UDRP – A Guest Post EVERY DOMAINER MUST READ

Nat Cohen is a long time domainer who specializes in generic domains. This post, which Nat prepared, is one that is important to all domain owners.
About Nat – He has built up many of his Properties including OceanCity.com and Maryland.com. He lives with his wife and family in Washington DC. Nat is a longtime friend.

A Problem at the Core of the Internet

Those who care about the development of the Internet should pay attention to a problem festering at its core. Domain names, the building blocks of the Internet, are governed by such a flimsy, easily-abused set of rules that ownership rights in domain names are not secure. This problem affects both those within and outside the domain industry.

“Going Rogue”

Domains are the only asset class where owners are required to subject their ownership rights to cancellation by an arbitration panel. The poorly paid, loosely accredited arbiters who decide these cases are guided by a vague set of rules, the Uniform Dispute Resolution Policy or “UDRP”. There is no procedure for reviewing the decisions of the arbiters to ensure that the decisions comply with the guidelines. Arbiters enjoy free rein in interpreting the rules as they see fit and can act with impunity.

Most arbiters are sincere, fair-minded, hard-working, distinguished legal professionals who make a genuine effort to carefully and faithfully apply the UDRP rules. Yet their good work is undermined by weak procedural safeguards that allow a minority of arbiters to mishandle the power entrusted to them to order the cancellation of a registrant’s rights to a domain name and the transfer of that domain name to a new owner for the flimsiest of reasons.

Individuals and small businesses are losing their long-held domains in arbitration to covetous newcomers who are not entitled to them. Last year a Korean dentist lost opendental.com to a company that did not exist at the time he initially registered the domain. A technology enthusiast recently lost parvi.org to the City of Paris in spite of the arbiter finding that there was no evidence that he registered the domain in bad faith and despite of his clear legitimate use of the domain to promote new software he was developing.

‘Fox Guarding the Henhouse’

Arbiters are selected by providers of arbitration services, primarily WIPO and NAF, and the arbitration venue is in turn selected by the Complainant. WIPO and NAF are competing in the marketplace to offer services to their customers. The customers they are catering to are people or businesses who want domains transferred to them.

WIPO and NAF offer seminars on how to succeed at a UDRP. They offer pre-written complaints where the arguments are made for the complainant and all the complainant has to do is fill in the blanks. They develop supplemental policies heavily tilted in favor of the complainant governing the timing and admissibility of initial and follow-up submissions. A new entrant, the Czech Arbitration Court, has offered to aggressively lower the cost of a complaint to attract Complainants raising the question as to the quality of the panelists willing to work on an assembly line system churning out mass produced decisions at the lowest cost. One of the original arbitration providers, eResolution, stopped offering arbitration services after complaining that WIPO created a perception in the marketplace that Complainants were more likely to win cases at WIPO than at eResolution which led to a steep drop in the number of Complainants who selected eResolution as an arbitration venue. The NAF has been found to be biased in favor of credit card companies and has been banned from deciding credit card disputes, yet ICANN still empowers them to decide domain name arbitrations. Competitive pressures will increasingly push the arbitration venues to lower standards and to adopt ever more pro-Complainant policies, or see themselves shut out of the market.

These problems are not new. The ‘systematic unfairness in the ICANN UDRP’ was detailed in a thoroughly researched paper by Professor Michael Geist published in — 2001. One promising idea to reduce bias is to randomly assign cases to the different arbitration bodies. Yet no concerted effort has been made to correct the problem of bias and now, ten years after the introduction of the UDRP, the problem is as bad as it has ever been.

Mission Creep

The UDRP was intended to deal with clear cases of cybersquatting. Over time, due to panels willing to accommodate aggressive complainants, the standard is moving closer to ‘use it or lose it’ where panelists will order the transfer of a domain to whom they believe to be the “more deserving” party. Arbiters are issuing decisions stating to the Respondent, in essence, ‘you knew that the Complainant had a good use for the domain and you weren’t using it, so your continuing to hold and renew the domain is evidence of bad faith’. This line of reasoning was used in ordering the transfer of OpenDental.com, as mentioned above, and DKB.com, where one bank had stopped using a domain that another bank wanted.

The NAF acknowledged this broadening of the scope of the UDRP in a comment letter:

Panelists have taken the opportunity, over time, to agree with those complainants and broaden the scope of the UDRP, but it started out as a mechanism only for clear cut cases of cybersquatting.

The erosion of the original UDRP protections are decried by panelist Diane Cabell in a dissent:

Today, many panels will find proof of all three of the Policy’s elements simply from the existence of a mark of any kind with arguments that any mark is by definition identical or confusingly similar, that any use by any party other than a mark owner can only be illegitimate, and that bad faith necessarily exists if there is no legitimate interest.

That takes us back to the beginning, which I find disheartening.

The combination of the broader scope of the UDRP and arbiters who freely reinterpret the UDRP guidelines are putting at risk generic domains that were registered with no bad faith intent. The levees have been breached and many previously protected domains will be washed away in a flood of speculative UDRP complaints.

Bad Faith

Absent a finding of bad faith, a panelist may not order the transfer of a domain name. Most UDRP disputes turn on whether the registrant exhibited bad faith in her registration and use of the disputed domain. Bad faith is a question of intent. To determine bad faith requires looking into the soul of the person who registered the domain to determine her intention at the time of registration – which may have occurred a decade prior to the UDRP proceeding. UDRP proceedings are particularly ill suited for determining ‘bad faith’ as the evidentiary record is so slight. There is no opportunity for discovery, to examine witnesses under oath, or similar fact finding powers that are available in a court trial.

Often the only evidence supporting a finding of bad faith are ad links provided by a third party to whom the domain has been licensed. Arbiters will rely on the existence of these links to make the ‘reasonable inference’ that the original intention of the domain owner in registering a valuable generic domain years earlier was primarily to profit from such links, even though the links may have first appeared years after the original registration. On such reasoning valuable generic domains that have been held for years without problem are suddenly lost.

Anything.com has one of the best generic portfolios in the world. They have been registering generic domains since at least 1997 and registered flamingo.com in 1998 before monetization of domains through pay-per-click advertising had gotten off the ground. Four years later in 2002, the Flamingo Hotel in Las Vegas filed a UDRP objecting to links on the parking page at flamingo.com. In spite of Anything.com’s arguments that they registered flamingo.com simply because it was a generic domain, and in spite of one panelist’s dissent that the links did not prove that the domain was registered in bad faith four years earlier, the other panelists determined the links “to more than adequately support an inference regarding Respondent’s intention on registering the disputed domain name”. The Flamingo Hotel won.

In a more recent example, Bigfoot Ventures, a company with far-flung media interests, purchased several three-letter dot-com domains from BuyDomains in May 2008. BuyDomains had owned many of these domain for several years prior to the sale. At the end of May 2008, the same month that Bigfoot had acquired the domains and before it had even switched the hosting for the domains, Bigfoot was hit by a UDRP Complaint. The Complainant was a Mexican Airline known by the initials VTP and the domain the airline wanted was vtp.com. The arbiter found that the presence of advertising links on the webpage that predated Bigfoot’s purchase of the domain was evidence of Bigfoot’s bad faith. Shortly after Bigfoot spent $40,000 to acquire vtp.com, the panelist ordered its rights to the domain canceled and the domain transferred to the Mexican airline.

Cases like these show how valuable generic domains can be lost due to dubious reasoning resting on the slimmest of evidence.

‘Punishment fit the crime’

The only remedy available through the UDRP is draconian – the cancellation of all rights to the domain, usually combined with the order to transfer the domain to the complaining entity. There is no option available to allow the domain owner to cure any problem, no option to pay a monetary penalty, no temporary loss of use. The only penalty, no matter how minor the injury done, or even when there is no injury, is the utter loss of rights in the domain.

A thought experiment using a brick and mortar example may help clarify the situation. Imagine a longtime lot owner whose landscaping company plants a sign on her property that might violate the Home Owner Association (HOA) rules of her community. Then imagine that when the neighbor living in the house adjacent to the lot complains, the HOA transfers ownership of the lot to the neighbor with no compensation due to the lot owner. Far fetched? Similar outcomes are occurring regularly under the UDRP.

Admittedly this example is not that accurate. To make it more accurate the neighbor would choose the person deciding whether the sign violated the HOA rules from several people each of whom promotes himself as being more Complainant friendly than the previous one. Further, the HOA would make no effort to police the arbiters to ensure that they are actually deciding cases according to the HOA rules. Now you have a more accurate model of how the UDRP operates.

Would you want to live and invest in this neighborhood? Of course not. This would be the last place you would want to put your money.

The Morality of Speculation

Certain panelists appear to view investment in domain names as inherently bad faith. Their perspective appears to be that any value associated from an undeveloped domain must be due to a parasitic attempt to profit from the legitimate development activity of others. Therefore in a dispute where the Complainant is actively making use of a term while the Respondent is merely parking a domain similar to that term, then the inference is drawn that the parking activity is a bad faith attempt to profit from the Complainant’s business activities. The panelists who hold this view do not appear to give credence to the possibility that domains have inherent value due to their generic meaning, or that these generic domains will attract direct navigation traffic.

This view is articulated in the dissent in the Geometric.com case (in which I was the Respondent). In the panelist’s words:

Respondent engages in the business strategy of choosing words or phrases commonly used in commerce…

The majority opinion concludes that the Respondent did not have actual knowledge of this specific Complainant at the time Respondent registered the Disputed Domain Name and that any subsequent actions of Respondent are irrelevant. No consideration has been given to the artful strategy underlying Respondent’s activities.

Unfortunately, I cannot join my distinguished colleagues in approving Respondent’s actions without an analysis focusing on the underlying strategy.

I understand this panelist’s position to be that if the underlying strategy is to speculatively register domains with the intent to profit – in general – from the value created by others, then the strategy employed is illegitimate and the registration is fundamentally in bad faith – irrespective of the specific facts of the particular case. Should the registration be challenged in a UDRP by a company making commercial use of the term on which the disputed domain is based then the domain registration must be canceled – not because the registration targeted the particular Complainant in bad faith, but because the strategy of speculative registration is itself evidence of bad faith.

This view undermines the entire industry that has been built around investment in domain names. If domain names are not viewed as having inherent value, then any speculative registration must be an attempt to profit from value created by others. In this view, every speculative registration is in bad faith and must be canceled by any party who meets the test of having a common law or registered trademark that is similar to the domain name.

This position has a moralistic tone. Speculation is evil is the underlying moral principle. This view allows panelists to cast themselves as modern-day Robin Hoods, wresting a domain from the clutches of greedy speculators to deliver it safely into the hands of an upstanding business that can put the domain to honest, productive use.

Speculation draws criticism wherever it occurs whether the market is foreign currency, stocks or domain names. Speculation serves a purpose in keeping the markets for oil, gold, pork bellies and other commodities fluid and in setting prices so that farmers and natural resource companies can sell on the futures market goods that don’t yet exist and thereby obtain a steady, predictable income while transferring all the risk to the speculators.

The critics overlook that investment and speculation are often the first stage of development. Before a city exists someone has to own the land. Someone has to take their hard earned cash and speculate that the raw land will someday be worth something. Then someone else will speculate that people will want to live in that location and will buy the land, subdivide it, clear the land, and put in roads and utilities. Then builders may come to build homes ‘on spec’ – on speculation – and build a house with no guaranty of a sale in the hopes that someone will want to live there. The city that eventually grows on what was once raw land would never have existed if it hadn’t been for speculative activity at every stage of development.

In the early days of the Internet, speculators depleted their savings to spend tens or hundreds of thousands of dollars on new-fangled intangible things called domain names that most people thought were worthless. They paid millions of dollars to the domain registry and registrars who in turn used that money to strengthen the infrastructure of the Internet and to market the benefit of domain ownership and to promote the advantages of doing business online. To meet the demand created by the early investors, tools were developed to simplify web site building and to ease the transition of commerce to the Internet. The critical mass of domain ownership made possible by the purchases of speculators jump started the Internet economy. The speculators that risked their life savings because of their faith in the future of the Internet are now losing what they risked so much to acquire due to certain arbiters who view speculation as illegitimate.

Conclusion

The entire system, from the lack of oversight from ICANN, to the pro-Complainant bias exhibited by WIPO, NAF and the other arbitration providers, to panelists who substitute their personal views for the agreed language of the UDRP, fails to protect the domain owner and leads to loss of confidence in ownership rights on the Internet. The combined actions, and inaction, of these groups are like termites eating away at the foundation of a house. If left uncorrected, the house will collapse. The growth of the domain industry requires stronger protection of domain name registration rights.

Acknowledgements

This article is largely based on original research and revealing articles by Andrew Allemann at DomainNameWire.com and Mike Berkens at TheDomains.com. The ideas in this articles are not original and have been stated in one form or another by many different people, in a variety of venues, over many years. Jeremiah Johnson and Phil Corwin at the ICA are battling huge odds to protect the interest of domain owners. Several lawyers are on the front lines representing domain owners in UDRP disputes, among them Ari Goldberger, John Berryhill, Paul Keating, Brett Lewis, Stevan Lieberman, and Zak Muscovitch. Thanks to Larry Fischer for the opportunity to post here. A big thank you to the dedicated panelists who do their best to maintain the integrity of the UDRP process and who deliver fair, well-reasoned decisions.