On December 4^th the Ninth Circuit Court of Appeals issued a decision that will reverberate for years to come in cybersquatting cases brought under the Anticybersquatting Consumer Protection Act (ACPA). While the Court’s declaration that “the ACPA does not provide a cause of action for contributory cybersquatting” is important in itself, its dicta regarding the history of the ACPA – finding that “Congress did not incorporate the common law of trademark, including contributory infringement, into the ACPA” – will likely have broad future repercussions.

The opinion was rendered in the case of Petronas v. Godaddy.com, Inc. (cdn.ca9.uscourts.gov/datastore/opinions/2013/12/04/12-15584.pdf). Petronas, a Malaysian oil and gas company, alleged that Godaddy.com engaged in contributory cybersquatting when a registrant used its domain name forwarding service to direct the domains petronastower.net and petronastowers.net to adult content websites hosted by a third party.

According to the Court’s opinion:

In late 2009, a Petronas subsidiary responsible for ferreting out potential trademark infringement contacted GoDaddy and requested that it “take action against the website associated with the ‘petronastower.net’ domain name.” Officials from the Malaysian and U.S. governments also contacted GoDaddy regarding the domain name. GoDaddy investigated the issue, but took no action with respect to the alleged cybersquatting because (1) it did not host the site; and (2) it was prevented by the Uniform Domain Name Dispute Resolution Policy (“UDRP”) from participating in trademark disputes regarding domain name ownership.

Petronas then sued Godaddy.com in the U.S. District Court for the Northern District of California, which made inquiry of the technical aspects of GoDaddy’s domain forwarding and routing services — and then granted summary judgment in favor of Go Daddy.

The Court’s discussion of the distinct differences between the Lanham Act (the U.S. trademark law) and the ACPA has import far beyond the facts of the case before it:

The Lanham Act, 15 U.S.C. § 1051 et seq., passed in 1946, codified the then existing common law of trademarks, which in turn was based on the tort of unfair competition…Due primarily to the common law origins of trademark infringement, courts have concluded that the Lanham Act created a cause of action for secondary liability…

In 1999, Congress passed the ACPA, which amended the Lanham Act by adding two new causes of action aimed at cybersquatting…Congress also created an in rem action to facilitate recovery of domain names by their rightful owners… Petronas contends that the ACPA also provides a cause of action for contributory cybersquatting because Congress intended to incorporate common law principles of secondary liability into the Act by legislating against the backdrop of the common law of trademark infringement, and by placing the ACPA within the Lanham Act. We disagree.

…We hold that the ACPA does not include a cause of action for contributory cybersquatting because: (1) the text of the Act does not apply to the conduct that would be actionable under such a theory; (2) Congress did not intend to implicitly include common law doctrines applicable to trademark infringement because the ACPA created a new cause of action that is distinct from traditional trademark remedies; and (3) allowing suits against registrars for contributory cybersquatting would not advance the goals of the statute. (Emphasis added)

In further discussing its key finding of law, the Court states:

Petronas argues that by legislating against this background, and by placing the ACPA within the Lanham Act, Congress intended to include within the ACPA a cause of action for contributory cybersquatting…The circumstances surrounding the enactment of the ACPA, however, do not support the inference that Congress intended to incorporate theories of secondary liability into that Act. Accordingly, we conclude that the ACPA did not incorporate principles of secondary liability.

Prior to the enactment of the Lanham Act, the Supreme Court incorporated a common law theory of contributory liability into the law of trademarks and unfair competition… The Lanham Act then codified the existing common law of trademarks…(“[T]he Lanham Act’s primary, express purpose was to codify the existing common law of trademarks and not to create any new trademark rights.”). In light of the Lanham Act’s codification of common law principles, including contributory liability, the Supreme Court concluded that a plaintiff could recover under the Act for contributory infringement of a trademark.

By contrast, the ACPA did not result from the codification of common law, much less common law that included a cause of action for secondary liability. Rather, the ACPA created a new statutory cause of action to address a new problem: cybersquatting…

Consistent with their distinct purposes, claims under traditional trademark law and the ACPA have distinct elements. Traditional trademark law only restricts the commercial use of another’s protected mark in order to avoid consumer confusion as to the source of a particular product. Cybersquatting liability, however, does not require commercial use of a domain name involving a protected mark. Moreover, to succeed on a claim for cybersquatting, a mark holder must prove “bad faith” under a statutory nine factor test. 15 U.S.C. § 1125(d) (1) (B). No analogous requirement exists for traditional trademark claims.

These differences highlight the fact that the rights created in the ACPA are distinct from the rights contained in other sections of the Lanham Act, and do not stem from the common law of trademarks. Accordingly we decline to infer the existence of secondary liability into the ACPA based on common law principles. (Emphasis added)

The Court also rejected prior District Court rulings that have allowed ACPA claims for contributory liability when “exceptional circumstances” were present:

Congress enacted the ACPA in 1999 in order to “protect consumers . . . and to provide clarity in the law for trademark owners by prohibiting the bad-faith and abusive registration of distinctive marks . . . .” To this end, the statute imposes a number of limitations on who can be liable for cybersquatting and in what circumstances, including a bad faith requirement, and a narrow definition of who “uses” a domain name. Imposing secondary liability on domain name registrars would expand the scope of the Act and seriously undermine both these limiting provisions.

Recognizing this risk, some of the district courts that have recognized a cause of action for contributory liability have required that a plaintiff show “exceptional circumstances” in order to hold a registrar liable under that theory. This “exceptional circumstances” test has no basis in either the Act, or in the common law of trademark. Rather than attempt to cabin a judicially discovered cause of action for contributory cybersquatting with a limitation created out of whole cloth, we simply decline to recognize such a cause of action in the first place.

Limiting claims under the Act to direct liability is also consistent with the ACPA’s goal of ensuring that trademark holders can acquire and use domain names without having to pay ransom money to cybersquatters. Because direct cybersquatting requires subjective bad faith, focusing on direct liability also spares neutral third party service providers from having to divine the intent of their customers. In order for a service provider like GoDaddy, with clients holding over 50 million domain names, to avoid contributory liability, it would presumably have to analyze its customer’s subjective intent with respect to each domain name, using the nine factor statutory test. 15 U.S.C. § 1125(d)(1)(B). Despite that nearly impossible task, service providers would then be forced to inject themselves into trademark and domain name disputes.

Moreover, imposing contributory liability for cybersquatting would incentivize “false positives,” in which the lawful use of a domain name is restricted by a risk-averse third party service provider that receives a seemingly valid take-down request from a trademark holder. Entities might then be able to assert effective control over domain names even when they could not successfully bring an ACPA action in court.

While firmly rejecting any grounds for asserting contributory liability under the ACPA, the Court’s opinion does note that “trademark holders may still bring claims for traditional direct or contributory trademark infringement that arises from cybersquatting activities.”

Our takeaway from the opinion is that, at least within the Ninth Circuit of the U.S., domain registrars and other providers of services related to domain names cannot be sued for contributory liability in cases brought under the ACPA, even when “exceptional circumstances” might exist. While domain registrants can of course still be held liable for direct violations of the ACPA, the Court’s holding that ACPA rights are separate from and did not incorporate the common law of trademarks may well become an important factor in deciding some future ACPA cases.  

The Ninth Circuit is often out of step with the other U.S. Courts of Appeals. So there is a possibility that another Circuit will reach the opposite conclusion regarding ACPA contributory liability, setting up a conflict that can only be resolved by the Supreme Court.

There is also a possibility that representatives of trademark holders may seek a legislative resolution by seeking to amend the ACPA to create an explicit cause of action for contributory liability. CADNA has already stated that this is one of its primary goals for amending the ACPA – as we noted in September (internetcommerce.org/CADNA_ACPA):

Their goal is to enact amendments to the U.S. Anti-Cybersquatting Consumer Protection Act (ACPA) that would expand the law’s coverage beyond domain registrants by creating secondary liability for domain system intermediaries like registries and registrars, increase statutory damages penalties for all targets, and establish a ‘loser pays’ regime that favors deep-pocket corporate litigants. (Emphasis added)

However, no bill has yet been introduced to amend the ACPA in this manner. And if one is then we’d expect it to set up a battle royal between domain marketplace participants – including major registrars such as GoDaddy — and proponents of ACPA contributory liability.

This Petronas decision has broad implications for future ACPA litigation as well as for potential legislative responses. We’ll be keeping close watch as affected parties digest and react to it.

This article by the Internet Commerce Association’s Philip Corwin was sourced with permission from: internetcommerce.org/Un-Common_ACPA