VERICHECK held to be suggestive for check verification services

United States of America
In Lahoti v VeriCheck Inc (Case 10-35388, February 16 2011), considering a second appeal in a cybersquatting case, the US Court of Appeals for the Ninth Circuit has upheld a district court’s finding that the trademark VERICHECK was suggestive (as opposed to descriptive) and was thus protected without a showing of secondary meaning when used in connection with check verification services.   

VeriCheck Inc provides electronic financial transaction processing services, including check verification. VeriCheck has used the service mark VERICHECK since 1995 and has advertised its services online at 'vericheck.net' since 1999. VeriCheck obtained a Georgia state trademark registration for VERICHECK in 2001. VeriCheck had applied for a federal trademark registration for the same mark, but the US Patent and Trademark Office (USPTO) denied the application due to a pre-existing registration for VERICHECK, owned by an Arizona company. In addition to its main site at 'vericheck.net', VeriCheck advertises its services through the domain names 'vericheck.org', 'vericheck.cc', 'vericheck.us' and 'vericheck.biz'. In 1999 VeriCheck unsuccessfully attempted to obtain the domain name 'vericheck.com' from a Canadian company. 

David Lahoti obtained the domain name 'vericheck.com' in 2003. Although Lahoti claimed that he registered the domain name because he was contemplating entering into the transaction verification business, Lahoti never developed such a service. Instead, he used the domain name to host a generic site with third-party commercial links, some of which directed to VeriCheck’s competitors. Lahoti earned 'click through' income when visitors to the site clicked on the links. In 2004 VeriCheck offered to buy the domain name from Lahoti, but Lahoti demanded first $72,500, and then $48,000. In 2006 VeriCheck filed a complaint pursuant to the Uniform Domain Name Dispute Resolution Policy, and the panel ordered the transfer of the domain name to VeriCheck. Lahoti then sought a declaratory judgment in the district court that he was not liable for trademark infringement or cybersquatting under the Lanham Act. VeriCheck counterclaimed for trademark infringement, cybersquatting and violation of the Washington Consumer Protection Act and Washington common law. 

The district court granted summary judgment to VeriCheck on the question of whether Lahoti acted with “bad-faith intent to profit” from use of the mark, a prerequisite to finding a federal cybersquatting violation. After a bench trial on the remaining issues, the district court found for VeriCheck on all claims and counterclaims, granted it injunctive relief and statutory damages and awarded VeriCheck attorneys’ fees. Lahoti appealed the court’s merits decision. 

In the first appeal, the Ninth Circuit affirmed the district court’s grant of summary judgment that Lahoti acted in bad faith. However, the Ninth Circuit vacated the court’s judgment for VeriCheck, holding that the court’s finding that the VERICHECK mark was suggestive, and thus protectable without a showing of secondary meaning, was based on improper analysis. The district court’s errors, as noted by the Ninth Circuit, were that the court required that, in order to be found descriptive, the mark would have to describe all of VeriCheck’s services and could have described services unrelated to VeriCheck’s services, when in fact the mark must be evaluated as it is seen on the goods or services. Further, the court had improperly declined to consider the mark in its composite parts. The Ninth Circuit remanded the case.

On remand, the district court again determined that the VERICHECK mark was suggestive and found that Lahoti had committed trademark infringement and violated the federal cybersquatting statute. Lahoti again appealed, arguing that the court had erred in its analysis of descriptiveness. 

On the second appeal, the Ninth Circuit concluded that the district court, on remand, had rectified its original errors. The district court’s finding that, “[w]hen viewed in the context of VeriCheck’s services, whether in whole or in part, including VeriCheck’s check verification services, the VERICHECK mark does not immediately convey information about the nature of VeriCheck’s services”, recited the correct legal principles. Further, the Ninth Circuit noted that the district court had not only found distinctiveness under its own analysis, but had also relied upon the USPTO’s issuance of a federal trademark registration for VERICHECK to the Arizona company, as courts may properly rely on a federal registration for the same mark as evidence of distinctiveness. 

The Ninth Circuit also affirmed the district court’s finding of a likelihood of confusion, because the three most relevant factors in trademark disputes in the internet context - the so-called 'internet trinity' - all weighed in VeriCheck’s favour. First, the disputed domain name and VeriCheck’s mark were identical save for the addition of the domain extension '.com'. Second, Lahoti used the domain name to direct to companies offering identical and related services competing with VeriCheck. Third, both parties used the internet as a marketing channel. 

Rita Weeks, McDermott Will & Emery LLP, Washington DC

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