Facebook Wins Millions From Defaulted Cybersquatting Defendant

A U.S. District Court recommended awarding Facebook $2.8 million in damages for a cybersquatting lawsuit.  Facebook, Inc. v. Banana Ads LLC, et al., Case No. CV 11-03619 (N.D. Ca. April 30, 2013) (available here).  The Judge, ruling in FaceBook’s (“FB”) favor on FB’s motion for default judgment against numerous defendants under the Anticybersquatting Consumer Protection Act (ACPA), 15 U.S.C. sec. 1125(c) (part of the Lanham Act, the federal Trademark Act), recommended a $2.8 million damages award.  At press time, the recommendation has not yet been approved and adopted by the U.S. District Court Judge, however such recommendations are generally approved and entered.

FB owns various federally registered trademarks and service marks related to its social network.  Each of the defendants registered at least one website domain name that included or misspelled the FACEBOOK domain, facebook.com (mispellings are typically called “typo-squatting”).  One defendant, Cleanser Products, used infringing “landing websites,” which redirected Internet users when they visited the infringing domain names to another website.  FB sued and no defendant filed responsive pleadings.  FB asked for default judgment, statutory damages, transfers of all accused domain names, and permanent injunctions against infringing the use of the FACEBOOK mark and interfering with FB’s business in the future.

Before ruling on the substance of FB’s motion, the Court addresses the issues of personal jurisdiction over the parties, subject matter jurisdiction, and ensured whether defendants were adequately served.  Thereafter, the Court considered: “(1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff’s substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action[,] (5) the possibility of a dispute concerning material facts[,] (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decision on the merits.”  Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).

On the merits, the Court concluded that FB would suffer prejudice without the default judgment because FB has no other way to protect itself and its trademarks.  As for the second factor, the Court considered the ACPA claims to each defendant.  “Generally, a defendant is directly liable under the ACPA if he (1) registers, traffics in, or uses a domain name that is (2) identical or confusingly similar to a famous or distinctive mark owned by the plaintiff with (3) a bad-faith intent to profit from the mark.”  Facebook, Slip Op. P. 9.

The Court then considered each of the defendants’ domain names and concluded that they were all confusingly similar to FB’s domain name, FACEBOOK.  A domain name is confusingly similar if it incorporates a registered mark, or adds, deletes, or rearranges letters of the mark.  Some of the defendants’ domain names were <facebobk.com>; <facebooj.com>; <ffacebook.com>; and <facebookwelcome.com>.

The Court concluded that the defendants acted with the bad-faith intent to profit from the FACEBOOK mark by registering and using infringing domain names to divert internet traffic from FB’s website. The Court further concluded that defendants could not claim safe harbor protection under the ACPA because the defendants “used the FACEBOOK mark to deceive users and profit from Facebook’s fame, rather than to engage in parody, comment, or another lawful use.”  Facebook, Slip Op. P. 15.

FB alleged that defendant Cleanser Products was guilty of contributory liability under the ACPA for materially contributing to direct infringement by providing the infringing websites to the other defendants.  Cleanser Products registered several domain names and used them to host landing pages designed to resemble FB’s website.  Cleanser Products would monetize the redirected internet traffic based on this typo-squatting scheme.  The users would be prompted to enter their personal information, view and click on advertisements, and purchase products.  “In sum, Cleanser Products provided deceptive landing websites to monetize illicit Internet traffic from infringing domain names, with full knowledge that those direct infringers with whom it collaborated were seeking to profit in bad faith from Facebook’s mark. Therefore, Cleanser Products is contributorily liable under the ACPA.”  Facebook, Slip Op. P. 22.

“Theoretically, if the material facts were found to be untrue, the effect of a permanent injunction on any non-use of the Facebook [FB] marks and the transfer of the infringing domain names would be negligible, because there would be no legitimate conduct to be enjoined, and Default Defendants could move to set aside the default judgment awarding statutory damages.”  Facebook, Slip Op. P. 22.  Thus, there was no possibility of a dispute concerning the material facts.  The Court concluded that nothing suggested that the defendants acted with excusable neglect and that the factors outweighed the Federal Rules of Civil Procedure’s preference for a decision on the merits.  As a result, the Court recommended entry of default judgment against all defendants.

Turning to the money issue, the Court noted that FB sought the maximum statutory damages of $100,000 per infringing domain name under 15 U.S.C. § 1117(d), for a total of over $26 million.  However, some defendants’ conduct was more severe than others.  The Court therefore awarded damages based on each defendant’s specific conduct.  The factors include “[a] number of domain names registered, [b] whether there was an attempt to conceal the registrant’s  identity, [c] whether the correct spelling of Plaintiff’s trademark is contained in the infringing domain names, [d] whether an individual defendant is a serial cybersquatter, and [e] whether internet traffic was redirected to Cleanser Products’ landing websites.”  Facebook, Slip Op. P. 25.

The Court determined that the number of domain names registered was indicative of the amount of bad faith.  Thus, defendants who registered between 1 and 9 infringing domains would be liable for $5,000 per domain, while those that registered between 40 and 49 domain names would be liable for $25,000 per domain.  The Court concluded that Cleanser Products’ websites were more egregious, and those defendants who were involved in the typo-squatting schemes would be assessed double damages for each domain that redirected users to Cleanser Products’ websites.  The Court assessed extra damages on defendants for a variety of factors, such as using the correct spelling of the FACEBOOK mark.  In the end, the amount of damages ranged from $5,000 for one defendant to $1.3 million for another defendant.  In total, the Court awarded FB $2.8 million in damages.

The Court found it reasonable to transfer almost all of the infringing domains to FB and agreed that a permanent injunction was appropriate.

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