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Last month, the 5th U.S. Circuit Court of Appeals affirmed a summary judgment for Ernest & Julio Gallo Winery on its claims of cybersquatting and trademark dilution against Spider Webs Ltd. for registration and use of the domain name “ernestandjuliogallo. com.” The court upheld the constitutionality of the federal Anticybersquatting Consumer Protection Act and confirmed that so-called domain name “warehousers” and “traffickers” can be liable and enjoined even if they never offered to sell the domain name to the trademark owner, and even if the domain name was never used prior to the lawsuit. The crucial lesson to be learned by practitioners, trademark owners and domain name owners is the importance of reviewing the relevant state trademark dilution statutes, which may provide for liability even if the trademark at issue is not famous. E & J Gallo Winery v. Spider Webs Ltd., 2002 WL 423451, also demonstrates that commencing use of a domain name with an active Web site after a lawsuit has been filed can lead to a finding of liability. Given the push for new top-level domains and cybersquatters’ evolving techniques and level of legal awareness, it is likely that courts will continue the trend of more closely scrutinizing the intent of those who register domain names comprised of recognized trademarks. Beginning in June 1999, Spider Webs Ltd. registered nearly 2,000 domain names, including names associated with existing companies (e.g., “firestonetires.com” and “oreocookies.com”). It offered many of its domain names for sale through its Web site and eBay.com, with some names offered for millions of dollars. On August 26, 1999, Spider Webs registered the domain name “ernestandjuliogallo.com.” It admitted that it regarded the domain name as “real estate” and that it hoped Gallo would contact Spider Webs so that it “could assist [Gallo] in some way.” However, Spider Webs never offered the domain name for sale, and it never initiated any contact with Gallo. Gallo nonetheless learned of Spider Webs’ registration of “ernestandjuliogallo.com.” Gallo had obtained a U.S. trademark registration in 1964 for the trademark “Ernest & Julio Gallo” for wines. Furthermore, Gallo had sold more than 4 billion bottles of wine and spent more than $500 million promoting its brands. Consequently, it wrote to demand that Spider Webs either release the domain name or transfer it to Gallo. Spider Webs refused and, as a Texas general partnership, found itself in federal court in Texas facing allegations of trademark infringement, trademark dilution and unfair competition under federal and Texas law, and violation of the ACPA. Six months later, Spider Webs posted a Web site titled the “Whiney Winery” at the “ernestandjuliogallo.com” address, which included a discussion about the dangers of alcohol, a section criticizing corporate America, a letter to Spider Webs from Gallo’s attorney and disparaging commentary about Gallo’s suit. Gallo moved for partial summary judgment on its claims under Texas’ Anti-Dilution Statute and the ACPA. Gallo’s motion was granted, and Spider Webs was ordered to transfer the “ernestandjuliogallo.com” domain name to Gallo, and to pay Gallo $25,000 in statutory damages plus post-judgment interest and costs. Spider Webs was also permanently enjoined from using the domain name “ernestandjuliogallo.com,” and from registering any domain name containing the word “Gallo” or a combination of the words “Ernest” and “Julio.” The 5th Circuit affirmed the summary judgment in its entirety. In particular, the 5th Circuit agreed that Spider Webs’ use of “ernestandjuliogallo. com” violated Texas’ Anti-Dilution Statute, which provides for an injunction if the defendant’s actions are likely to injure a business reputation or to dilute the distinctive quality of a valid trademark or trade name, regardless of whether there is competition between the parties or confusion as to the source of goods or services. The Texas statute, unlike its federal counterpart, does not require the trademark owner to make the more difficult showing that its trademark is famous; therefore, the strength of Gallo’s mark was not seriously disputed as is often the case in dilution litigation. Instead, based in large part on Spider Webs’ posting of the “Whiney Winery” Web site, Gallo persuaded the court that there was an imminent and irreparable likelihood of dilution because such postings could harm Gallo’s reputation and goodwill. In addition, although Spider Webs never attempted to contact or sell the domain name to Gallo (such sales attempts are a practice that courts have recognized many cybersquatters now avoid), the 5th Circuit confirmed that Spider Webs had a “bad faith intent to profit” and thus was liable under the ACPA. Most importantly, the court found that Spider Webs: had no intellectual property rights in “ernestandjuliogallo. com” aside from the domain name registration; did not make any use of the domain name in connection with any goods or services prior to the litigation; was engaged in commerce in the selling of domain names, many of which were identical or similar to well-known businesses and products; and operated the disparaging “Whiney Winery” Web site at “ernestandjuliogallo.com,” which evidenced an intent to harm Gallo’s goodwill and to tarnish Gallo’s trademark. Spider Webs was also deemed to have made commercial use of the domain name because it admitted that the domain name was valuable and that it had hoped to be contacted by Gallo, and because it registered a domain name identical to Gallo’s trademark and thereby impacted Gallo’s business by preventing Internet users from reaching Gallo’s Web site. In the end, however, the 5th Circuit’s decision may have presented more questions than answers. The court side-stepped some of the thorniest issues relating to use of trademarks on the Internet — including whether the ACPA applies only to commercial use of a domain name and how one’s First Amendment rights measure up against cybersquatting and dilution laws. Also, in stating that the injunction may need to be modified because Spider Webs could develop a legitimate use for a domain name containing the words “Gallo,” “Julio” or “Ernest”, the court leaves open the question of whether use of a domain name that is clearly not controlled by the trademark owner (e.g., “XYZCompanySucks. com”) is permissible. Robert Burlingame is an intellectual property associate at Pillsbury Winthrop in San Francisco. His e-mail address is [email protected].

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