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E. and J. Gallo Winery v. Spider Webs Ltd., et al.

Court enjoined defendants from continuing to utilize the domain name ernestandjuliogallo.com, and directed them to transfer the name to plaintiff E. and J. Gallo Winery ("Gallo"), which holds a trademark in the mark "Ernest and Julio Gallo." The court further awarded Gallo statutory damages under the Anticybersquatting Consumer Protection Act ("ACPA") in the amount of $25,000 as a result, inter alia, of defendants' registration of the domain name at issue, and their use of that domain name to operate a web site that commented on this lawsuit, and contained articles critical of alcohol consumption. Defendants had also registered some 2000 other domain names, a number of which contained the names of famous companies, cities and buildings.

Plaintiff E. and J. Gallo Winery is a corporation that manufactures and sells alcoholic beverages under a number of tradenames, including the Ernest and Julio Gallo Winery. To assist it in these activities, plaintiff obtained trademarks in a number of associated names, including Gallo and Ernest and Julio Gallo. Gallo has spent over 500 million dollars promoting its brand and has sold more than 4 billion bottles of wine bearing the Gallo family of trademarks.

The individual defendants operate Doortown, a family-owned prehanging millwork business. In June 1999, defendants created the partnership Spider Webs Ltd. Spider Webs' "business plan is to develop Internet address names." Spider Webs has registered approximately 2000 Internet domain names, a number of which contain the names of famous companies, cities or buildings. Spider Webs has offered a number of these domain names for sale.

On August 26, 1999, defendants registered the domain name at issue, ernestandjuliogallo.com, with Network Solutions Inc. While they have not offered to sell the name, defendants admitted that they registered the domain name as "real estate" that they intended to hold and eventually make a profit on.

Gallo commenced this action, charging, among other things, that by so registering the name, defendants had violated the Anticybersquatting Consumer Protection Act ("ACPA") and diluted plaintiff's marks in violation of both Federal and Texas Antidilution statutes. Approximately six months after this law suit was commenced, Spider Webs published a web site at the ernestandjuliogallo.com domain that commented on the pending litigation between the parties, and contained a number of articles critical of alcohol consumption. The site contained a disclaimer, noting that it was not affiliated with the Ernest & Julio Gallo wineries. At some point, this web site was removed form the Internet. At the time of the court's decision, a web site called "Spin Topic" appeared at the "ernestandjuliogallo.com" domain which contained articles and opinions critical of corporations, as well as "a section designated for commentary on alcohol."

Plaintiff moved for partial summary judgment on its ACPA and Texas Anti-Dilution Act claims. Finding these claims meritorious, the court granted plaintiff's motion.

To "establish a dilution claim under the Texas Anti-Dilution statute, Gallo must show that it owns a distinctive mark and that there is a likelihood of dilution." The court held that Gallo is a distinctive mark that clearly had developed secondary meaning within the United States and was associated by the public with wine. This holding accorded with that reached by another court, which noted that "by virtue of widespread sales and promotion for over half a century, the Winery's Gallo mark had become extraordinarily strong and distinctive." E & J. Winery v. Pasatiempos Gallo, S.A., 905 F. Supp. 1403, 1407 (E.D.Cal. 1994).

"A likelihood of dilution may be shown under two separate theories: dilution by 'blurring' or 'tarnishment.'" The court held that by registering the domain name ernestandjuliogallo.com, the defendants had diluted the domain name by preventing plaintiff from controlling it, or posting a web site thereon which promoted its products. Said the court:

The value of a trademark is diluted when the domain name does not belong to the company sharing that name because potential customers 'will be discouraged if they cannot find its web page by typing 'plaintiff'sname.com' but instead are forced to wade through hundreds of web sites.'... Spider Webs' ownership of the domain name Ernestandjuliogallo.com gives Spider Webs exclusive control over the use of Gallo's trademark "Ernest and Julio Gallo" on the Internet, effectively preventing Gallo from ensuring the ability of its mark to serve as a unique identifier for its goods and services.

In reaching this conclusion, the court relied on the courts' decisions in Intermatic Inc. v. Toeppen, 947 F. Supp. 1227 (N.D. Ill. 1996), Panavision Int'l L.P. v. Toeppen, 141 F.3d at 1327.

The court accordingly held that plaintiff had established that defendants had violated the Texas Anti-Dilution act.

The court also held that defendants had violated the ACPA. An owner of a mark may establish a violation of the ACPA by showing that the defendant with "a bad faith intent to profit from the mark" "registers, traffics in, or uses a domain name that" "(1) in the case of a mark that is distinctive at the time of registration of the domain name, is identical or confusingly similar to that mark." As stated above, the court found that plaintiff owned a distinctive mark. The court further found that defendants, by registering the domain name "ernestandjuliogallo.com," had registered a name that "is identical or confusingly similar to" plaintiff's mark. The court noted that the substitution of the word "and" for the "&" in plaintiff's mark did not constitute a significant alteration, given that domain names can not include ampersands.

Lastly, the court concluded that defendants had registered the domain name with a bad faith intent to profit therefrom. In reaching this conclusion, the court relied on a number of factors, including defendants' admission that they registered the mark "with a view to holding it as 'real estate' and eventually realizing a profit from it, preferably from Gallo itself." As stated above, defendants had registered approximately 2000 domain names, a number of which contained the names of famous companies and had been offered by defendants for sale. In reaching its conclusion that defendants acted in bad faith, the court also relied on the fact that defendants had no intellectual property interest in the name, given that their company was called Spider Webs, and had never used the name for a bona fide offering of any goods or services.

As a result of its determinations, the court enjoined defendants from continuing to utilize the domain name, and directed them to transfer the domain to plaintiff.

The court also awarded plaintiff $25,000 in statutory damages under the ACPA. The ACPA permits a plaintiff to elect to receive, "instead of actual damages and profits, an award of statutory damages in the amount of not less than $1000 and not more than $100,000 per domain name, as the court considers just." The court held that this section applied to defendants because, even though they registered the domain name at issue before the enactment of the ACPA, they continued to use it after the enactment of that statute. The court in its discretion determined that $25,000 was the appropriate amount of damages to award. In reaching this conclusion, the court balanced the fact that defendants had not offered any products for sale bearing the Gallo name, and plaintiff's failure to present any evidence of actual harm from defendants' activities, against the fact that defendants' actions "including posting information on the web site accessible by the domain name Ernestandjuliogallo.com regarding this litigation and the dangers of alcohol consumption, have placed Gallo at risk of losing business and of having its business reputation tarnished."

In its decision, the court also summarily confirmed the constitutionality of the ACPA.