, good legal analysis, interpretation and presentation can make the difference in which side actually wins. (Read: Get a lawyer.) This is often because the language of the ICANN rules regarding bad faith is nebulous, seemingly contradictory, and often open to different interpretations.

Another factor worth mentioning is the ICANN procedure itself. Although efforts have been made to make it more neutral, the procedure is inherently biased against domain name holders. It is in place to give trademark owners a faster and more effective means to gain control of domain names that are the same as, or similar to, their trademarks.

One not-so-subtle example of the pro-claimant bias is found in the way arbitrators are selected. Under the ICANN procedure, a dispute is heard by one of four "arbitration providers," which are institutions that compete with each other for cases. Because the claimant picks the provider, it is no surprise that the two providers with the most pro-claimant track record are by far the most frequently chosen. In court litigation, this kind of tactic is called "forum shopping." Under the ICAAN rules, this otherwise unsavory conduct is not only allowed, but encouraged.

Domain names increasingly are obtained by the owners of corresponding corporate trademarks, not only because they win or settle cases, but also by virtue of the fact that new corporations now register domain names contemporaneously with filing for incorporation or registering trademarks. This trend may cause the percentage of arbitration decisions in favor of trademark holders to decline, as the field of battle moves more into the territory of disputes over generic words.

Whether or not the surge of new decisions ever turns against claimants, the market for acquisition of domain names seems secure. Analysts at leading investment banks predict there will be a $2 billion market within the next three years, with a growth potential more like $2 trillion. As the market continues to explode, so will the claims. Stay tuned.