Internet Specialties v. Milon-DiGiorgio: Raising the Standard for a Laches Defense in Trademark Cases

In Internet Specialties West v. Milon-DiGiorgio Enterprises, Inc., 559 F.3d 985 (9thCir. 2009), the U.S. Court of Appeals for the Ninth Circuit upheld the district court's grant of an injunction prohibiting the use of a registered domain name and mark that was determined to be confusingly similar to a pre-registered domain name of a competitor. The primary and most notable part of the opinion appears to raise the standard for evidence supporting a successful laches defense in a trademark infringement case. The Court held that where efforts to promote the infringing mark do not create specific brand awareness or public association between the mark and its owner, the infringer cannot claim that it has been prejudiced and therefore cannot support a laches defense.

Background

Internet Specialties West (“ISW”) and Milon-DiGiorgio Enterprises (“MDE”) are both Internet service providers that provide substantially the same service - Internet access, e-mail and webhosting,. ISW uses the domain name “ISWest.com,” which it registered in 1996. MDE uses the domain name “ISPWest.com,” which it registered in 1998.

ISW learned of ISPWest.com’s existence in 1998, but at that time, MDE offered only dial-up Internet access in southern California - ISW, on the other hand, offered dial- up, DSL and T-1 access nationwide. ISW’s CEO testified that his company did not see ISPWest.com as a significant competitive threat at that time because of its limited offering, and because most ISP start-ups went out of business at that time.

In 2002, MDE expanded to include nationwide service, and two years later, it began offering DSL. While the parties agreed that this evolution of MDE’s service was “natural and gradual” and necessary to keep the company in business, it triggered a cease-and-desist letter from ISW in 2005. ISW then sued MDE in the Central District of California, alleging that MDE’s domain name constituted trademark infringement in violation of the Lanham Act, 15 U.S.C. section 1125(a)(1).

The Central District held a bifurcated trial. In the first phase, the jury found that MDF had infringed on ISW’s trademark, but found no damages resulting from the infringement. In the second phase, the court determined that MDE did not have a laches defense to the lawsuit. Accordingly, the court issued an injunction against MDE’s continued use of the ISPWest.com domain name.

After the district court denied MDE’s motion for a new trial, MDE asserted three challenges on appeal: 1) that the jury’s finding of infringement was the result of a improper jury instruction; 2) that the district court erred in finding that the plaintiff’s claims were not barred by laches; and 3) that the injunction was overbroad. Internet Specialties West v. Milon-DiGiorgio Enterprises, Inc., 559 F.3d 985, 988 (9th Cir. 2009).

The jury instruction was proper

The Circuit Court first considered whether the District Court’s jury instruction on trademark infringement was improper and prejudiced the jury in favor of ISW. The Court noted that it is bound to review de novo a district court’s statement of the law, but it reviews the lower court’s formulation of the instruction for abuse of discretion. Id. at 989.

The jury instruction used by the District Court followed the Model Civil Instructions in that it identified all of the elements of trademark infringement and listed the eight factors for likelihood of confusion set forth in AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979). The District Court varied from the Model Instructions, however, by pulling out and highlighting three of the Sleekcraft factors as more important than the others, and instructing the jurors that if these three factors were met, they should find that ISW had proven a likelihood of confusion, unless the remaining factors weighed strongly in MDE’s favor. The District Court had stated: “In an Internet case such as this one, the law considers three of these factors to be of greatest importance: (i) similarity of plaintiff’s and defendant’s mark; (ii) relatedness of services; and (iii) simultaneous use of the Internet as a marketing channel.” 559 F.3d at 989.

The Circuit Court stated that the instruction was “an accurate reflection of the law of our circuit, which places greater importance on the ‘Internet Troika’ factors in Internet cases.” Id. (citations omitted). Accordingly, the Court found that the instruction was proper and rejected MDE’s appeal on this issue.

No laches defense because no prejudice to MDE

Laches is an equitable defense to a trademark infringement claim that “embodies the principle that a plaintiff cannot sit on the knowledge that another company is using its trademark, and then later come forward and seek to enforce its rights.” Id. at 989-990 (citation omitted). To prevail on a !aches defense, a defendant must prove two separate elements: 1) that the plaintiff unreasonably delayed in bringing a suit; and 2) that the defendant was prejudiced by the delay. Id. at 990.

The Circuit panel split on the ultimate analysis of MDE’s laches defense, noting an intracircuit conflict about the correct standard of review for a district court’s determination of the starting date for laches. However, the Court declined to resolve this inconsistency, as the clear error abuse of discretion and de novo standards of review produced the same result.

Both the majority and dissent agreed that the laches period began in 1998, when ISW first learned of ISPWest.com’s existence and the type of services it offered. Because ISW did not file suit within the applicable four-year statute of limitations period that began in 1998, there was a presumption that Iaches applied. Id. at 990-991. In fact, the Circuit Court affirmatively found that ISW was not diligent in protecting its mark against a known potential conflict. Id. at 991.

However, the majority and dissent split on the question of whether ISW’s delay resulted in prejudice to MDE — the majority found that it did not. Specifically, the Circuit Court considered whether MDE had made an effort to build its business around its mark during the period of ISW’s delay. Id. at 991-992. The majority agreed with the District Court that MDE had not made specific efforts to develop brand recognition. In particular, the Court noted that most of MDE’s advertising was only in the form of “pay-per-click” ads, which “creates little to no brand awareness” — MDE did not even include the name “ISPWest” in those ads. Id. at 992. The Court concluded that “(i)t is a simple premise that MDE cannot create ‘public association’ between ISPWest and the company if it does not even use the ISPWest mark in its most prevalent form of advertising.” Id.

The dissent sharply disagreed with the majority’s interpretation of the prejudice requirement. Instead, the dissent argued, precedent teaches that a defendant successfully demonstrates prejudice when it builds its business through use of the mark during the period of delay. Id. at 996. Here, between 1998 and 2004, MDE increased its customer base from 2,000 to 13,000 and sales from $518,848 to more than $2.4 million. It realized these increases through use of its ISPWest mark in email addresses and its website address—indeed, MDE’s customers’ email addresses include “@ISPWest.com” as part of the address. The dissent argued that MDE’s “five or sixfold” expansion of its business during the delay period should sufficiently meet the burden of proving prejudice, and that the majority’s “new rule” requiring “brand awareness” or “public association” “eviscerate(s) the defense of laches in trademark law.” Id. at 995, 996.

The scope of the injunction was appropriate

Finally, the Court reviewed the scope of the district court’s injunction, which MDE contended was too broad. Specifically, MDE contended that even if it could not use its mark to sell DSL services, it should be able to use its mark to sell other services that did not prompt ISW’s lawsuit.

Reviewing the District Court’s decision under the abuse of discretion standard, the Court upheld the injunction, which prohibited MDE from using ISW’s marks or any variation or similar terms and required MDE to abandon all use of “ISWest.com,” in full. The Court noted that the purpose of an injunction in trademark infringement cases is to prevent the likelihood of confusion, and the District Court’s injunction does exactly that. Id. at 993.

Conclusion

Internet Specialties has made it more difficult for defendants to assert a laches defense, at least in the Ninth Circuit. These days, companies spend significant time and money developing websites and other Internet presences. The Ninth Circuit has made it clear that a business must carefully select, use, and protect its domain name vehemently. More importantly, that domain name should become an integral part of a business’ brand development efforts in order to protect it.

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Olivier A. Taillieu

Laura D. Castner

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