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The cyberlaw informer #33

Welcome to the 33rd issue of the weekly Mishpat Update, 
Law on the net newsletter from

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In this issue:

1. Introduction
2. Lockheed Martin looses domain name appeal
3. U.S. House approves Cybersquatting bill
4. Cyberlaw resource of the week
5. Computer & Internet law news and updates


1. Introduction

I would like to welcome the 42 new subscribers who joined the list
this week. 

This week's issue focuses on cybersquatting, which is the practice of
registering domain names that include names of famous companies or
trademarked terms, and then trying to sell them to those companies for
large sums. Registering a .com domain name costs 70 dollars (Network
Solutions' price, now that the competition started it could be even
cheaper), and some of them are sold on for thousands of dollars.

Our first article reviews a new decision from the U.S. Ninth Circuit
court of appeals, that affirmed a lower court's decision that domain
name registrar NSI is not liable for contributory infringement when it
registers a domain name.
The second article looks at a few provisions in a bill approved by the
U.S. House, aimed at stopping the practice of cybersquatting.

As usual, after reviewing the weekly resource, the last section is
full of cyberlaw news. This issue reports many important developments
including a 2 billion dollar settlement in a lawsuit against Toshiba
and a privacy violation by RealNetworks maker of the popular (13
million downloads) Real Jukebox.

Comments, tips, and articles are always welcome. Send them to

The Mishpat Update archive (issues 1-29) is available at:

Feel free to use any of the material, or forward the newsletter to a
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2. Lockheed Martin looses domain name appeal

The leading domain name registrar Network Solutions Inc. (NSI) is not
liable for contributory infringement when it registers a domain name.
The Ninth Circuit U.S. Court of Appeals ruled in favor of NSI in
Lockheed Martin Corp. v. Network Solutions.

Lockheed sued NSI in 1996 over the use of the domain name "Skunk 
Works," a trademark that refers to the company's Southern California 
aircraft design and construction laboratory. Lockheed had demanded
 that NSI preclude anyone from registering any domain that includes 
the words 'Skunk Works' or that sounded like 'Skunk Works'. Third 
parties, not involved in this litigation, have registered domain name 
combinations with NSI which are variations on the phrase "skunk
 works." including:, and many more.

Lockheed, claimed that once it identified an infringer and
notified NSI, the registrant had a duty to discontinue use of the
domain name. NSI declined to take action, and Lockheed filed suit,
arguing NSI has a responsibility to ensure that its trademark is not
infringed in a domain name. 

Upholding a November 1997 decision by the Los Angeles district court,
Ninth Circuit Judge Stephen Trott, writing for an unanimous three
judge panel, said NSI is only vulnerable if it "intentionally induces
a third party to infringe a mark, or supplies a product to a third
party with "actual or constructive knowledge that the product is being
used to infringe the service mark."
Trott wrote that NSI's role in registering Internet domain names
"differs little from that of the United States Postal Service: When an
Internet user enters a domain-name combination, NSI translates the
domain-name combination to the registrant's IP address and routes the
information or command to the corresponding computer ... NSI does not
supply the domain-name combination any more than the Postal Service
supplies a street address by performing the routine service of routing

The problem with this reasoning is that it focuses on NSI's role as a
translator of domains into IP numbers. Every computer connected to the
Internet has a unique IP (Internet Protocol) numbers that identifies
it. Internet Service Providers (ISPs) have a DNS (Domain name Server)
computer, that translates the domain name you type in your browser to
the matching IP number, and then sends the request to the appropriate
computer. For example, when you type in your browser, the
DNS computer matches that domain with the IP number
(try going to and you will reach The ISPs get the correct matches from different
name servers used by hosting companies. 
ISPs know which name servers to "ask" for, from the root server
operated by NSI. In that sense, NSI does act as a postal service,
directing Internet traffic.

But that is only one of NSI's roles. NSI is also the dominant
registrar of .com and .net domains, and in that role it determines who
gets to use a particular domain name. That means NSI is not only the
post office that routes the traffic to predefined addresses, it is
also the body that designates the addresses.

In my opinion the decision might make a good law but it is based on
bad reasoning. A better foundation for this ruling is looking at the
role registrars should play. I think that registrars should not be the
arbitrators in domain name disputes. The disputes should be resolved
by neutral arbitration bodies (such as proposed in the ICANN dispute
policy that will probably soon be adopted, and that was explained here
a few weeks ago), or by courts. The domain registrars don't have the
necessary tools and knowledge for deciding if a domain was registered
in good faith, or if the trademark is valid, especially when taking
into account the differences in law around the world that might effect
the outcome (for example, the U.S. recognizes "common law trademarks"
that are not registered, while in most countries there are no non
registered trademarks).

Another important factor is that there are approximately 150,000 .com
.net and .org domains registered each month. Almost all of them are
processed automatically within a few minutes. Requiring registrars to
check each application and compare it with a list of trademarked terms
will be a burden on Internet growth.

The ruling is good news not only for domain name registrars but for
Internet service providers generally, because it shows that if a
trademark owner has a gripe it should be against the person who
actually owns the domain name. That might sometimes be difficult
because of the international domain registration. The solution might
be getting a local declaratory judgment and taking it to the domain
The proposed ICANN domain dispute policy will probably be adopted
during November, I will of course describe it in detail after the
final version is approved.

The ruling in Lockheed Martin Corporation v. Network Solutions Inc.
can be found at the following address (you will need to copy and paste
both lines):

The proposed ICANN dispute rules:

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3. U.S. House approves Cybersquatting bill

The U.S. House of Representatives approved a bill designed to end the
practice of cybersquatting - registering domain names that include
names of companies, famous individuals or popular trademarks, and
holding them until that company or individual pays to have them
The anti-cybersquatting bill must return to the Senate for approval of
amendments and will probably be sent to President Clinton by the
end of the year. 

The bill was supported by corporations, actors and others who haven't
been able to use their trademarks in their Web addresses because
someone else registered them first. The bill would set civil liability
of up to 100,000 dollar for people who register domain names in bad
faith, that are identical or confusingly similar to an existing
trademark; it would also protect the companies that register Internet
names from legal liability when they cancel a cybersquatter's

Under the bill, a court would have 11 criteria for determining whether
the person or company that registered the name first acted in bad
faith when registering the name. 

1. The trademark or other intellectual property rights of another
person in the domain name;
2. The extent to which the domain name consists of the legal name of
the person or a name that is otherwise commonly used to identify that
3. The person's prior lawful use, if any, of the domain name in ...
offering of any goods or services;
4. The person's lawful noncommercial or fair use of the mark in a site
accessible under the domain name;
5. The person's intent to divert consumers from the mark owner's
online location to a site accessible under the domain name that could
harm the goodwill represented by the mark;
6. The person's offer to transfer, sell, or otherwise assign the
domain name to the mark owner or any third party for financial gain
without having used, or having an intent to use, the domain name;
7. The person's provision of material and misleading false contact
information when applying for the registration of the domain name;
8. The person's registration or acquisition of multiple domain names
which the person knows are identical or confusingly similar to marks
of others that are distinctive at the time of registration;
9. The person's history of offering to transfer, sell, or otherwise
assign domain names incorporating marks of others to the mark owners
... without having used ... the domain names;
10. The person's history of providing material and misleading false
contact information when applying for the registration of other domain
names which incorporate marks; and
11. The extent to which the mark incorporated in the person's domain
name registration is distinctive and famous.

A number of cyber-liberties groups oppose the bill. The Electronic
Frontier Foundation (EFF) called it a "bonehead bill" that extends the
trademark rights of business at the expense of small businesses and
individuals who might have some claim to a trademark but who will be
rolled over by big companies using the new law.,4586,2382398,00.html

4. Cyberlaw resource of the week

This weeks resource is at: created by the American Bar Association (ABA), is
designed to help you order safely when shopping online. 

The site outlines ways consumers can try to minimize their chances of
running into trouble on the Internet. It covers many issues including
securing online transactions, maintaining online privacy, keeping
records, evaluating seller's reputation and more. contains a lot of important information presented in
a very user friendly interface.

If you would like to recommend an Internet legal resource, please send
it to

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5. Cyberlaw news and updates

Each week Mishpat-Update brings you the latest news about
online and computer law, with links to the full reports available
on the web.

* Toshiba settles huge notebook lawsuit *
Toshiba, the Japanese electronic giant, announced it would incur a 110
billion yen (1.05 billion dollars) special loss from a class action
settlement. Two U.S. owners of Toshiba notebook computers brought the
class action lawsuit earlier this year, alleging that a condition in
the micro code for the floppy disk controller may cause data in a
floppy disk to be lost or corrupted. Under the settlement, Toshiba
will incorporate new floppy disk controllers in PCs for sale in the
United States and provide eligible PC owners with coupons ranging from
100 dollars to 443 dollars. The settlement could cost Toshiba as much
as 2.1 billion dollars, if all laptop owners turn up and ask for the
compensation. Toshiba president Taizo Nishimuro said the company could
have ended up paying 8.8 billion dollars if it had waited for the
jury's verdict and the jury had come out in favor of the plaintiff. 
On November 10, Toshiba will post a free and downloadable software
patch on its website that eliminates the problem.,4586,2385037,00.html

Four new suits were filed against PC makers Hewlett-Packard Co. (HP),
Compaq Computer Corp., NEC Packard-Bell and e-Machines Inc. Also sued
was NEC Corp., which was at one point a co-defendant in the original
Toshiba suit (NEC was the manufacturer of a chip that Toshiba had
licensed and incorporated in the defect floppy disk controller). All
five of the new suits seek class-action status, and were filed by the
lawyers which represented plaintiffs in the suit against Toshiba. The
suits seeks unspecified damages from the companies. 
According to the complaints, the defendants had known of faulty floppy
disk controllers, such as those at issue in this lawsuit for an
extended period of time. The case appears to follow the case
Toshiba chose to settle closely, and a Compaq official called the suit
a "copycat" filing.,6061,2386121-2,00.html

* Privacy standard moves ahead *
The Platform for Privacy Preferences (P3P), a proposed international
standard which will be supported by Microsoft and Netscape browsers,
has overcome a legal hurdle that threatened to slow down its progress.
P3P would let Net surfers negotiate how much personal information they
want to hand over to web sites. Consumers using P3P can approve or
block the transfer of personal information (such as names and
addresses) to web sites based on predefined settings. For example,
users can block personal information transmission to sites that sell
that information to third parties.
The World Wide Web Consortium (W3C), a standard setting body, worried
that a potential patent dispute might stop the wide deployment of P3P.
The W3C claimed that companies would be deterred from supporting P3P
if they were forced to pay a licensing fee to a firm called Intermind
Corporation. Intermind has patented "push" technology, enabling online
computers to send information to Net users automatically. This week,
W3C released a legal analysis stating that P3P doesn't violate
Intermind's patent. W3C now hopes that P3P will be implemented in
commercial products within 6 months.
The W3C legal report:

* Is RealNetworks watching you? *
RealNetworks Inc.'s RealJukebox software monitors user listening
habits and other activities and reports the information and user
identity to the company. A security expert intercepted and examined
information generated from the program, and company officials
acknowledged that RealJukebox gathers information on what users are
playing and recording. RealJukebox is used to play compact disks on
computers and can copy music to a user's hard drive and download music
from the Internet. 
Company officials claimed the practice did not violate consumer
privacy because the data was not stored by the company or released to
other companies, and was only used to customize service for individual
users. On the other hand, privacy advocates and security experts
agreed that it was a violation of the privacy of the 13.5 million
registered users of RealJukebox, particularly because RealNetworks has
not informed consumers they are being identified and monitored. In the
wake of public backlash, RealNetworks Inc. changed its web site's
privacy statement to more accurately reflect the data collection
practices of its RealJukebox music software. The company  also issued
a statement apologizing for any inappropriate collection of data.
RealNetworks quickly released a 67KB patch to the software that will
deactivate the data collection function of the software. This might
let you wonder if they were ready long ago for someone to notice their
information collection policy.
The patch is available at:

* E*Trade sued over outages *
A customer of E*Trade Group Inc.'s online brokerage is suing the
company for false advertising and disruptions in stock trade execution
service. Truc Hoang claims her 40,000 dollar loss was caused by a
series of service outages on E*Trade in February. Hoang is asking the
court to grant her suit class-action status, estimating that E*Trade
customers have lost 20 million dollars as a result of the disruptions
in service.,1087,5_227921,00.html

* Lawsuit over online textbook advertising *
College bookstores have filed a lawsuit against online textbook seller An ad on the site states "Save up
to 40 percent on over 350,000 textbooks, fiction, and more!". The
National Association of College Stores (NACS) alleges that the site
bases its discounts on the price that "publishers suggest that
bookstores charge for new textbooks", but according to NACS there is
no such price in the college publishing industry, and therefore, no
factual basis for the percent discounts that claims.,1284,32231,00.html

* Internet time runs fast *
Citing the pace of innovation in the information technology industry,
Southern District Judge William H. Pauley III refused to enforce a
restrictive covenant that would have prevented a Web site content
manager from working for his new company for one year. "When measured
against the information technology industry in the Internet
environment, a one year hiatus from the work force is several
generations, if not an eternity," Judge Pauley said, denying
EarthWeb's motion for a preliminary injunction against former employee
Mark Schlack. Judge Pauley found that the one year duration of
EarthWeb's restrictive covenant was "too long, given the dynamic
nature of this industry, its lack of geographical borders and
Schlack's former cutting edge position with EarthWeb, where his
success depended on keeping abreast of daily changes in content on the

* Nortel wins staff raiding case *
Canadian networking giant Nortel Networks Inc. has won a rare instance
of a ruling in favor of a plaintiff in a staff raiding case. The
injunction, issued in Montreal by Quebec Superior Court Judge William
Fraiberg, bars 10 former Nortel employees now working at Optical
Networks' Montreal office, from hiring away additional Nortel staff or
Nortel contractors. Nortel is seeking an additional court order
barring Optical Networks and the ten former Nortel employees from
making use of any information they have about Nortel's technology.
Optical Networks, which makes equipment that controls the transmission
of voice and computer data over fiber optic lines, is partly owned by
Nortel rival Cisco.

* Broadband war continues - GTE takes AT&T to court *
GTE Corp. has filed a lawsuit against TCI (AT&T's cable unit, which is
now called 'AT&T Cable Services'), Comcast, and their affiliated
Internet service provider (ISP), @Home. According to the suit, the
defendants illegally force their cable modem subscribers to buy the
@Home ISP service. Customers who prefer another ISP (such as GTE, AOL,
or MindSpring) can get the service only if they also pay for the @Home
service. The antitrust complaint alleges that the companies' practice
of compelling customers of high speed data access to purchase the
@Home ISP service is an unlawful tying arrangement. 
GTE's ISP has 500,000 customers, and the company, along with others
such as America Online (AOL), have appealed to Congress to make sure
that cable companies don't cut off access to their Internet services.
GTE also offers DSL service, which competes with cable modems to bring
broadband to the home.
The broad band war is also playing out in several local jurisdictions
which are considering whether to require cable companies to open up
access to their residents. Portland, Oregon, has taken the strongest
position so far, ruling that the AT&T must open up its lines to
outside ISPs. AT&T sued to overturn the decision, but lost and is now
AT&T called GTE's suit an "illegitimate effort" in GTE's efforts to
protect its monopoly in the local telephone market.
GTE's press release:

AT&T isn't the only one under fire, ISPs are claiming they are
discriminated against by the big U.S. local phone companies. Net
access firms have kicked off an effort to compile data on what they
say is widespread anti competitive behavior by the Baby Bell
Ironically, one of the accused telephone companies is GTE.

* U.S. House supports tariff ban on e-commerce *
In a nearly unanimous vote, the U.S. House approved a call for a
permanent tariff ban on tariffs on electronic commerce. This issue is
expected to be prominent at the upcoming World Trade Organization
(WTO). The proposal is getting some opposition from developing
nations, especially those with high tariffs on software and music
worried about possible future revenue losses.

* Similar user interfaces could be copyright infringement *
Judge Loretta A. Preska, from the Southern District in New York, ruled
that similar user interfaces, even if generated by different program
code, can give rise to a cause of action for copyright infringement by
the original developer of the interface. O P Solutions Inc. (OPS)
sought to protect the screen displays of its software, which help law
firms process patent and trademark applications, as well as related
litigation and administrative proceedings.
The defendant, Intellectual Property Network (IPN), developed a
similar patent and trademark software product. IPN argued that its
products, although published later than OPS's, were fundamentally
different since they were created independently and use different
programming language. In accepting OPS's argument, Judge Preska wrote
that it is well established that screen displays and user interfaces
warrant copyright protection as non-literal aspects of a program. 

* Intel fights Via in court *
Intel has expanded its legal war against Via Technologies by filing
several lawsuits against the Taiwanese chipset maker, as well as
companies that have adopted Via's products. The suits filed in
California, the United Kingdom, and Singapore, relate back to a
contested licensing agreement between the two companies. Intel claims
that Via violated the agreement. Via contends Intel merely wants to
stem the growing popularity of Via's chipsets for Celeron and Pentium
III computers (a chipset functions as the communications center for
the internal components of a computer).
Intel is suing First International Computer which makes motherboards,
and computer manufacturer Everex. Intel is not suing the companies
for using Via's products. Instead, the claim alleges that Everex and
FIC violated system level patents in creating their Via based
motherboards and computers. The lawsuits do not target Via's big
customers, which include IBM, Hewlett-Packard (HP), and Micron

* Gore & Associates sues PeopleSoft *
W. L. Gore & Associates Inc., maker of the waterproof fabric GoreTex,
sued PeopleSoft Inc. and Deloitte & Touche, charging that a major
software installation was bungled. The suit charges the software maker
and consultancy with failing to properly install PeopleSoft's Human
Resources Management System to the point of damaging Gore's business
operations. According to Gore, the company's human resources, benefits
and payroll administration were in chaos subsequent to taking the
PeopleSoft application live in July 1997.

* DOJ to stop Compuware - Viasoft deal *
The U.S. Department of Justice (DOJ) said it intends to file a federal
suit against Compuware to block its 162 million dollar deal to acquire
Viasoft, a competitive supplier of management software for mainframe

* FBI gets 20 million to help investigations *
The U.S. House and Senate approved an appropriation bill that gives
the FBI 20 million dollar for building information technology systems
that should enable its agents to share information on
cases they investigate more easily.

* Online pharmacy fined in Missouri *
S&H Drug Mart, the company that owns, an online
pharmacy, has been ordered to reimburse customers and pay a hefty fine
for selling prescription drugs illegally. Missouri Attorney General
Jay Nixon won a decision ordering the company to pay back Missouri
residents who bought prescriptions from the site, as well as a 15,000
dollars fine to be paid to the state of Missouri. The decision also
prevents and its owner from using the Internet to sell
prescription drugs to Missouri residents. The site now displays a
prominent notice that prescription sales are not available to Missouri

* FTC issues "free PC" warning *
The Federal Trade commission issued a Consumer Alert about "free" and
"low-cost" PCs. The FTC warned that consumers might have to pay full
price up front for systems and pay in advance for up to 3 years of Web
service. The warning lists several problems with such programs,
including double interest, hidden penalty and purchase clauses and low
memory capacity issues.

* Selling children online *
The FBI is investigating allegations that a family from Ohio sold
their 14 year old son to a man who posted an ad on the Internet
seeking to adopt a young boy. The boy's parents responded to the ad
and sold the teen in August for between 300 to 400 dollar, according
to court documents. Social workers said they first learned of the
case when the boy was committed to a psychiatric center after
placing a loaded gun to his head and threatening to commit suicide.,3700,2376625,00.html

* Romanian finance ministry web site hacked *
Romania's Finance Ministry web site was hacked last weekend. The
hackers changed tax laws and the leu's (the Romanian currency)
exchange rate. The Web site showed a tax on "silliness" that varied
according to the importance of the taxpayer's job. It also changed the
official exchange rate of the leu to 0.5 per dollar from 16,870 per

If you know of any cyberlaw updates, please send them to

That's all for this time,
see you next week

Yedidya M. Melchior 

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