The federal judge CLAUDE M. HILTON who granted a summary judgement in favor of .XYZ and Daniel Negari last month throwing Verisign’s case for false advertising out, today handed down a 15 page Memorandum Opinion supporting the summary judgement decision and of course its very interesting.
Here are the highlights:
THIS MATTER comes before the Court on Defendants XYZ.COM, LLC and Daniel Negari ‘s (“XYZ” or “Defendants”) Motion for Summary Judgment.
Plaintiff Verisign, Inc Defendant XYZ is a Nevada corporation with its principal place of business in Carson City, Nevada. Defendant Daniel Negari is the Chief Executive Officer (“CEO”) and founder of XYZ.
Plaintiff and Defendant are in the business of internet domain name registrations. Plaintiff is an industry leader with over 120 million registrations in the <.com> and <.net> space.
Defendant is a new competitor that entered the market in 2014 offering registrations in the <.xyz> space.
Plaintiff alleges that Defendants made numerous false statements in violation of 15 U.S.C. § 1125 that can be categorized as follows:
1) statements regarding <.com> availability;
2) non-public statements about Defendants’ revenue;
3) statements about Defendants’ registration numbers; and
4)statements about Defendants ‘marketing budget.
Plaintiff alleges that statements made by Negari in a National Public Radio (“NPR”) interview were false as it relates to <.com> availability. Specifically, Plaintiff alleges Negari said,
“all the good real estate is taken. The only thing that is left is something with a dash or maybe three dashes, and a couple numbers in it. Did you know that 99% of all registrar searches today result in a ‘domain taken’ page? On average, nine out of ten .com searches show up as unavailable.”
Plaintiff alleges that XYZ engaged in false advertising when it stated that NPR described XYZ as the next <.com>. Plaintiff also alleges that false statements were made in a 35-second video posted on the video-sharing site YouTube titled “MoveOver.com-.XYZ is for the next generation of the internet.”
The video shows a dirty old Honda with a license plate that reads <.com>, next to a shiny new Audi with a license plate that reads <.xyz>. The narrator claims “with over 120 million dot corns registered today, it’s impossible to find the domain name that you want. It’s 2014 and the next generation of domain names is here. ”
The video can be viewed at the following URL: https://www. youtube.com/watch?v=uh i13jluqs
Plaintiff alleges that Defendants made non-public false statements about Defendants’ revenue.
Specifically, Plaintiff alleges that Negari ‘s following statements convey a statement about revenue: 1) My company has received 775,000+ registrations and generated over $5 million in revenue
“We’ve sold over 600,000 domains just in the four months that we’ve been live;”
3) “[w]e’ve sold about 800,000 dot XYZ domain names since we’ve launched …; and
4) “[o]ur wholesale price is around $8.”
Plaintiff alleges that Defendants made false statements via e-mail and blog posts regarding its registration numbers when it claimed to be the top-selling new Top-Level Domain (“TLD”) at various times. Specifically, Plaintiff alleges that Defendants misrepresented the number of registrations and confused consumers into thinking free-trial domain names that were allegedly given away were actually sold at a wholesale price.
Plaintiff alleges that Defendants falsely posted online that “[t]he .xyz registry has put a multi-million dollar awareness campaign in place to educate users on what .xyz is…” Specifically, Plaintiff alleges that Defendant ‘s marketing budget consisted primarily of a roundtrip transaction where domain names were exchanged for advertising credit.
Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment is appropriate if the pleadings and evidence before the Court show no genuine dispute as to any material fact and that the moving party is entitled to a judgment as a matter of law.
[I]t is ultimately the nonmovant ‘s burden to persuade us that there is indeed a dispute of material fact. It must provide more than a scintilla of evidence-and not merely conclusory allegations or speculation-upon which a jury could properly find in its favor.” Design Res., Inc. v. Leather Indus. Of Am ., 789 F.3d 495, 500 (4th Cir. 2015) (citations and
In presenting “more than a scintilla of evidence,” a party may use expert witnesses.
When making a claim under the Lanham Act, a plaintiff must prove that:
“(1) the defendant made a false or misleading description of fact or representation of fact in a commercial advertisement about his own or another’s product;
(2) the misrepresentation is material, in that it is likely to influence the purchasing decision;
(3) the misrepresentation actually deceives or has the tendency to deceive a substantial segment of its audience;
(4) the defendant placed the false or misleading statement in interstate commerce; and
(5) the plaintiff has been or is likely to be injured as a result of the misrepresentation, either by direct diversion of sales or by a lessening of goodwill associated with its products.
“Because the plaintiff must establish all five elements of the claim, failure to establish any one element is fatal to the claim.”
A factual statement is capable of “empirical verification.” Design Res. , Inc. 789 F.3d at 502, 505. “In analyzing whether an advertisement … is literally false, a court must determine, first the unambiguous claims made by the advertisement … and second, whether those claims are false.”
However, an opinion is not actionable under the Lanham Act and conveys a subjective, rather than empirical viewpoint.
Puffery is a type of opinion statement and “exists in two general forms: (1) exaggerated statements of bluster or boast upon which no reasonable consumer would rely; and (2) vague or highly subjective claims of product superiority, including bald assertions of superiority.”
Negari ‘s statements in the NPR interview that “all the good real estate is taken” is an opinion, not a verifiable fact.
Even Plaintiff ‘s own <.com> availability expert Andrew Simpson admitted that whether a domain is a “good” domain is subjective to the registrant.
Further, NPR did in fact describe XYZ as the next <.com>. XYZ reporting this fact in advertising is not a false statement.
Further, according to Plaintiff ‘s own data, .com names are largely unavailable.
In a given month, Plaintiff reports that it receives about two (2) billion requests to register .com domain names, yet fewer than three (3) million are actually registered.
Most of the requests fail because the requested .com name is unavailable.
Three (3) million out of two (2) billion is less than one percent (1%); thus, more than ninety-nine percent (99%) of .com names are unavailable.
The statements made during the NPR interview consisted of statements of fact, opinion, and puffery, and the statements of fact have not been shown to be false.
The video posted to YouTube is puffery and opinion.
It displays no actual domain names, and communicates a subjective measure of value and superiority, not capable of being proven false.
The message communicates Defendants ‘ opinion of itself as a shiny new sports car and nothing more.
The statements regarding Defendants ‘ revenue and number of registrations are statements of fact that are verifiably true.
The communications cited by Plaintiff were internal exchanges between Negari and XYZ employees, and other media consultants.
Nothing in the record supports the notion that these exchanges were false.
Plaintiff further relies on a deal XYZ made with Web.com in which Web.com purchased 375,000 domain names for a price of $8 each totaling $3 million dollars. In exchange, XYZ purchased advertising from Web.com in the form of 1,000 impressions for $10 each, at a total cost of $3 million dollars.
Instead of cash exchanging hands, advertising credit was given to XYZ and the .xyz domain names were given to Web.com, who subsequently gave them away as free trials to their subscribers.
Pursuant to the Generally Accepted Accounting Principles and an independent audit by a reputable accounting firm, this exchange was determined to be fair value.
Plaintiff also relies on this deal as the basis for their claiming that Defendants made false statements regarding its multi-million dollar marketing budget.
This Court finds the statements regarding the Defendants ‘ revenue, registration numbers, and marketing budget to be true.
Plaintiff admits that the “zone file3 , ” contains accurate numbers of domain names registered in the TLD. When the Defendants stated they were a market leader in new TLD’s and that they had the most new registrations than any other TLD, they were basing that information off of an accurate zone file.
Further, the zone file confirms that there are over 120 million .com registrations and one (1) million .xyz registrations.
These statements are also true.
The Plaintiff fails to meet the first element of the Design Res. , Inc. test
Plaintiff must prove the misrepresentation is material.
There is a slight split in circuits around the country on deciding the issue of materiality. The First, Second, and Eleventh Circuits held that even when a statement is literally false, a plaintiff must demonstrate materiality to show the influence on consumers.
The Fifth Circuit disagreed in holding that materiality can be presumed from a literally false statement.
Under either analysis, the materiality element cannot be shown. The Fifth Circuit analysis fails because this Court has found that the statements made by the Defendants were true.
Assuming for sake of argument that the Defendants ‘ statements were false, materiality is still not shown.
The Plaintiff presents no evidence to show that consumers were influenced by the statements made by the Defendants.
The Plaintiff chose not to test materiality in the consumer survey conducted by its consumer survey expert Michael Mazis.
Further, there are no testimonials or other evidence of the consumer decision making process that would show materiality.
The Plaintiff correctly states that the Lanham Act is a strict liability statute where intent is not required.
However, the evidence relied upon by the Plaintiff, primarily the alleged false statements, attempts to show intent to deceive the receiving audience, which even if were true, is not enough to show actual deception required by the statute.
Further, the survey conducted by the Plaintiff only measured whether consumers believed that .xyz domain name registrations were “purchases.” The logical conclusion that can be drawn from this survey question is that consumers may or may not differentiate between “purchased” and “unpurchased.
This conclusion does not show deception on the part of the Defendants.
The Lanham Act defines “commerce” as “all commerce which may lawfully be regulated by Congress.”
In order to succeed on a Lanham Act claim, the Plaintiff must show damages “either by direct diversion of sales or by a lessening of goodwill associated with its products.”
In order to show lost profits or to obtain a disgorgement of Defendants’ profits, Plaintiff must show a causal connection between the alleged false statements and the associated economic damages.
Plaintiff cannot establish the causal connection between the alleged false statements and damages to Plaintiff.
Plaintiff’ s own data shows that .com registrations actually increased after Defendants ‘ statements. Thus, no harm is evident as it relates to the .com registrations.
Plaintiff further alleges harm to their .net registrations, and relies on the analysis of expert Lauren Kindler.
Kindler ‘s analysis consisted of comparing <.net> registration numbers after Defendants ‘ statements to <.net> registration numbers from an earlier timeframe. Because a decline in <.net> registrations coincided with some of Defendants ‘ statements, Kindler concludes that Defendants ‘ statements caused the decline.
While Kindler ‘s qualifications are not in dispute, her methods in reaching this conclusion are questionable. “Correlation is not causation.”
Kindler failed to account for the over 700 competitors in the .net space during the same time period, failed to account for the decline in Plaintiff ‘s .net sales prior to Defendants ‘ statements, and failed to account for changes in Plaintiff ‘s own advertising and promotion.
These are fatal flaws that point only to correlation, not causation, and as such, Kindler ‘s conclusions are not reliable.
On the issue of lessening of goodwill, Plaintiff claims that irreparable harm to their brand and reputation is presumed, and injunctive relief is appropriate.
This presumption is inaccurate.
The Supreme Court twice rejected an irreparable harm presumption.
Moreover, Plaintiff does not proffer evidence beyond their subjective belief that Defendants ‘ statements caused harm.
Plaintiff does not submit testimonial evidence via experts or consumers, and the consumer survey conducted does not measure whether any statements resulted in economic or reputational harm. Plaintiff has not shown any evidence of irreparable harm to Plaintiff ‘s reputation or goodwill.
For the foregoing reasons, Defendant ‘s Motion for Summary Judgment must be granted.