United States: Act Now To Prevent Cybersquatting

If you thought your trademarks were finally "safe" on the Internet, think again. Unless trademark owners act quickly to preempt possible conflicts, a decision to introduce a new set of top-level domains and a new technology offered by technology start-up New.net, Inc., are likely to result in another round of conflicts between trademark owners and individuals seeking to exploit another "first come, first served" opportunity to grab valuable real estate on the Internet.

Domain names are addresses that are used to identify specific computer sites on the Internet (e.g., shearman.com). Domain names are comprised of two parts. The alphanumeric string to the right of the "." is called the top-level domain ("TLD"). TLDs include, among others, .com, .gov and .org. The alphanumeric string immediately to the left of the "." is the specific domain name registered to an individual user within a TLD.

Within the last year, the Internet Corporation for As-signed Names and Numbers ("ICANN"), the non-profit corporation established to manage the Internet domain name system, approved the addition of seven new TLDs. These include .biz, .info, .name, .pro, .museum, .aero, and .coop. The addition of the new TLDs will increase the number of domain names available for registration and will allow for additional competition with the dominant .com domain names. Although several domain name registrars (e.g., Network Solutions and Register.com) are accepting applications to register domain names within these new TLDs, each new TLD will be administered by a new ICANN approved entity pursuant to negotiated agreements between ICANN and these new entities. ICANN has chosen NeuLevel, Inc. ("NeuLevel") to administer the .biz TLD and Afilias Ltd. ("Afilias") to administer the .info TLD.

ICANN has required that both NeuLevel and Afilias establish procedures that provide certain limited rights to trademark owners. If all works as planned, trademark owners can preempt unrelated entities from registering domain names that are identical to their trademarks, when the purpose of such registration is simply to coerce the trademark owner into buying the registration. If trademark owners take action within the required time period, we may not see the rash of cybersquatting that erupted following the initial introduction of the domain name system. Although these new procedures rely on equitable principles to prevent cybersquatting, these procedures merely rely on the "luck of the draw" to resolve conflicts that arise when different entities own identical trademarks for use on or in connection with different goods or services. For example, as discussed in more detail below, it is interesting to consider the conflict that would arise if Delta Air Lines and the Delta Faucet Company each seek to register delta.biz and delta.info.

NeuLevel has announced a three-stage process for the registration of domain names within the .biz TLD which gives trademark owners the opportunity to protect their trademarks from cybersquatters. During an initial stage, which began in May and is currently expected to extend through August 6th, 2001,¹ owners of registered and common law trade-mark rights can put NeuLevel on notice of their trademarks by filing an "IP Claim" directly with NeuLevel or through an ICANN accredited .biz registrar. Although each accredited registrar may set its

own fee for the filing of IP Claims, NeuLevel and Network Solutions are currently charging a fee of approximately $90.00 for each IP Claim. As discussed in more detail below, by filing an IP Claim with NeuLevel, trademark owners can ensure that any attempt by a third party to register a domain name identical to its marks will be referred to an expedited dispute resolution process prior to the third party obtaining the domain name. This initial stage will be completed before NeuLevel begins issuing domain names. It is important to note that the submission of an IP Claim is different from submitting an application to register a domain name. If a trademark owner wants to register a .biz domain, an application to register the domain name must also be filed.

NeuLevel will begin processing applications for .biz domain names following the close of the IP Claim submission period. To ensure fairness, NeuLevel will randomize all applications received from registrars before granting domain names. It is interesting to note that, in addition to different entities filing applications for the same domain name with the same or different registrars, this procedure has encouraged the filing of multiple applications for the same domain name, by the same entity, in order to increase the chances of "winning" a domain name. Before granting an application chosen via the randomization process, NeuLevel will compare the "winning" application to the database of trademark owners filing an IP Claim. If a trademark owner has filed an IP Claim for a trademark that is identical to a domain name that another entity is seeking to register, NeuLevel will notify the trademark owner and the applicant and put the application on a thirty-day hold. During this hold phase, the applicant can elect to cancel or, upon expiration of the thirty-day hold period, proceed with the registration process. If the applicant elects to proceed, the trademark owner will have the opportunity to object through NeuLevel's Start-up Trademark Opposition Policy ("STOP"). The STOP procedure, similar to ICANN's Uniform Domain-Name Dispute-Resolution Policy ("UDRP") procedure, allows for an expedited resolution of the domain name dispute. The STOP procedure is, however, restricted to IP Claim participants. During the STOP procedure, the domain name will remain on hold until the dispute is resolved.

Acceptable grounds for bringing a complaint under the STOP procedure include allegations that: (1) the domain name is identical to a trademark in which the claimant has rights; (2) the third party seeking registration of the domain name has no rights or legitimate interests in respect of the domain name; and (3) the third party is seeking registration of the domain name in bad faith.

The STOP procedure described above should effectively preclude cybersquatters from obtaining domain names and, as the following example illustrates, will also be used to resolve disputes when multiple parties have legitimate rights to the same domain name.

Consider that (i) both Delta Air Lines and the Delta Faucet Company file IP Claims, (ii) both seek to register delta.biz and (iii) that the Delta Air Lines application to register delta.biz is randomly selected first. The IP Claim filed by the Delta Faucet Company will cause a STOP proceeding to be initiated between Delta Air Lines and the Delta Faucet Company. Pursuant to the STOP procedure, since Delta Air Lines has a legitimate right to the domain name and because its application was selected first, it will prevail in the STOP proceeding and will ultimately be granted the domain name. Although in the material world, the trademark rights of Delta Air Lines and the Delta Faucet Company in the word mark "delta" peacefully coexist, in cyberspace, the luck of the draw prevails.

Finally, in October, .biz names that have been awarded will become operational. Once this phase begins, registrations of domain names will be issued on a first-come, first-served basis, whether or not the domain name includes a registered or common law trademark. During this phase, new applications will no longer be compared to the database of trademark owners who registered IP Claims and all domain name disputes will be resolved via a mandatory administrative proceeding under the UDRP².

Afilias has established a similar staged process for the rollout of the .info TLD. First, beginning on July 25, 2001 and ending August 28, 2001, Afilias will offer a "Sunrise Period" during which only owners of registered trademarks with national effect in the United States or any foreign jurisdiction can apply through an ICANN accredited registrar for a .info domain name identical to the registered trademark. In contrast to the procedure implemented for the .biz TLD which gives owners of registered and common law trademark rights the opportunity to file an IP Claim, the .info procedure gives only owners of registered trademarks the opportunity to register domain names corresponding to registered trademarks during an exclusive period prior to opening registration to the general public. Holders of common law trademark rights or pending trademark applications are not eligible to participate in the Sunrise Period.

To ensure fairness during the Sunrise Period, all accredited registrars will first collect applications and then deliver them to Afilias. Afilias will implement a multi-round batch processing system in which it will randomly select applications from each registrar's batch. The World Intellectual Property Association ("WIPO") will administer a challenge procedure, the details of which have not yet been announced, through which any third party may challenge these Sunrise Period registrations to ensure that they comply with the applicable requirements. This challenge process will be available for approximately 120 days after Afilias begins accepting applications for .info domain names from the general public. Sunrise challenges can be based on the following grounds: (1) the domain name registrant did not own a valid and enforceable trademark registration, (2) the trademark registration was not of national effect, (3) the second level domain name is not identical to the trademark registration, or (4) the trademark registration was not issued prior to October 2, 2000. After the time for the challenge process expires, further disputes must be brought under ICANN's UDRP or in a court of competent jurisdiction.

As discussed above with respect to .biz TLDs, conflicts in the .info TLD between different entities that own identical trademarks for use on or in connection with different goods or services will also be resolved via the luck of the draw. For example, in the event that both Delta Air Lines and the Delta Faucet Company seek to register delta.info during the Sunrise Period, the application that is selected first, at random, will be granted the .info domain name.

The second stage of the rollout of the .info TLD is scheduled to begin within fifteen days after the conclusion of the Sunrise Period. During this stage, Afilias will begin accepting applications for .info domain names from the general public. In order to fairly and efficiently process the backlog of applications that currently exists, the application process during this stage will also employ a randomized multi-round batch procedure similar to the one used for Sunrise Period applications. Once the backlog has been cleared, Afilias expects to process applications on a first-come, first-served basis in real time.

Unfortunately, the release of the seven new ICANN authorized TLDs is not the only development looming on the horizon for trademark owners. In addition to these new TLDs, New.net, Inc., a start-up company operating outside of the ICANN umbrella, has developed technology that, in effect, establishes a domain name system independent of ICANN. New.net's system currently supports 30 different subject-oriented domains (e.g., .shop, .golf, .travel and .law). Since the New.net technology is not authorized by ICANN, it requires that either Internet service providers (ISPs) or users install special software in order for a user's browser to find and access web sites operating with the New.net domains. New.net has already announced agreements with EarthLink Inc., Excite@Home and NetZero Inc. to install the necessary software to enable their servers to recognize New.net's domains. Thus, the estimated 16 million users of these ISPs will have access to web sites within the New.net domains.

Although, currently, none of the New.net domains overlap with ICANN authorized TLDs, some of the domains offered by New.net are identical to those that were considered by ICANN but not included in the group of seven recently released by ICANN. The possibility still exists, however, for a direct conflict between New.net and ICANN since certain of the New.net domains are the same as the TLDs that ICANN has stated are under consideration for the next planned expansion of the ICANN system.

It is not possible to predict which, if any, of the new ICANN TLDs or New.net domains will attain the popularity of the .com domain. It is certain, however, that the issuance of these new TLDs places substantial pressure on trademark owners to act quickly to defend valuable intellectual property. Although the IP Claim procedure within the .biz TLD and the Sunrise procedure within the .info TLD do not guarantee reservation of a domain name, they do provide a level of protection and priority not previously available.

These procedures can help increase the likelihood that trademark owners will obtain desirable domain names without costly dispute resolution proceedings or related litigation. In addition, businesses seeking to protect their trademarks on the Internet should consider registering domain names within the domains offered by New.net. The extent of such a defensive program is part of an overall strategy for effectively managing intellectual property portfolios and should be guided by appropriate legal counsel.

FOOTNOTES

^{1 These dates have been modified in the past and may change in the future. For the most current information see www.neulevel.com.}

2 Although the UDRP procedure is mandatory for domain name registrants, either party may submit the dispute to a court of competent jurisdiction at any time.

© 2001 SHEARMAN & STERLING