Daunting Math Facing Brand Owners

The new reality on the Internet is a game of very large numbers -- a reality that brand owners and content creators trying to protect their intellectual property rights online may find depressing.  

Here are a few statistics to ponder:

Between 1995 and 2013, the number of Internet domain names registered went from 15,000 to 250,000,000.

There are nearly 150,000 new domain names created each and every DAY.  Even taking deletions and expirations into account, there is still a net gain of tens of thousands of new domain names created every single day, 365 days a year.  In addition, there are estimated to be 634,000,000 websites, with 51,000,000 added each year.

It is currently estimated that 2.4 BILLION people use the Internet worldwide, with 1.1 billion of them in Asia alone.

The statistics also demonstrate that counterfeiting on the Internet is similarly skyrocketing.  For example, domain name registrants frequently register names that cybersquat upon the established rights on trademark owners.

In the 1990's, Congress passed the Anti-Cybersquatting Consumer Protection Act (ACPA), to give rights owners a vehicle for protecting themselves by filing suit in federal court.  Brand owners can also initiate Uniform Domain Name Policy (UDRP) proceedings.  But litigation under the ACPA/UDRP can be expensive and time-consuming.

A very successful and aggressive brand owner may be able to set aside several hundred thousand dollars per year to budget for proactive brand protection on the Internet.

But is that even enough?

Given the massive scale and scope of counterfeiting on the Internet, this math presents a very daunting reality.

Assuming 20 newly-created domain names registered each day infringe upon a brand owner's rights, in one year alone, a trademark owner would need to spend hundreds of thousand of dollars getting all of them locked and transferred under Court Order.

Of course, a new infringer lurks around every corner, so there is nothing to stop new domain names from being created tomorrow, and the day after that, and so on.

A brand owner may hire a team of attorneys and investigators dedicated to combating this escalating problem.  But counterfeiters can find armies of extremely cheap labor to draw upon for programming, coding, marketing and distribution of counterfeit goods.

Therefore, in a long drawn out war of attrition, the math facing brand owners is daunting.

The solution?

First, brand owners need to act MUCH more aggressively and diligently.  The problem is not going away.  By ignoring the problem, it will only get worse.

Second, brand owners need to lobby the government for much more stringent penalties and enforcement mechanisms.  Individual ACPA and UDRP proceedings against infringing domain names made sense in the 1990's, but today they are anachronistic given the scope and scale of the problem.

Some brand owners have been creative and have filed large-scale litigations that have shut down thousands of domain names through sweeping Court Orders in a single case.  However, these cases have inherent limitations, and need to be filed repeatedly.

Third, ICANN needs to begin to adopt policies that are pro-brand owner, rather than pro-infringer.  The core economic dilemma is that ICANN (and its affiliated registries and registrars) stand to gain tens of millions of dollars in fees each year from newly-created domain names, and therefore have little incentive to protect the intellectual property rights of the few.  Their economic incentives, in fact, are quite in the opposite direction.

Panel Rules JackAbramoff.com Domain Name May Stay with Democrats

Screenshot of JackAbramoff.com

A three member Uniform Domain Name Dispute Resolution ("UDRP") panel refused to transfer the domain name JackAbramoff.com to Jack Abramoff after he filed a complaint.

Abramoff was involved in a corruption scandal that led to his conviction and to 21 persons either pleading guilty or being found guilty, including former White House officials J. Steven Griles and David Safavian, Representative Bob Ney, and nine other lobbyists and Congressional aides.

The domain name is currently registered by the Democratic Congressional Campaign Committee (DCCC) who has been using it for less than flattering purposes.

The panel found that Abramoff did not prove by a preponderance of relevant, credible, admissible evidence that the domain name is identical or confusingly similar to a trademark in which he has trademark rights.

Further, the Panel found that Abramoff “has not met his burden to prove by a preponderance of the relevant, admissible evidence that Respondent’s domain name has been registered and is being used in bad faith.”

Part of Abramoff's legal problem was that, aside from it being his name, the Panel found that he provided "no evidence of actual use of JACK ABRAMOFF as a trademark in connection with particular goods or services prior to the time 

Respondent registered the disputed domain name."

The Panel noted that “[o]ne cannot claim or enforce trademark rights in a mark that it has not used, and one cannot secure a U.S. Federal Trademark Registration absent “use in commerce.”

The Panel also found that the Respondent has rights or legitimate interests in the domain name because it has made a legitimate noncommercial or fair use pursuant to the Policy.

The Panel further noted that the use being made on the domain name is classic political speech, protected by the First Amendment, and, for trademark purposes constitutes nominative fair use.

Further, Abramoff had claimed to be “famous,” but the Panel found that the record reflects he is, in fact, “infamous."

When Your Best Defense is a Really Stupid Offense Against an Internet Titan

What do you do when you thought it was a good idea to invest thousands of dollars in over 750 domain names that have "Google" in them, such as “GoogleGayCruises.com” and “GoogleDonaldTrump.com"? You apparently spend MORE money to hire a couple of lawyers to try and convince a federal judge that "GOOGLE" is just a generic term.  Oh, and you demand that the Court should cancel the world's most valuable trademarks so you can keep those domain names you worked so hard to cybersquat on register and use in good faith.

The Internet is Becoming a Perpetually Lawless Frontier

In the American frontier of the 19^th Century, outlaws found virtually unbounded opportunities to rob pioneers of their treasured few possessions, while the few understaffed lawmen faced difficulty detecting, arresting, holding, and convicting wrongdoers.  In the early 21^st Century, the Internet represents a similarly lawless frontier.  A virtually infinite supply of domain names and websites has generated a gold rush mentality, as millions have sought to cash in by speculating on the virtual real estate that the Internet seems to offer.

The Internet’s frontier mentality has also attracted its share of brigands.  Those seeking to rob web users of their hard-earned money are the same types of predators who mastered the arts of deceit, theft and counterfeiting on the bygone frontier.  While their methods may be far more sophisticated, their fundamental approach is the same as old-fashioned con men.

Without any form of meaningful regulation, a dramatic new expansion of the Internet frontier is occurring, and is threatening to undermine any semblance of law and order that has been struggling to develop over the Internet.  The Internet Corporation for Assigned Names and Numbers, (“ICANN”) recently announced that it has received applications for more than 1,900 new domain name extensions, including: .BID, .BUY, .DEAL, .DESIGN, .DISCOUNT, .FASHION, .FREE, .GIFT, .HOT, .JEWELRY, .LOL, .LUXURY, .ONLINE, .SALE, .SHOP, .STORE, .VIP, .WATCHES, .WEB, .WTF, and .WOW.  Hundreds of these applications will likely be approved, and tens of millions of new domain names may be in use with these new extensions by the end of next year.

“ICANN’s program may open up new opportunities, but it also presents a whole new frontier of potential—and likely—abuse by those seeking to profit from the name, reputation, and content of others,” said Scott Bain, Chief Litigation Counsel for the Software and Information Industry Association, quoted by the Washington Post.

But everyday e-commerce web users are already facing a never-ending barrage of spurious websites selling counterfeit products online.  It is absolutely clear that in the absence of appropriate and effective legal structures requiring stricter verification and identification of domain name ownership and control, a dramatic and unprecedented expansion could be catastrophic for brand owners and consumers alike. 

Faced with the bruising public defeat of the Stop Online Piracy Act (“SOPA”) in January 2012, brand owners have undertaken aggressive actions to address online counterfeiting, including filing mega-lawsuits in federal court using existing laws and technology.  However, the online counterfeiting threat persists, and by some accounts has increased markedly.

ICANN president Rod Beckstrom said in a recent press conference that the group has added new provisions to protect intellectual property, including the option for rapid takedown when brand holders feel their IP may be threatened.  ICANN also reserves the right to take a domain name back if it there is significant abuse.

But ICANN should not be entitled to create a perpetually lawless frontier without applying consistent and binding legal regulations about the already-rampant intellectual property abuse occurring on the Internet.  

Without strict disclosure and domain name ownership laws in place, ICANN runs the risk of establishing the Internet as perpetual “wild west,” without any lawmen on their way to bring law and order to the troubled frontier.

Congress should act now to intervene and hold additional public hearings on how ICANN’s proposed domain name expansion program will affect consumers and brand owners, in the absence of laws addressing intellectual property abuse and consumer fraud already perpetrated online.

Meat Loaf Sues Impersonator for Cybersquatting

First and foremost, I must confess that I am a fan of Marvin (now “Michael”) Aday, better known to the world as the singer Meat Loaf.  I have the seven anthems from Bat out of Hell Part I permanently etched on my iPod, and every word of Phil Rizzuto’s monologue from Paradise By the Dashboard Light memorized.  I am also a trademark lawyer who generally represents Plaintiffs in Court against infringers, including having litigated major cases involving “replicas” and “knockoffs.”  So it was with great interest and pro-Meat Loaf bias that I read about the singer's recently filed federal Complaint against U.K.-based impersonator Dean Torkington.

In contrast to the legitimate MeatLoaf.net site, Dean Torkington apparently registered the Internet domain name MeatLoaf.org. MeatLoaf.com was apparently already taken (not by the rocker, but by Rebeccah’s Fine Foods, who registered it in 1995, and who doesn’t seem to have done much with it since then).

Initially, it is worth noting that Torkington’s website and materials identify himself as a “tribute.”  Tribute bands and celebrity impersonators present a challenging (if not amusing) area of intellectual property law.

The Torkington "mini-tour bus."

With most tribute bands, there is not likely to be much evidence of actual confusion at the point when an ordinarily prudent consumer buys a ticket to a tribute show.  (Such a duped consumer would be no true fan of Meat Loaf, as Torkington is at best, a poor-man’s Meat Loaf).  I must confess that if I saw Torkington’s tiny little "tour bus" parked in the lot, I would most certainly NOT suspect that the genuine Meat Loaf was nearby, and would not begin my search for an autograph.

Rather, in such cases, a Plaintiff must rely on more creative applications of trademark law, such as the doctrine of initial interest confusion, otherwise known as the “bait and switch.”  Under this established concept, even ordinarily prudent consumers are initially confused and attracted to the second-comer’s product or service, only to later discover the lack of authenticity.  Such infringement is still legally actionable, as it serves to divert interest and undermine the brand owner’s rights.

Aday references this theory in his Complaint, in which he asserts that true fans are searching for the genuine website on the Internet, only to discover Torkington’s close imitation.  Further, Torkington's use of logos and images is a little too close for comfort, and there is even an allegation that Torkington created a YouTube handle "Michael Aday" to fraudulently impersonate the Plaintiff.

Of course, because the nature of all tribute bands is, in a sense, expressive and therefore potentially constitutionally protected free speech, tribute bands can readily assert the nominative fair use defense, which can be applied where the defendant's use of the trademark refers to something other than the real product.  A federal court in the New Kids on the Block v. News America Publishing Inc. case articulated a three-part test for nominative fair use:

First, the product or service in question must be one not readily identifiable without use of the trademark; second, only so much of the mark or marks may be used as is reasonably necessary to identify the product or service; and third, the user must do nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder.

There are numerous Meat Loaf tribute bands which may satisfy this test, for example:  Dashboard Lights, Anything for Loaf, and my own personal favorite, Peat Loaf.

Finally, and potentially problematically for Mr. Torkington, if his domain name registration of MeatLoaf.org is deemed to have been in bad faith to capitalize on consumer confusion, he would not only lose the domain name, but face up to $100,000 in statutory damages.

In conclusion, Mr. Torkington may have come a little too close for comfort with his imitation of life.  In the words of the true Meat Loaf’s classic song, Torkington’s tributes will be gone when the morning comes.

Online Counterfeiting Likely to Escalate

Numerous federal lawsuits have been filed by Intellectual Property owners in recent years to attempt to address the intensifying online threat from "rogue websites."

Additionally, the US Department of Justice and US Department of Immigration and Customs Enforcement have seized millions of dollars in assets, as well as shuttered many such websites by utilizing existing criminal laws in the ongoing Operation In Our Sites.

However, while Internet traffic to these sites has been measured and determined to be substantial, little research has been done to empirically survey the existing body of data related to this phenomenon.

A comprehensive empirical survey of over 3,000 Internet websites that federal courts have ordered shut down because of their sale of counterfeit goods has revealed that online counterfeiters can collect immense profits by generating over $10,000 in sales with a $1,000 initial investment.

An analysis of an online counterfeiters' potential profit margin can be summarized in the sample breakdown of typical revenue and costs as follows: The average cost of registering a single Internet domain name: $10-$20 per domain name, annually. The average cost of hosting multiple e-commerce websites on a shared server: $120 to $160, annually. International shipping is either paid for by the customer, or absorbed by seller if it is a nominal cost (less than $10 per item). Credit Card/online payment processing fees: 3-5% of sale price. Wholesale cost of counterfeit goods varies by brand and product category.

For example, a typical counterfeit coat has a $40-$50 wholesale cost, retails for $230-$300 on a rogue website. A typical counterfeit handbag: $40-$50 wholesale cost, retails for $200-$300 on a rogue website. A typical counterfeit bracelet: $10 wholesale cost, retails for $70-$80 on a rogue website. A typical counterfeit watch: $10 wholesale cost, retails for $160 on a rogue website. 


Therefore, starting with a $1,000 investment, if one sets up a hosted e-commerce website ($160) linked to five domain names ($100), and invests the remaining funds ($700) in selling and shipping wholesale counterfeit goods, one could generate: Up to $11,200 by selling 70 counterfeit watches (11.2x the initial investment); Up to $5,600 by selling 70 counterfeit bracelets (5.6x the initial investment); or Up to $4,200 by selling 14 counterfeit coats or handbags (4.2x the initial investment).

This low-risk business model offers a comparable return on investment (ROI) to trafficking in illegal narcotics.  Because of this dramatic ROI, online counterfeiting networks are exponentially spreading on the Internet like an infection. For example, the ROI from a single successful website selling counterfeit products encourages the creation of many more such websites.

Skilled programmers who have access to sophisticated technology and an extensive supply of counterfeit products are creating and operating these sites. To protect their business model, they are employing a variety of creative tactics to frustrate efforts to monitor them and remove them from the marketplace.

For example, they dynamically redirect their websites across multiple servers located in different countries. Significant server bandwidth is dedicated to hosting such sites, with large blocks of server space and IP addresses dedicated to managing the Internet traffic to them. Counterfeiters' websites are creating significant actual consumer confusion. One reason is that prices for counterfeit goods are designed to be credible to suggest genuine, discounted products rather than low quality counterfeits. Goods received are typically shipped directly from locations throughout China and Hong Kong, and

China is the country most often named as the country of the Registrant. However, Registrants do not usually provide legitimate or consistent contact information when registering new domain names, often using gibberish, nonsensical words and false addresses. Further, some Registrants are using the "Privacy Protection" services offered by Registrars to purchase a cloak of further anonymity. Software applications make it easier for infringers to create, register and warehouse thousands of domain names that contain permutations of trademarked brands. These conclusions make it likely that "rogue websites" selling counterfeit goods will likely continue to proliferate, demanding that legal action be taken by brand owners.