IP Law Daily, TRADEMARK—D. Ariz.: Facebook adequately alleges domain registrar Namecheap and proxy service WhoisGuard traffic in infringing trademarks, (Jul 12, 2021)

By Robert Margolis, J.D.

WhoisGuard’s counterclaims alleging that Facebook has abandoned its FB marks also proceeds.

The federal district court in Phoenix has denied cross-motions to dismiss in Facebook, Inc.’s Anticybersquatting Consumer Protection Act (ACPA) and infringement claims against domain registrar Namecheap, Inc. and the operator of Namecheap’s proxy service, WhoisGuard, Inc., finding that Facebook sufficiently pleaded defendants’ liability for the infringement by cybersquatters using their services. The court also found that WhoisGuard sufficiently pleaded that certain of Facebook’s registered FB marks should be cancelled for abandonment (Facebook Inc. v. Namecheap Inc., July 8, 2021, Snow, G.).

Namecheap is an ICANN accredited domain registrar, and it allows its customers to opt in to WhoisGuard’s proxy service. Facebook contends that Namecheap and WhoisGuard have registered, trafficked in, or used domain names that infringe on Facebook’s trademarks and service marks. Earlier, the court denied WhoisGuard’s motion to dismiss Facebook’s initial complaint, but granted Namecheap’s motion giving Facebook leave to amend. WhoisGuard answered the complaint and asserted a counterclaim, alleging that several of Facebook’s registered marks are invalid and should be cancelled. WhoisGuard claims that these registrations cause it damage, since Facebook is relying on them, in part, to bring its claims against WhoisGuard. Namecheap and WhoisGuard moved to dismiss Facebook’s claims, and Facebook cross-moved to dismiss WhoisGuard’s counterclaim. The court denied all motions.

WhoisGuard motion. The court’s order on the initial motion to dismiss held that Facebook plausibly alleged that WhoisGuard is liable for infringement by its licensees, in this case Namecheap, unless it timely disclosed its customers’ identity. Facebook alleged this again in its amended complaint, including with respect to infringing domains newly alleged in the amended complaint. Thus, based on the prior order, the court denied WhoisGuard’s dismissal motion both as to infringing domains alleged initially and those added in the amended complaint.

Alter ego. Facebook alleged alter ego liability for Namecheap based on WhoisGuard’s activities. Alter ego liability arises where there is a unity of interest and ownership between the two entities such that their separate personalities do not exist, and that failure to disregard separate entities results in "fraud or injustice."

Facebook’s complaint included several allegations of lack of separateness, including: (1) Namecheap "spun off" the portion of its business that previously provided proxy service and began operating it through WhoisGuard, a wholly-controlled Panamanian shell company; (2) WhoisGuard does not exercise control over its own services; (3) Namecheap decides whether WhoisGuard will reveal customer identities; and (4) Namecheap employees developed the WhoisGuard proxy service. Facebook also alleged several indicia that Namecheap and WhoisGuard did not follow separate corporate formalities, including that they have common ownership, do not document transactions between them, Namecheap pays WhoisGuard’s expenses, and WhoisGuard has no employees. Facebook also alleged that this structure causes fraud or injustice, in that Namecheap uses WhoisGuard to insulate Namecheap from liability for the provision of the proxy service, and WhoisGuard was established in Panama to avoid jurisdiction in United States courts and liability. Facebook thus plausibly

Strike allegations. Namecheap and WhoisGuard moved to strike several of Facebook’s allegations that (1) domain names registered through Namecheap were used in a 2018 ransomware scam, (2) defendants engaged in a wire fraud scheme using a WhoisGuard registered and licensed domain name, (3) Namecheap is the "registrar of choice for cybercriminals," and (4) defendants facilitate cybercrimes and intentionally seek cybersquatters to use their services. Namecheap and WhoisGuard claimed that these allegations were unrelated to the claims against them. The court disagreed.

Facebook’s ACPA claim alleges that Namecheap and WhoisGuard had a bad faith intent to profit from using an infringing domain name, by intending to profit from another mark’s goodwill. 15 U.S.C. § 1125(d)(1)(A)(i). While the disputed allegations alone do not establish that defendants intended to profit from Facebook’s marks, they do show that defendants are aware how its services are used by cybersquatters and a willingness to facilitate it.

Cancellation counterclaim. WhoisGuard alleged that four Facebook registrations for the FB mark should be cancelled because Facebook abandoned them. WhoisGuard alleges that the FB Newswire page, which Facebook used to obtain the registrations, ceased operating in October 2016, and on information and belief, Facebook has made no use of the FB marks in the more than three years since and has no intent to use them. The court found this sufficient to state a claim and denied Facebook’s motion to dismiss.

Registrar certificates The defendants filed Registrar’s Certificates with the court, stating that the allegedly infringing domains have been placed on registrar lock, preventing them from being transferred, modified, or otherwise managed or manipulated, until further order of the court, such that those infringing domains should be construed as under the dominion and control of the court. Facebook argued that the defendants violated the declarations in these Certificates, since Namecheap has allowed several of the locked domain names to expire. Since the Certificates did not state that Namecheap would prevent expiration, and Namecheap claims it lacks the ability to prevent expiration anyway, the court rejected Facebook’s contention.

The case is No. 2:20-cv-00470-GMS.

Attorneys: David Gary Barker (Snell & Wilmer LLP) and David Jefferson Steele (Tucker Ellis LLP) for Facebook Inc. Brianna Dahlberg (Rome & Associates APC) for Namecheap Inc.

Companies: Facebook, Inc.; Namecheap, Inc.; WhoisGuard, Inc.

Cases: Trademark TechnologyInternet ArizonaNews GCNNews