By Wendy Biddle, J.D.
The U.S. Court of Appeals in Richmond vacated and remanded a district court’s decision that XYZ.com, LLC, a domain name seller, was not entitled to attorney fees after prevailing on summary judgment in a false advertising case initiated by Verisign, Inc. The district court abused its discretion when it held that the prevailing party seeking fees must prove its entitlement with clear and convincing evidence, when it should have applied the preponderance of the evidence standard to prove an "exceptional case" under the Lanham Act. The Fourth Circuit also clarified that XYZ does not need to show that Verisign acted in bad faith to prove an exceptional case worthy of legal reimbursement (Verisign, Inc. v. XYZ.COM, LLC, May 29, 2018, Floyd, H.).
Verisign, which owns the .com top-level domain name, is a dominant player in the Internet domain name market. XYZ entered the market with the .xyz top-level domain name. XYZ advertised that "all of the good real estate is taken" and "it’s impossible to find the domain name that you want." Verisign filed suit claiming that XYZ’s statements about the popularity and scarcity of .xyz domain names violated the Lanham Act.
The district court granted summary judgment for XYZ holding that the statements made were not false as a matter of law; that Verisign failed to establish that any consumers were deceived; and Verisign failed to establish a causal connection between the statements and the damage allegedly suffered.
Verisign appealed but the decision was affirmed on appeal. XYZ filed a motion for attorney fees, which the district court denied, holding that XYZ had to prove it was entitled to fees with clear and convincing evidence, which it has failed to do so. Further the district court suggested that evidence of bad faith was required to prove an exceptional case under the Lanham Act.
The district court used clear and convincing evidence as the burden of proof, but that was in error, the court of appeals found. The holdings in Georgia-Pacific and Octane Fitness require a party to prove that a case is an exceptional case under the Lanham Act with a preponderance of the evidence, the court of appeals ruled, also using the Supreme Court’s adoption of the legal standard in the Patent Act as a guide. The preponderance of the evidence is the standard generally applicable in civil actions which allows both parties to share the risk of error equally, the court stated, which is also in line with other circuits. The court declined to express an opinion on the merits of the motion for attorney fees, remanding the issue to the trial court to apply the correct standard.
XYZ also argued on appeal that the district court erred in imposing a "bad faith" requirement in order to prove the case is exceptional. Although it was unclear from the record that the district court did impose such a requirement, the court of appeals clarified that the under the Lanham Act, a losing party’s conduct does not have to be independently sanctionable or in bad faith in order to award attorney fees to the prevailing party, again citing Georgia-Pacific and Octane Fitness. The court noted that Retail Services is no longer the sound law in light of Octane Fitness’ rejection of the bad faith standard. The court vacated the district court’s decision and remanded the case.
The case is No. 17-1704.
Attorneys: Randall Karl Miller (Venable LLP) for Verisign, Inc. Derek Newman (Newman Du Wors LLP) for XYZ.com LLC.
Companies: Verisign, Inc.; XYZ.com LLC
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