"Sucks" site held not actionable by aggrieved target firm

2004 U.S. App. LEXIS 7708,*

TMI INC, Plaintiff-Appellee v. JOSEPH M. MAXWELL, Defendant-Appellant

No. 03-20243, No. 03-20291

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

2004 U.S. App. LEXIS 7708

April 21, 2004, Filed

SUBSEQUENT HISTORY: As Revised April 26, 2004.

PRIOR HISTORY: [*1] Appeals from the United States District Court

for the Southern District of Texas. H-02-CV-494. Kenneth M Hoyt, US

District Judge.

DISPOSITION: REVERSED AND RENDERED.

COUNSEL: For TMI INC, Plaintiff - Appellee: J Timothy Headley,

Gardere Wynne Sewell, Houston, TX.

For JOSEPH M MAXWELL, Defendant - Appellant: Paul Alan Levy, Public

Citizen Litigation Group, Washington, DC.

JUDGES: Before DAVIS, BARKSDALE and PRADO, Circuit Judges.

OPINIONBY: EDWARD C. PRADO

OPINION: EDWARD C. PRADO, Circuit Judge:

Following a bench trial, the district court determined that Appellant

Joseph Maxwell's website that complained about Appellee TMI, Inc.

violated the anti-dilution provision of the Lanham Act, 15 U.S.C.

1125(c); the Anti-Cybersquatting Consumer Protection Act ("ACPA"), 15

U.S.C. 1125(d); and the Texas Anti-Dilution Statute, TEX. BUS. &

COM. CODE 16.29. Concluding that Maxwell's site, as a non-commercial

gripe site, violates none of these statutes, we reverse and render

judgment in favor of Maxwell.

Appellant Joseph Maxwell intended to buy a house from Appellee TMI,

Inc., a company that builds houses under the name TrendMaker Homes.

Unhappy with what he viewed as the salesperson's misrepresentations

about the availability of a certain model, Maxwell decided to create a

website to tell his story. To this end, Maxwell registered an internet

domain name - www.trendmakerhome.com - that [*2] resembled TMI's

TrendMaker Homes mark. (TMI had already been using the domain name

www.trendmakerhomes.com.) Maxwell registered his domain name for a

year; after the year passed, Maxwell removed the site and let the

registration expire.

During its existence, the site contained Maxwell's story of his

dispute with TMI, along with a disclaimer at the top of the home page

indicating that it was not TMI's site. It also contained what Maxwell

called the Treasure Chest. Maxwell envisioned the Treasure Chest as a

place for readers to share and obtain information about contractors

and tradespeople who had done good work. During the year of the site's

existence, the Treasure Chest only contained one name, that of a man

who had performed some work for Maxwell. The site did not contain any

paid advertisements.

The parties agree that some e-mail intended for TMI was sent to

Maxwell's site. They also agree that Maxwell forwarded each of these

messages to TMI.

Shortly after Maxwell's registration expired, TMI sent Maxwell a

letter demanding that he take down the site and relinquish the

www.trendmakerhome.com domain name. In response, Maxwell attempted to

re-register the domain name. His attempt [*3] was unsuccessful,

however, because TMI had acquired the domain name once Maxwell's

registration expired. Instead, Maxwell registered the domain name

www.trendmakerhome.info. This lawsuit followed. Because of the suit,

Maxwell has never posted any content on the trendmakerhome.info site.

Almost immediately, the parties entered into settlement negotiations.

Maxwell retained a lawyer, but knew he would not be able to afford to

pay the legal fees that would be required to defend the entire

lawsuit. TMI and Maxwell's lawyer negotiated a settlement, while

Maxwell researched his case. Following this research, Maxwell backed

out of the settlement agreement and proceeded pro se. He continued to

represent himself through the bench trial on January 17, 2003.

After the trial, the district court issued a Memorandum and Order. In

it, the district court found that Maxwell violated the ACPA as well as

the federal and Texas anti-dilution statutes. The district court also

issued an injunction forbidding Maxwell "from using names, marks, and

domain names similar to" ten of TMI's marks, including Trend Maker,

and ordering Maxwell to transfer trendmakerhome.info to TMI. The

district court also required [*4] TMI to submit a proposed judgment

and gave Maxwell ten days to respond to that proposal. Maxwell

immediately filed a notice of appeal.

Without allowing Maxwell ten days to respond, the district court

signed TMI's proposed judgment. In many ways, this judgment expanded

the Memorandum and Order's conclusions. For example, the Memorandum

and Order contained no findings about either common law or statutory

unfair competition. Yet the judgment stated that Maxwell's actions

constituted unfair competition under both common law and the Lanham

Act. The judgment provided a broader injunction than the one contained

in the district court's original order by adding three marks to the

injunction. The judgment also awarded statutory damages of $ 40,000

and, without elaboration, found the case to be an "exceptional case,"

justifying an award of $ 40,000 in attorney's fees. Additionally, the

judgment addressed how Maxwell was to pay the judgment: "within twenty

(20) days after entry of this Order, defendant shall hand-deliver to

plaintiff's lawyer a cashier's check in the amount of $ 80,000, made

payable to TMI, Inc." Maxwell then filed his second notice of appeal.

TMI made several related claims [*5] in this lawsuit. In the first,

TMI alleged that Maxwell violated ACPA. Additionally, TMI alleged that

Maxwell's actions diluted its mark and thus violated the Texas

Anti-Dilution Statute, as well as the anti-dilution provision of the

Lanham Act. n1

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n1 TMI also alleged unfair competition under the Lanham Act and under

the common law. The district court made no findings on unfair

competition, until those claims were added to the judgment, and TMI

makes no arguments in support of its judgment on those claims on

appeal.

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Commercial Use Requirement

We first address whether the two relevant sections of the Lanham Act -

the anti-dilution provision and ACPA - require commercial use for

liability. n2 The district court concluded that ACPA requires

commercial use, but did not address commercial use in the context of

the anti-dilution provision. TMI argues that the anti-dilution

provision applies even in the absence of commercial use.

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n2 This Court has previously determined that 43(a) of the Lanham

Act, 15 U.S.C. 1125(a)(1), which addresses false and misleading

descriptions, only applies to commercial speech. See Procter & Gamble

Co. v. Amway Corp., 242 F.3d 539, 547 (5th Cir. 2001).

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In making this argument, TMI does not address the anti-dilution

provision's language, which conditions liability on commercial use:The

owner of a famous mark shall be entitled, subject to the principles of

equity and upon such terms as the court deems reasonable, to an

injunction against another person's commercial use in commerce of a

mark or trade name, if such use begins after the mark has become

famous and causes dilution of the distinctive quality of the mark, and

to obtain such other relief as is provided in this subsection.

15 U.S.C. 1125(c)(1)(emphasis added).

Citing this language, courts have observed that the anti-dilution

provision requires the diluter to have made commercial use of the

mark. n3 See, e.g, Bird v. Parsons, 289 F.3d 865, 879 (6th Cir. 2002);

Panavision Int'l, L.P. v. Toeppen, 141 F.3d 1316, 1324 (9th Cir.

1998). One of the exceptions to the anti-dilution provision further

indicates that the provision only applies to commercial use: "(4) The

following shall not be actionable under this section . . . (B)

Noncommercial use of a mark." 15 U.S.C. 1125(c)(4). [*7] We

conclude that, under the statute's language, Maxwell's use must be

commercial to fall under the anti-dilution provision.

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n3 TMI refers to United We Stand America, Inc. v. United We Stand,

America New York, Inc., 128 F.3d 86, 89-90 (2d Cir. 1997), for the

principle that the Lanham Act does not require commercial use. United

We Stand America does not involve either the anti-dilution provision

or ACPA and is, thus, irrelevant to the determination of whether these

two sections require commercial use.

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On the other hand, ACPA's language does not contain such a specific

commercial-use requirement. Under ACPA, the owner of a mark can

recover against a person who, acting with "a bad faith intent to

profit from that mark . . . registers, traffics in, or uses a domain

name that . . . is identical or confusingly similar to that mark." 15

U.S.C. 1125(d). ACPA thus bases liability on a bad faith intent to

profit. ACPA lists nine non-exclusive factors for courts to consider

[*8] when determining whether a defendant had a bad faith intent to

profit. One of those factors is "the person's bona fide noncommercial

or fair use of the mark in a site accessible under the domain name."

15 U.S.C. 1125(d)(IV).

This Court has addressed ACPA and commercial use in E. & J. Gallo

Winery v. Spider Webs Ltd., 286 F.3d 270, 276 n.3 (5th Cir. 2002). In

Gallo, the defendant Spider Webs registered domain names that "could

be associated with existing businesses, including

'ernestandjuliogallo.com,' 'firestonetires.com,'

'bridgestonetires.com,' 'bluecross-blueshield.com,' 'oreocookies.com,'

'avoncosmetics.com,' and others." 286 F.3d at 272. Spider Webs then

auctioned those domain names, refusing all bids of less than $ 10,000.

Id. One of Spider Webs' owners testified during deposition that, after

registering the domain name ernestandjuliogallo.com, Spider Webs hoped

that Gallo would contact it so that Spider Webs could "assist" the

company. Id. With this evidence, the Court determined that the

defendant's use was commercial; the company registered domain names

and then sold those names to trademark holders. Id. at 275. [*9]

Because Spider Web's use was so clearly commercial, the Court noted

that it did not need to decide whether ACPA also requires use in

commerce. Id. at 276 n.3. The Sixth Circuit, too, recently determined

that it did not need to consider arguments about whether ACPA covers

non-commercial use, "as the statute directs a reviewing court to

consider only a defendant's 'bad faith intent to profit' from the use

of a mark held by another party. Lucas Nursery & Landscaping, Inc. v.

Grosse, 359 F.3d 806, 809 (6th Cir. 2004). Like the Lucas Nursery

court, we, too, do not need to decide this question in this case.

Was Maxwell's site commercial use?

TMI argues that Maxwell's site was "mixed-use" and therefore not

protected from the Lanham Act's coverage. According to TMI, Maxwell

put the site to commercial use by including the Treasure Chest and in

so doing removed any protections his speech might otherwise have had.

The Lanham Act defines "use in commerce" as "the bona fide use of a

mark in the ordinary course of trade." 15 U.S.C. 1127. When defining

commercial use, courts have examined several different aspects of the

defendant's [*10] use. The Ninth Circuit has emphasized that

commercial use in commerce "refers to a use of a famous and

distinctive mark to sell goods other than those produced or authorized

by the mark's owner." Mattel, Inc. v. MCA Records, Inc., 296 F.3d 894,

903 (9th Cir. 2002) and that the phrase "requires the defendant to be

using the trademark as a trademark, capitalizing on its trademark

status." Avery Dennison Corp. v. Sumpton, 189 F.3d 868, 880 (9th Cir.

1999). Put another way, the Ninth Circuit in Avery Dennison also

referred to "a classic 'cybersquatter' case" in which a court referred

to the "'intention to arbitrage' the registration which included the

plaintiff's trademark." Id. (quoting Intermatic, Inc. v. Toeppen, 947

F. Supp. 1227, 1239 (N.D. Ill. 1996). This Court has provided a

similar definition, determining in Gallo that the defendant's business

of selling domain names containing marks satisfied the commercial use

requirement. Gallo, 286 F.3d at 275. See also Panavision Int'l, L.P.

v. Toeppen, 141 F.3d 1316, 1325 (9th Cir. 1998) ("[defendant's]

'business' is to register trademarks [*11] as domain names and then

sell them to the rightful trademark owners"). Other courts have

emphasized the content of the website. For example, while analyzing

another section of the Lanham Act, the Sixth Circuit concluded that so

long as the defendant's fan website contained no links to commercial

sites, and contained no advertising or other specifically commercial

content, his site was not commercial. Taubman Co. v. Webfeats, 319

F.3d 770, 775 (6th Cir. 2003).

TMI agrees that the section of the site addressing Maxwell's

complaints about TMI was noncommercial. TMI argues, however, that the

Treasure Chest section was commercial, and thus the site "intermingled

gripes with commercial activities."

Admittedly, Maxwell added the Treasure Chest to draw more people to

his site so that they would see his story. This intent does not make

his site commercial, however. Maxwell never accepted payment for a

listing on the Treasure Chest, and he charged no money for viewing it.

n4 Further, TMI presented no evidence that Maxwell had any intent to

ever charge money for using the site. Additionally, Maxwell's site

contained neither advertising nor links to other sites. And unlike the

[*12] defendants in Gallo, Maxwell was not engaged in the business

of selling domain names. Gallo, 286 F.3d at 275; see also Panavision

Int'l, L.P. v. Toeppen, 141 F.3d 1316 (9th Cir. 1998) ("Toeppen's

commercial use was his attempt to sell the trademarks themselves").

Nor did TMI present evidence that Maxwell's use was "in the ordinary

course of trade," or that it had any business purpose at all. Thus, no

evidence suggests that Maxwell's use was commercial, and the district

court's findings to the contrary were clear error. n5

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N4 In fact, the Treasure Chest only ever contained one listing, for a

contractor who had done some work for Maxwell. This listing was not

made at the contractor's request.

n5 The district court's discussion of commercial use (under ACPA) was:

"based on the undisputed evidence, the Court holds that the

defendant's actions have been intentional, flagrant, and in bad faith.

Moreover, he has shown no remorse for his actions, even in trial.

Thus, the defendant's use of "trendmakerhome.com" was the kind of

commercial use prohibited by the ACPA."

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[*13]

Bad faith intent to profit

ACPA lists nine non-exclusive factors for courts to consider when

determining whether a defendant had a bad faith intent to profit from

use of the mark. n6 These factors are:

(I) the trademark or other intellectual property rights of the person,

if any, in the domain name;

(II) the extent to which the domain name consists of the legal name of

the person or a name that is otherwise commonly used to identify that

person;

(III) the person's prior use, if any, of the domain name in connection

with the bona fide offering of any goods or services;

(IV) the person's bona fide noncommercial or fair use of the mark in a

site accessible under the domain name;

(V) the person's intent to divert consumers from the mark owner's

online location to a site accessible under the domain name that could

harm the goodwill represented by the mark, either for commercial gain

or with the intent to tarnish or disparage the mark, by creating a

likelihood of confusion as to the source, sponsorship, affiliation, or

endorsement of the site;

(VI) the person's offer to transfer, sell, or otherwise assign the

domain name to the mark owner or [*14] 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;

(VII) the person's provision of material and misleading false contact

information when applying for the registration of the domain name, the

person's intentional failure to maintain accurate contact information,

or the person's prior conduct indicating a pattern of such conduct;

(VIII) the person's registration or acquisition of multiple domain

names which the person knows are identical or confusingly similar to

marks of others that are distinctive at the time of registration of

such domain names, or dilutive of famous marks of others that are

famous at the time of registration of such domain names, without

regard to the goods or services of the parties; and

(IX) the extent to which the mark incorporated in the person's domain

name registration is or is not distinctive and famous . . .

15 U.S.C. 1125(d)(1)(B)(i).

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n6 ACPA's safe harbor provision also provides that "bad faith intent

described under subparagraph (A) shall not be found in any case in

which the court determines that the person believed and had reasonable

grounds to believe that the use of the domain name was a fair use or

otherwise lawful." 15 U.S.C. 1125(d)(1)(B)(ii).

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[*15]

Much of the district court's analysis of bad faith intent to profit

focuses on Maxwell's behavior during the settlement negotiations and,

particularly, his backing out of the settlement. Although the district

court listed the nine relevant factors, in the Memorandum and Order it

did not explain how those factors apply to this case.

Maxwell's behavior differs from other registrations made with bad

faith intent to profit. For example, in Gallo, and other cases, the

defendant essentially held hostage a domain name that resembled a mark

with the intention of selling it back to the mark's owner. So, too, is

Maxwell's use different from that of the defendant in Virtual Works,

Inc. v. Volkswagen of America, Inc., 238 F.3d 264 (4th Cir. 2001),

where Virtual Works registered the domain name "VW.net" for its own

website, but also hoping to sell the name to Volkswagen, whose VW mark

the domain name resembled. n7

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n7 In fact, at one point, Virtual Works threatened to auction the

domain name to the highest bidder unless Volkswagen paid them for it.

Id. at 267.

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[*16]

In contrast to these instances of bad faith intent to profit, the

Sixth Circuit recently affirmed a trial court's finding that a

disgruntled customer who posted a website similar to Maxwell's did not

have a bad faith intent to profit. Lucas Nursery & Landscaping, Inc.

v. Grosse, 359 F.3d at 811. In Lucas Nursery, a former customer of

Lucas Nursery registered the domain name "lucasnursery.com" and used

the site to post her complaints about the nursery's work. Id. at 808.

The nursery sued her under ACPA. Id. After addressing the purposes

behind ACPA, n8 the Lucas Nursery court concluded that the former

customer did not have the kind of intent to profit that the act was

designed to prohibit. Id. at 808-11.

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n8 The Lucas Nursery court concisely summarized the Senate Report's

description of cybersquatters, namely those who:(1) "register

well-known brand names as Internet domain names in order to extract

payment from the rightful owners of the marks;" (2) "register

well-known marks as domain names and warehouse those marks with the

hope of selling them to the highest bidder;" (3) "register well-known

marks to prey on consumer confusion by misusing the domain name to

divert customers from the mark owner's site to the cybersquatter's own

site;" (4) "target distinctive marks to defraud consumers, including

to engage in counterfeiting activities."

Lucas Nursery, 359 F.3d at 809 (quoting S.Rep. No. 106-140 at 5-6).

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[*17]

As in Lucas Nursery, here "the paradigmatic harm that the ACPA was

enacted to eradicate - the practice of cybersquatters registering

several hundred domain names in an effort to sell them to the

legitimate owners of the mark - is simply not present." Id. at 810.

Also here, as in Lucas Nursery, the site's purpose as a method to

inform potential customers about a negative experience with the

company is key. As the Sixth Circuit noted:Perhaps most important to

our conclusion are, [defendant's] actions, which seem to have been

undertaken in the spirit of informing fellow consumers about the

practices of a landscaping company that she believed had performed

inferior work on her yard. One of the ACPA's main objectives is the

protection of consumers from slick internet peddlers who trade on the

names and reputations of established brands. The practice of informing

fellow consumers of one's experience with a particular service

provider is surely not inconsistent with this ideal.

Id. at 811.

In short, after analyzing the statutory factors and ACPA's purpose, we

are convinced that TMI failed to establish that Maxwell had a bad

faith [*18] intent to profit from TMI's mark and that the district

court's conclusion to the contrary was clearly erroneous. Although

factors I, II, III and IX seem to fall in favor of TMI because Maxwell

had no pre-existing use of the TrendMaker name and Maxwell did not

dispute that the mark was distinctive and famous, importantly, factors

IV, V, VI, VII, and VIII favor Maxwell. Under factor IV, Maxwell made

bona fide noncommercial use of the mark in his site, and for purposes

of factor V, TMI made no showing that Maxwell intended to divert

customers from its own site. Turning to factor VI, Maxwell never

offered to sell the domain name, and certainly never had a pattern of

selling domain names to mark owners. Maxwell did not behave improperly

when providing contact information, as addressed in factor VII. Factor

VIII concerns the registration of multiple domain names; Maxwell's

registration of his second site related to TrendMaker Homes does not

argue in favor of finding bad faith intent to profit. Maxwell

registered the second domain name for the same purposes as the first

one and only after his registration of the first name expired.

Finally, like the Lucas Nursery court, we particularly [*19] note

that Maxwell's conduct is not the kind of harm that ACPA was designed

to prevent.

Texas Anti-Dilution Statute

The district court also found that Maxwell violated the Texas

Anti-Dilution Statute.

That statute reads:A person may bring an action to enjoin an act

likely to injure a business reputation or to dilute the distinctive

quality of a mark registered under this chapter or Title 15, U.S.C.,

or a mark or trade name valid at common law, regardless of whether

there is competition between the parties or confusion as to the source

of goods or services.TEX. BUS. & COM. CODE 16.29.

This statute "is not intended to address non-trademark uses of a name

to comment on, criticize, ridicule, parody, or disparage the goods or

business of the name's owner." Express One Int'l, Inc. v. Steinbeck,

53 S.W.3d 895, 899 (Tex. App. - Dallas 2001, no pet.)(citing

McCarthy). Because this exception describes Maxwell's use, Maxwell's

domain name is not actionable under the Texas Anti-Dilution Statute.

Conclusion

For these reasons, we reverse the judgment of the district court and

render judgment in favor of Maxwell. [*20]

REVERSED AND RENDERED.

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