The .XXX gTLD Sunrise Period Has Set For Brand Owners: Should Trademark Owners That Opted Not To Participate Be Concerned?

Now that the Sunrise period has set for brand owners to block their respective trademarks from being used in .XXX domain names, what’s next for brand owners that opted not to participate in the Sunrise period and how concerned should they be?

The Sunrise period for members and non-members of the adult community that have verifiable trademark rights or pre-existing exact-match domain names has closed. The next phase for registering .XXX domain names is the Landrush phase reserved only for those members of the adult community. Should there be competing reservations during that phase, those domain names will be auctioned to the highest bidder. That period is set to open on November 8 and close on November 25, 2011. The last and on-going phase will be the General Availability phase, which is set to open on December 6, 2011.

For those brand owners that participated in the Sunrise period to block their respective trademarks, it’s important to note that they were only eligible for blocking domain names that correspond to the exact spelling of their trademarks or pre-existing domain names. Should they decide to reserve defensive domain names for common misspellings of their respective marks – to keep them away from typo-squatters – they must do so during the General Availability phase.

For the past several years the intellectual property trademark attorney community and many brand owners have “sounded the alarm” with respect to the Internet Corporation for Assigned Names and Numbers’ (“ICANN”) proposed plan to launch potentially hundreds of new generic top level domain names (“gTLD”), such as .garden, .books, .cars (and already approved .XXX), because, they argue, such launch would be catastrophic for brand owners since they would need to spend thousands and possibly hundreds of thousands of dollars on useless defensive domain name reservations and enforcement actions against squatters.

Recently, and interestingly, however, I have seen comments by some trademark attorneys that suggest that there may now be an emerging more realistic view on that issue. Those comments concern the new .XXX gTLD and suggest to me that the trademark attorney IP community view on gTLDs might be maturing. Those recent comments concern beliefs that the purpose of domain name sunrise periods is to “bilk” / “fleece” brand owners out of their money and there is no evidence that cybersquatters have any “real” interest in reserving new gTLDs – since those corresponding sites tend to receive less traffic than sites corresponding to .com domain names. That potential “maturing” view may be the result of new business realities and/or an appreciation for taking a business practical approach on the issue and not do what some people say many lawyers do best, “over lawyer.”

If there is growing sentiment among the trademark community that reserving or blocking .XXX domain names that correspond with brand owners’ trademarks may not be worth the expense (unless the marks are famous and/or coined marks or may have a certain connotation within the adult industry), perhaps the trademark community should not be overly concerned with reserving defensive domain names for the anticipated new gTLDs – especially those that would not correspond to a brand owner’s industry. I would certainly think that, for example, an automotive company would be more concerned with the .XXX gTLD than .garden or .pets.

I have blogged about the imminent deluge of new gTLDs, including here and here, and how that may affect the average brand owner. In one of those posts, I wrote:

In my opinion, the concerns raised by brand owners appear to be limited mostly to multi-national, well-known brands that would be most susceptible to domain name squatting issues. Small to medium-sized companies and many non-consumer products companies probably have little to worry about should ICANN’s proposed plan be implemented. All companies should, however, be keeping an eye on the process as it unfolds and, if implemented, be sure to monitor for misuses of their brand names in the new online “wild wild west.”

In another post, I wrote the following:

I cannot recall the last time that I had a client call or complain about a cybersquatter using its trademark or phonetically similar trademark with one of the more obscure gTLDs (i.e., .travel, .jobs). Why? My thoughts are that there is likely not any reason for the average consumer to visit most gTLDs. Would the average consumer think to type in www.xerox.travel when searching for Xerox’s web site? Of course not. If that’s the case, then why would cybersquatters care to reserve domain names that don’t generate web traffic and revenue?

I have also reported the following:

Minds + Machines’ study reports that “Overall, the claims of brand owners that they will be forced to spend significant amounts of money performing defensive registrations in the proposed new gTLDs are not supported by the historical data, which shows that they largely do not undertake defensive registrations in new gTLDs, nor is there any extensive cybersquatting in new gTLDs.”

The Domain Name Wire™ recently reported that the ICM Registry has already received over 42,000 applications for .XXX domain names and has pocketed over 8 million dollars – with the General Availability phase yet to open. Domain Name Wire also reports that:

The sunrise applications are five times as many as ICM Registry anticipated. If trademark holders are like many other businesses, we can expect a flurry of applications before the sunrise period ends this Friday so the numbers will grow.

Domain Name Wire author also comments that:

.XXX has benefited from some savvy (and expensive) marketing, lots of free press, and intellectual property lawyers selling fear to their clients.

I have provided a list of six actions that brand should consider to take now to ready themselves for the potential deluge of hundreds (and some argue thousands) of new gTLDs in my post here.

So what will it be for most brand owners? Take the business practical approach and defensively block and reserve only those gTLD names that make business sense or continue to do what most have done over the past decade plus, be “over-lawyered”?

Uniform Domain-Name Dispute-Resolution Policy (UDRP): To Catch a Cybersquatter

An issue that regularly arises for many brand owners is whether third party use of a certain domain name infringes their trademark rights. The analysis for each case of alleged trademark infringement may vary depending upon the facts. While some cases give rise to clear trademark infringement, some cases are not that clear and others verge on that fine line of “reverse domain name hijacking.”

Trademark owners concerned with third party use of their trademarks in domain names may utilize – what is known as – the Uniform Domain-Name Dispute-Resolution Policy (“UDRP”). The UDRP – as opposed to litigation – is a quick and economical procedure for seeking transfer of an “infringing” domain name. In many instances, respondents in UDRP proceedings tend to be domain name speculators and/or cybersquatters.

Domain name speculation is the practice of reserving or purchasing domain names for the purpose of later selling them for profit. Selling – or flipping – domain names are akin to what we saw in the real estate market several years ago. Those electronic “real estate” owners that speculate in domain names are known as “Domainers,” many of which have successfully built businesses around buying and selling domain names.

Domain name speculation should not be confused with cybersquatting. Domain name speculation is the practice of identifying generic or descriptive (not trademarks) domain names and utilizing them to develop web site traffic for purposes of generating revenue from what is known as “pay-per-click” advertising. Domain names may also be re-sold or “flipped” for profit. Much like real estate investment and speculation, Domainers evaluate electronic real estate and decide, based upon available information, what the “property” is worth. The goal: make a profit. No harm, no foul — until Domainers use trademarks in domain names in violation of a trademark owner’s rights.

Cybersquatters on the other hand reserve or purchase domain names that use someone’s trademark. A cybersquatter may also engage in – what is known as – “typo-squatting” by reserving domain names of commonly misspelled trademarks for the purpose of capturing misdirected Internet traffic when a user misspells a trademark (www.Walmrt.com). The definition of a cybersquatter is one that registers, traffics in, or uses a trademark of another in a domain name with bad faith intent to profit from the goodwill belonging to that trademark owner.

When cybersquatters misuse trademarks in domain names, trademark owners may take action by filing UDRP proceedings. Complainants in UDRP proceedings must establish the following three elements to successfully compel transfer of a disputed domain name:

1. The domain name is identical or confusingly similar to a trademark or service mark in which the complainant has rights;

2. The registrant does not have any rights or legitimate interests in the subject domain name; and

3. The registrant registered the domain name and is using it in “bad faith.”

Below are a few considerations when contemplating the use of the UDRP process or determining whether your company has rights in a disputed domain name:

1. May trademark owners of non-registered, common law trademarks utilize the UDRP process and successfully compel transfer of infringing domain names?

Yes. As long as complainants establish that consumers have come to recognize their marks as being distinctive identifiers associated with them or with their goods and/or services, they may successfully assert common law trademark rights and potentially compel transfer of subject domain names – even if they do not own a registered trademark.

2. Do trademark licensees have rights for purposes of utilizing the UDRP process?

Yes. Licensees are generally considered to have rights in trademarks under the UDRP. Licensees must, however, establish their licensee status and/or provide evidence that the trademark owner has authorized the filing of the UDRP complaint.

3. Is a domain name that incorporates a trademark and a descriptive or generic term (as viewed in relation with complainant’s products and/or services) still considered “confusingly similar” to the complainant’s mark?

Generally yes. The addition of descriptive or generic terms to the complainant’s trademark would normally be regarded as being confusingly similar and thus sufficient to find confusing similarity under the first prong of the UDRP test.

4. Are domain names that use misspellings of trademarks (i.e., typosquatting) considered confusingly similar to complainants’ trademarks?

Generally yes. As long as the misspelling is obvious or common, the misspelled domain name will generally be found to be confusingly similar to a complainant’s mark.

5. Can resellers or distributors of trademarked products have legitimate rights with respect to securing domain names that incorporate those products’ trademarks?

Maybe. If distributors or resellers use the subject domain name with the actual sale of the branded products and services, use the subject domain name for only the corresponding branded products and accurately and prominently disclose its relationship with the trademark owner, they may be regarded as having a bona fide interest in a subject domain name.

6. Can there be a finding of bad faith when a domain name has not been put to use and the domain name holder has not attempted to sell a subject domain to a brand owner?

Generally yes. Some panels have found that the act of holding domain names for years without putting them to a bona fide use – and even when there has not been an attempt to sell the subject domain name to a brand owner – does not preclude a finding of bad faith.

To read more about this topic, you can read some of my previous blog posts here, here, here and here.