TESTIMONY OF

MICHAEL A. DANIELS

Chairman of the Board of Directors

Network Solutions, Inc.

Before the

SUBCOMMITTEE ON COURTS

AND INTELLECTUAL PROPERTY

COMMITTEE ON THE JUDICIARY

U.S. HOUSE OF REPRESENTATIVES

Hearing on

INTERNET DOMAIN NAMES

AND INTELLECTUAL PROPERTY RIGHTS



July 28, 1999

Introduction

Good morning, Mr. Chairman and Members of the Subcommittee. My name is Mike Daniels and I am the Chairman of the Board of Directors of Network Solutions, Inc. I appreciate the opportunity to appear before you today to discuss the domain name system and its interrelationship with intellectual property rights and the role Network Solutions, as a registrar of domain names, plays in all of this.

First, I want to state as unequivocally as I possibly can that we at Network Solutions understand and appreciate the importance of intellectual property rights. In this "new economy," intellectual property rights are the assets on which companies are built. Indeed, we ourselves have made a substantial investment in developing the software and systems necessary to run the domain name system and, now, to share the registration of second-level domain names in .com, .org, and .net. We know firsthand how important the protection of intellectual property rights is to the future of any concern. Accordingly, we have worked with many of the organizations represented here today to ensure that we are doing all we can to help them to protect their valuable trademarks and copyrights.

Network Solutions understands that trademark owners and copyright holders want immediate action when they believe that their valuable property is being infringed or abused. At the same time, if someone is a domain name holder who has had the use of a particular domain name for a period of time and has built a business around it, we understand that they have a different set of interests.

Beside me is Philip Sbarbaro, our outside Chief Litigation Counsel, who has represented us in numerous trademark-domain name disputes and has served on the expert panel for the World Intellectual Property Organization ("WIPO") which produced the Report discussed today. With the Committee's permission, I shall call upon his expertise during the hearing.



The Internet

The Internet is more than "a matrix of networks that connects computers around the world."(1)

It is a "unique and wholly new medium of worldwide communications."(2)

It is surely a new medium which will forever change the way we communicate with each other - a global medium without borders. This hearing, in part, is to consider the establishment of one of the borders. We are all looking for the appropriate framework from which to address these very difficult issues.

One can argue about the Internet's "value" and effect upon society, but no one should fail to see that it is a phenomenon of enormous proportions. Network Solutions stands ready to engage with all parties at all times to come to resolution on these issues. We are here to balance the public and private interests involved.

We at Network Solutions believe that the Internet and the electronic commerce revolution are the most radical transforming technological events in the past twenty-five years. Change, of course, brings problems. The challenge is to turn change into success and problems into solutions for all participants.

One problem with the Internet, non-existent before 1994, is the confrontation between persons who, either intentionally or unintentionally, create an address on the Internet which includes someone else's trademark.

Network Solutions, a registrar for the .com top level domain on the Internet, finds itself caught between the millions of trademark owners, worldwide, on one side and nearly five million domain name holders(3)

(increasing at a rate of approximately 300,000 holders per month), again worldwide, on the other side. As a registrar of domain names, however, Network Solutions is not alone.(4) There are, at present, 250 registrars of top level domains on the Internet, each with its own requirements for registration, its own dispute policy, and bound by the laws and regulations of its country.

To this situation, we overlay the laws of trademarks, which vary from country to country, and even within a given country. The Internet, of course, has no geographical boundaries. A Web site in Bosnia can be accessed and seen in California, and the reverse is also true. Thus, the Internet's 21st Century technology is colliding with 19th Century trademark law. As a registrar of domain names, one of the goals has been to survive the collision. Network Solutions doesn't have all of the answers; it doesn't even have some of the questions because new questions arise on a daily basis. It does, however, have the experience of thousands of disputes, fifty of which have included Network Solutions as a party. Although 50 lawsuits out of 5,000,000 domain names is approximately one one-thousandth of one percent, it all depends upon one's frame of reference.

In America, we are accustomed to solving problems "right now." Well, with regard to domain names and trademarks, law and order will come to the Internet; it is only a question of time. Meanwhile, the courts have and will continue to resolve these trademark-domain name matters on a case by case basis. Each case is different and requires intelligence, objectivity, and fairness - the best attributes of our judiciary. Not only are we all bearing witness to history, both legal and technological, we are central participants as it is being made.



Problem Magnitude

In April, 1999, WIPO estimated that there were approximately 7.2 million domain names in existence across the 250 top level domains on the Internet. Network Solutions has registered approximately 5 million of those 7.2 million domain names, or approximately 70%. There are, at present, seven global top level domains ("TLDs"), three of which (.com, .org, and .net) are "open," in the sense that there are no restrictions on the persons or entities that may register names in them.(5) There are approximately 243 country code top level domains, known as "ccTLDs." As the WIPO Report points out, functionally, there is no distinction between the seven global TLDs and the ccTLDs. A domain name regsitered in a ccTLD provides exactly the same connectivity to the Internet as a domain name registered in a global TLD.

Network Solutions is the registry for .com, .org, .net and .edu. Com (standing for "commercial") is approximately 80% of all of Network Solutions' registrations, with the other three TLDs accounting for the remaining 20%. Approximately 85% of the disputes between trademark owners and domain name holders, in our experience, are found in the .com TLD.

Since 1995, Network Solutions has received approximately 6,600 complaints from trademark owners concerning registered domain names, half of which (approximately 3,300) became full-fledged disputes under Network Solutions' Dispute Policy. It has been estimated that around 500 trademark owner-domain name holder cases have come before the courts. This estimate is, in part, based upon the number of "Registrar Certificates" issued by Network Solutions, by which the registrar, through the plaintiff in each case, deposits complete dominion and control over the domain name registration in issue with the court hearing the matter.(6)

Eventually, each case ends, either on a jurisdictional battle, settlement, dismissal, or a well-reasoned opinion.



The Trademark Owners' Position

Over the years, we have heard from many trademark owners who have spent many generations and many millions, if not billions, of dollars, lire, kroner, pounds, marks, etc., instilling their trademarks and service marks with source identification and an expected level of quality. From the trademark owners' point of view, there is no new issue presented by the phenomenon known as the Internet. It is just one more medium, just one more marketplace, where all normal legal constraints and precedents apply. There is nothing "special" about the Internet or a domain name. Take someone's trademark as a domain name on the Internet at your peril; ignorance is no excuse. Trademark owners tend to assume that a domain name is synonymous with a trademark. Once that assumption is made, causes of action against domain name holders are limited only by the creativity of the trademark owners' counsel. Infringement, dilution, unfair competition, and interference with prospective economic advantage, in all of the various federal and state varieties, tend to be pled most often.

On occasion, trademark owners sue domain name holders who also have nearly identical trademarks.(7)

The causes of action tend to be the same as described above, with the addition of claims for breach of contract. In some cases, the two trademark owners have met before and have some sort of bilateral agreement which predates the Internet conflict, and it is this agreement that is alleged to have been breached.



The Domain Name Holders' Position

To the domain name holders, "first come, first served" has always been the rule on the Internet. A domain name holder, who has applied for and obtained a domain name, who has been using it unaccosted and without interruption for months or years, either in business or simply as a communications medium, is suddenly confronted by a trademark owner who claims a right to his or her domain name.

When attacked or even threatened by a trademark owner, domain name holders respond in kind by suing for declaratory judgment, alleging, inter alia, an actual and justiciable controversy, "senior rights" and prior use on the Internet, no violation of law concerning infringement or dilution, and the equitable right to continued use.



The Registrar's Position

Faced with powerful, yet conflicting positions from both sides, Network Solutions, or any registrar for that matter, has to fend for itself. Without immunity from or insurance for such liability and without legal precedent, Network Solutions had to find a way to balance these competing interests and to survive these conflicts.

To protect the registrar from attack from trademark owners, and to give domain name holders a certain amount of time to determine their own destiny, Network Solutions implemented a Dispute Policy (the "Policy"), effective July 1995, with the concurrence of the National Science Foundation. The Policy does not resolve any dispute; it was not intended to resolve disputes. It was and is intended to protect the domain name registrar from open-ended damages and court-ordered injunctions which could have crippled the registrar and disrupted the Internet. The Policy presents a domain name holder with five possible responses to an attack upon his or her domain name registration by an owner of a federally registered trademark.(8)

The Policy provides that, if an owner of a federally registered trademark provides to Network Solutions a certified copy of its "valid and subsisting" federally registered trademark, and that trademark is identical to a registered domain name, then Network Solutions will send a letter to the domain name registrant offering the registrant certain options. As one option, the registrant may provide Network Solutions with a certified copy of its own trademark registration, in which event the registrant may continue to use the domain name until Network Solutions receives a court order directing otherwise. A second option permits the registrant to transfer the domain name to the trademark owner. A third option allows the registrant to create a new domain name, registered without cost, to be used for ninety days in conjunction with the disputed domain name. After the expiration of the ninety-day period, the allegedly infringing domain name would be placed on "hold" status so that no one could use that domain name until resolution of the dispute between the domain name registrant and the trademark owner. Fourth, the registrant may refuse to transfer the domain name or to create a new name. In that event, the domain name is placed on "hold" status and no one is permitted to use the name. Finally, a domain name holder who has been threatened by a trademark owner can sue the trademark owner for declaratory judgment concerning their registration of the domain name.(9)

The Policy is incorporated into each registration agreement between every domain name holder and Network Solutions.

Finally, Section 10 of the Policy makes three points abundantly clear: (1) the registrar, although not named in a particular case, will immediately abide by any court order which is issued in a case between a trademark owner and a domain name holder; (2) the registrar will deposit the domain name, through notarized declaration (the "Registrar Certificate"), with the registry of the court which will then have complete dominion and control over the registration record; and (3) regardless of which party (trademark owner or domain name holder) first sues the other party, the registrar will maintain the status quo ante and not touch the domain name registration record. If Network Solutions is named as a party to one of these suits, however, Section 10 also makes it clear that the registrar will not be limited to these provisions, but may raise any and all defenses deemed appropriate, and take any other action necessary to defend itself. To date, Network Solutions has not been held liable in any suit brought by a trademark owner or a domain name holder.

There are those who, without benefit of the facts, argue that Network Solutions' Policy "is not working." Perhaps, the Policy did not facilitate the result they wanted in a particular instance, or they simply believe that the registrar should assume greater liability for its $35 per year registration fee per domain name. Whatever the reasons, statistics bear out the undeniable conclusion that the Policy is, in fact, working.



Network Solutions Does Not And Cannot Police Trademark Usage On The Internet

Network Solutions permits the registration of domain names on a "first-come, first-served" basis much like the process used by a telephone company or a stock exchange.(10)

To attempt to overlay the registration of domain names with a screening or regulatory function would severely disrupt the rapid expansion of the Internet by bringing the registration of domain names to a virtual halt.(11)

Neither Network Solutions nor any other domain name registrar has the expertise, authority, or governmental immunity that would be necessary to perform such a function.

Network Solutions' "contact" with the domain name registrant is at the point of registration. Prior to registration, a desired domain name does not exist and cannot be used and thus cannot violate the Lanham Act.(12)

Whether post-registration use of a domain name by the domain name holder violates the Lanham Act depends on a variety of factors, all of which are beyond Network Solutions' knowledge or control. These factors include, among others: (i) whether the domain name is used in commerce or, instead, is used as a personal or other non-commercial e-mail or Web site address; (ii) whether the use of the domain name is in any way confusing or, instead, is used in a manner that makes it clear who sponsors the particular use; (iii) whether the domain name is used in connection with any goods or services; and (iv) whether the use of the domain name dilutes the trademark owner's mark by blurring or tarnishing the mark.(13)

Network Solutions has no knowledge of such facts.

Network Solutions also has no knowledge of the trademark owner's rights. Network Solutions does not know, and has no means by which to verify, who or how many entities may have rights to a particular mark, or in which classes of goods or geographical areas the trademark owner may have such rights. Similarly, Network Solutions cannot know what defenses may exist to a claim that a particular use is infringing.

Equally fundamental, Network Solutions does not have the legal authority to screen domain names or to determine conflicting claims of right to use a domain name that includes a trademark. Of course, neither the domain name registrant nor the trademark owner would be bound by a determination by Network Solutions, even if it were to attempt to make one. Network Solutions simply records domain names.

Network Solutions' business is completely unlike the business of a central registration authority like the U.S. Patent and Trademark Office ("PTO"). In implementing the system of trademark registration, for example, the PTO is government funded, operates under the color of law, and has governmental immunity. A registration system like that used for trademarks could not perform the function of domain name registration. By contrast to the low cost, 5 second registration of domain names, the PTO takes more than 16 months to register a new trademark, and the registration process may cost thousands of dollars and require the assistance of able legal counsel.(14)

Such a model for domain name registration would seriously hamper or end the growth and "open door" qualities that have contributed to the Internet's success.

Finally, neither Network Solutions nor any other registrar could accept the potential liabilities to which it would be subjected were it charged with responsibility for monitoring domain name usage for theoretical Lanham Act violations.(15)

Absent governmental immunity, no entity would risk serving as registrar. So far, the courts have agreed.

For example, in Lockheed Martin Corporation v. Network Solutions, Inc., 985 F. Supp. 949 (C.D. Cal. 1997), Judge Pregerson of the federal district court, in a 45-page opinion that is well worth the reading, granted the defendant-registrar (NSI - Network Solutions) summary judgment on all counts. There is no synopsis of the Court's opinion which does justice to its precision and common sense.

The issue presented by this litigation is whether NSI violated federal trademark law by accepting registrations of Internet domain names that are identical or similar to Lockheed Martin Corporation's ("Lockheed") SKUNK WORKS service mark.

***

Because summary judgment on the above claims is based on Lockheed's lack of a legal right to control the domain name registration process, there is no case or controversy between these parties.

***

If the Internet were a technically ideal system for commercial exploitation, then every trademark owner would be able to have a domain name identical to its trademark. . . . Commerce has entered the Internet only recently. In response, the Internet's existing addressing systems will have to evolve to accommodate conflicts among holders of intellectual property rights, and conflicts between commercial and non-commercial users of the Internet. "In the long run, the most appropriate technology to access Web sites and e-mail will be directories that point to the desired Internet address. Directory technology of the necessary scale and complexity is not yet available, but when it is developed it will relieve much of the pressure on domain names." Domain Name System, Hearing Before the Subcommittee on Basic Research of the House Science Committee, 105th Cong., 1997 WL 14151463 (September 30, 1997) (testimony of Barbara A. Dooley, Executive Director, Commercial Internet Exchange Association). No doubt trademark owners would like to make the Internet safe for their intellectual property rights by reordering the allocation of existing domain names so that each trademark owner automatically owned the domain name corresponding to the owner's mark. Creating an exact match between Internet addresses and trademarks will require overcoming the problem of concurrent uses of the same trademark in different classes of goods and geographical areas. Various solutions to this problem are being discussed, such as a graphically-based Internet directory that would allow the presentation of trademarks in conjunction with distinguishing logos, new top-level domains for each class of goods, or a new top-level domain for trademarks only. The solution to the current difficulties faced by trademark owners on the Internet lies in this sort of technical innovation, not in attempts to assert trademark rights over legitimate non-trademark uses of this important new means of communication.

DATED: November 17, 1997 DEAN D. PREGERSON



Cyber Piracy

We are here, today, because of the misuse of the domain name system by those who intentionally register someone's trademark as a domain name either to transfer the domain name to the trademark owner for an exorbitant amount or to use the domain name in such a way as to confuse consumers or to tarnish the trademark. These persons have been described as "cybersquatters" or "cyberpirates" and should be eliminated from the domain name system.

The collapse of trademark piracy on the Internet is inevitable and none too distant. In every courtroom to date, the trademark owner has prevailed over the cyberpirate. In addition, Congress is considering S. 1255, the Anticybersquatting Consumer Protection Act, which would make cyber piracy a violation of federal statute.

Trademark owners from around the world have justifiably condemned the piracy that is founded on the exploitation or use of their trademarks as Internet domain names. In response to this problem, the community of trademark owners has called for changes in domain name registration and dispute resolution aimed at protecting their valuable intellectual property rights on the Internet and eliminating the parasitic industry of so-called "cybersquatters." Whether in the seven current global TLDs, newly-created global TLDs, the 80 or so ccTLDs that anyone may register in, or in the 163 ccTLDs that are restricted to those who live within their borders, the problem has received world-wide attention from private industry.

The World Intellectual Property Organization ("WIPO"), in its study of cyberpiracy, or "cybersquatting," as the term has been coined, attempted to define the concept more precisely. WIPO's definition uses the term "abusive registration," and focuses both on the attributes of the domain name in question and the actions of the domain name holder who has registered and is using it. First, the domain name must be identical or "misleadingly similar" to a trademark or service mark. Second, the domain name holder, who cannot demonstrate any rights or legitimate interest in the domain name, must have registered and be using the domain name in "bad faith." Evidence of bad faith, according to WIPO, is the domain name holder's offer to transfer the domain name registration for valuable consideration to the trademark owner (one form of use), or to attempt to confuse and to attract Internet users for financial gain to the domain name holder's Web site using the domain name that contains the trademark (another form of use). Each situation is, obviously, the deliberate misuse of another's good name and associated goodwill, and has not been permitted by any court called upon to resolve the dispute. The courts are, however, an expensive and time-consuming method of resolution. WIPO has concluded that a mandatory Administrative Dispute Resolution ("ADR") policy should be implemented to reduce the cost and time involved. WIPO's proposed ADR policy is presented in Chapter 3 and Annexes IV and V of its Report and has many insightful and practical elements.



A Possible Solution

Nothing will eliminate either the intentional or unintentional registration and use of a domain name on the Internet by someone who either seeks to confuse as to the source of the product or service, or alternatively, was unaware that his/her actions caused such confusion or dilution. The conflicts, however, when they do occur, could be drastically shortened and resolved with minimal cost to both the trademark owners and domain name holders of the world through the adoption of simple ADR procedures.

The solution to cyberpiracy could lie in the low-cost, high-speed resolution of conflicts after they arise. There is clearly a need for a simple, generally uniform, low-cost, summary ADR procedure to be embraced by all of the TLDs of the Internet. The ADR procedure would apply, at first, only to cases of cybersquatting, or "abusive registration," and later, if successful, expanded to other areas of dispute. As WIPO recommends, the ADR procedure could be mandatory for all domain name registrants and be included in each contract between the registrars and their domain name holders. For these procedures to succeed, however, registrars must be committed to the process.

In concept, Network Solutions agrees that change in dispute resolution is needed. Current dispute policies, such as that of Network Solutions, only cover cases of identical trademarks and domain names, and do not adequately correct cyberpiracy on the scale and imagination we are now encountering on the Internet. Current dispute systems, which handle the existing 7.2 million domain names around the world, may not be scalable to handle the 60 million domain names we might see worldwide in the next few years. Additionally, to date the courts have resolved these issues on a case-by-case basis. As the volume of domain name registrations increases into the many millions, the courts cannot be clogged with these cases. There must be another answer for the future. Other than legislation, ADR presents the best hope, and Network Solutions intends to join with other registrars to develop a system, a solution that works. Whether these changes should be supported by legislative action is for the Members of this Committee to decide.



Conclusion

On behalf of Network Solutions, I thank the Committee for inviting me to testify today on this important issue. Balancing the interests of intellectual property rights, freedom of expression, and Internet growth is a difficult task. The infrastructure of the Internet is more fragile than many people realize and will require this Committee's best analysis.

1. 0 American Heritage Dictionary p. 943 (3d ed. 1996)

2. 0 American Civil Liberties Union v. Reno, 929 F. Supp. 824, 830 (E.D. Pa. 1996), aff'd, 117 S.Ct. 2329, 1997 U.S. LEXIS 4037, at *12 (1997) (hereinafter "ACLU").

3. 0 A domain name is created and requested by an applicant who then becomes a "registrant." "Holder" rather than "owner" more clearly describes the relationship between a registrant and the recorded domain name. A registrant does not "own" a domain name any more than he or she owns a telephone number.

4. 0 Network Solutions won the right to develop the domain name registration system by competitively bidding for a cooperative agreement with the National Science Foundation, an agency of the federal government. Currently, the Cooperative Agreement is overseen by the Department of Commerce. Network Solutions is in discussions with the Department of Commerce about transitioning certain functions it performs under the Cooperative Agreement to private sector management. We fully support the concept of private sector management and competition and are doing all we can to bring new competitors on at a pace that does not threaten the stability and reliability of the Internet.

5. 0 The other four (.int, .edu, .gov and .mil) are restricted, in the sense that only certain entities meeting certain criteria may register second level domain names in them.

6. 0 When Network Solutions receives a file-stamped copy of a Complaint, it prepares a gold-seal declaration of the custodian in control of domain name registration and it has come to be known as a "registrar certificate." Registrar certificates have been accepted in every court to date, including the High Court of Justice, Chancery Division, in England, Canadian Federal Court, the High Court of Hong Kong, the High Court in Singapore, Magistrate's Court of Israel, and twenty federal courts around the United States, including the Commonwealth of Virginia. Only one federal court judge in New Hampshire has declined to accept a registrar certificate.

7. 0 American Commercial Inc. d/b/a Mikasa and Mikasa Licensing, Inc. v. Sports and Leisure International d/b/a Mikasa Sports, Civil Action No. 96-713LHM (U.S.D.C. C.D. Cal.); Mattel, Inc. et al v. Hasbro, Inc. et al., Civil Action No. 96-7635, (U.S.D.C. C.D. Cal.).

8. 0 A trademark from the trademark registry of any country will suffice for purposes of the Policy, not just the U.S. Patent and Trademark Office.

9. 0 As may be clear from this discussion, only in certain limited circumstances will the registrar use its discretion to place the domain name on "hold." When placed on "hold," the domain name registrant is not changed and the domain name is not "deleted." The domain name is simply placed in suspension so that neither claimant can use it. As of this writing, approximately 2,270 domain names out of 5,000,000 (or .05 of one percent) have been placed on "hold" pending resolution, either way, in such trademark-domain name disputes.

The "hold" provision incorporated in each domain name registration contract is the provision to which domain name holders have objected. Some domain name holders believe that it is the registrar's "duty" to permit the domain name's use to continue unobstructed, and thus incur liability as a contributory infringer, or even diluter. The registrar has assumed no such "duty" and each domain name registrant, by registering his or her domain name, understands and contractually agrees that no such duty exists.

10. 0 See MDT v. New York Stock Exchange, 858 F. Supp. 1028 (Pfaelzer, J.).

11. 0 See Academy of Motion Picture Arts and Sciences v. Network Solutions, Inc., 989 F. Supp. 1276, U.S. Dist. LEXIS 20806 (C.D. Cal. 1997) at 1281; Thomas v. Network Solutions, Inc., No. CIV. 97-2412 (TFH), 1998 WL 191205 at *11; Proposed Rule, at 8830 (Department of Commerce objects to any change to domain name registration "that could significantly limit the flexibility of the Internet, such as waiting periods….").

12. 0 See Proposed Rule of the U.S. Department of Commerce, National Telecommunications and Information Administration, Regarding Improvement of Technical Management of Internet Names and Addresses, 63 Fed. Reg. 8826, 8827, 1998 WL 66457 (Feb. 20, 1998), at 8830; Panavision, at *9.

13. 0 Ocean Garden, Inc. v. Marktrade Co., Inc., 953 F.2d 500, 506 (9th Cir. 1991).

14. 0 See United States Patent and Trademark Office, Fiscal Year Trademark Statistics, 1997 Workload Tables at 17. This document is publicly available on the Internet at the PTO's "home page" located at the URL http://www.uspto.gov.

15. 0 See Proposed Rule, at 8830. ("Infringers, rather than registrars, registries, and technical management bodies, should be liable for trademark infringement.").