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Archive for the ‘11th Circuit’ Category

11th Circuit Rules 3M Keeps DiamondBrite.com and Finds No ACPA Bad Faith

Friday, July 24th, 2009

Any time the 11th Circuit makes a ruling regarding the ACPA, we tend to listen. In the case of Southern Grouts & Mortars, Inc. V. 3M Company, No 08-15850 (11th Cir. July 23, 2009) (available here) the Court reviewed the ACPA and the extremities for which it may be applied. A short summary of the facts are as follows. Southern sells swimming pools finishes under the mark DIAMOND BRITE and maintains web sites which include www.sgm.cc and www.diamondbrite.cc. 3M owns the domain www.diamonbrite.com since at least 2000 and owned (now cancelled or expired) several federal trademark registrations for the mark DIAMOND BRITE related to “electronically controlled display panels and signs. 3M also maintains a web site at www.3m.com. One of 3M’s many products happens to include those for the swimming pool finishing industry. Southern sued 3M for violations of the ACPA 15 U.S.C. 1125(d) and for unfair competition under 15 U.S.C. 1125(a). The district court in the Southern District of Florida ruled in favor of 3M on a motion for summary judgment dismissing the case.  Southern appealed the district court decision stating that its request to amend the complaint should not have been denied and that unfair competition and cybersquatting claims were improperly dismissed under summary judgment.

The 11th Circuit first dealt with the decision to deny Southern’s motion for leave to amend its second amended complaint. The Court found that Southern simply lacked the proper diligence in pursuing its claim and failed to present a good cause to allow the amendment. Basically, Southern tried to seek leave to amend with nearly six months passing from the deadline time to amend and after more then a month had passed since the parties both filed separate motions for summary judgment. The Court upheld the district courts ruling on this matter.

The Court next addressed the ACPA dismissal, which is where their discussion will be the source of much future debate among attorneys in the 11th Circuit. The Court noted that the ACPA provides a cause of action for a trademark owner against a person who “‘has a bad faith intent to profit from [the owner’s] mark’ and who ‘registers, traffics in, or uses a domain name’ that is identical or confusingly similar to the owner’s distinctive mark or that is identical, confusingly similar to or dilutive of the owner’s famous mark.”15 U.S.C. § 1125(d)(1)(A)(i)–(ii). The Court identified the list of nine non-exclusive factors to consider when determining whether a defendant had bad faith intent to profit. 15 U.S.C. § 1125(d)(1)(B)(i).  The 11th Circuit Court however noted that Southern sought review of the bad faith intent to profit issue based primarily on two additional “unique circumstances” that were outside of the nine factors. This is where the case gets interesting.

First Southern argued that 3M’s registration of the domain gave them a special and unique ability to monitor the viability and value of internet traffic on the disputed domain, which in turn provided 3M with strategic commercial information (collecting traffic data). Southern provided an expert report from Robert Moody to support this concept, but the district court determined it was “so pervaded by conclusory statements as to be almost with value.” The 11th Circuit agreed with the district court’s assessment of the expert witness report, finding that Southern failed to show 3M had a bad faith intent to profit from the domain based upon data collection.

The second “unique circumstance” presented by Southern was that 3M kept control of the domain to prevent others from registering it. Southern argued that 3M continually re-registered the domain despite not making active use of it for a bona fide purpose and despite multiple cease and desist letters from Southern to 3M. Some attorneys would characterize 3M’s business plans of retaining domains as being similar to warehousing domains. The Court however, did not agree with Southern’s argument and explained:

Proving “bad faith” is not enough. A defendant is liable only where a plaintiff can establish that the defendant had a “bad faith intent to profit.” 15 U.S.C. § 1125(d) We cannot read the words “intent to profit” out of the statute….The Senate Report accompanying the Anticybersquatting Consumer Protection Act bolsters our understanding that a “bad faith intent to profit” is the essence of the wrong that the Act seeks to combat….The report says nothing about those who hold onto a domain name to prevent a competitor from using it.

The Court approved the District Court’s ruling on Summary Judgment that Southern failed to establish 3M had “bad faith intent to profit” under this unique circumstance as well. The Court proceeded to review the nine statutory factors which the district court considered. The district court found that five favored 3M, two favored Southern and two were inapplicable. The 11th Circuit agreed with the assessment of the factors and found that they should not be disturbed and would not change the outcome of the 11th Circuit opinion.

The last concept reviewed the the 11th Circuit Court involved  “use in commerce” and whether the district court erred in granting summary judgment on the unfair competition claim. The Court noted the under the statute Southern needed to show that 3M used the term “diamond brite” in connection with goods and services “in commerce.” Southern argued three points in support of reversal: (1) 3M used the mark in commerce by using the domain to redirect traffic to its own web site; (2) 3M could have used the domain to obtain strategic commercial information (traffic data) which constitutes “use”; and (3) 3M bought Google AdWords (keyword advertising) for “diamond brite” which was use in commerce. The Court rejected all three arguments stating (1) the district court found that the only evidence supporting this argument was deposition testimony which the district court refused to consider and which the 11th Circuit found was not an abuse of discretion; (2) the Court already found that there was no abuse of discretion in excluding the expert report regarding this issue; and (3) this issue was not properly pleaded in the second amended complaint, despite Southern’s motion to amend, and the Court would not consider it. Ultimately, the Court found that Southern failed to establish the requisite “use in commerce” and affirmed the district court decision.

DefendMyDomain Commentary: Interestingly, regarding the third argument about keyword advertising with Google AdWords, the Court noted “This Court has not yet determined whether the purchase of Google AdWords can be considered a use in commerce for purposes of 15 U.S.C. § 1125(a).” Therefore, for those who practice in the 11th Circuit (Florida, Alabama and Georgia), the opinions from other Circuits are helpful. Despite some dicta in other cases, it appears as though the 11th Circuit is still not ready to rule on that issue.

Also, it is important to think about the Court’s statement on warehousing domains that “The [ACPA Senate] report says nothing about those who hold onto a domain name to prevent a competitor from using it.” One might ask whether or not this will have some effect on future domain registrations. Does this mean that a company who owns a domain, prior to any trademark use by any other third party, would be able to hold and not “use” that domain forever, despite no actual trademark use on its own?

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