Copyright Law v. Trademark Law: Website Developer Can't Snooze On Cybersquatting Claims

Since the dawn of the commercial internet in the late 1990's, the relationships between website developers and corporations have progressed somewhat:  most parties have learned that healthy relationships grow out of  clear expectations and tight contracts.  In the beginning, however, commercial expectations of the parties differed wildly.  Over-aggressive web developers registered intellectual property claims to client IP that did not rightly belong to the developers as a means of locking in corporations to endlessly-escalating development contracts, on the one hand. On the other, corporations over-reached in asserting rights in code that developers intended to and should reasonably have been able to use to service other clients.   Over the years, web maintenance and development migrated in-house to a great extent and corporations hired counsel with greater intellectual property expertise.  Suddenly, even the smallest business enterprise became a publisher on the World Wide Web.  Websites are no longer as mysterious or intimidating as they once were.

A corporation's relationship with a web developer may involve trademark law issues:  trademark registration and logo design, copyright law related to logo creation and design, domain name registration and administration, and administrative and cost issues relating to how a website is modified and updated.  In creating such a relationship, a comprehensive contract is important.

However, there are still plenty of unclear situations where web developers pull out all of the stops and assert a law professor's fantasy hypothetical of intellectual property claims in order to get paid.  Whether the plaintiff is right or wrong, poorly-drafted or non-existent agreements can cause inhouse counsel an endless nightmare.

In D'Agostino v. Appliances Buy Phone, Inc.,  ----- Fed. Appx. --- (3d Cir. December 7, 2015) the Third Circuit dealt with a particularly thorny dispute.   The web developer went to state court in New Jersey and asserted a host of claims against a corporate client, including violations of the Anti-Cybersquatting Consumer Protection Act, 15 U.S.C. Section 1125(d)("ACPA").  He also brought fraud, contractual and copyright infringement claims.   And included Google as a defendant.

A litigant's choice of whether to go to federal or state court is an important topic in my book Copyright Litigation Handbook (Thomson Reuters West 2015-2016).  How claims are pleaded may determine the venue.  The cost and procedural implications are profound, since, as a practical matter, losing on initial procedural skirmishes may knock out the other party's claims or litigation budget, leading to settlement.

In D'Agostino, the web developer filed in NJ state court in 2010.  Because he had pleaded federal claims, Google removed the action to federal court.  "Removal" is a very simple, automatic procedure that I describe in Copyright Litigation Handbook.  Web developer then deleted his federal claims, stating that the deletion was "without prejudice" to filing a future federal action.   Web developer fully litigated his non-federal claims in state court an lost.   He then filed the federal D'Agostino action.

The Third Circuit found the web developer's cybersquatting claims to be barred by the doctrine of res judicata.   Under New Jersey law, a litigant must plead the "entire controversy" against a defendant or be barred from later litigation on that point.  Because federal courts do not have exclusive jurisdiction over claims arising under the Lanham Act such as trademark, unfair competition or cybersquatting, the Third Circuit found that the web developer could have and should have asserted the cybersquatting claims if he wanted to preserve them.  Thus, the web developer was barred from asserting cybersquatting claims in D'Agostino.

The web developer's copyright infringement claims had a different outcome.  New Jersey's "entire controversy" doctrine does not extend to claims arising under the Copyright Act, 17 U.S.C. Section 101 et seq.  The reason is that federal courts have exclusive jurisdiction over claims arising under the Copyright Act, and New Jersey law does not require a litigant to assert claims over which the New Jersey court would not have had jurisdiction.  

Thus the web developer's copyright infringement claim jumped the res judicata hurdle.  With respect to the defendant's statute of limitations defense relating to the copyright infringement claim, the Third Circuit found questions of fact as to when the copyright infringement claim accrued that could not be resolved at the pleadings stage and remanded for further findings.

In sum, five years after the initial complaint was filed in state court, the new federal case brings the corporation back to the beginning stages of an entire new litigation.   And the web developer is proceeding pro se.  Good reasons to pay attention to the procedural niceties at the outset of a litigation.

You can read the Third Circuit's D'Agostino opinion here.

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 Copyright law, fine art and navigating the courts. All practice, no theory.Copyright Litigation Handbook (Thomson Reuters Westlaw 2015-2016) by Raymond J. Dowd