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  Report From Counsel  
    Summer 2000  


As businesses realize that the Internet is the wave of the future, many are rushing to catch that wave by establishing a domain name for a presence in cyberspace. As domain names have proliferated so have disputes between parties laying claim to the same or similar domain names.

In 1998, the federal government created the Internet Corporation for Assigned Names and Numbers (ICANN), a nonprofit organization designed to take charge of the domain system this year. A new Uniform Domain Name Dispute Resolution Policy approved by ICANN is now in effect. The policy, which is incorporated into agreements for registration of domain names, provides for mandatory administrative proceedings when a complaining party claims: (1) that a domain name is identical or confusingly similar to a trademark or service mark in which the complaining party has rights; (2) that the party named in the complaint has no rights or legitimate interests in the name; and (3) that the party named in the complaint registered the name and is using it in bad faith. The matter can also be taken to court for an independent resolution either before or after the administrative proceeding. After a decision by a court or administrative panel, the domain name may be canceled, transferred, or changed according to the resolution of the dispute.

In a recent federal case, Epix, a maker of video-imaging hardware and software, complained when another company, ISS, set up a web page at "epix.com." "EPIX" was a valid trademark belonging to Epix. The court held that Epix would have to show under settled law on trademark infringement that ISS was using a mark that was confusingly similar to Epix's valid trademark. Two points clearly favoring Epix were that the terms at issue were virtually identical and that Epix and ISS both used the Internet for marketing. The only factor clearly favoring ISS was that Epix's sophisticated industry and academic customers were not likely to be easily confused, even though the products and services of ISS and Epix overlapped. The court found that there was enough conflicting evidence to require a factfinder (a judge or jury) to decide the matter.

The lack of significant regulatory control over domain name registration in the early years of Internet commerce has generated a phenomenon known as "cybersquatting." Cybersquatting is the registration of a domain name of a well-known trademark by someone who does not hold the trademark and who then typically tries to sell the domain name to the trademark owner. This practice reached such proportions that Congress recently passed the Anticybersquatting Consumer Protection Act (ACPA). Before the ACPA was enacted, protection of trademarks from cybersquatters under general trademark law was uneven at best, creating confusion for consumers and trademark owners alike. The new law creates a federal remedy tailored to this specific problem.

A federal appeals court recently handed down the first appellate decision under the ACPA. Sportsman's Market, Inc., a nationwide mail-order catalog company specializing in items for pilots and aviation enthusiasts, has long owned the registered trademark "sporty's," using it on its catalog covers, in its toll-free numbers, and in millions of dollars worth of advertising. Owners of a mail-order catalog selling items unrelated to aviation planned to enter the aviation catalog business, forming a wholly owned subsidiary for that purpose. The owners, one of whom was on the Sportsman's Market's mailing list, registered the domain name "sportys.com" and sold it to another subsidiary called "Sporty's Farm," that grows and sells Christmas trees. When Sporty's Farm began advertising by means of a sportys.com website, Sportsman's Market asked a federal court to intervene.

The court applied the ACPA. It found that "sporty's" was a distinctive mark entitled to protection under the ACPA, and that the domain name "sportys.com" was certainly confusingly similar to the protected trademark. It also found that the evidence showed that Sporty's Farm acted with a "bad-faith intent to profit" from the mark when it registered its domain name.

The ACPA lists nine criteria to consider when looking for bad-faith intent, but the list is not exhaustive. In this case, the most important criterion was that the owners of Sporty's Farm, while knowing about Sportsman's Market's distinctive trademark and planning to compete head-to-head with Sportsman's Market, registered a nearly identical domain name for the primary purpose of keeping Sportsman's Market from using that domain name. The court ordered Sporty's Farm to release its interest in sportys.com and to transfer the name to Sportsman's Market. It also prohibited Sporty's Farm from doing anything to hinder Sportsman's Market from obtaining the disputed domain name.


Tax Break for Prepaid Tuition

Private letter rulings by the Internal Revenue Service are legally binding only on the party whose specific situation is addressed in the ruling, but they do tip the hand of the IRS as to how it will treat similar cases. A recent private letter ruling approved of a valuable technique for avoiding gift and estate taxes by prepaying any amount of tuition to an educational institution on behalf of an individual.

The Tax Code excludes the amount paid from either gift taxes or estate taxes as long as it is paid directly to an educational institution to be used exclusively for the payment of specified tuition costs for designated individuals. A similar Code provision gives the same treatment to prepaid medical expenses as long as they are paid directly to the health-care provider.

In this case, a grandmother was allowed to make a series of tax-free prepayments over two years of more than $163,000 in nonrefundable tuition for her two grandchildren's future attendance at a private school. The IRS underscored the importance of a direct payment to the institution. For example, a tuition payment would not be a "qualified transfer" where the money is first put into a trust, even one whose terms require that the funds only be used to pay tuition costs for designated individuals.


Given today's competition for qualified employees, employers must be careful to highlight all that they have to offer but stop short of making representations that may not materialize after an employee comes on board. What was once usually dismissed as harmless exaggeration by employers increasingly has become the grounds for expensive lawsuits by employees who allege fraud once they realize that everything is not as it was depicted in the hiring process.

The fraudulent hiring claim is especially significant because some courts have allowed employees to pursue such claims even though, as "at-will employees," they otherwise would have no recourse against their employers. Normally, under the at-will doctrine, an employer can fire an employee for a good reason, a bad reason, or no reason at all, unless a contract or law limits the employer's power.

In one recent case, two employees who traveled halfway across the country at their own expense to take jobs that were not as they had been represented were awarded compensation and punitive damages for fraud. The two men had been recruited as divers for offshore oil operations. They were assured that there were plenty of offshore diving jobs available and that, even as trainees, they would "get in the water immediately." The offshore diving jobs did not materialize as promised. A broken promise to do something in the future, like the promises made to the divers, will support a claim for fraud if the promise was made in order to deceive someone, and with no intention of keeping the promise.

In another case, Karen accepted a job offer as a nurse for a health-care corporation after she asked about the financial health of the company and was told that money for her position had been allocated. One month later, she was part of a large layoff precipitated by a severe financial crisis. The court gave Karen a chance to prove either of two fraud theories. The first was that the statement about money being set aside for her position was false, and that she had relied on it to her detriment. The second theory, called "silent fraud" by the court, was that the employer had a duty to disclose its serious financial troubles, and that it withheld such information to induce Karen to take the job. The company's claim that it was unaware of the gravity of its problems until Karen had reported for work was an issue for a jury to decide.

A variation on fraudulent hiring occurs when fraud is used to keep an employee from leaving. For example, when a controlling interest in a machinery company was sold to a sister company, Jerome's employer assured him that "absolutely no changes would be made" that could hurt his job security. Jerome stayed, but before long he and some other older employees were subjected to a pay cut and eventually summary dismissal. The court allowed Jerome's claim for fraudulent misrepresentation to go to trial.

Employers can take steps to reduce their exposure to fraudulent hiring lawsuits. Most of these steps involve close control over the message given to applicants. Interviewers need to be trained so that they do not let a description of the company's attributes turn into "puffery." Using two interviewers at once gives the employer a witness in case of a later dispute over what was said. Communications such as employee manuals, Internet job postings, and written offers of employment should be checked for unintended or unauthorized promises. In some cases, it may be advisable to use a written employment agreement that clearly indicates that its terms supersede any oral statements that may have been made. After-the-fact protection for the employer could come from contract language under which an employee terminated without cause waives the right to sue in exchange for a certain amount of compensation.


Rodger admitted that it was he alone who called off his engagement to marry Janis, but he still wanted the return of the expensive engagement ring he had given her. When Janis refused, Rodger sued to get the ring back, and he won.

It was settled law in the state that any engagement gift, including a ring, is a conditional gift that must be returned if the condition is not fulfilled. Janis argued that her acceptance of Rodger's marriage proposal was the satisfied condition. The court ruled instead that the condition that must occur for the gift to hold up is the marriage itself.

Janis also argued that, even if the condition for the gift had not been met, a giver should have no right to a return of the gift when the giver breaks off the engagement. The court conceded that this has some superficial appeal to our sense of justice where one person truly has "wronged" the other. Of course, the rule would be unfair when the giver had compelling reasons to call off the engagement.

The court's greater concern, however, was that the ending of most "modern relationships" is rarely so cut and dried. Ascertaining who was "at fault" would "invite the parties to stage the most bitter and unpleasant accusations against those whom they nearly made their spouse." The process would also amount to opening a Pandora's box: Is a breakup justified by having nothing in common; dislike of prospective in-laws; a hostile minor child; incompatible pets; irritating habits; religious differences, etc.?

Rather than requiring courts to undertake the thorny task of finding fault, the court borrowed from the approach used in a no-fault divorce, some form of which exists in all 50 states. If, as in the case of Rodger and Janis, the marriage is called off, the giver of the engagement ring is entitled to its return, with no investigation into the motives or reasons for the breakup.


When someone buys a home, in addition to the land, bricks, and wood, the buyer receives the legal title to the property. If the title is defective, it could interfere with enjoyment of the property and result in financial loss. When title insurance is purchased by a property owner, the insurer guarantees that the owner has clear title to the property, free of claims or encumbrances.

Title insurance begins with a search of land records tracing the property's "chain of title" back in time through previous owners. A title search should reveal any legal documents that do not clearly pass title, such as where incorrect names or notary acknowledgments appear, as well as outstanding mortgages, judgments, or tax liens. Even a thorough search by an experienced title examiner cannot be absolutely certain to detect every problem, however. Title insurance protects against the unseen hazards that may not surface until long after property is purchased. Some of the risks against which title insurance gives protection include: a forged deed that transfers no title to the property; previously undisclosed heirs with claims against the property; and a legal document executed under an invalid or expired power of attorney.

A title insurance policy protects the insured party, such as the home buyer or the buyer's mortgage lender, against losses suffered if the title is found to be defective, even after a search of land records suggests no problems. Lenders' title insurance decreases and eventually is discontinued as the loan is paid off. Owners' title insurance, issued in the amount of the purchase price, lasts as long as the insured has an interest in the property.

As with any other insurance policy, the fine print in a title insurance policy must be examined with care. Typically, there are exclusions or exceptions from coverage. For example, the effects of governmental laws, ordinances, and regulations are generally excluded. You also should be aware of two other common policy provisions. The first is a standard arbitration clause, requiring binding arbitration to resolve any dispute under a specified dollar limit. The second provision, a "co-insurance" clause, states that the owner must obtain increased coverage if the insured property is improved in order to furnish the same level of protection.

Title insurance protection takes various forms. The insurer will negotiate with third parties about their claims against the insured property, pay for defending against an attack on the title, and pay claims if necessary. Title insurance also helps to make sure that a dream home will not become a legal nightmare for the home buyer.


A fast-food chain held a contest with two ways to win a prize: collect designated stamps over time or win a substantial cash prize all at once with an instant winner stamp. Due to a printing error, Jane got a hybrid game stamp that indicated that several other stamps were needed, but it also exclaimed that the holder of the ticket was an "instant winner!" The restaurant refused to give Jane the prize, thus prompting her to sue.

Jane came up empty-handed. She tried to rely on a state statute that required that a sponsor of a prize promotion give consumers all information necessary to make a decision about the contest. Jane argued that all such information must be on the game piece or stamp itself and that her game stamp did not set out the rules for winning.

The court ruled that a consumer can receive notice of restrictions in a form other than on the game stamp. Here, the official rules of the contest were posted in the restaurant, Jane had a game board that prominently referred to those rules, and Jane had signed a form putting her on notice that compliance with all of the rules was necessary before anyone could be declared a winner. One of the official rules clearly stated that game materials were null and void and would be rejected if they contained errors.

The rules, not the language on the game stamp, constituted the terms for formation of a contract. Jane could not comply with those terms because her defective game stamp was null and void. Because of this lack of compliance, there was no contract, no duty on the restaurant, and no breach of contract. Jane was entitled to her hash browns but not to the cash prize.


The singing group known as "The Platters" was so successful that its members were eventually inducted into the Rock and Roll Hall of Fame. One of the group's biggest hits was "The Great Pretender," a song whose title was fitting in light of later legal battles over the right to use of the group's name. The latest dispute was between Herb, the group's founder and the only person who has performed continuously with the group since its inception, and Martha, the widow of a member of the group from 1954 to 1965. Martha does not perform but manages a group called "The Platters" that does not include any of the original members.

Martha sued Herb, claiming the exclusive right to use of the name "The Platters." Under earlier court decisions, the right to use of the trademark "The Platters" by the original group belonged collectively to the group's members. Martha's claim stemmed from the fact that shortly before his death her husband had transferred in writing all of his rights in the trademark. By that time, many years had passed since he had left the original group and stopped performing.

Following the lead of similar cases from other courts involving musical groups, a federal court of appeals applied the rule that members of a group do not retain the rights to use the group's name when they leave the group. By contrast, someone remaining continuously with the group, who is in a position to control its quality, retains the right to use of its name, even if it is only as a manager rather than as a performer. Herb had the right to use the name "The Platters" to the exclusion of Martha and anyone else. The transfer of rights to Martha by her husband was meaningless because by that time he had nothing to convey.

The outcome obviously rewards those who start a group and stick with it through the goings and comings of other members, but the court also noted a broader benefit to the music-listening public. Prohibiting anyone other than the owner of the group's name from performing as "The Platters" also would avoid confusion among reasonable consumers, which is one of the underlying purposes of trademark law.

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