Facebook, Inc. v. OnLineNic Inc

Opinion

1 2 3 4 5 UNITED STATES DISTRICT COURT 6 NORTHERN DISTRICT OF CALIFORNIA 7 8 FACEBOOK, INC., et al., Case No. 19-cv-07071-SI

9 Plaintiffs, ORDER DENYING DEFENDANT 10 v. 35.CN'S MOTION TO BIFURCATE

11 ONLINENIC INC, et al., Re: Dkt. No. 213 12 Defendants.

13 14 15 On February 25, 2022, defendant Xiamen 35.com Internet Technology Co., LTD (“35.CN”) 16 filed the instant motion to bifurcate. Having reviewed the parties’ papers, the Court previously 17 VACATED the April 1, 2022 hearing pursuant to Local Rule 7-1(b). For the reasons stated below, 18 defendant 35.CN’s motion is DENIED. 19 20 BACKGROUND 21 The Second Amended Complaint (“SAC”) alleges defendant OnlineNIC, a California 22 corporation with its principal place of business in San Leandro, California, is a domain name 23 registrar that sells, registers and transfers domain names for third parties. Dkt. No. 109 ¶ 9 (SAC). 24 The SAC alleges defendant ID Shield, is a Hong Kong, China, limited company that provides 25 a type of domain name privacy service, specifically a proxy service, for OnlineNIC’s customers. 26 Id. ¶ 10. ID Shield registers domain names, as the registrant, and licenses these domain names to 27 OnlineNIC’s customers. Id. 1 Fujian Province, that sells, registers and transfers domain names for third parties. Id. ¶ 11. The SAC 2 alleges 35.CN controls, manages, and runs the operations of OnlineNIC and ID Shield. Id. 3 The SAC alleges plaintiffs, well known social networking sites Facebook and Instagram, 4 own various well-established trademarks. Id. ¶¶ 18-25. Plaintiffs allege 5 defendants, as registrants and as alter egos of each other, have registered domain names (such as hackingfacebook.net) that have been used for malicious activity, 6 including phishing and hosting websites that purported to sell hacking tools. These domain names also have infringed on Plaintiffs’ trademarks….Plaintiffs seek relief 7 from Defendants, as alter egos of each other, who have registered (as the registrant), used, and trafficked in domain names that include Plaintiffs’ trademarks. 8 Id. ¶¶ 5-6. 9 The SAC further alleges: 10 1. Cybercrime is highly dependent on registered domain names, which are used to 11 send spear phishing emails, operate malware, and engage in other types of online abuse… 12 2. Cybercriminals often rely on domain name privacy registration services, and 13 specifically proxy services, to hide their ownership and control of malicious domains from the public. In exchange for a fee, proxy services conceal the domain name 14 registrant’s identity as listed on publicly available domain name registration records. These proxy services, like the services offered by Defendants, are increasingly used 15 by cybercriminals as they cycle through domain names in order to conceal their identity and evade detection. 16 3. 35.CN is an ICANN1-accredited domain name registrar. 35.CN’s alter ego, 17 OnlineNIC, also is an ICANN-accredited domain name registrar. 35.CN’s and OnlineNIC’s alter ego, ID Shield, provides a type of domain name privacy service, 18 … According to one internet security group, domain names registered by OnlineNIC were reported for abuse in approximately 40,000 instances. In 2019, one internet 19 security group reported that OnlineNIC was one of the top 20 domain name registrars used for abuse. 20 4. Defendants have repeatedly failed to take appropriate “steps to investigate and 21 respond appropriately to any reports of abuse” as required by the RAA and have failed to provide abusive domain name registrants’ names and contact information to 22 victims of online abuse as required under the RAA. 23 Dkt. No. 109 ¶¶ 1-4 (SAC). 24 The SAC further alleges defendants registered, used, or trafficked in at least 35 domain 25

26 1 The Internet Corporation for Assigned Names and Numbers (“ICANN”) is a California nonprofit whose mission is to “ensure the stable and secure operation of the Internet’s unique 27 identifier systems” by coordinating “the allocation and assignment of names in the … Domain Name 1 names identical or confusingly similar to plaintiffs’ trademarks, including: facebookphysician.com, 2 login-1nstagram.com, and www-instagram.net. Id. ¶ 56. ID Shield is allegedly the registrant for 3 each of the infringing domain names. Id. ¶ 57. 4 The SAC alleges OnlineNIC has a storied history of “cybersquatting on famous and 5 distinctive trademarks” and lists a myriad of allegedly successful lawsuits against OnlineNIC for 6 such brought by well-known companies such as Verizon, Yahoo, and Microsoft. Id. ¶¶ 60-63. 7 8 PROCEDURAL HISTORY 9 Plaintiffs filed their original complaint in 2019 against only ID Shield and OnlineNIC. Dkt. 10 No. 1 (Original Complaint). ID Shield and OnlineNIC did not move to dismiss the action; instead, 11 they filed an answer on January 6, 2020. Dkt. No. 20. Over a year later, on February 25, 2021, after 12 what appears to be extensive and contentious discovery, plaintiffs sought leave to file their first 13 amended complaint (FAC) to add 35.CN as a defendant. Dkt. No. 68. Judge van Keulen granted 14 plaintiffs’ motion on March 24, 2021. Dkt. No. 81. Again, ID Shield and OnlineNIC filed an 15 answer. Dkt. No. 88. On June 1, 2021, Judge van Keulen filed an order granting the parties’ 16 stipulation to plaintiffs’ filing the operative SAC and deeming ID Shield and OnlineNIC’s answers 17 to the FAC as their operative responsive pleading. Dkt. No. 108. The SAC was filed later that day 18 on June 1, 2021. Dkt. No. 109 (SAC). The SAC alleges four causes of action against all defendants 19 for: 20 (1) Cybersquatting Plaintiffs’ Trademarks; 15 U.S.C. § 1125(d) (the Anticybersquatting 21 Consumer Protection Act (“ACPA”)); 22 (2) Trademark and Service Mark Infringement; 15 U.S.C. §1114; 23 (3) Trademark and Service Mark Infringement and False Designation of Origin; 15 U.S.C. 24 § 1125(a); and 25 (4) Dilution of Trademarks; 15 U.S.C. § 1125(c). 26 Dkt. No. 109 ¶¶ 76-137 (SAC). 27 On September 22, 2021, 35.CN declined magistrate jurisdiction and the action was 1 a motion to dismiss making three overarching arguments: (1) the parties are not alter egos and 2 therefore the Court does not have jurisdiction over 35.CN, (2) 35.CN is immune from liability as 3 merely a registrar of domain names, and (3) plaintiffs have failed to adequately plead their causes 4 of action against ID Shield and OnlineNIC, therefore the claims fail as to 35.CN. Dkt. No. 174. On 5 January 18, 2022, the Court denied 35.CN’s motion to dismiss in its entirety finding, among other 6 things, serious issues of fact as to alter ego precluded dismissal. Dkt. No. 207 at 7-8.2 7 Defendant 35.CN now brings a motion to bifurcate and stay the action, arguing discovery 8 should focus on the allegedly dispositive issue “of whether ID Shield is a Proxy Service that registers 9 domain names for its customers or merely a Privacy Service that only allows its contact information 10 to be used for privacy purposes as Defendants assert” (the “Proxy Service Issue”). Dkt. No. 213 at 11 3 (Motion to Bifurcate) (emphasis added). 12 13 LEGAL STANDARD 14 Pursuant to Federal Rule of Civil Procedure 42(b), the district court may order separate trials 15 of one or more issues or claims “[f]or convenience, to avoid prejudice, or to expedite and 16 economize.” The court has broad discretion in deciding whether to bifurcate. Zivkovic v. S. Cal. 17 Edison Co., 302 F.3d 1080, 1088 (9th Cir. 2002). Courts consider several factors in determining 18 whether bifurcation is appropriate, including whether the issues are clearly separable, and whether 19 bifurcation would increase convenience and judicial economy, reduce the risk of jury confusion, 20 and avoid prejudice to the parties. See Schwarzer, Tashima & Wagstaffe, Federal Civil Procedure 21 Before Trial § 16:160.4 (2010); Hirst v. Gertzen, 676 F.2d 1252, 1261 (9th Cir. 1982). The party 22 requesting bifurcation has the burden to prove bifurcation is warranted in that particular case. 23 Spectra-Physics Lasers, Inc. v. Uniphase Corp., 144 F.R.D. 99, 102 (N.D. Cal. 1992). In the Ninth 24 Circuit, “[b]ifurcation . . . is the exception rather than the rule of normal trial procedure.” Clark v. 25 I.R.S., No. 06-0544, 2009 U.S. Dist. LEXIS 125515, 2009 WL 5698139, at *4 (D. Haw. Nov. 10, 26 2009) (citing Hangarter v. Provident Life & Acc. Ins. Co., 373 F.3d 998, 1021 (9th Cir. 2004)). 27 1 DISCUSSION 2 Defendant 35.CN argues bifurcation and a stay of discovery is proper to determine the 3 allegedly dispositive “legal issue of whether ID Shield is a Proxy Service that registers domain 4 names for its customers or merely a Privacy Service that only allows its contact information to be 5 used for privacy purposes as Defendants assert.” Dkt. No. 213 at 3. The Court, exercising its broad 6 discretion, disagrees. 7 First, the Court disagrees the Proxy Service Issue is dispositive. Indeed, the parties have 8 hotly disputed this issue for months, including in the (extensive) briefing on 35.CN’s motion to 9 dismiss. See Dkt. No. 174 at 17-203 (35.CN’s Motion to Dismiss); Dkt. No. Dkt. No. 189 at 22-234 10 (Plaintiff’s Opposition to 35.CN’s Motion to Dismiss). Plaintiffs persuasively argue the Proxy 11 Service Issue will not resolve all claims because at least some of the claims do not hinge on whether 12 ID Shield is a proxy service. Dkt. No. 220 at 6 (Opposition to Motion to Bifurcate). Plaintiffs allege 13 ID Shield directly violated the ACPA by (1) registering infringing domain names and (2) trafficking 14 in them by licensing them either to OnlineNIC for its own use or to OnlineNIC’s customers for their 15 use. Dkt. No. 109 ¶ 28 (SAC).5 Thus, the claims hinge on whether ID Shield is the registrant of 16 the infringing domain names— not whether ID Shield is a proxy service. In the order denying 17 35.CN’s motion to dismiss, the Court noted “OnlineNIC and ID Shield admit that ID Shield is listed 18 3 In its motion to dismiss, 35.CN argued, among other things, that the SAC should be 19 dismissed because (1) “ID Shield is a Privacy Service Only” not a proxy service; and (2) “35.CN is immune from liability as a registrar” in the context of 35.CN being a privacy service not a proxy 20 service.

21 4 In opposition to 35.CN’s motion to dismiss, plaintiffs argued “ID Shield provides a proxy service for OnlineNIC’s customers. This is significant because, as a proxy service, ID Shield is 22 liable under the ACPA for registering the Infringing Domain Names as the registrant … In order to avoid liability under the ACPA, 35.CN maintains, however, that ID Shield is a privacy service and 23 not a proxy service. Again, 35.CN is mistaken because a privacy service lists in the WHOIS directory the beneficial user (i.e. customer) as the Registered Name Holder and not the privacy 24 service. …Since ID Shield, and not its customers, is listed in the WHOIS directory as the Registered Name Holder for the Infringing Domain Names, ID Shield is a proxy service and is liable under the 25 ACPA for trafficking in the Infringing Domain Names.”

26 5 The ACPA imposes liability on anyone who registers, uses, or traffics in a domain name that is identical or confusingly similar to another’s trademark with a bad faith intent to profit from 27 that mark. 15 U.S.C. § 1125(d). It also states that a person shall be liable for using a domain name 1 as the registrant for the allegedly infringing domain names listed in the complaint.” Dkt. No. 207 at 2 9 (Order Denying 35.CN’s Motion to Dismiss); Dkt. No. 88 ¶ 27 (Answer) (“it is admitted that ID 3 Shield is listed as the registrant in the WHOIS directory.”). 4 35.CN acknowledges plaintiffs’ theory of direct liability based on ID Shield as the registrant 5 of the infringing domain names. Dkt. No. 221 at 8 (Reply ISO Motion to Bifurcate). However, 6 35.CN concludes, without a single citation to caselaw or any other support, that the 7 argument … requires that ID Shield be a Proxy Service because if ID Shield is simply a Privacy Service (as Defendants contend), then its name is only listed in public 8 records to protect the privacy of customers, who continue to own and control the Domain Names. In other words, there is no separate “direct liability” theory but only 9 the question of whether ID Shield is the legal “registrant” that can own and license the Domain Names. 10 Id. While defendants may prevail on these issues at summary judgment, the Court is unpersuaded 11 by defendant’s arguments at this time and finds defendant has not met its heavy burden for 12 bifurcation. 13 Second, as the Court found in its order on 35.CN’s motion to dismiss, there are serious 14 questions of fact as to alter ego that the parties need to explore. The alter ego issue pertains not only 15 to the parties’ liability but also jurisdictional issues raised in 35.CN’s motion to dismiss. See Dkt. 16 No. 174 (35.CN’s Motion to Dismiss) (arguing the Court does not have jurisdiction over 35.CN as 17 a Chinese company). Further, there are serious allegations of spoliation of evidence against 18 defendants ID Shield and OnlineNIC. Dkt. No. 176 (Plaintiffs’ Motion to Strike Defendant 19 OnlineNIC and IDShield’s Answers and For Default Judgment). To understand whether these 20 allegations extend to 35.CN and how, if at all, they impact 35.CN, additional non-bifurcated 21 discovery is required including with respect to the issue of alter ego. 22 In light of the foregoing, bifurcation would not promote judicial economy or otherwise 23 streamline issues. As such, 35.CN’s motion is DENIED. 24

26 /// 27 /// 1 2 CONCLUSION 3 Defendant 35.CN’s motion to bifurcate is DENIED in its entirety. As such its motion to stay 4 || is rendered moot and also DENIED. 5 6 IT IS SO ORDERED. 7 Dated: April 5, 2022 Site WU tee 8 SUSAN ILLSTON 9 United States District Judge 10 11 a 12

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