September 8, 1999 3:30 PM PDT

Domain name ruling favors small businesses

In a significant win for small businesses on the Net, a federal judge has ruled that a registered trademark, even when held by a well-known company, does not automatically entitle its holder to own the corresponding domain name.

The decision, made public over the weekend, is a major win for a single-employee consulting firm called Clue Computing, which owns the domain name Clue.com. Hasbro, the multibillion-dollar toy maker and manufacturer of the mystery board game Clue, claimed rights to the Net address in a costly legal battle launched more than three years ago.

U.S. District Judge Douglas Woodlock of Boston rejected Hasbro's argument that its registered trademark for Clue was infringed by Clue Computing's use of the domain name. The decision comes two weeks after a federal appeals court in a different case ruled that another small business's ownership of the names "Avery.net" and "Dennison.net" did not infringe trademarks held by Avery Dennison, a large office supply company.

The decisions run contrary to common perceptions that a trademark held by one group automatically trumps a rival's rights to own the corresponding domain name.

They come as a division within the Internet Corporation for Assigned Names and Numbers (ICANN)--the nonprofit that oversees the Net's core functions--is forging a new policy to resolve disputes over domain names. The decisions demonstrate just how difficult it is to balance the rights of small domain name owners and those of large trademark holders.

Good news for small business
The decisions also support advocates of small domain name owners, who have argued for years that equating a domain name with a trademark unfairly tramples their rights. Although it is possible for hundreds of restaurants in the physical world to carry the name "Original Joe's," for example, only one domain name can be called "Originaljoes.com."

What's more, unauthorized use of a trademark is generally illegal only when it is tied to a commercial use or clearly tarnishes the trademark. Many domain names lack the commercial ties or dilution elements necessary to bring a claim under trademark law. Small Net businesses complain that their rights are especially harmed by holders of well-known, or "famous," trademarks such as Toyota and Walt Disney.

In the Clue.com case, Judge Woodlock found that the domain name is legitimate because there is little overlap between services offered by Clue Computing and Hasbro. Therefore, consumers of the Clue board game are not likely to be confused. Clue Computing's use, he said, is far different from cases of "cybersquatting," in which a person registers a trademarked name to take advantage of its popularity.

"While use of a trademark as a domain name to extort money from the markholder or to prevent that markholder from using the domain name may be per se dilution, a legitimate competing use of the domain name is not," Woodlock wrote. "Holders of a famous mark are not automatically entitled to use that mark as their domain name; trademark law does not support such a monopoly."

A Hasbro spokesman said the company disagrees with the ruling and will appeal it.

Setting a precedent?
While the appeal is pending, however, the decision is likely to be grist for members of ICANN's Domain Name Support Organization, which is forging a policy for resolving domain name disputes.

"Clearly, this is something to take note of," said ICANN interim chair Esther Dyson. "There's a sense that there are legitimate claims to a name other than having a trademark, and they ought to be considered."

Still in dispute is whether the policy should contain a controversial provision proposed by the World Intellectual Property Organization that gives special protection to famous trademarks. Although a version of the policy adopted two weeks ago in Santiago, Chile, doesn't address the proposal, it could still make its way into the final version, said Mikki Barry, president of the Domain Name Rights Coalition.

ICANN also is likely to consider dominant registrar Network Solutions' (NSI) dispute resolution policy. Under the policy, which has been in place since 1995, NSI will suspend a domain name when presented with an identical registered trademark. NSI was close to shutting down the Clue.com domain name until a Colorado court in 1996 issued an order forbidding the suspension.

NSI is working with other registrars to forge the new policy, said NSI spokesman Brian O'Shaughnessy, who added that the change is being prompted by the "new competitive environment" under which the company is operating. ICANN was recognized by the U.S. government in November to foster competition to NSI.

Still, it's clear that criticism leveled at the old policy by small domain name owners is on the minds of ICANN members.

"Clearly, the system as it was set up seemed to give an advantage to you if you had a registered trademark, and that was one of the criticisms from some quarters," said Jonathan Cohen, an intellectual property attorney in Ottawa, Ontario, and cochair of ICANN's working group on dispute resolution. Trademarks "clearly have to be melded into the framework of the Internet, which is a new medium and carries new challenges."

One measure proposed to protect small domain owners' rights is a requirement that domain name registrants submit to third-party arbitration if they are accused of registering a name in "bad faith," such as obtaining it for the sole purpose of trying to resell it to a trademark holder.

But it's unclear how effective that measure will be, since the arbitration is not binding, and parties are still free to sue if they can't settle their differences. That means small domain name owners are still likely to be saddled with exorbitant legal fees when trademark holders challenge their addresses.

 

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