Social Networking and Cybersquatting in Outsourcing: Legal Conflicts where BPO Meets SaaS
Posted April 30, 2009 by Bierce & Kenerson, P.C. · 
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Social networking on the Internet depends on that part of information technology that is called “software as a service” (“SaaS”). SasS offers a form of outsourced infrastructure for relationship management. SaaS works for virtually any business processes delivered as a service.
Social media offer efficient marketing tools for new ventures and transforming long-existing businesses. Social networking media enable professionals to identify, target and interact directly with qualified business prospects, using tags such as geography, interest category, company or any other affinity class. Social networking allows online interactions between individuals and sharing of ideas, photos, audio, video and aspirations. Marketers love social media as a vehicle for (i) efficiently opening new conversations, (ii) inviting engagement by asking for “status updates,” (iii) developing brand goodwill, (iv) creating personal trademarks for self-appointed gurus leading new discussion groups and (v) serving highly targeted and affordable advertising. Social networking marketing can even be outsourced.
Beyond Facebook, MySpace and LinkedIn, social networking has morphed into private-label social networks that depend on memorable URL’s. Since social networking and other delivery of outsourced services by a SaaS Internet host requires a URL (uniform resource locator), any new SaaS services face potential legal conflicts of intellectual property rights in the trademarks and goodwill of the URL’s. This phenomenon underscores the need for prudent intellectual property practices in outsourcing, particularly in the commercial use of social networking.
What is “Cybersquatting”? Cybersquatting means the misappropriation of a URL that conflicts with another identical or confusingly similar URL. Cybersquatting differs from trademark infringement because trademarks give only territorial rights, while URL’s are unique in the world. Cybersquatting differs from “trade dress” infringement under the U.S. Lanham Act, 15 USC 1051 et seq., because the conflict is not one of styles, modes, or appearances but rather one of names. Cybersquatting differs from misappropriation of trade secret since there is no trade secret to misappropriate.
The law of cybersquatting derives from the intersection of trademark law (under local legislation and the Convention of Paris of 1888 (yes, 1888)), the policies of a non-governmental organization (ICANN, the non-profit regulator of Internet Names and Numbers) and the non-judicial dispute resolution procedures orchestrated by a multilateral governmental organization (the World Intellectual Property Organization).
This creates a conflict of public policies.
- Under trademark law, the goal is to enable private parties to create and preserve the goodwill of their identifying marks. The trademark holders must pay minor cost by registering in all relevant countries (and pay registration and renewal fees to the local governments. Trademark infringers can be liable for statutory damages (without a showing of the value of actual damages) or actual damages due to infringement or dilution of the goodwill of a mark. Individuals responsible for a legal entity’s trademark infringement can be held personally liable.
- Under cybersquatting law, the goal is to enable private parties to create and use the unique resource locator as allowed by ICANN.
Cybersquatting in Outsourcing: Social Networking. Cybersquatting becomes an increasing risk for enterprise customers and service providers that use SaaS or other Internet services to reach customers, members of non-profit associations, trade associations, clubs and other social networks. Thus, websites like LinkedIn, Plaxo, Spoke, Yaari, MySpace and FaceBook need to protect their trademarks in all countries where they intend to attract “members” of their social networks.
Software developers now offer their proprietary social networking software engines for private labeling. Enabled by such software, businesses are using proprietary social networking sites (that have a social networking software engine and a proprietary URL) for a variety of new marketing and customer loyalty initiatives. These range from polling customer interest in new products and conducting satisfaction surveys to augmenting their existing customer outreach programs by adding social networking functionality to frequent-flyer and frequent-customer rewards programs.
Resolving Cybersquatting Disputes. Since cybersquatting stems from the conflict of a URL and a trademark, resolution of cybersquatting conflicts necessitates an international alternative dispute resolution process.
Mediation and Arbitration through WIPO. In December 1999, WIPO developed a Uniform Domain Name Dispute Resolution Policy (“UDRP”) that it claims to be a quick and cost effective dispute resolution procedure. WIPO touts the services of its Arbitration and Mediation Center as a “quicker and cheaper way of protecting their trademark rights against cybersquatting.” It offers mediation and arbitration procedures that handle different languages simultaneously and is based on written submissions without the need for travel.
WIPO Standard for Deciding the Winner. WIPO claims that t he UDRP “has become accepted as an international standard for resolving domain name disputes.” The WIPO UDRP is popular with the entertainment industry, pharmaceutical companies, IT firms and a significant number of small-to-medium-sized businesses for low cost and comparative speed. WIPO’s standard for deciding such disputes is, it says, “designed specifically to discourage and resolve the abusive registration of trademarks as domain names.” That standard requires the complainant to demonstrate three key facts, which together equate roughly to trademark infringement with malicious intent:
- that the disputed domain is identical or confusingly similar to its trademark;
- that the respondent does not have a right or legitimate interest in the domain name; and
- that the respondent registered and used the domain name in bad faith.
WIPO Procedure. WIPO administers dispute resolution by supervising the mediation or arbitration proceedings. WIPO offers “ independent panelists” drawn from the Center’s list of 400 trademark specialists from over 50 countries. “The domain name in question is frozen (suspended) during the proceedings. After carefully reviewing each case, panelists submit their decisions within a period of about 14 days. If a panelist’s decision to transfer a domain name is not challenged in court within a period of ten days, the registrar is legally bound to implement the panelist’s order .”
Trademark Law. International cybersquatting disputes do not fit cleanly into trademark law. Trademark law is based on the territorial limitations of nations, so a trademark in one country does not automatically protect against use of an identical URL in another country. URL’s are not global but they have the magnetism of trademarks in local markets.
So national courts can allow trademark infringement cases if the local trademark owner can show that the cybersquatter has done some intentional act that subjects the cybersquatter to jurisdiction of the national courts or otherwise violates the local trademark law. The U.S. constitutional law on this issue focuses on the impact of foreign actions within the United States. This standard applies to practices that invite the use of police power, in the public interest, to overcome noxious impact of foreign actions where the foreign actor can “expect” to be “hailed into court” in the United States. This applies to securities frauds, anticompetitive behavior under antitrust laws, consumer product safety and even common law torts.
Defensive Strategies.
Best Practices in Social Networking, SaaS and Global Services. The best practices in social networking, whether under private label or using a third-party website, is to obtain trademark registrations in all countries where you intend to protect the mark from infringement. Registration protects not only against abusive registration of identical or confusing URL’s, but also commercialization of such URL’s in the local market through marketing and distribution practices.
In short, it is advisable to:
- monitor the application and registration of trademarks likely to confuse consumers;
- monitor URL registrations globally;
- apply for trademarks in all important markets;
- analyze the risks and have a fallback mark available, maybe even used in conjunction with the primary mark;
- Send demand letters against alleged cybersquatters;
- Have valid business reasons, not merely to create confusion and misdirect Internet users, when registering a URL and a trademark, including an identified target customer base (that can be distinguished from a competitor’s target base where the competitor uses a similar mark);
- Apply for “internationally recognized” trademark status when advertising expenses have been substantial, and name recognition is widespread, in multiple countries;
- See uniqueness in marks, which is a challenge since marketers want marks that evoke, if not describe, the product, service or the consumer benefits;
- Finalize trademark and URL registration strategies and processes early in a new product launch, especially where a social networking or team working website will be using proprietary software.
As the number of URL’s expands globally, conflicts between trademarks and URL’s will be exacerbated. Cybersquatting disputes highlight the risks for users of third-party software or proprietary software for social networking, product marketing and general Internet business.