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Date: 04-03-2002

Case Style: E & J Gallo Winery v. Spider Webs, Ltd., et al.

Case Number: 01-20333

Judge: E. Grady Jolly

Court: United States Court of Appeals for the Fifth Circuit

Plaintiff's Attorney: Unknown

Defendant's Attorney: Unknown

Description: The Ernest and Julio Gallo Winery ("Gallo") holds a trademark in the name "Ernest & Julio Gallo." Spider Webs Ltd. registered the internet domain name "ernestandjuliogallo.com" (the "domain name"). Gallo sent Spider Webs a letter requesting that they release or transfer the domain name to Gallo, but Spider Webs refused to do so. Gallo sued Spider Webs under the Anti-Cybersquatting Consumer Protection Act ("ACPA"), and under federal and Texas anti-dilution, trademark infringement, and unfair competition laws. After this litigation began, Spider Webs hosted a web site at the domain name that was critical of this litigation, of alcohol, and of corporate America. The parties consented to proceed before a magistrate judge, who granted summary judgment to Gallo on the ACPA and Texas Anti-Dilution Statute ("ADS") claims, issued an injunction under the ADS, ordered the transfer of the domain name to Gallo under the ACPA, and awarded statutory damages to Gallo under the ACPA. Spider Webs appeals.

* * *

Ernest & Julio Gallo Winery ("Gallo") registered the trademark "Ernest & Julio Gallo" on October 20, 1964 with the United States Patent and Trademark Office, as Registration Number 778,837. Gallo has registered a number of other trademarks, as well as internet domain names, but had not registered the domain name at issue here. It is no surprise to us that Gallo has sold more than four billion bottles of wine and has spent more than $500 million promoting its brands. On the other hand, the individual defendants, brothers Steve and Pierce Thumann, and their father, Fred Thumann, trustee, run a family-owned prehanging millwork business named Doortown, Inc. In June 1999, they created Spider Webs Ltd. as a limited partnership. According to Steve Thumann, Spider Webs's business plan is to develop internet address names. It has registered more than 2000 internet domain names through Network Solutions, Inc., one of the companies responsible for the registration of internet domain names. Approximately 300 of these contained names that could be associated with existing businesses, including "ernestandjuliogallo.com," "firestonetires.com," "bridgestonetires.com," "bluecross-blueshield.com," "oreocookies.com," "avoncosmetics.com," and others. As the trial court found, because internet domain names cannot contain ampersands or spaces, and because all internet domain names must end in a top-level domain such as ".com," ".org," ".net," etc., "ernestandjuliogallo.com" is effectively the same thing as "Ernest & Julio Gallo." E. & J. Gallo Winery v. Spider Webs Ltd., 129 F.Supp.2d 1033, 1041 (S.D. Tex. 2001). Spider Webs sells some of the names it has registered on its web site and on the internet auction site Ebay (and apparently has refused to accept any bids of less than $10,000), although it has not yet offered "ernestandjuliogallo.com" for sale. Steve Thumann admitted in his deposition that "ernestandjuliogallo.com" is valuable because of the goodwill that Gallo had developed in its name, and that when they registered this domain name they "hoped that Gallo would contact us and we could assist them in some way." However, Spider Webs did not initiate any contact with Gallo, nor did it attempt to sell the domain name to Gallo.

Approximately six months after Gallo brought this lawsuit, Spider Webs published a website at "ernestandjuliogallo.com" that discussed the lawsuit, the risks associated with alcohol use, and alleged misrepresentations by corporations. It contained a picture of the upper half of a wine bottle with the words "Whiney Winery" ("the Whiney Winery website"). It had links to a number of other pages on the site, including: an Alcohol Awareness page that discussed the dangers of alcohol; an "Our Mission" page that was critical of corporate America; a "Press Release" about the lawsuit; and a letter from a Gallo lawyer. Although the first page contained a disclaimer that stated "This Site Is Not Affiliated With Ernest & Julio Gallo (R) Wineries," none of the other linked pages did. As of the date of the trial court's opinion, typing in "www.ernestandjuliogallo.com" as the address on a web browser led a user to a website entitled "SpinTopic." Spider Webs states that the SpinTopic website is owned by it and is a noncommercial, nonprofit, consumer information site.

After the defendants registered the domain name, Gallo sent a letter to Spider Webs, requesting that they release or transfer to Gallo the domain name, but Spider Webs refused to do so. On February 11, 2000, Gallo filed suit against Spider Webs Ltd., Steve Thumann, Pierce Thumann, and Fred Thumann, Trustee (collectively, "Spider Webs"), alleging violations of the Anti-Cybersquatting Consumer Protection Act ("ACPA"), 15 U.S.C. 1125(d), trademark dilution under federal and Texas law, see Texas Anti-Dilution Statute, Tex. Bus. & Com. Code 16.29, trademark infringement under federal and Texas law, and unfair competition under federal and Texas law. Approximately six months later, Spider Webs published the Whiney Winery website at "ernestandjuliogallo.com." On August 31, 2000, Gallo moved for partial summary judgment on its claims of violations of the Texas Anti-Dilution Statute and the ACPA. The magistrate judge granted summary judgment to Gallo on these claims, holding that under the Texas ADS Gallo owned a distinctive mark and Spider Webs's actions created a likelihood of dilution of that mark, thereby violating the ADS. E. & J. Gallo, 129 F.Supp.2d at 1037-42. The trial court further held that the ACPA was constitutional, that Spider Webs had registered the domain name in bad faith under the ACPA's standard, that Spider Webs's use was not a fair use, and therefore Spider Webs had violated the ACPA. Id. at 1042-48. The court ordered the defendants to transfer the domain name to Gallo within ten days from the entry of judgment, as allowed by the ACPA, see 15 U.S.C. 1125(d)(1)(C), and entered a permanent injunction under the ADS restraining them "from using the Internet domain name 'ERNESTANDJULIOGALLO.COM,' registering any domain name that contains the word 'Gallo,' and registering any Internet domain name that contains the words 'Ernest' and 'Julio' in combination." Id. at 1048. The court also awarded Gallo $25,000 in statutory damages under the ACPA, plus post-judgment interest and costs. The court granted Gallo's unopposed motion to dismiss the rest of its claims, without prejudice. Spider Webs moved for a new trial, which the magistrate judge denied. Spider Webs then filed this appeal.

* * *

Spider Webs does not appeal the holdings that Gallo had a valid registration in its mark, that the mark is famous and distinctive, and that the domain name registered by Spider Webs is identical or confusingly similar to Gallo's mark. However, Spider Webs argues that they did not act with a "bad faith intent to profit," as required by the ACPA. The ACPA prohibits "cybersquatting" by providing that:

A person shall be liable in a civil action by the owner of a mark, including a personal name which is protected as a mark under this section, if, without regard to the goods or services of the parties, that person

(i) has a bad faith intent to profit from that mark, including a personal name which is protected as a mark under this section; and

(ii) registers, traffics in, or uses a domain name that--

(I) in the case of a mark that is distinctive at the time of registration of the domain name, is identical or confusingly similar to that mark;

(II) in the case of a famous mark that is famous at the time of registration of the domain name, is identical or confusingly similar to or dilutive of that mark; or

(III) is a trademark, word, or name protected by reason of section 706 of Title 18 or section 220506 of Title 36.

15 U.S.C. 1125(d)(1)(A). In order to determine whether someone has acted in bad faith under the ACPA,

a court may consider factors such as, but not limited to

(I) the trademark or other intellectual property rights of the person, if any, in the domain name;

(II) the extent to which the domain name consists of the legal name of the person or a name that is otherwise commonly used to identify that person;

(III) the person's prior use, if any, of the domain name in connection with the bona fide offering of any goods or services;

(IV) the person's bona fide noncommercial or fair use of the mark in a site accessible under the domain name;

(V) the person's intent to divert consumers from the mark owner's online location to a site accessible under the domain name that could harm the goodwill represented by the mark, either for commercial gain or with the intent to tarnish or disparage the mark, by creating a likelihood of confusion as to the source, sponsorship, affiliation, or endorsement of the site;

(VI) the person's offer to transfer, sell, or otherwise assign the domain name to the mark owner or any third party for financial gain without having used, or having an intent to use, the domain name in the bona fide offering of any goods or services, or the person's prior conduct indicating a pattern of such conduct;

(VII) the person's provision of material and misleading false contact information when applying for the registration of the domain name, the person's intentional failure to maintain accurate contact information, or the person's prior conduct indicating a pattern of such conduct;

(VIII) the person's registration or acquisition of multiple domain names which the person knows are identical or confusingly similar to marks of others that are distinctive at the time of registration of such domain names, or dilutive of famous marks of others that are famous at the time of registration of such domain names, without regard to the goods or services of the parties; and

(IX) the extent to which the mark incorporated in the person's domain name registration is or is not distinctive and famous within the meaning of subsection (c)(1) of this section.

15 U.S.C. 1125(d)(1)(B)(i). The ACPA also provides a fair use defense: "Bad faith intent described under subparagraph (A) shall not be found in any case in which the court determines that the person believed and had reasonable grounds to believe that the use of the domain name was a fair use or otherwise lawful." 15 U.S.C. 1125(d)(1)(B)(ii).(2) If a court finds a violation of the ACPA, it may order the transfer of the domain name to the owner of the mark and may award statutory damages. See 15 U.S.C. 1125(d)(1)(C), 1117(d).

We turn now to consider the listed bad-faith factors as they apply to this case. Spider Webs has no intellectual property rights or trademark in the name "ernestandjuliogallo," aside from its registered domain name. The domain name does not contain the name of Spider Webs or any of the other defendants. Spider Webs had no "prior use" (or any current use) of the domain name in connection with the bona fide offering of goods or services. Under the fourth factor, Spider Webs's use is commercial, and there is no indication that it is a fair use. Steve Thumann admitted that the domain name was valuable and that they hoped Gallo would contact them so that they could "assist" Gallo in some way. Further, at least two other courts have found that when a defendant registers a domain name that is identical to someone else's trademarked name and thereby impacts the trademark owner's business by preventing internet users from reaching the trademark owner's own web site, this is impacts the trademark owner's business and is a use "'in connection' with goods and services." People for the Ethical Treatment of Animals v. Doughney, 113 F.Supp.2d 915, 919 (E.D. Va. 2000) ("PETA") (citing Planned Parenthood Federation of America, Inc. v. Bucci, 42 U.S.P.Q.2d 1430, 1435 (S.D.N.Y. 1997)) ("'[I]t is likely to prevent Internet users from reaching [PETA]'s own Internet web site. The prospective users of [PETA]'s services who mistakenly access Defendant's web site may fail to continue to search for [PETA]'s own home page, due to anger, frustration, or the belief that the Plaintiff's home page does not exist.'").

Additionally, there is uncontradicted evidence that Spider Webs was engaged in commerce in the selling of domain names and that they hoped to sell this domain name some day. Although Spider Webs did not offer "ernestandjuliogallo.com" for sale, it has offered for sale other domain names that it has registered. Steve Thumann stated that Spider Webs intended to wait until the ACPA is declared unconstitutional before selling the domain name here. E. &. J. Gallo, 129 F.Supp.2d at 1046. Spider Webs admitted that Gallo had a valuable trademark, and that when they registered the domain name they hoped Gallo would contact them so they could "assist" Gallo. Indeed, the Ninth Circuit had found that one can be in the "business" of "register[ing] trademarks as domain names and then sell[ing] them to the rightful trademark owners." Panavision Intern., L.P. v. Toeppen, 141 F.3d 1316, 1325 (9th Cir. 1998). The ACPA was passed to address situations just like this one: "For example, many cybersquatters are now careful to no longer offer the domain name for sale in any manner that could implicate liability under existing trademark dilution law. And, in cases of warehousing and trafficking in domain names, courts have sometimes declined to provide assistance to trademark holders, leaving them without adequate and effective judicial remedies." Sporty's Farm L.L.C. v. Sportsman's Market, Inc., 202 F.3d 489, 495-96 (2d Cir. 2000) (quoting S. Rep. No. 106-140, at 7 (1999), on the ACPA).(3)

Additionally, there is no evidence that Spider Webs actually used the domain name until after the lawsuit began. The Second and Third Circuits have indicated that when a registrant first uses a web site after litigation begins, this undermines any claim that the use was in good faith or was a fair use under the ACPA. See Sporty's Farm L.L.C., 202 F.3d at 499 (considering bad faith factors and finding bad faith); Shields v. Zuccarini, 254 F.3d 476, 485-86 (3d Cir. 2001) (same). Under the fifth bad faith factor, the fact that Spider Webs hosted a website using Gallo's trademarked name, at which it disparaged the instant litigation and alcohol, is evidence of intent to harm Gallo's goodwill and to tarnish its mark. See, e.g., PETA, 113 F.Supp.2d at 920 ("Defendant clearly intended to confuse, mislead and divert internet users into accessing his web site which contained information antithetical and therefore harmful to the goodwill represented by the PETA mark.") Under the sixth and eighth factors, although Spider Webs has not offered this domain name for sale, it has registered other domain names that are identical or similar to the names of well-known businesses and products, has offered other domain names for sale, and has refused to accept less than $10,000 per name. These factors all favor a finding of bad faith. Under factor seven, there is no evidence that Spider Webs provided misleading contact information.

Finally, as to the last factor, there was evidence presented that Gallo's mark is distinctive and famous. See 15 U.S.C. 1125(c)(1) (listing factors to consider). Further, Gallo registered the mark, which is a family name, thirty-eight years ago, and other courts have found that "'Gallo' has clearly become associated with wine in the United States such that its evolution to 'secondary meaning' status may not be seriously questioned." E. & J. Gallo Winery v. Consorzio del Gallo Nero, 782 F.Supp. 457, 462 (N.D. Cal. 1991). In sum, seven of the nine statutory factors strongly support a finding of bad faith.

Additionally, this court is not limited to the consideration of the listed statutory factors, but can consider other factors as well. See 15 U.S.C. 1125(d)(1)(A)(i) (court can consider factors "such as, but not limited to" the listed statutory factors). For example, "[w]hen the senior user's trademark is famous in the marketplace and where the junior user was aware of the trademark and of its fame, a presumption of bad faith arises from the choice of the same name because it is inferrable that the junior user adopted the mark for the purpose of profiting from the aura of goodwill surrounding the senior user's mark." E. & J. Gallo Winery v. Gallo Cattle Co., 12 U.S.P.Q.2d 1657, 1675 (E.D. Cal. 1989), aff'd, 967 F.2d 1280 (9th Cir. 1992). The circumstances of this case all indicate that Spider Webs knew Gallo had a famous mark in which Gallo had built up goodwill, and that they hoped to profit from this by registering "ernestandjuliogallo.com" and waiting for Gallo to contact them so they could "assist" Gallo.

Considering the statutory factors and all the circumstances of this case, the trial court's conclusion that Spider Webs acted with a bad faith intent to profit and its grant of summary judgment to Gallo on this issue were appropriate.(4)

Spider Webs also argues that the trial court should not have awarded Gallo $25,000 in statutory damages under the ACPA because Gallo did not suffer any actual injury. We review a trial court's award of damages for clear error. St. Martin v. Mobil Exploration & Producing U.S. Inc., 224 F.3d 402, 410 (5th Cir. 2000).

The United States trademark laws provide that:

In a case involving a violation of section 1125(d)(1) of this title [the ACPA], the plaintiff may elect, at any time before final judgment is rendered by the trial court, to recover, instead of actual damages and profits, an award of statutory damages in the amount of not less than $1,000 and not more than $100,000 per domain name, as the court considers just.

15 U.S.C. 1117(d). Spider Webs notes that under the ACPA and applicable portions of 1117, damages "shall not be available with respect to the registration, trafficking, or use of the domain name that occurs before the date of the enactment of this Act [November 29, 1999]." 1999 Acts, P.L. 106-113, 3010, 113 Stat. 1536. They argue that because they registered the domain name prior to enactment of the ACPA, they cannot be liable. However, the evidence before the trial court demonstrated that Spider Webs "used" the domain name at least since August 15, 2000, when it hosted the "Whiney Winery" website at the domain name. See, e.g., Shields, 254 F.3d at 486-87 (continued use of domain name confusingly similar to a trademarked name after the ACPA's effective date entitled the trademark owner to statutory damages). Therefore, although Spider Webs registered the domain name before the effective date of the ACPA, because they used the domain name after this date, they can be held liable for statutory damages for this use.

In Shields, the Third Circuit affirmed an award of statutory damages of $10,000 per infringing domain name for the five infringing domain names in that case. Id. The defendant in Shields stated that he only used the infringing names for sixty days, but the Third Circuit noted that there was no requirement that the court consider the duration of the infringement when calculating statutory damages, and that the court could award damages as it considered "just" under the statute. Id. at 487. These considerations indicate that the award of damages here was not in clear error.

The statutory damages provisions in the ACPA, which is relatively new, are akin to the statutory damages provisions of the copyright laws.(5)

In copyright law, the Supreme Court has said that the "statutory [damages] rule, formulated after long experience, not merely compels restitution of profit and reparation for injury but also is designed to discourage wrongful conduct." F.W. Woolworth Co. v. Contemporary Arts, Inc., 344 U.S. 228, 233 (1952). In this case, although Gallo did not present evidence that it actually lost any business due to Spider Webs's actions, the trial court found that Spider Webs's actions put Gallo "at risk of losing business and of having its business reputation tarnished." E. & J. Gallo Winery, 129 F.Supp.2d at 1048. The award of $25,000 in statutory damages in response to the defendants' conduct is not clear error.

* * *

The trial judge also found that the Texas Anti-Dilution Statute ("ADS") applies to non-commercial activities, and that Spider Webs's conduct violated the ADS. The trial court issued an injunction against Spider Webs, as allowed by the Texas ADS. See Tex. Bus. & Comm. Code. 16.29. We review the trial court's grant of summary judgment on this issue de novo. See Mississippi River Basin, 230 F.3d at 174. Because we have found that Spider Webs's use was commercial, we need not decide whether the ADS applies to non-commercial activities. We agree with the trial court, however, that Spider Webs's use violated the ADS.

Outcome: For the reasons set forth above, the trial court correctly entered an injunction under the Texas ADS, ordered Spider Webs to transfer the domain name to Gallo under the ACPA, and awarded Gallo statutory damages under the ACPA, as well as post-judgment interest and costs. Accordingly, the judgment of the district court is AFFIRMED.

Plaintiff's Experts: Unavailable

Defendant's Experts: Unavailable

Comments: None

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