Steven Bonisteel, Newsbytes
NEW YORK, NEW YORK, U.S.A.,
28 Jan 2002, 11:34
A federal judge in New York may have finally put an end to a five-year
battle over the Internet domain Cello.com, ruling last week that a company headed
by former UUNet founder Rick Adams had used U.S. courts and an international arbitration
process to improperly wrest the address from a California man.
In a decision
laced with criticism for Cello Holdings and its lawyers, District Court Judge Denny
Chin wrote that the Falls Church, Va., company had "sought to wear ... down" Lawrence
Storey of Chatsworth, Calif., the man who had registered Cello.com in 1997.
The ruling will likely see Storey reclaim
the domain, which he lost one year ago through a dispute-resolution process established
by the Internet Corporation for Assigned Names and Numbers (ICANN) to sort out conflicts
between trademarks and Net addresses.
But Judge Chin's first look at the dispute
between Adams' company and Storey began in October of 1997 when Cello filed a lawsuit
against the Californian.
Cello, which at the time was distributing high-end audio
equipment and installing home theater systems, said Storey's speculative registration
of the Cello.com domain for resale was diluting its trademarks for a line of studio-quality
Storey's lawyer, James McCarney, of Engel and McCarney in New
York, told Newsbytes that the case was nearly three years old when, just days before
a long-awaited trial, Cello suddenly backed out of the case.
McCarney said he
was told that the company, faced with mounting financial problems, wanted to stop
spending money on the domain- name litigation.
By that time, the country's new
Anticybersquatting Consumer Protections Act (ACPA) had become law and the case had
already seen one high-profile decision by Chin on competing motions from both sides,
each seeking quick victories in the litigation.
In late March of 2000, Chin rejected
Storey's bid to have the case dismissed on the grounds that the New York court had
no jurisdiction over his activities in California. But Chin also turned down Cello's
request for a summary judgment, saying that a trial would be needed to determine
whether the "Cello" name, being a common word, was really "famous and distinctive."
In his decision last week, Judge Chin recalled that his court was advised by Cello
lawyers in August of 2000 that the case had been "settled."
"In fact," Chin wrote,
"as the court has now learned, the (case) had not actually been 'settled,' but instead
Cello had merely decided to discontinue its claims. The parties did not enter into
a settlement agreement."
Chin said the two sides were given 30 days to change
their minds on the "settlement," but that the case was finally dismissed "with prejudice"
A week later, on Sept. 25, Storey's lawyers sent a letter to
Cello stating that the domain was still available for sale. On Oct. 10, Cello filed
a complaint under ICANN's Uniform Domain Name Dispute Resolution Policy (UDRP), an
arbitration-like process designed to be faster and cheaper than a lawsuit.
McCarney said he was "fit to be tied" when Cello turned to the UDRP, and stunned
when, about two months later, an arbitrator ruled that Storey was a cybersquatter
and ordered that Cello.com be turned over to Adams' company.
When ICANN launched
its UDRP in December of 1999, it said that the process would always take a back seat
to rulings in "a court of competent jurisdiction." Since the UDRP is otherwise binding,
that provision is usually seen as making traditional courts a forum for appealing
But Judge Chin supported McCarney's argument that the court's
dismissal before the UDRP complaint should be just as effective in trumping the arbitration
Wrote Chin: "The discontinuance 'with prejudice' operated as an adjudication
on the merits in Storey's favor and Cello was therefore barred from asserting future
claims against Storey based upon the same causes of action that ... could have been
asserted in the first case.
"By discontinuing its claims ... on the eve of trial,
Cello could not then turn around, as it did, to assert the same claims in an arbitration
proceeding," Chin ruled.
Storey's primary defense in the UDRP proceedings was
that the lawsuit's dismissal prevented a panelist assigned by former arbitration
services company eResolution from even hearing the case.
However, the panelist,
Richard Faulkner of Dallas, Tex., made it clear in his Dec. 21, 2000, decision that
he believed the two sides had settled the previous case "on some mutually acceptable
basis" that allowed the UDRP complaint to be seen as a separate case of cybersquatting.
In the lawsuit behind last week's ruling - begun with a complaint filed by Storey
after losing the UDRP battle - Cello expanded on the notion of a second incident
of cybersquatting by pointing to Storey's offer to sell Cello.com in the Sept. 25,
But Chin decided that the earlier dismissal was equivalent to a
ruling that Storey was not a cybersquatter under the ACPA. Therefore, Storey's immediate
resumption of efforts to sell the domain were also protected.
"The Sept. 25 letter
was not a new transaction creating a new claim," Chin ruled, "for Cello had already
given up any claim to rights in the domain name in question."
noted, "Cello's arbitration complaint makes no mention of the Sept. 25 letter, and
Cello specifically told the arbitrator that it 'dismissed the (first lawsuit) so
as to avail itself of the dispute resolution policy which was not available at the
time of the 1997 filing, thereby saving significant time and expense over the continued
Chin also rejected Cello's argument that Storey essentially endorsed
the legitimacy of the UDRP proceeding, despite the earlier dismissal, by mounting
a full assault on the merits of the cybersquatting claims.
"Although it is true
that Storey argued the merits in the arbitration proceedings," Chin wrote, "he only
did so as an alternative to his (primary) defense and his arguments on the merits
were limited to repeating the arguments and papers he had submitted in the first
Then, beginning a stinging wrap-up to his decision, Chin said: "I
have no doubt that Cello, with substantially greater resources than Storey, sought
to wear Storey down. Just as the first (lawsuit) was to be tried, Cello withdrew
its claims, only to reassert them some two months later."
"Then, despite warnings
from this court (Cello) persisted in pressing its meritless arguments and defenses,
which were based largely on factual misrepresentations."
But Chin reserved his
harshest criticism for Cello's lawyers, writing: "A reasonably competent attorney
would have known that the dismissal 'with prejudice' of the first (lawsuit) would
have barred future claims based on the same causes of action.
"A reasonably competent
attorney would not have asserted the Sept. 25 letter as a purported 'new act of cybersquatting'
without first reviewing Cello's arbitration complaint and seeing that Cello gave
a completely different reason for bringing the arbitration and did not mention the
Sept. 25 letter at all.
"A reasonably competent attorney would not have argued
that Storey had waived his right to challenge the arbitration award because of his
'voluntary participation' when all he did was object to the arbitration proceedings
... and renew, in the alternative, the arguments he had made in the first (lawsuit).
"A reasonably competent attorney would not have presented an entire point arguing
that the arbitration award was 'final and binding,' subject only to limited judicial
review ... when the UDRP, the ACPA, and the case law make it clear that the reviewing
court should reach an 'independent resolution.'"
Ironically, a case that began
as a high-profile test of the conflicts between trademark holders and sellers of
"generic" domain names was concluded without the judge ever ruling on the merits
of Cello's original 1997 complaint.
McCarney said his team has until Feb. 1 to
submit a proposed judgment, in which they will ask for the return of Cello.com. The
domain is currently home to New York's Cello restaurant, a company in which Adams
has invested, according to news reports last year.
McCarney said Chin's ruling
also appears to invite Storey to ask that Cello pay his legal fees and for other
costs related to the lawsuit.
Reported by Newsbytes.com, http://www.newsbytes.com