Digital Media Lawyer Blog

In a recent ruling, a judge in the Central District of California ordered a defendant in a cybersquatting case to turn over hundreds of domain names that incorporated the names of professional athletes to the plaintiff, Toronto Raptors power forward Christopher Bosh. As the result of the order, Bosh is now the owner of domain names such as mikedunleavy.com, deronwilliams.com, krishumphries.com, amarestoudemire.com, shaunlivingston.com and daleearnhardtjr38.com. See Bosh v. Zavala, C.D. Cal. No. 2:08-cv-04851, Amended Order (Sept. 29, 2009). While some might laud the Court's intentions, the order violates both the Federal Rules of Civil Procedure and California law. It also creates as many problems as it solves.

This case began in July 2008 when Bosh filed a cybersquatting suit against Zavala, whom he alleged to be operating a domain name parking scheme. According to the complaint, Zavala had registered over 778 domain names that incorporated the names of famous basketball players such as Steve Nash of the Phoenix Suns, Shawn Marion of the Miami Heat, Cedric Bozeman of the Atlanta Hawks, Sam Cassell of the Boston Celtics, celebrities such as Scarlett Johanson and business names such as World Cup and Century 21. Bosh alleged that Zavala used a third party "parking service" to post websites at these domain names that included the athlete's names and advertising hyperlinks. When Internet users searched for the athletes' names, they would arrive at Zavala's Internet sites, click on the advertising, thus generating revenue for Zavala.

Bosh specifically sued Zavala for his alleged creation of a site with the name chrisbosh.com. The complaint included a claims under the Anticyberquatting Consumer Protection Act (ACPA) (15 U.S.C. § 1125(b)) and the California Right of Publicity Act (Cal. Civ. Code § 3344). Bosh's complaint was brought solely on behalf of himself, and did not join as plaintiffs any of the other persons whose names Zavala had allegedly co-opted for his website. See Bosh v. Zavala, C.D. Cal., No. 2:08-cv-04851, Complaint (July 24, 2008).

Zavala did not answer the complaint and the judge eventually entered a default judgment against him. The ACPA provides a list of remedies that a judge may impose against a defendant in a cyber-squatting case, including "the forfeiture or cancellation of the domain name or the transfer of the domain name to the owner of the mark." 15 U.S.C. § 1125(d)(1)(C). Accordingly, as part of the default judgment, the judge ordered that the chrisbosh.com domain name to be transferred to the plaintiff, Chris Bosh. See Bosh v. Zavala, C.D. Cal., No. 2:08-cv-04851, Amended Order Granting Default (April 7, 2009). The judgment also included a statutory damages award of $100,000. So far, so good.

However, in September 2009, the Plaintiff then took matters a step further, and requested that the judge issue a different kind of turnover order. This time Bosh asked the Court to order Zavala to turn over all 778 domain names that Zavala controlled directly to Bosh. Bosh claimed that the judge had the authority to issue this order because California Code of Civil Procedure Section 699.040 states that a court may order personal property of a judgment debtor to be turned over to "the levying officer" for sale to satisfy his debts.

Continue reading "Bosh v. Zavala: Was the Court's Order that a Cybersquatter to Turn Over 700 Domain Names that Incorporated Names of Non-appearing Parties to a Plaintiff Proper?" »

For many firms, on-line property, such as their domain names and the interactive software that they permits users to access, constitutes the vast majority of the value of their business. Firms such as Amazon.com and eBay heavily market their domain names, with the result that their domain names have become their primary trademarks and are worth billions of dollars. Lenders would naturally like to have the ability to obtain security interests in these valuable assets for loans to these businesses. Creditors also would like to be able to seize these assets to satisfy unpaid debts. However, there are significant hurdles in both state and federal law to both of these uses of domain names.

The following is a survey of some of the issues faced when attempting to use a domain name as collateral, along with suggestions of methods for dealing with these problems.

The "assignment in gross" problem

To the extent that a domain name constitutes a trademark, it is subject to what is call "the anti-assignment in gross" rule. This rule is based on the notion that a trademark is really the embodiment of the goodwill relating to a business. As such, it cannot be transferred apart from this goodwill. If a trademark could be assigned and used for a different product or business, it could result in fraud on consumers, who would assume that the trademark signified that the same nature and quality of goods were present as when it was used in the original business. See McCarthy on Trademarks § 18:2-3.

I am aware of no cases dealing with domain names that directly address this issue. However, cases dealing with assignments of trademarks in general hold that if a lender wants to take a security interest in a trademark, it should obtain a security interest in the goodwill of the business associated with the trademark as well. See Marshak v. Green, 746 F.2d 927 (2d. Cir. 1984). What this means is that a lender wishing to obtain a security interest in a domain name should obtain a security interest in the goodwill of the business associated with the domain name.

Anti-assignment clauses

Domain name registrants assume that they can transfer their domain names to third parties at will -- via sale or use as collateral. Indeed, there has long been a well-developed market for domain names. Ian Ballon's treatise on internet law contains a list of hundreds of such sales over the past few years, with sale prices ranging into the many millions of dollars. See Ian Ballon, E-Commerce and Internet Law, §7.23[3].

Most domain name registrants have obtained their domain names via a contract with a domain name registrar. While many domain name registrars have procedures that permit the transfer of domain names, they often do not permit direct assignments. See Warren E. Agin, I'm a Domain Name. What Am I? Making Sense of Kremen v. Cohen, 14 Journal of Bankruptcy Law and Practice 3:73, 79 (2005). This would present a problem for parties wishing to use a domain name as a security interest, were it not for a special provision in the Uniform Commercial Code (UCC) that trumps such anti-assignment provisions. Section 9-408 of the UCC provides that a security interest may be granted in a general intangible, even if assignment is prohibited under by the contract relating to the intangible. See UCC § 9-408, comment 5. Most legal scholars believe that an Internet domain name qualifies as a general intangible under the UCC. See, e.g., McCarthy on Trademarks, § 18:7. As such, a lender should be able to obtain a security interest in a domain name, despite the presence of an anti-assignment clause in the borrower's contract with the registrar.

Continue reading "The Domain Name as Collateral: Considerations for Creditors Seeking to Use a Domain Name as a Security Interest or as a Source of Payment on a Judgment" »