Arbitration Is Not the Answer in Fights Over Domain Names
The 3rd U.S. Circuit Court of Appeals has ruled that an arbitration panel's decision in a dispute over the rights to an Internet domain name is not entitled to the deference given to arbitrations covered by the Federal Arbitration Act. The loser in a proceeding under the Uniform Domain Name Dispute Resolution Policy can freely challenge the outcome in court -- placing the effectiveness of the UDRP into serious doubt.
By David Leit and Lisa C. Fodor|April 04, 2003 at 12:00 AM
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On Feb. 20, 2003, the 3rd U.S. Circuit Court of Appeals ruled that an arbitration panel’s decision in a dispute over the rights to an Internet domain name is not entitled to the deference given to arbitrations that are covered by the Federal Arbitration Act. As a result, the loser in a proceeding under the Uniform Domain Name Dispute Resolution Policy (UDRP) can freely challenge the outcome in court. Moreover, the losing party can reargue the same issues that were unsuccessful in the UDRP proceeding. The 3rd Circuit’s decision places the effectiveness of the UDRP, adopted by the Internet Corporation for Assigned Names and Numbers in 1999, into serious doubt. DHUHOS V. STRASBERG In Dluhos v. Strasberg, 2003 U.S. App. LEXIS 3014 (Feb. 20, 2003), the 3rd Circuit held that the UDRP’s nonbinding dispute resolution procedure does not qualify as arbitration as defined by case law interpreting the FAA. Accordingly, the appellate court gave the plaintiff domain name registrant, Eric Dluhos, the opportunity to reargue his case before the U.S. District Court for the District of New Jersey. Dluhos registered the domain name www.leestrasberg.com in June of 1999. CMG Worldwide Inc., an entity that represents and manages Internet sites for the estate of actor and acting coach Lee Strasberg, and his widow, Anna Strasberg, wrote to Dluhos to inform him that his use of the domain name violated the Strasberg trademarks. When Dluhos failed to respond, CMG and its clients complained to ICANN and initiated proceedings under the UDRP through the National Arbitration Foundation. Dluhos refused to participate in the UDRP proceedings and instead filed suit in New Jersey federal district court against Anna Strasberg, the estate, CMG and others. The NAF panel suspended the arbitration proceedings pending the outcome of the litigation, but later lifted the suspension order when Dluhos failed to serve the defendants in the federal case. In October of 2000, without Dluhos’ participation, the NAF panel found in favor of the Strasberg parties and directed that the domain name be transferred to Lee Strasberg’s estate. Dluhos then revived his federal suit. The district court upheld the NAF arbitration award under the FAA’s extremely deferential standard of review. Dluhos appealed. STANDARD OF REVIEW Under the FAA, courts reviewing arbitration awards are required to be extremely deferential to the arbitrator’s decision. A dispute resolution mechanism that qualifies as arbitration under the FAA may be vacated by a district court only in exceedingly narrow circumstances, such as partiality or corruption on the part of the arbitrator or misconduct by the arbitrator in refusing to hear evidence that is pertinent and material to the controversy. A district court may also vacate an arbitrator’s decision when that decision displays a manifest disregard for the law (as opposed to an erroneous interpretation of the law). Under this deferential standard of review, district courts affirm the vast majority of arbitration awards. In contrast, a dispute resolution process that does not constitute arbitration under the FAA is not entitled to such deference. The district court is not bound by those proceedings and may review the issues anew. In Dluhos, the 3rd Circuit determined that UDRP proceedings do not qualify as arbitration under the FAA. STANDARD FOR ARBITRATION The FAA applies only to proceedings that are likely to “realistically settle the dispute.” The 3rd Circuit has described the essence of arbitration as an agreement between parties to submit their contractual disputes to an arbitration proceeding. The parties must agree to arbitrate the dispute through to completion, such as an award made by a third-party arbitrator. Arbitration does not occur until the process is complete and the arbitrator has reached a final decision. In the context of nonbinding arbitration (such as under the UDRP), the issue is whether the arbitration may realistically settle the dispute. Proceedings will only qualify as arbitration under the FAA if there is a reasonable commercial expectation that the disputes will be settled by the arbitration proceedings. As a result of the 3rd Circuit’s holding, courts are not obliged to defer to the results of UDRP proceedings. In reaching its decision, the 3rd Circuit discussed three factors. The UDRP mechanism contemplates the possibility of judicial intervention. No provision of the UDRP prevents a party from filing suit before, after or during the arbitration proceedings. In fact, the UDRP specifically provides that participation in its arbitration proceedings does not prevent the domain name registrant or the complainant from submitting the dispute to a court for independent resolution before or after the proceedings are commenced. The 3rd Circuit emphasized that UDRP proceedings were never intended to replace formal litigation, but were simply designed as a convenient method for quick resolution of disputes. The court described the UDRP as an “online” procedure, administered via the Internet, which does not permit any of the following:
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