Typosquatting by affiliates infringes ACPA, rules district court

In Lands' End Inc v Remy (WD Wisc 05-C-368, September 1 2006), the US District Court for the Western District of Wisconsin has held that the defendants' use of typosquatting to obtain commissions on Lands' End Inc sales could constitute bad faith under the Anti-cybersquatting Consumer Protection Act (ACPA).

Lands' End has marketed and sold apparel and homeware goods under the LANDS' END mark since 1964 and, more recently, has developed an internet presence at 'landsend.com'. To increase its sales from its website, Lands' End developed an affiliates programme where third parties, who encouraged internet users to click on the Lands' End site through a pre-approved third-party site, such as ShoppersGuide.com, would earn a percentage from any purchase made as a result of the referral.

Unbeknownst to Lands' End, certain affiliates sought referral fees not only from the Lands' End pre-approved sites, but from typosquatting sites, such as 'www.landsene.com', which these affiliates maintained in addition to the Lands' End pre-approved sites. Through a system invisible to internet users and Lands' End, when an internet user reached a typosquatter site, the affiliates made the internet user think that they had reached the Lands' End site and Lands' End was made to think the internet user visited its site through a pre-approved site, paying out referral fees on any purchases the internet user made. When Lands' End discovered that it was paying commissions to four affiliates who owned typosquatter sites as well, it sued the four affiliates alleging false advertising under the Lanham Act and Wisconsin state law, a violation of the ACPA, breach of its affiliate agreement and fraud.

Three of the typosquatter affiliates moved for summary judgment on all claims, arguing that as a matter of law they had not engaged in any of the conduct charged and, in all events, their conduct sent internet users to the Lands' End website, not diverted them. The district court in Wisconsin granted the affiliates summary judgment on the false advertising claim under the Lanham Act and Wisconsin state law, but allowed the Lands' End claims for violation of the ACPA, breach of the affiliate agreement and fraud to proceed to trial.

As to violation of the ACPA, the court refused to grant summary judgment because Lands' End had demonstrated sufficient facts to create a disputed issue of material fact as to the affiliates' bad faith, an essential element of a violation of the act. Lands' End argued that the affiliates "hijacked Lands' End's own customers, sold them back to Lands' End and collected a ransom [referral fees] for doing so". The court found this sufficient to state bad faith to profit from a domain name wrongly based on the LANDS' END mark. The affiliates concealed from Lands' End that they claimed referral fees from unapproved websites, creating a disputed issue as to their bad faith.

Similarly, the district court found that there was a disputed issue of material fact as to breach of the affiliate agreements. Under the plain terms of the affiliate agreements, the affiliates were required to obtain approval of the affiliated websites and to connect internet users to the Lands' End site through the pre-approved sites only. To link through other mechanisms required approval. These affiliates purportedly never sought to receive approval for the referral fees from typosquatter sites, creating a disputed issue of fact.

Further, the court found that there was a disputed issue of material fact as to whether the affiliates had defrauded Lands' End by not disclosing the source of the web referrals and by using programming code to disguise the source of the referrals. Considering these facts as alleged by Lands' End, the court held that this fraud claim should be allowed to proceed to trial.

The court did enter judgment in favour of the affiliates, however, on the false advertising claim under state and federal law. There were no facts of record that the affiliates had made false representations to users in connection with any purchase of merchandise. Internet users obtained exactly what they sought - Lands' End merchandise from the Lands' End site. As to all of the remaining claims, Lands' End had established sufficient facts to demonstrate that it was entitled to damages. It paid affiliate referral fees when it had no contractual obligation to do so.

Rochelle D Alpert, Morgan Lewis, San Francisco