Facebook vs. Namecheap: Trademark Dispute & Proxy Service Liability, Study notes of Business Accounting

Download Facebook vs. Namecheap: Trademark Dispute & Proxy Service Liability and more Study notes Business Accounting in PDF only on Docsity! 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 WO IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Facebook Incorporated, et al., Plaintiffs, v. Namecheap Incorporated, et al., Defendants. No. CV-20-00470-PHX-GMS ORDER Pending before the Court is Defendant WhoisGuard, Inc.’s (“WhoisGuard”) Motion to Dismiss for Lack of Personal Jurisdiction and for Failure to State a Claim (Doc. 31) and Defendant Namecheap, Inc.’s (“Namecheap”) (collectively, “Defendants”) Motion to Dismiss for Failure to State a Claim (Doc. 30). For the following reasons, WhoisGuard’s Motion is denied, Namecheap’s Motion is granted, and Plaintiffs shall have leave to amend their Complaint as to Defendant Namecheap. BACKGROUND This case arises out of Defendants’ alleged registration, trafficking, and use of domain names that encroach on the exclusive marks of Facebook, Inc., Instagram, LLC and WhatsApp, Inc. (collectively, “Plaintiffs”). Defendant Namecheap is an Internet Corporation of Assigned Names and Numbers (“ICANN”) accredited domain registrar. (Doc. 1 ¶ 51.) In offering its customers domain name registry services, Namecheap allows its customers to opt into Defendant WhoisGuard’s proxy service. Id. ¶ 52. In its proxy service, WhoisGuard registers Namecheap’s customers’ domain names in WhoisGuard’s Case 2:20-cv-00470-GMS Document 52 Filed 11/10/20 Page 1 of 12 - 2 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 name and licenses the domain names back to the customers. Id. As the domain name registrant, WhoisGuard’s name, not the name of the customer, is listed in the WHOIS record, a directory that contains the identity and contact information for domain names. Id. ¶¶ 6, 55. Several agreements relate to Namecheap’s and WhoisGuard’s services. As an ICANN-accredited registrar, Namecheap is subject to ICANN’s Registrar Accreditation Agreement (“RAA”). Id. ¶ 51. The RAA requires Namecheap to enter into a registration agreement, which must include certain provisions, with each registered name holder. (Doc. 1-5 at 16.) As relevant here, one such required provision is Section 3.7.7.3 of the RAA. Id. at 16-17. Section 3.7.7.3 states: Any Registered Name Holder that intends to license use of a domain name to a third party is nonetheless the Registered Name Holder of record and is responsible for providing its own full contact information and for providing and updating accurate technical and administrative contact information adequate to facilitate timely resolution of any problems that arise in connection with the Registered Name. A Registered Name Holder licensing use of a Registered Name according to this provision shall accept liability for harm caused by wrongful use of the Registered Name, unless it discloses the current contact information provided by the licensee and the identity of the licensee within seven (7) days to a party providing the Registered Name Holder reasonable evidence of actionable harm. Id. The Namecheap, Inc. Registration Agreement (“Registration Agreement”) sets forth the terms for use of Namecheap’s domain name registration and related services. (Doc. 1-2 at 3.) Plaintiffs and Defendants dispute whether WhoisGuard agreed to the terms in the Registration Agreement and whether Section 3.7.7.3, as stated above, is incorporated in the Registration Agreement. In addition to the Registration Agreement, Namecheap’s customers that opt into WhoisGuard’s proxy service are bound by the terms in the Namecheap WHOIS Proxy Agreement (“Proxy Agreement”) and the WhoisGuard Services Agreement (“WhoisGuard Agreement”). (Doc. 1 ¶ 29.) Plaintiffs allege that at least forty-five domains (“Infringing Domain Names”) registered by WhoisGuard are identical or confusingly similar to trademarks and service Case 2:20-cv-00470-GMS Document 52 Filed 11/10/20 Page 2 of 12 - 5 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 participants, parties and non-parties, should benefit from and be subject to forum selection clauses.” Manetti-Farrow, Inc. v. Gucci Am., Inc., 858 F.2d 509, 514 n.5 (9th Cir. 1988). See, e.g., Holland Am. Line Inc. v. Wartsila N. Am., Inc., 485 F.3d 450, 456 (9th Cir. 2007). Here, the disputed conduct involves WhoisGuard’s provision of its proxy service to Namecheap’s customers. To access WhoisGuard’s proxy service, a Namecheap customer must enter into several agreements with Namecheap and WhoisGuard, including the Registration Agreement. Once a Namecheap customer elects to use WhoisGuard’s proxy service, WhoisGuard becomes the domain name registrant for that customer’s domain. In doing so, WhoisGuard falls directly under the definition of “you” and “your” in the Registration Agreement. Therefore, the disputed conduct is “closely related” to the Registration Agreement. Finally, the forum selection clause confers personal jurisdiction because it covers the dispute at issue. The Registration Agreement selects Arizona as the forum “for the adjudication of any third party disputes (i.e., disputes between you and another party, not us) concerning or arising from use of domain names registered hereunder.” (Doc. 1-2 at 17.) As this dispute relates to WhoisGuard, who falls under the definition of “you”, and a third party, Plaintiffs, regarding use of domain names registered under the Registration Agreement, the forum selection clause directly covers this dispute. Accordingly, Plaintiffs’ allegations are sufficient to justify the exercise of this Court’s jurisdiction over WhoisGuard. II. Motions to Dismiss for Failure to State a Claim A. Legal Standard To survive dismissal for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint must contain more than a “formulaic recitation of the elements of a cause of action”; it must contain factual allegations sufficient to “raise the right of relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). When analyzing a complaint for failure to state a claim, “allegations of material fact are taken as true and construed in Case 2:20-cv-00470-GMS Document 52 Filed 11/10/20 Page 5 of 12 - 6 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 the light most favorable to the non-moving party.” Smith v. Jackson, 84 F.3d 1213, 1217 (9th Cir. 1996). However, legal conclusions couched as factual allegations are not given a presumption of truthfulness, and “conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss.” Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998). B. Analysis In separate motions, Defendants Namecheap and WhoisGuard move to dismiss all of Plaintiffs’ claims. The Court addresses each motion separately. 1. WhoisGuard Plaintiffs argue WhoisGuard is liable on all four counts because WhoisGuard accepted liability for its licensees’ wrongful use of the Infringing Domain Names when it breached Section 3.7.7.3 of the RAA, as incorporated in the Registration Agreement. First, Plaintiffs plausibly allege that WhoisGuard is a party to the Registration Agreement. Plaintiffs allege that WhoisGuard is the WHOIS registrant for the Infringing Domain Names. ICANN requires every registrant of a domain name to enter into a registration agreement, and the Registration Agreement defines “you” and “your” to include “the registrant listed in the WHOIS contact information for the domain.” (Doc. 1-2 at 3.) Drawing all reasonable inferences in favor of Plaintiffs, WhoisGuard’s inclusion in the definition of the parties to the Registration Agreement makes it plausible that WhoisGuard is a party to the Registration Agreement. Second, Plaintiffs plausibly allege that they are third-party beneficiaries to the Registration Agreement. In order to recover as a third-party beneficiary of a contract, (1) an intention to benefit the third-party must be indicated in the contract, (2) the benefit must be intentional and direct, and (3) it must appear the parties intended to recognize the third-party as the primary party in interest. Norton v. First Fed. Sav., 128 Ariz. 176, 178, 624 P.2d 854, 856 (1981). Drawing all reasonable inferences in favor of Plaintiffs, Section 3.7.7.3’s language about third parties, as detailed previously, can be read to confer a benefit on parties like Plaintiffs. See Solid Host, NL v. Namecheap, Inc., 652 F. Supp. 2d 1092, Case 2:20-cv-00470-GMS Document 52 Filed 11/10/20 Page 6 of 12 - 7 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1119 (C.D. Cal. 2009) (inferring an intent to benefit trademark owners in the language of 3.7.7.3). WhoisGuard contends that Section 3.7.7.3 does not confer a right to third parties because the RAA contains a “No Third Party Beneficiary” clause. (Doc. 39 at 17.) However, WhoisGuard misconstrues Plaintiffs’ argument. Plaintiffs do not argue that they are trying to enforce the RAA itself, but the RAA as incorporated in the Registration Agreement. Finally, Plaintiffs plausibly allege that Section 3.7.7.3’s language is incorporated into the Registration Agreement and that this language makes WhoisGuard liable. A provision in the Registration Agreement states that by agreeing to the services provided by Namecheap, “you have read and agree to be bound by . . . the rules, policies, or agreements published in association with specific of the Service(s) and/or which may be enforced by Internet Corporation of Assigned Names and Numbers (“ICANN”).” (Doc. 1-2 at 3.) The Registration Agreement then links to a page titled “Registrant Rights, Benefits & Responsibilities.” Id. That page explains that “ICANN has set forth various rights and responsibilities of Registrants” and links to ICANN’s website. (Doc. 32-2 at 10.)2 On ICANN’s website, ICANN explains that, in accordance with the RAA, “the Registrar/Registered Name Holder Agreement must include – at minimum – the following items (as stated at Sections 3.7.7.1 – 12 of the RAA).” Id. at 13. Section 3.7.7.3, as detailed above, states that the registered name holder licensing use of a domain name accepts liability for wrongful use unless they disclose the contact information and identity of the licensee. Drawing all reasonable inferences in favor of Plaintiffs, the Registration Agreement plausibly incorporates Section 3.7.7.3 and WhoisGuard plausibly made itself liable pursuant to the section for the infringements of the Domain Name Licensees when it failed to disclose the identity of the Infringing Domain Name licensees. 2 Courts may consider documents attached to a motion to dismiss without converting the motion into one for summary judgment “if the attached document is: (1) central to the plaintiff’s claim; and (2) undisputed.” Horsley v. Feldt, 304 F.3d 1125, 1134 (11th Cir. 2002). The links on Namecheap’s website referred to in the Registration Agreement and the terms on ICANN’s website are central to whether WhoisGuard may be held liable and are not disputed by Defendants. Therefore, these terms may be properly considered in the context of the instant motions. Case 2:20-cv-00470-GMS Document 52 Filed 11/10/20 Page 7 of 12 - 10 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (Doc. 32 at 19.) As previously addressed, Plaintiffs do not allege Namecheap used the Infringing Domain Names to set up parking pages in their Complaint. Therefore, Plaintiffs fail to sufficiently plead Counts Two, Three, and Four as to Namecheap. c. Alter Ego and Direct Participant Liability Plaintiffs argue Namecheap is liable for WhoisGuard’s tortious conduct on all counts as its alter ego and direct participant. To state a claim for alter ego liability, there must be “such unity of interest and ownership” that the separate personalities of the two entities fail to exist and that failure to disregard the separate identities results in “fraud or injustice.” Am. Tel. & Tel. Co. v. Compagnie Bruxelles Lambert, 94 F.3d 586, 591 (9th Cir. 1996). The unity and ownership prong requires a showing that the entity controls the other “to such a degree as to render the latter the mere instrumentality of the former.” Doe, 248 F.3d at 926 (quoting Calvert v. Huckins, 875 F. Supp. 674, 678 (E.D. Cal. 1995)). There must be pervasive control, such as where a parent corporation “dictates “[e]very facet [of the subsidiary’s] business-from broad policy decisions to routine matters of day- to-day operation[.]” Id. (quoting Rollins Burdick Hunter of So. Cal., Inc. v. Alexander & Alexander Servs., Inc., 253 Cal. Rptr. 338, 344 (Ct. App. 1988)). Alter ego liability is not found where the two entities observe their corporate formalities or where the parent does not direct the subsidiary’s routine day-to-day operations. See Ranza v. Nike, Inc., 793 F.3d 1059, 1073–75 (9th Cir. 2015). Plaintiffs point to the following factual allegations in their Complaint to support their argument that Namecheap and WhoisGuard are not separate entities: (1) WhoisGuard provides its proxy service on behalf of Namecheap; (2) there is no charge for WhoisGuard’s service; (3) when WhoisGuard is contacted with evidence of trademark infringement, served with subpoenas seeking domain name licensee information, or receives administrative domain name complaints, Namecheap responds instead of WhoisGuard; (4) Namecheap owned the WhoisGuard domain name in the past; and (5) Namecheap currently operates the WhoisGuard domain name and controls the content available on WhoisGuard’s website. (Doc. 1 ¶¶ 59-66.) Plaintiffs also point out that Case 2:20-cv-00470-GMS Document 52 Filed 11/10/20 Page 10 of 12 - 11 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Namecheap confuses the role of registrar and service provider on their website, (Doc. 1-6 at 2), and interchanged Namecheap and WhoisGuard’s name twice in the Proxy Agreement, (Doc. 1-3). Other than the conclusory allegation that “WhoisGuard is not a separate autonomous entity from Namecheap,” Plaintiffs do not allege anything about failure to observe corporate formalities. (Doc. 1 ¶ 58.) And, despite Plaintiffs’ argument to the contrary, the mere fact Namecheap provides WhoisGuard’s service to its customers for free does not support the inference that WhoisGuard is undercapitalized or that the two companies improperly commingle funds. (Doc. 32 at 24.) Plaintiffs do allege several facts that indicate an overlap in Defendants’ operations, such as Namecheap responding on WhoisGuard’s behalf and Namecheap’s control over WhoisGuard’s website. Additional allegations are needed, however, to give rise to the plausible inference that Namecheap dictates every facet of WhoisGuard’s business. As a result, Plaintiffs fail to adequately allege a “unity of interest” sufficient to satisfy the first prong of the alter ego test. Plaintiffs also do not sufficiently plead direct participant liability.3 Under direct participant liability, a parent company may be held liable “for the wrongdoing of a subsidiary where the parent directly participated in the subsidiary’s unlawful actions.” Esmark, Inc. v. N.L.R.B., 887 F.2d 739, 756 (7th Cir. 1989). Plaintiffs do not allege anywhere in their Complaint that WhoisGuard is Namecheap’s subsidiary. As Plaintiffs fail to sufficiently plead direct participant and alter ego liability, Namecheap cannot be held liable for WhoisGuard’s conduct. d. Leave to Amend If a motion to dismiss is granted, a court should “grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not 3 Plaintiffs argue that Namecheap concedes direct participant liability for the purposes of its motion to dismiss because Namecheap did not argue direct participant liability in its motion. (Doc. 32 at 23.) Although arguments raised for the first time in a reply brief will not be considered, arguments made in response to those set forth in the opposing party’s opposition brief “are not new; they are rebuttal arguments, which are permitted in a reply brief.” Beckhum v. Hirsh, No. CV 07-8129-PCT-DGC (BPV), 2010 WL 582095, at *8 (D. Ariz. Feb. 17, 2010). As Plaintiffs argue direct participant liability in their response, Namecheap may properly argue against it in its reply. Case 2:20-cv-00470-GMS Document 52 Filed 11/10/20 Page 11 of 12 - 12 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 possibly be cured by the allegation of other facts.” Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv., 911 F.2d 242, 247 (9th Cir. 1990). As additional facts could potentially cure Plaintiffs’ allegations, leave to amend is granted to Plaintiffs. CONCLUSION Defendant WhoisGuard’s Motion to Dismiss Plaintiffs’ claims for Lack of Personal Jurisdiction and for Failure to State a Claim are denied. Defendant Namecheap’s Motion to Dismiss all of Plaintiffs’ claims is granted. Plaintiffs shall have leave to file an Amended Complaint as to Defendant Namecheap within thirty days of the date of this Order. Accordingly, IT IS HEREBY ORDERED that Defendant WhoisGuard’s Motion to Dismiss (Doc. 31) is DENIED. IT IS FURTEHR ORDERED that Defendant Namecheap’s Motion to Dismiss (Doc. 30) is GRANTED. IT IS FURTHER ORDERED granting Plaintiffs leave to amend their Complaint as to Defendant Namecheap within thirty days of the date of this Order. IT IS FURTHER ORDERED that should Plaintiffs fail to file an Amended Complaint within thirty days of the date of this Order, the Clerk of Court is directed to dismiss Plaintiffs’ claims of cybersquatting, trademark infringement, false designation of origin, and dilution as to Defendant Namecheap without prejudice. Dated this 10th day of November, 2020. Case 2:20-cv-00470-GMS Document 52 Filed 11/10/20 Page 12 of 12