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Joseph Karwat was a bit surprised when friends and business associates began congratulating him on having taken his Oakland-based company, E-Fax Communications Inc., public. A total stranger even stopped one of Karwat's sales managers in the gym one day and asked him how it felt to be rich. He didn't really know, because he couldn't have exercised any lucrative stock options, because E-Fax Communications Inc. hadn't offered any stock to the public.
Karwat started E-Fax Communications Inc. back in 1989 out of his house. And, true to its name, the business provides electronic document delivery services for companies large and small.
For more than 10 years, Jet-Fax Inc. was primarily engaged in selling fax technology and software to office equipment manufacturers. Earlier this year, the company turned in a new direction with an Internet fax-to-e-mail service called eFax.com. And, in what could only be described as an excellent business move -- the enterprise signed up 500,000 users within the first three months, and its stock quadrupled -- the company changed its name to match its Internet address.
E-Fax Communications Inc., or efaxinc.com on the Internet, wasn't so happy about that development. The company had trademarked its name in 1993, and believed that eFax.com, now engaged in a similar business, was too close for comfort.
E-Fax Communications Inc. filed a lawsuit in federal court against eFax.com Inc., alleging trademark infringement, and, in April, the two firms made what is by all accounts an amicable settlement. Basically, E-Fax Communications Inc. sold its trademark to the newcomer, eFax.com Inc., for about $2.5 million in cash and stock.
The dispute exemplifies the growing confusion surrounding the relationship of trademarks to domain names, which has spawned a growing number of lawsuits. In the absence of a rule book on the Internet, most of the squabbles wind up in court, at least for those who have the money to get there, because no one has quite sorted out who's in charge of the free market that is the Internet.
"I don't think there's any question that there's going to be an increasing problem," says Greg Gilchrist, an attorney at Legal Strategies Group who represented E-Fax Communications Inc. in the suit. "It's an enormous task to find out everybody who is infringing your [trade]marks in this manner."
Cybersquatters -- that is, people who register a domain name that's the same or similar to a popular name or brand -- come in a variety of themes. Consider the porn Web site that borrowed its name from the legendary children's game Candy Land. The makers of Candy Land successfully sued, and the Playboy adult empire is among the leaders in filing lawsuits against anyone using any of its many trademarked titles. But the trademark vs. domain name problem is hardly exclusive to adult entertainment.
There are the beanies: Ty Inc., makers of the annoyingly popular Beanie Babies, recently sued a Mesa, Az., woman over her beaniecollectibles.com, on which she traded the little critters. The woman dropped the site.
Then there are the meanies: Chris "Pokey" Van Allen, a Pennsylvania boy, got the domain name pokey.org from his dad for his 12th birthday. He then got a lot of grief from the Prema Toy Co., which owns the trademark to Pokey and his flexi-friend, Gumby. Prema dropped its claim after Van Allen's family hired a lawyer.
There are those who pay dearly: David Talbot, founder of the Internet magazine Salon, went through three Web addresses and spent more than three years trying to persuade an Austin, Texas, man to sell the domain name salon.com. Finally, Roy Frederickson, who owns two beauty salons, relented for an undisclosed sum.
And there are the "warehousers" who purchase scads of domain names as an investment, gambling that some corporate bean counter will write them a fat check. The likes of McDonalds.com and Microsoft.com were not always attached to the corporations of the same name.
In solving such disputes, the U.S. courts have, for the most part, fallen back on trademark laws. In fact, the 9th Circuit Court of Appeals in April found that trademark law overrides the act of simply registering a domain name.
But it's about to get more complicated. The Internet Corporation for Assigned Names and Numbers (ICANN), a group that is controversial in and of itself, has been given the nod by the Department of Commerce to issue new top-level domains (kind of like surnames on the Internet). The move would add new endings such as .rec, .arts, or .store to the already established .net, .org, and .com at the end of current domain names.
In other words, an entirely new set of legally questionable combinations is about to emerge.
The ICANN, a nonprofit corporation that is controlled by a nine-member board of directors, and that has absolutely no legal authority to compel anyone to do anything, is attempting to make rules on bad behavior such as cybersquatting on famous names. Meanwhile, the World Intellectual Property Organization (WIPO), an arm of the United Nations, recently released a report recommending that the owners of famous names and trademarks be given exclusive right to matching Internet domain names.
Trademark guru Michael Lindsey, an attorney at Paul, Hastings, Janofsky & Walker, explains that although the WIPO report was obviously pleasing to trademark owners, it does not define what constitutes a famous or well-known trademark, and provides limited protection for lesser-known marks.
Complicating matters further is the international nature of the Internet. Consider the example of country codes.
"For instance," he says, "the country code for the country of Tulavu [a tiny string of islands in the Pacific near New Guinea] is .tv. So what happens when you have ABC.tv?"
Lindsey ran into a high-end Swedish mattress maker named Tempur-pedic. But when customers misspelled the name and typed in "Temper-pedic," they found a mattress store, one in the United States.
"Who has the ultimate authority on this?" says Lindsey. "Nobody knows.