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Virtual Works, Inc. v. Volkswagen of America, Inc., et al.

238 F.3d 262 (4th Cir., January 22, 2001)

The Fourth Circuit, affirming the determination of the district court below, held that plaintiff violated the Anticybersquatting Consumer Protection Act ("ACPA") by registering and offering to sell to defendant the domain name vw.net, which contains defendant Volkswagen's famous "vw" mark.

Plaintiff and its predecessor-in-interest were Internet Service Providers ("ISP") unaffiliated with defendant Volkswagen, the car manufacturer and owner of the "VW" mark. In or about October 1996, plaintiff registered the domain name vw.net with Network Solutions Inc. ("NSI"). At that time, two of plaintiff's principals were aware that some Internet users might incorrectly think that vw.net was affiliated with defendant. Moreover, these principals decided at the time of registration that plaintiff would use the domain name for its company operations, but would sell it to defendant Volkswagen for "a lot of money" if defendant sought to buy it.

For the next two years, plaintiff used the vw.net domain name in connection with the operation of its ISP business. In December 1998, various Volkswagen dealerships contacted plaintiff and expressed an interest in purchasing the domain name.

Plaintiff thereafter called defendant Volkswagen and offered to sell it the vw.net domain name. Plaintiff stated that if Volkswagen did not respond to this offer within 24 hours, plaintiff would auction the domain name off to the third parties, who would jump at the chance to own the vw.net name because of the likelihood that Internet users would associate it with defendant Volkswagen. Defendants responded by invoking NSI's dispute resolution procedure, and challenging plaintiff's right to the domain name.

Plaintiff thereafter commenced this action, seeking a declaratory judgment confirming its rights to the vw.net domain name. Defendants counterclaimed, alleging that plaintiff, as a result of the acts described above, had violated the ACPA, 15 U.S.C. Section 1125(d), as well as infringed and diluted defendants' famous "VW" trademark. The district court agreed with the defendants, and accordingly granted their motion for summary judgment.

On appeal, the Fourth Circuit affirmed the District Court's determination that plaintiff had violated the ACPA, and directed plaintiff to transfer the domain name to defendant Volkswagen.

To establish a violation of the ACPA, the owner of a trademark must demonstrate that the alleged cybersquatter, with "a bad faith intent to profit from that mark," "registers, traffics in, or uses a domain name that ... (i) in the case of a mark that is distinctive ... is identical or confusingly similar to that mark;" or "(ii) in the case of a famous mark ..., is identical or confusingly similar to or dilutive of that mark ...". The statute goes on to list nine factors that may be utilized in determining whether the cybersquatter has acted in bad faith. see 15 U.S.C. section 1125(d)(1)(B)(i). The court may consider other factors as well in analyzing bad faith. The ACPA provides a safe harbor for domain name registrants, pursuant to which bad faith intent "shall not be found in any case in which the court determines that the [alleged cybersquatter] believed and had reasonable grounds to believe that the use of the domain name was fair use or otherwise lawful." 15 U.S.C. Section 1125(d)(1)(B)(ii).

The Fourth Circuit recognized that the domain name in question contained the initials of plaintiff's business, and that plaintiff had operated a business at the vw.net domain name for over two years.

Nonetheless, the court found that plaintiff had registered the name with a bad faith intent to profit from the mark. In reaching this conclusion, the court relied on: "(1) the famousness of the VW mark; (2) the similarity of vw.net to the VW mark; [and] (3) the admission that Virtual Works never once did business as VW nor identified itself as such ...".

In addition, the court relied on "direct evidence" of plaintiff's intent, both at the time the domain name was registered and at the time plaintiff offered to sell it to defendants. The court determined based on the evidence before it that plaintiff had a dual purpose in selecting the vw.net domain name for registration -- "Virtual Works chose vw.net over other domain names not just because "vw" reflected the company's own initials, but also because it foresaw the ability to profit from the natural association of vw.net and the VW mark." The court also found additional evidence of bad faith in plaintiff's threat to auction the site to the highest bidder if defendants did not elect to purchase it. "Virtual Works knew, both when it registered vw.net and when it offered to sell the site, that consumers would associate vw.net with Volkswagen. It sought to maximize the advantage of this association by threatening to auction off the site." These factors, combined, convinced the Fourth Circuit that plaintiff had acted in bad faith within the meaning of the ACPA.

The court held that defendants had also established the remaining elements needed to prove that plaintiff violated the ACPA, by showing that plaintiff had registered or used a domain name that was confusingly similar to a famous mark, and thus was entitled to summary judgment. In reaching this conclusion, the court rejected plaintiff's argument that its vw.net domain name was not similar to defendants' VW mark because of the inclusion of the top level domain .net. Quoting from Shade's Landing, Inc. v. Williams, 76 F.Supp.2d 983 (D.Minn 1999) the court stated "Because domain names include one of these extensions, the distinction between a domain name ending with .com and the same name ending with .net is not highly significant."

The Fourth Circuit accordingly affirmed the District Court's grant of summary judgment to defendants, and directed plaintiff to transfer the domain name at issue to defendants.

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