The Software IP Report

Bad Faith Not Shown Under the ACPA

By Charles Bieneman

Categories: The Software IP Report

A jury finding that cybersquatting defendants had not acted in bad faith, and thus enjoyed a safe harbor from liability under the Anti-Cybersquatting Consumer Protection Act (ACPA), 15 U.S.C. § 1125(d), has been upheld by the Eleventh Circuit.  Pensacola Motor Sales, Inc. v. Eastern Shore Toyota LLC, No. 10-15761 (11th Cir. June 21, 2012).

The parties in this case were competing car dealers.  The defendant car dealer (Eastern Shore), in concert with an Internet marketing expert, had pursued a two-pronged Internet marketing strategy.  Under a “defensive” strategy, Eastern Shore purchased, but did not use, desirable domain names to keep them out of its competitor’s hands.  Under an “offensive” strategy, Eastern Shore built “microsites” using domain names that were related to the car business; the microsites redirected users to Eastern Shore’s site.  Eastern Shore ultimately owned around 4,000 domain names, examples of which included “www.facebooktoyota.com, www.youtubeusedcar.com, and www.ebayautoprices.com.”  After eBay sent it a cease and desist letter alleging trademark infringement and violations of the ACPA, Eastern Shore relinquished the domain name related to eBay, but made no effort to review other domain names for possible infringement.

The plaintiff, Bob Tyler Toyota, discovered an operational microsite at “www.bobtylerprices.com,” and several other allegedly infringing microsites.  Eastern Shore’s proprietor purported to be “shocked,” and ordered the Internet marketing expert to take the sites down, which he did.  Eastern Shore also relinquished the allegedly infringing domain names (except that two infringing sites were only detected and taken down later).  Eastern Shore’s proprietor and the Internet marketing expert (who was not a defendant) then, of course, blamed each other for the fact that the “defensive” domain names had been used for microsites.

The plaintiff brought suit under the Lanham act, the ACPA, and state law, but only the ACPA claim remained for the jury following pretrial rulings.  Although the jury found that the defendants had violated the ACPA, the jury further answered “yes,” with respect to all defendants, to an interrogatory that asked “Did any of the Defendants have a reasonably held belief that their use of the domain names was a fair use or otherwise lawful?”  After the trial court denied the plaintiff’s motions for judgment as a matter of law and for a new trial, the latter motion based on an alleged inconsistency between the jury’s findings that there were violations of the ACPA and that the defendants were not liable for them, the plaintiff appealed.

Of the numerous issues on appeal (several of which, although interesting, will go unmentioned in this post), a significant question related to the so-called “safe harbor” defense in the ACPA.  Specifically, “[b]ad faith intent . . . shall not be found in any case in which the court determines that the person believed and had reasonable grounds to believe that the use of the domain name was a fair use or otherwise lawful.”  15 U.S.C. § 1125(d)(1)(B)(ii).  The statute provides a list of nine factors to be evaluated in considering the defendant’s intent.  The plaintiff contended “that Eastern Shore likewise should not be permitted to benefit from the safe harbor defense because it conceded in the district court that six of the nine § 1125(d)(1)(B) factors were present and weighed against Eastern Shore.”

As the Eleventh Circuit had previously explained, “whether a defendant had the bad faith intent to profit necessary to a cybersquatting claim is not based on a score card of the statutory factors.”  This case was different than cases in which bad faith had been found because “there was no evidence that Eastern Shore intended to sell or threatened to sell any infringing domain names to anyone at any time.”  Eastern Shore allegedly relied on its Internet marketing expert.  In sum, while “[t]here was some evidence that Eastern Shore intended to profit from the infringing domain names, . . . there was also evidence disputing that.”  Thus, while the court would not “say that we would have decided the good faith versus bad faith issue the same way that the jury did,” whether Eastern Shore acted in bad faith was properly a question of fact for the jury.

The court agreed that the jury’s finding that the ACPA was violated was inconsistent with its finding that the defendants lacked the bad faith intent necessary to violate the statute.  However, the plaintiff waived any objections to this inconsistency by failing to raise them before the jury was discharged.  The plaintiff also waived, by failing to raise them at the proper time, objections to the fact that the court failed to properly instruct the jury as to the binding effect of an admission that the defendants made under Federal Rule of Civil Procedure 36(a).