July/August 2009 Issue

Civil Cases

S. Grouts & Mortars, Inc. v. 3M Co.,
2009 WL 2182605 (11th Cir. July 23, 2009)

ABSTRACT
The Court of Appeals for the Eleventh Circuit affirmed the district court’s ruling that the renewal and continued ownership and nonuse of a domain name containing a competitor’s trademark was not cybersquatting or unfair competition.  The court emphasized that a finding of cybersquatting under the ACPA requires a showing of the defendant’s bad-faith intent to profit from the plaintiff’s mark, and that bad faith in a vacuum was not enough to prevail.

CASE SUMMARY

FACTS
Plaintiff Southern Grouts & Mortars, Inc. (“SG”) and defendant 3M Company (“3M”) are competitors in the field of swimming-pool finishes.  SG sells its products under the registered mark DIAMOND BRITE and 3M sells its products under the mark COLORQUARTZ.  In 2000, 3M acquired the assets of a company that owned federal trademark registrations for DIAMOND BRITE for traffic-control devices and signs and the domain name “diamondbrite.com.”  3M initially used the domain name to alert visitors of its recent acquisition and to provide a link to 3M’s website.  In early 2002, 3M redirected visitors to diamondbrite.com to its traffic-safety-division website.  3M “deactivated” the diamondbrite.com domain in 2002 (i.e., there was no content on the site and the domain did not redirect to other sites), and phased out use of the DIAMOND BRITE trademark soon thereafter.  3M’s last federal registration of the DIAMOND BRITE mark lapsed in 2006.  3M renewed the diamondbrite.com domain name in 2002, 2003, 2005, 2007, and 2008 after it ceased use of the DIAMOND BRITE mark and deactivated the diamondbrite.com website.  3M renewed the domain name registration to prevent a competitor of its DIAMOND GRADE retroflective-sheeting products from using it to create confusion in that market.  Also, 3M’s policy was to automatically renew domain names it owned absent an express decision to the contrary.  In 2002, SG emailed 3M to attempt to acquire the diamondbrite.com domain, and 3M apparently did not respond.  SG did not contact 3M again until 2005, when its lawyer sent a cease-and-desist letter accusing 3M of “cyberpiracy” and demanding the transfer of the domain name.  3M responded by refusing to transfer the name and denying any wrongdoing, but “welcomed any questions or evidence of [SG’s] claims.”  SG did not contact 3M again until 2007, when SG made the same demand.  3M responded with the same position and also told SG’s attorney that it would not use the domain to compete with SG’s DIAMOND BRITE products and explained its concern that the domain could eventually fall into the hands of someone wanting to create confusion with 3M’s DIAMOND GRADE mark.  When 3M again refused to transfer the domain name, SG sued for unfair competition and cybersquatting, and 3M asserted a laches defense.

The parties filed cross-motions for summary judgment.  The district court concluded that SG’s unfair-competition and cybersquatting claims were barred by laches and were without merit, and granted 3M’s motion for summary judgment.  SG appealed.

ANALYSIS
The court of appeals affirmed the grant of summary judgment to 3M.  SG’s failure to show that 3M had a bad-faith intent to profit as required by the ACPA supported the grant of summary judgment on SG’s cybersquatting claim.  The ACPA lists nine nonexclusive factors that a court may consider in determining whether a defendant had a bad-faith intent to profit, in addition to any “unique circumstances” of the case.  The appeals court affirmed the district court’s finding that only two of the statutory bad-faith factors favored SG—SG’s DIAMOND BRITE mark was strong and because 3M’s rights to the DIAMOND BRITE trademark had lapsed, its trademark rights in the domain name had lapsed as well.  However, 3M’s lack of any intent to divert consumers from SG’s website, its prior and valid use of the domain name for the offering of goods, and its lack of offers to sell the domain name to SG, all favored 3M’s good-faith ownership of the domain name. 

SG argued that two “unique circumstances” of this case established 3M’s bad-faith intent to profit.  SG first argued that 3M had a bad-faith intent to profit from its registration of the diamondbrite.com domain name because the registration allows 3M to monitor the viability and value of Internet traffic to the domain name.  However, SG’s only evidence towards this argument, the report of its expert Robert Moody (“Moody”), was ruled inadmissible by the district court.  Moody’s report stated that 3M enjoys a commercial benefit from accessing information about the domain name, but failed to cite the parties’ discovery materials or the record in support of this conclusion.  Because Moody’s report did not explain 3M’s actual abilities or actions regarding the diamondbrite.com domain name, the district court ruled that it was inadmissible.  The court of appeals agreed.  Moreover, even if the report was admissible, the court noted that SG did not identify any part of the report as support for the idea that 3M intended to or actually did use the domain name registration to monitor Internet traffic. 

SG’s second “unique circumstance” was that 3M maintained control of the diamondbrite.com domain name to prevent others from registering it.  In support, SG offered 3M’s admission that it continued to renew the domain name because it did not want a competitor in a different market to obtain the domain name and use it to create confusion in that market.  SG also relied on 3M’s corporate policy of retaining and renewing acquired domain names as a default rule, and 3M’s renewal of the diamondbrite.com domain name after SG sent a cease-and-desist letter and after SG filed its complaint.  The Eleventh Circuit rejected these arguments, noting that the ACPA requires a bad-faith intent to profit from the plaintiff’s mark such that proving bad faith in a vacuum is not enough.  It noted that the definition of a cybersquatter from the Senate report accompanying the ACPA made no mention “about those who hold onto a domain name to prevent a competitor from using it.”  Here, 3M did not try to sell a domain name for a profit, but rather simply refused to sell its domain name.  Moreover, 3M did not sell or advertise products on the diamondbrite.com website to consumers looking for SG’s DIAMOND BRITE products, and did not use the domain name in any other way to obtain a profit.  SG thus failed to establish that 3M had a bad-faith intent to profit from the diamonbrite.com domain. 

The court of appeals also affirmed the summary judgment grant to 3M on SG’s unfair-competition claim under Section 43(a) of the Lanham Act, which requires use of the allegedly infringing mark “in connection with goods or services . . . use[d] in commerce.”  The Eleventh Circuit agreed with the district court that SG failed to show that 3M used the DIAMOND BRITE mark in commerce because there was no evidence that any goods or services were sold or advertised at the diamondbrite.com website.  Based on its above rulings, the Eleventh Circuit did not reach the issue of whether the district court erred in finding that SG’s claims were barred by laches or that SG failed to establish a likelihood of confusion for its unfair-competition claim.

CONCLUSION
The Eleventh Circuit’s decision emphasizes the importance of proving an ACPA defendant’s bad-faith intent to profit from the plaintiff’s trademark by a showing that the defendant attempted to sell the domain name, sold products or advertising using the domain name to unsuspecting consumers looking for the plaintiff’s products, or used the domain name in some other way to profit from the plaintiff’s trademark.  Here, the defendant’s refusal to sell a domain name containing a competitor’s trademark that the defendant had legitimately acquired but no longer used did not violate the ACPA.