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The Rise of a Secondary Market for Domain Names (Part 2/4): Origins of the Competition

Gerald M. Levine

Before the Internet, the sole competition for strings of characters employable as marks was other businesses vying to use the same strings for their own products and services. National registries solved this competition by allowing businesses in different channels of commerce to register the same strings (Delta Airlines/Delta Faucets, Apple Computers/Apple Vacations, etc.) but prohibiting competitors in the same industries from using identical or confusingly similar marks on the grounds that they were likely (at best) to create confusion and (at worst) to deceive the public. Marks by which merchants, manufacturers, traders, and service providers are known are intended to be the exclusive names of the first users in commence, who have the legal right to seek to punish infringers.

However, the emergence of an investor class dedicated to acquiring addresses in cyberspace disrupted mark owners' privileged position by mining strings of lexical and numeric characters they thought had value separate from their value as marks (while not excluding the possibility that the strings also may be attractive to brands searching for marks). The domain business has grown from a niche into an industry which, like the real estate market (to which it has been analogized), has developed a range of secondary service providers (databases, brokers, escrow agents, etc.) established to perform due diligence, facilitate sales, mitigate risks, and assure smooth closings and transfers of property.

This secondary market in domain names matured over time to compete with businesses and mark owners in a way that could hardly have been imagined, and to some mark owners, continues to be bewildering. That there was tension between owners of trademarks and registrants of domain names became evident once the Internet began its ascendancy. This reached a point of urgency in 1998 with the publication of a United States Government White Paper analyzing the nature of the problem. [1] The White Paper led the World Intellectual Property Organization (WIPO) to convene panels of representatives from different constituencies and interests for a two-year study of issues arising from the intersection of trademarks and domain names. The consensus reached by these constituencies together with their reasoning and recommendations is contained in a Final Report published in 1999. [2]

The Final Report proposed a rights-protection mechanism for marks that the Internet Corporation for Assigned Names and Numbers (ICANN) implemented in the Fall of 1999 as the UDRP. In the same time frame, President Clinton signed into law an amendment to the Lanham Act, the Anticybersquatting Consumer Protection Act (ACPA), which created a statutory remedy for cybersquatting.

The Final Report, echoing the White Paper, found:

It has become apparent to all that a considerable amount of tension has unwittingly been created between, on the one hand, addresses on the Internet in a human-friendly form which carry the power of connotation and identification and, on the other hand, the recognized rights of identification in the real world. [3]

This tension, the Final Report continued, "has been exacerbated by a number of predatory and parasitical practices that have been adopted by some to exploit the lack of connection between the purposes for which the DNS was designed and those for which intellectual protection exists." [4] The intention (in the words of the Final Report) was "to find procedures that will avoid the unwitting diminution or frustration of agreed policies and rules for intellectual property protection." [5]

Important to bear in mind, however, is that there is a countervailing policy. WIPO also recognized that mark owners were not the only ones with rights:

[T]he goal of this WIPO Process is not to create new rights of intellectual property nor to accord greater protection to intellectual property in cyberspace than that which exists elsewhere. Rather, the goal is to give proper and adequate expression to the existing, multilaterally agreed standards of intellectual property protection in the context of the new, multijurisdictional and vitally important medium of the Internet...

There is nothing in the Final Report that specifically contemplates a secondary market in domain names. This point is underscored in a recent UDRP decision involving a combination of dictionary words "print" and "factory." A three-member Panel noted in denying an application for reverse domain name hijacking that "the domaining business was not an activity which was intended when the Domain Name System was created ... and trademark holders keep being surprised by speculative business models that are developed around the scarce resource that domain names are." [6] Although it was not intended, there was consensus that ownership of marks did not equate to a superior right to corresponding domain names absent proof of registration and use in bad faith.

In fact, the direction of domain name jurisprudence through dispute resolution under the UDRP has been to delineate and define the conflicting rights, and for marks, this delineation has turned out to be more confined than what some owners would have wished for — and from what had existed for hundreds of years before the Internet. This is apparent in a further statement in the Final Report, namely, that the emerging jurisprudence will be "concerned with defining the boundary between unfair and unjustified appropriation of another's intellectual creations or business identifiers." [7]

The situation I am describing mainly affects two types of complainants: owners of marks that are on the weak end of the spectrum and new businesses that are searching for the right mark or that may have already registered a mark but find that investors got there first by registering corresponding domain names that now are unavailable except at a market price. I do not include in my discussion owners of marks postdating the registration of corresponding domain names because they have no actionable claim for cybersquatting under the UDRP or the ACPA.

Endnotes:

[1] Statement of Policy on the Management of Internet Names and Addresses, U.S. Department of Commerce, National Telecommunications and Information Administration (June 5, 1998) (White Paper). The Policy is available on the Internet at http://www.ntia.doc.gov/federal-register-notice/1998/statement-policy-management-internet-names-and-addressesere.
[2] WIPO Final Report, supra note 3.
[3] Id. ¶ 22.
[4] Id. ¶ 23.
[5] Id. ¶ 34.
[6] Aurelon B.V. v. AbdulBasit Makrani, D2017-1679 (WIPO October 30, 2017).
[7] Id. ¶ 13.

Other parts in this series:

Part 1: A Tale of Competing Interests
Part 2: Origins of the Competition
Part 3: Domain Names as Virtual Real Estate
Part 4: Facilitating the Secondary Market

Originally published in Vol. 26, No. 3 of Bright Ideas (Winter 2017), a publication of the Intellectual Property Law Section of the New York State Bar Association.

By Gerald M. Levine, Intellectual Property, Arbitrator/Mediator at Levine Samuel LLP Information about the firm can be found on the Firm’s website at iplegalcorner.com. Mr. Levine has a litigation and counseling practice representing clients in Intellectual Property rights and management, Internet and Cyberspace issues, domain names and cybersquatting, as well as a diverse range of legal and business matters from working with client to resolve commercial disputes, to copyright and trademark counseling and registrations. Visit Page
Related topics: Domain Management, Domain Names
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