USING DOMAINS AS LEVERAGE TO COLLECT A DEBT

IVAN HOFFMAN, B.A., J.D.


        Here is the situation:  a site owner (“Complainant”) engages the services of an independent contractor web designer/developer/host (“Registrant”) to create/host a web site using a domain in which the Complainant has rights of trademark, either through federal registration or usage.  [Caveat: register your marks.  Your rights and remedies are infinitely greater.]  In the process, the Registrant registers a domain on behalf of the Complainant, lists the Registrant as either the actual owner of the domain or as the Administrative or other contact.  A dispute arises between the parties (yes, Virginia, business relationships often break down) and now the Registrant refuses to turn over the domain to the Complainant because, for instance, the Complainant owes the Registrant monies related to the underlying contract between the parties.  The Complainant brings an action under the Uniform Domain Name Resolution Policy (“UDRP”).  The issue is whether or not the UDRP covers such a complaint or whether the parties must resort to civil action at much higher expense.

        There are 3 cases I’d like to discuss that resolve in different directions.

The “Map Supply” Case

        In Map Supply Inc. v On-line Colour Graphics, Claim Number FA0012000096332,  the Complainant had a registered trademark in “Map Supply, Inc.” and owned the domain “mapsupply.com.”  The Complainant engaged the services of Multilynx to build a site under that domain.  The Respondent (Registrant and Respondent refer to the same parties in this article) in this instance was apparently an independent contractor firm engaged by Multilynx to do work on and host the site.  [Caveat As Well: This fact alone raises significant contractual and other legal issues as between original client and main contractor and which, if not resolved within the 4 corners of the written contract, can result in substantial legal problems, not the least of which arise here.  So much for using forms that are copied from the Internet or passed around for free.] The Complainant apparently paid Multilynx in full but the Respondent claims that it was not paid $3,200.00 by Multilynx.  As a result, Respondent transferred the domain to another server and refused to relinquish it to Complainant.

        The Panelist found:

While it may be more convenient for a web-site manager to become the registrant of the domain name, the Respondent has not offered any compelling evidence that a transfer of registration is technically necessary to perform management or maintenance services. On the contrary, I am satisfied that the services described in the invoice can be performed without the transfer of the domain name registration…

On the evidence presented to me, I reject the contention of the Respondent. I accept the argument of the Complainant that the better inference on this evidence is that the Respondent somehow managed to transfer domain registration without authority, and did so for the sole purpose of taking control of it as a security against payment.

        The Panelist then went on to summarize the requirements a Complainant must demonstrate under the UDRP to prevail.  Read “Burden of Proof in UDRP Actions.”
Paragraph 4(a) of the Policy requires that the Complainant must prove each of the following three elements to obtain an order that a domain name should be cancelled or transferred:
(1) the domain name registered by the Respondent is identical or confusingly similar to a trademark or service mark in which the Complainant has rights;
(2) the Respondent has no rights or legitimate interests in respect of the domain name; and
(3) the domain name has been registered and is being used in bad faith.
        The Panelist found the domain to be identical to the trademark.  The Panelist then stated, as to element (2):
I know of no factual or legal basis for the claim of the Respondent that, when its account was not paid, the Respondent "became the owner of the domain name” by default.

The Respondent [sic] argument does raise the interesting question whether an unpaid web designer once given control over a domain name by the client can retain it as a security for payment. In my view, this may be so. The law may recognize some sort of lien or charge against a domain name. To assert such a claim is to assert a legitimate interest. On that assumption, this could be a dispute to be decided by traditional means - as it would fall outside the scope of this tribunal.

        The Panelist found that while an unpaid designer etc. can take control of the work they created to secure unpaid amounts, that the designer cannot control the domain itself.  [Caveat Yet Again: these issues are not legally self-evident and should be the subject of the written contract between the parties.]  Thus, the Respondent had no legitimate interests in the domain.

        Finally, in seeking to find “bad faith,” the Panelist went outside of the non-exclusive examples in the UDRP and stated:

This is a novel case and does not quite fit within the four illustrations of bad faith expressed in Paragraph 4(b) of the ICANN Uniform Domain Name Dispute Resolution Policy. Nevertheless, to re-register a domain name without any authority from the registrant in order to gain a bargaining position over the registrant - with whom it had no legitimate dispute - is unconscionable. Paragraph 4(b) is explicit that the four illustrations of bad faith there stated are not exhaustive. The Respondent is guilty of bad faith.
        In other words, the key deciding point in this case was that the actual Respondent had no direct contractual relationship, i.e. was not in privity of contract, with the Complainant.  Respondent’s “beef,” if any, was as to the intervening party, Multilynx.  Thus, in the opinion of the Panelist, the Respondent did not have any legal basis for holding the domain hostage from the Complainant.

        What was not discussed in this case was that, true though the above statement may be, at the same time, because the contract between Complainant and Multilynx apparently was deficient in covering issues such as arose here, it may be that Respondent’s rights of copyright, if any existed, were at stake since without a written transfer agreement, Respondent may have retained exclusive rights to its work.  And these rights transcended the contractual relationships.

        The domain was transferred to the Complainant.

The “Clinomics” Case

        In Clinomics Biosciences, Inc. v. Simplicity Software, Inc., Case No. D2001-0823, the Complainant had a registered trademark in “Clinomics.”  It retained the Respondent to build a site under the domain “clinomics.com,” which was registered by Respondent.  The relationship went sour (Oh! my!  Not again) and Respondent claimed it was owed a lot of money and refused to turn over the domain to Complainant until it was paid.

        Both parties cited the “Map Supply” case as support for their respective positions.

        The Panelist stated:

I believe that Complainant's reliance on Map Supply is misplaced in this instance. In Map Supply, the finding of bad faith arose from the fact that there was no legitimate dispute over payment between Complainant and Respondent. Rather, the dispute involved Respondent and a third party, Multilynx. Here, the parties admit there is a legitimate dispute over Complainant's payment of Respondent’s bills. As noted in Map Supply, such a dispute, if properly documented and supported by applicable law, could give rise to a legitimate interest in the domain name as a lien to secure payment.

The claims of the parties here turn on whether or not there is a genuine dispute over Respondent’s contractual or legal right to retain the domain name as security for payment. Neither party here has provided us with any written contract to show the terms on which Respondent was retained to provide services. [See my bracketed remarks above. Further comments below.] Respondent states, however, that it was the intent of the parties in registering the domain name that Respondent would have the right to enforce its contractual rights through the exercise of a lien on the domain name. To decide this issue would require additional evidence and an evaluation of the commercial law of liens.

        The Panelist thus concluded that this was simply not the type of case envisioned by the UDRP and thus, the request to transfer the domain was denied.  I suppose that the decision could also have turned on the argument that because in this instance there was at least a tenable argument to be made on behalf of the Respondent, that as such there was either a legitimate interest in the domain or a lack of bad faith or both and in either instance the Complainant failed to meet its burden of proof.

The Adaptive Case

        Although a somewhat different factual set up, I believe the case of Adaptive Molecular Technologies, Inc. v. Priscilla Woodward & Charles R. Thorton, d/b/a Machines & More, Case No. D2000-0006 is further instructive of the issues involved in both the above matters.  In this case, the Respondent was a seller, initially through a middleman distributor and then as a seller directly from Complaint, of Complainant’s metal conditioning fluid.  Complainant had registered trademarks on the brand of this conditioner. Respondent created a web site using the mark as the domain, militec.com.  There were complex and unresolved issues regarding the dimensions of the legal relationship between the Complainant and Respondent.  Under these circumstances, the Panelist found that the Complainant had not met its burden of proof as to the elements required under the UDRP.  Specifically, if Respondent was an authorized distributor and had set up the site using the domain with the approval of the Complainant, then Complainant would have failed to show that Respondent had not “legitimate interests” nor that Respondent acted in “bad faith.”

        The Panelist thus stated:

For all of the foregoing reasons, the Panel decides that Complainant has not met its burden of proof under Paragraphs 4(a)(ii) and 4(a)(iii) of the Policy. The Panel’s decision should not be read as a substantive decision on the merits of any trademark infringement claim Complainant ultimately may choose to bring in court under applicable federal or state law. The decision is limited to the fact that, on this record, the existence of significant factual and legal issues makes this case inappropriate for resolution under the Policy.
Conclusion

        The moral of these disputes is that the disputes exist.  The cases turn on the existence of rights and remedies provided within the 4 corners of a written agreement or, in all instances, the lack of such written agreement covering the relevant points and whether those rights and remedies are or should be the subject of a UDRP or other action.  Thus, if you take away anything from these examples it should be that no matter what the legal forum, the written agreement will be all important.

          The failure of parties on both sides of these issues to enter into thorough, written agreements creates the very problems that these and other cases deal with.  The prevalent use of “form” contracts picked up from the Internet or colleagues is often to blame.  It is one of the instances where trying to “save” money can be very expensive.  Read the many, many articles on my site under the link “Articles For Web Site Designers and Site Owners.”

        We are in “the day of the deal.”  This means that it is up to each party in a transaction to protect itself by thorough, written agreements.  Often in the area of Internet law, there is no body of law that will fill in the legal gaps.  Read “Private Laws.”

© 2001 Ivan Hoffman

****************

This article is not intended as a substitute for legal advice.  The specific facts that apply to your matter may make the outcome different than would be anticipated by you.  You should consult with an attorney familiar with the issues and the laws.
****************
No portion of this article may be copied, retransmitted, reposted, duplicated or otherwise used without the express written approval of the author.

FOR MORE INFORMATION:


MAIL

Where Next? 




Ivan Hoffman Attorney At Law || More Internet and Electronic Rights Articles || More Articles About Trademarks and Domain Names || More Articles for Web Site Designers and Site Owners || Home