Virtual Works, an ISP, registered the domain name "vw.net" in October 1996. In or about June 1999, Volkswagen filed a protest with NSI to try to place defendant’s "vw.net" domain name on hold under NSI’s Domain Name Dispute Policy, claiming that Virtual Works’s use and registration of the "vw.net" domain name violated Volkswagen’s trademark rights. Virtual Works filed suit against Volkswagen and NSI in August 1999 to block NSI from deactivating or assigning the "vw.net" domain name. Volkswagen then counterclaimed and sought a preliminary injunction against Virtual Works’s use of "vw.net," alleging that it infringed and diluted Volkswagen’s VW trademark. Because Virtual Works had been using the "vw.net" name for three years, however, the court found that Volkswagen made "no showing of any irreparable harm" and thus denied Volkswagen’s motion for a preliminary injunction. The court also dismissed Virtual Works’s claims for breach of contract against NSI.
On the parties’ cross-motions for summary judgment, the court granted summary judgment for Volkswagen on its claims for cybersquatting, infringement, and dilution by blurring. Retroactively applying the ACPA, the court found that Virtual Works "attempted to profit from the trafficking of a domain name of a previously trademarked name," finding that: (1) Virtual Works never registered a trademark or conducted business under the VW mark; (2) Volkswagen is the only entity with trademark rights in the VW mark; (3) the use of "vw.net" had already caused confusion; (4) the "vw.net" site disparaged Volkswagen by referring to it as "Nazis using slave labor"; (5) Virtual Works attempted to sell the "vw.net" domain name to Volkswagen for financial gain; and (6) Volkswagen’s VW trademark is famous. As to infringement, the fact that Virtual Works and Volkswagen offered different products was irrelevant because "both parties use the Internet as a facility to provide goods and services." The court also noted that "[t]he holder of a domain name should give up that domain name when it is an ‘intuitive domain name’ that belongs to another."
The Fourth Circuit court affirmed, upholding the district court’s decision that Virtual Works had a bad-faith intent to profit from Volkswagen’s famous VW mark. In addition to circumstantial evidence of bad faith (e.g., the VW mark was famous, Virtual Works never used VW to identify its business or services, Virtual Works could have registered the domain name “vwi.org” corresponding to its prior use of the name VWI), there was direct evidence of Virtual Works’s bad faith (Virtual Works admitted that it knew that Internet users might confuse “vw.net” with Volkswagen when it registered the name, and Virtual Works threatened to auction the name to the highest bidder if Volkswagen did not make an offer within twenty-four hours). Nor was Virtual Works entitled to protection under the ACPA’s “safe harbor” provision. Even though Virtual Works used the “vw.net” name for two years as part of an ISP business, the court held that “[a] defendant, who acts even partially in bad faith in registering a domain name is not, as a matter of law, entitled to benefit from the Act’s safe harbor provision.”