Microsoft Corp. v. Shah: Federal District Court Denies Motion to Dismiss Contributory Cybersquatting and Contributory Dilution Claims

Microsoft Corp. v. Shah, et al., No. C10-0653 (W.D. Wash. Jan. 12, 2011) Slip opinion hosted by WSJ.com

The U.S. District Court for the Western District of Washington denied defendants’ motion to dismiss plaintiff Microsoft’s claims for contributory cybersquatting and contributory dilution as unrecognized by law.

Cybersquatting is the practice of registering a domain name similar to a well-known trademark in order to profit from confusion with the mark, or by holding the domain name out for sale to the trademark owner, and is prohibited by the Anti-Cybersquatting Consumer Protection Act (“ACPA”), 15 U.S.C. § 1125(d). In this case, the District Court held that ACPA should be interpreted so as to allow claims for contributory cybersquatting in addition to direct cybersquatting, although the cause of action has not been explicitly permitted by an appellate court or by statute. The court noted that the defendants’ conduct runs counter to the purpose of ACPA and that “it is a well-established canon of statutory construction that a court should go beyond the literal language of a statute if reliance on that language would defeat the plain purpose of the statute.” Microsoft at 7 (quoting Bob Jones Univ. v. United States, 461 U.S. 574, 586 (1983)).

The Trademark Dilution Act prohibits dilution by blurring or by tarnishment of a famous mark. 15 U.S.C. § 1125(c). As with contributory cybersquatting, contributory trademark dilution had never been directly addressed by a court or by statute. Even so, the District Court held that prohibiting such cause of action would be inconsistent with the Trademark Dilution Act, which seeks to protect against exactly the kind of harm allegedly caused by the defendants.

Eric Goldman provides an overview and critique of the case. The Wall Street Journal Law Blog and Seattle Trademark Lawyer also comment on the District Court’s order.

Microsoft alleges that the defendants induced others to violate the ACPA by providing instructions on how to use Microsoft marks to increase Internet traffic, as well as providing software to facilitate creating websites that used Microsoft marks.

The District Court noted that despite the lack of statutory or appellate court support, there are other well-established causes of action for contributory liability not explicitly defined in statute, like contributory trademark infringement. The Court also noted that contributory cybersquatting has been recognized as a potential cause of action in several district court cases, including Ford Motor Co. v. Greatdomains.com, 177 F. Supp. 2d 635 (E.D. Mich. 2001), and Solid Host, NL v. Namecheap, Inc., 652 F. Supp. 2d 1092 (C.D. Cal. 2009).

In Ford, the court suggested that contributory cybersquatting could be found under a “flea market” analysis, where the defendant provided the marketplace for domain names and monitored and controlled the primary infringers. 177 F. Supp. 2d at 646. However, in Ford, the court found the defendant not liable because it reasoned the bad faith requirement of ACPA must also apply to contributory infringement, and the defendant only had awareness of the cybersquatting, at most. Id. Following the test adopted in Ford, the District Court found that Microsoft plead sufficient facts to show that the defendants not only provided a marketplace for cybersquatting, but also satisfied the bad faith requirement because their product had no purpose other than to commit cybersquatting.

Likewise, the District Court noted that contributory trademark dilution has never been directly addressed by statute or appellate courts, but has been recognized as a potentially viable cause of action by the Ninth Circuit in Lockheed Martin v. Network Solutions, Inc., 194 F.3d 980, 986 (9th Cir. 1999). In the matter at hand, the District Court noted that “[a]s with contributory cybersquatting, contributory dilution is a tort-like cause of action which naturally lends itself to the theory of contributory liability”. Microsoft at 8. The harm alleged by Microsoft is exactly of the kind the Trademark Dilution Act seeks to prevent. Consequently, denying said cause of action would run counter to the purpose of the statute.

If upheld, the District Court’s decision may broaden the scope of the ACPA to allow plaintiffs to pursue claims against those that facilitate cybersquatting. The ruling may also pave the way for additional causes of action where the defendant’s behavior was in contradiction with the purpose of the statute, although not expressly prohibited by the text.

Elina Saviharju is a LLM student at the Harvard Law School.