Pensacola Motor Sales Inc. v. Eastern Shore Toyota, LLC

684 F.3d 1211, 2012 WL 2345117, 2012 U.S. App. LEXIS 12726
Court of Appeals for the Eleventh Circuit·Decided June 21, 2012·No. 10-15761·Published·Cited by 78 cases

Opinion

CARNES, Circuit Judge:

People who compete against each other in the same business or profession don’t have to dislike one another. A few years back there was even a song lyricizing *1215 about “Lawyers in Love.” But no one has ever written a song about “Car Dealers in Love,” and if this case is any indication, no one ever will. These two car dealers are bitter business rivals in overlapping markets. One of them used a software program to compete more aggressively with the other one over the internet. That program produced a multiplicity of mini-websites, a host of hard feelings, and of course litigation. This is the appellate part of that litigation. 1

I.

Shawn Esfahani is a Hyundai and Toyota car dealer who owns Eastern Shore Toyota, Daphne Automotive, LLC, and Daphne Enterprises, Inc. (collectively “Eastern Shore” for short). In the summer of 2009, Esfahani attended a Hyundai dealers’ conference, where officials in Hyundai’s corporate division introduced dealers to David Vaughan, Jr., who was the corporate division’s internet marketing expert. Vaughan offered to help the dealers revamp their websites and spruce up their technology systems. Not that there’s anything wrong with that.

Vaughan went further than that, however. Over the next few weeks, he pitched two internet marketing strategies to Esfahani, one defensive and the other offensive. The defensive strategy was for Esfahani, under Vaughan’s tutelage, to buy and hold desirable domain names 2 in order to keep them out of competitors’ hands; some of *1216 those desirable domain names would incorporate trademarks of his competitors. Those defensive strategy domain names would not be operational because they would not be connected to a web page.

The offensive strategy that Vaughan proposed involved the creation of a large number of mini-websites, or microsites, using a computer program that he would license to Esfahani. By simply entering domain names into that software program and clicking a button, Vaughan could instantly mass produce microsites for Esfahani, each one using a name related in some way to the car business, for example, www.2009camry.com. Those microsites would either automatically redirect users who clicked on them to Eastern Shore’s official websites or they would display a one-page website advertising Eastern Shore.

Esfahani agreed to both strategy proposals. In July and August 2009 through Eastern Shore, Esfahani signed contracts with Vaughan’s company, Advanced Dealer Systems, for marketing services and use of Vaughan’s software program. Within a couple of months, Eastern Shore went from owning about 40 domain names to owning around 4,000. The new domain names were purchased from the popular domain name vendor GoDaddy.com, and some incorporated trademarks from Face-book, YouTube, and eBay, for example: www.facebooktoyota.com, www. youtubeusedcar.com, and www. ebayautoprices.com. More to the point of this case, some of the domain names that Eastern Shore purchased incorporated trademarks of its competitors, such as www.bobtylerprices.com.

Eastern Shore’s new domain name marketing strategy caught the attention of eBay. The online auction website discovered one of the questionable domain names — www.ebaypreownedprices.com— and it emailed Eastern Shore about that name in September 2009. The email demanded that Eastern Shore stop using eBay’s trademark in the domain name, disable any website linked to it, and allow the domain name’s registration to expire instead of attempting to sell or transfer it to someone else. Ebay’s email warned Eastern Shore that the “registration and use” of a domain name infringing on another’s trademark violated the Lanham Act and that the “use, [sale], or offer for sale” of such a domain name violated the Anticybersquatting Consumer Protection Act; it also pointed out that the anticybersquatting act provides for statutory damages of up to $100,000 for each infringing domain name.

After receiving the email from eBay, Esfahani decided to “take it down.” The next day, acting through Vaughan, he gave that domain name back to GoDaddy.com. Esfahani notified eBay that he had complied with its demands. - He did not, however, make any effort to review his other domain names to see if they infringed on any other trademarks.

There was more trouble. In October 2009 a sales manager at Bob Tyler Toyota discovered one of Eastern Shore’s micro-sites: www.bobtylerprices.com. That microsite featured a photo of one of the ear models that Bob Tyler Toyota sold, and it allowed visitors to enter their email addresses and their financial Information to complete a credit application for a car loan. The phone number listed on the site, however, was not Bob Tyler Toyota’s. It was Eastern Shore’s. Bob Tyler Toyota employees found five other Eastern Shore microsites; all of them had virtually the same design, used some version of the Bob Tyler trademark, and listed Eastern Shore’s phone number.

The general manager for Toyota’s southeastern division told Eastern Shore that *1217 Bob Tyler Toyota objected to the micro-sites and urged Eastern Shore to disable them. Esfahani was shocked- — “shocked,” he said — to learn that those domain names were operational, and he immediately ordered Vaughan to disable the microsites. A few days later, attorneys for Bob Tyler Toyota sent Eastern Shore a cease-and-desist letter identifying six of the infringing microsites, although by then Eastern Shore was already in the process of disabling them. The letter demanded that Eastern Shore forfeit the domain names and threatened to file a lawsuit under the federal anticybersquatting act unless Eastern Shore agreed to pay Bob Tyler Toyota $250,000 within seven days.

After the receipt of that letter, Esfahani and Vaughan blamed each other for the problem. Esfahani sent Vaughan a letter terminating their contracts and accusing Vaughan of having “misled” him into believing that purchasing the domain names was legal. Vaughan countered that Esfahani “went rogue,” purchasing the domain names and hosting the microsites on his own despite Vaughan’s warnings that doing so “was a real bad idea[ ].”

Bob Tyler Toyota’s cease-and-desist letter was dated October 23, 2009. By the end of the next day, all of the microsites infringing on the Bob Tyler trademark had been disabled, except for two undetected ones. 3 On December 17, 2009, Bob Tyler Toyota sent Eastern Shore another letter, this one demanding the return of the domain names and a $1 million payment. A week later Esfahani surrendered to Go-Daddy.com all of the domain names that infringed on the Bob Tyler trademark, except for the two undetected ones. A little over a week after that, Bob Tyler Toyota filed this lawsuit against Esfahani and Eastern Shore Toyota, along with Daphne Automotive, LLC, and Daphne Enterprises, Inc. (two related corporations controlled by Esfahani), all of which we are referring to collectively as “Eastern Shore,” except when separate reference is necessary.

II.

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Pensacola Motor Sales Inc. v. Eastern Shore Toyota, LLC, 684 F.3d 1211, 2012 WL 2345117, 2012 U.S. App. LEXIS 12726 (11th Cir. 2012).

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