Here’s the situation:  a domain name registrant (“Registrant”) has one or more domain names.  Along comes a claimant (“Claimant”) contending that the Registrant is violating the Claimant’s rights of trademark in the domain.  (For an explanation of the issues involved in such claims, read the numerous articles under the link “Articles About Trademarks and Domain Names.”)   Several scenarios can play out with differing legal results.  How each party handles these scenarios can play an important part in such outcomes.

        This article deals with the limited set of issues presented by the provision in both the Uniform Domain Name Resolution Policy (“UDRP”) and the AntiCybersquatting Consumer Protection Act (“ACPA”) that define merely one of the determining factors of what constitutes “bad faith.”  There are many other factors that go into this determination, however.

        In this regard, the UDRP provides that such evidence may include:

circumstances indicating that you [Registrant]  have registered or you have acquired the domain name primarily for the purpose of selling, renting, or otherwise transferring the domain name registration to the complainant who is the owner of the trademark or service mark or to a competitor of that complainant, for valuable consideration in excess of your documented out-of-pocket costs directly related to the domain name;
        The ACPA provides that a court may consider, among other evidence:
 (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;
Scenario 1

        In this situation, the Registrant makes an unsolicited offer to sell the domain for a sum in excess of the Registrant’s costs without first having had an offer from the Claimant.  This is the “classic” situation that both the UDRP and the ACPA look at as one of the factors in determining “bad faith” since it appears, absent other circumstances, that the Registrant had this motivation in mind all along.  Assuming the other factors required for a Claimant to prevail, this scenario would almost certainly work against the Registrant.

Scenario 2

        In this set up, neither the Registrant nor the Claimant discuss the possibility of the Registrant transferring the domain to the Claimant for anything other than the Registrant’s costs.  Often the Claimant’s demand letter will include some general offer to have the domain transferred upon the reimbursement to the Registrant of the Registrant’s registration costs.

        If the offer is properly rejected, the next move is up to the Claimant to file one or both of the appropriate legal actions under UDRP or ACPA (assuming that the Claimant has the legally required rights) and in such instance, the cases play themselves out accordingly.

Scenario 3

        Here, in the more interesting of the situations, the Claimant makes an offer to purchase the domain for either the Registrant’s costs or for a sum in excess of the Registrant’s costs.  The Registrant then makes a counter offer to sell it for a sum in excess of either the costs or the offer.  This is the scenario that presents a careful approach to the legal issues and one that requires a knowledge of the current state of how these matters are handled within the legal system set up by both UDRP and ACPA.

        In order to justify the counter offer made by the Registrant, the Registrant would appear to have to demonstrate some legitimate basis for the counter offer.  It would appear that it is not enough to pick a number out of the air for that counter offer since merely having the Claimant be the first to make an offer and then having the Registrant make a high counter offer would not appear to be enough to defeat a claim of “bad faith.”  If it appears that any “use” was not bona fide but merely a ruse to try and create a higher demand, such ruse may be disregarded by the panel and that panel may find “bad faith.”

        In this regard, the UDRP section above dealing with the definition of “bad faith” comes together with the section in the UDRP that defines what “legitimate interests” the Registrant may have in the domain.  For a further explanation of this latter term, read “Legitimate Interests in Domain Name Disputes.”

        The UDRP provides that a Registrant can produce evidence to defeat a claim of “bad faith” by showing that, before notice of the dispute, the Registrant was making use of or had a bona fide intention to use the domain “in connection with a bona fide offering of goods or services” or that the Registrant had been commonly known by the domain name” or that the Registrant was “making a legitimate noncommercial or fair use of the domain name, without intent for commercial gain to misleadingly divert consumers or to tarnish the trademark or service mark at issue.”  Under the ACPA, these factors are included in the section quoted above.

        Thus, to the extent that a Registrant can demonstrate that the Registrant has such legitimate interests because the Registrant can produce evidence to support such legitimate interests, it would appear that such evidence can then be used to justify the higher counter offer and in turn, defeat the allegations of “bad faith,” at least as to these issues.

        I have used the word “appear” because this area of domain name law is not the subject of many cases.  In one such case, “Rogers Cable, Inc. vs. Arran Lai” (WIPO D2001-0201), the Claimant made an offer to purchase the domain and the Respondent made a counter offer that was clearly higher than the Registrant’s costs.  However, the Registrant produced evidence that it had been in business under the name that was the same as the domain and that it had been known by such name and that as a result, the Registrant claimed, it had developed a “good will” under that name and as a further result, could justify the sale of the domain for a higher price.  In short, the Registrant claimed it had a legitimate interest in the domain, not only for purposes of retaining it but for purposes of selling it without such sale being deemed to be in “bad faith.”

        The panel ruled in part as follows:

There is no evidence of bad faith in the actions of the Respondent [Registrant] in making a counter-offer for an amount greater than the Respondent’s out-of-pocket expenses. The Respondent indicated by email to the Complainant the extent to which it had developed goodwill in its business name and the domain name in jurisdictions outside Canada. The counter-offer from the Respondent was merely for an amount which would compensate the Respondent for the goodwill it would lose by transferring the domain name to the Complainant and the costs of generating new an equivalent amount of goodwill under a new business name or domain name. Given that the Respondent has been operating a business for over six years, the demand for compensation in excess of the costs of registering the Respondent’s domain name are commercially explicable. Nothing in the Policy requires the Panel to treats [sic] such a demand as inexplicable absent bad faith.

        The area of Internet law continues to evolve and in such evolution, as in all areas of the law, complexities and nuance arise.  What starts out as some sort of absolute becomes a question of relativity and subtlety.  If you are one of the parties involved in such situations, you are well advised to seek out experienced legal counsel to advise you.

        It is the wise entrepreneur who knows the difference between cost and value.

© 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.



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