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For almost two years, executives at Houston’s Spider Webs bought what they called “real estate” along the Information Super Highway. Brothers Steve and Pierce Thumann and their father, Fred Thumann, registered almost 2,000 Internet domain names since beginning their company in June 1999, spending an average of $70 apiece. The names included cities, buildings, business and trade terms (such as plumbing) and well-known companies. Spider Webs allegedly then offered some of these names for sale on its Web site and through the auction site ebay.com, according to the opinion in E. & J. Gallo Winery v. Spider Webs LTD., et al. But the company got tangled in its own web. On Jan. 29, a federal magistrate judge in Houston ordered Spider Webs to transfer the name of ernestandjulio.com to E. & J. Gallo Winery and pay the California-based company $25,000 in damages, even though Gallo did not show that it had lost any sales as a result of the name registration. The ruling of U.S. Magistrate Judge Marcia Crone of the Southern District for the Southern District of Texas granted the winery summary judgment under the federal Anti-Cybersquatting Consumer Protection Act, which Congress passed in 1999, and under the Texas Antidilution Statute. Dilution is an action that lessens the distinction of a trademark, such as selling a different kind of product under the company name. The ruling applied both laws to cybersquatting, which is the registration and sale of addresses that incorporate the names of well-known companies or individuals. Lawyers for Gallo dropped their remaining claims under federal and state trademark infringement laws, and Crone’s judgment became final Feb. 6. Three lawyers agree that the opinion is the first involving the Anti-Cybersquatting Consumer Protection Act from a federal court in the 5th U.S. Circuit Court of Appeals. “It is very helpful for trademark owners, and it’s the right decision,” says Craig Weinlein, a partner in Carrington Coleman Sloman & Blumenthal in Dallas who represents E. & J. Gallo Winery in the case. The ruling is particularly helpful in Texas because the magistrate also applied state law, which has broader protection than federal law, for the first time in this type of case, he says. Under federal trademark infringement and anti-dilution law, plaintiffs first must prove that a trademark is famous and that someone is making commercial use of it, Weinlein says. In Texas, they have to show only that the trademark is distinctive and that there is a likelihood of dilution, he says. Commercial use of a registered mark is not required under the state statute. Spider Webs’ lawyer, Chip Mathews of Hocker, Morrow & Mathews in Spring, Texas, says the ruling raises First Amendment questions. His clients never tried to sell the Gallo domain name, Mathews says, and there was no threat to the company. The Thumanns used the site and others like it to provide consumer information, and the only domain names they’ve tried to sell are generic ones, he says. “The judge has basically enjoined the completely noncommercial use of an Internet site,” he says. No decision has been made yet on whether to appeal, Mathews says. REAL ESTATE The Thumanns operate Doortown Inc., a millwork business in Houston, and are partners in Spider Webs. According to the opinion, Steve Thumann said in a deposition that the company regarded the domain name ernestandjuliogallo.com as real estate and intended to hold on to it, eventually hoping to make a profit. Gallo sued, alleging violations of the ACPA and dilution, trademark infringement and unfair competition under federal and Texas law. It sought a permanent injunction to prevent Spider Webs from using the name it had registered or registering any name that contains the words “Gallo,” “Ernest” or “Julio.” In addition, Gallo sought statutory and punitive damages. The opinion noted that about six months after the suit was filed, Spider Webs published a Web site accessed through the ernestandjulio.com address with comments on the court action, as well as information on the risks of alcohol consumption and a picture of a wine bottle marked “Whiney Winery.” In her ruling, Crone said that Spider Webs’ ownership of the domain name gives it exclusive control over the use of Gallo’s trademark of “Ernest & Julio Gallo,” effectively taking away the ability of the winery’s mark to serve as a unique identifier for its goods. The judge noted that there is no evidence that Gallo lost business because of Spider Webs’ actions and that the company never used the domain name in connection with the bona fide offering of any goods or services. However, the fact that Spider Webs developed the Web site after the suit was filed undermines any claim that the domain name was registered in good faith, Crone wrote. “… Spider Webs’ actions, including posting information on the Web site accessible by the domain name ernestandjuliogallo.com regarding this litigation and the dangers of alcohol consumption, have placed Gallo at risk of losing business and of having its business reputation tarnished.” Weinlein says the ruling is important because in the past, federal trademark infringement and dilution laws didn’t cover people who registered addresses and just sat on them. In addition, the opinion, by saying that no proof that the name was registered in bad faith is necessary under state law, will have a bigger impact on trademark owners in Texas, he says. He also believes the case does not involve a First Amendment issue, noting previous rulings from other federal courts that say using a trademark is not a free speech matter because the domain name is merely a source identifier. Matthew Yarbrough, a partner in Fish & Richardson in Dallas and head of the firm’s cyberlaw practice group, calls the ruling a good application of the anti-cybersquatting statute, which was meant to prevent domain names from being hijacked from legitimate trademark-holders. “This new federal law provides a new cause of action for this type of behavior and damages,” he says. Before 1999, the courts struggled with the dilution area and what to do about cases where someone registered a name and did nothing, he adds. Notes Yarbrough, “The court points out that under state law, it doesn’t matter if there’s no confusion or competition.”

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