Testimony of
Eric E. Menge
Assistant Chief Counsel for Telecommunications
Office of Advocacy
U.S. Small Business Administration
Submitted to the
World Intellectual Property Organization
Internet Domain Name Process
March 10, 1999
Washington, D.C.
Good afternoon. My name is Eric Menge, and I am Assistant Chief Counsel for Telecommunications at the Office of Advocacy, U.S. Small Business Administration. I thank you for this opportunity to speak to you regarding the Interim Report of the World Intellectual Property Organization Internet Domain Name Process.
Congress established the Office of Advocacy in 1976 to represent the views and interests of small business within the U.S. federal government. Its statutory duties include serving as a focal point for concerns regarding the government’s policies as they affect small business, developing proposals for changes in agencies’ policies, and communicating these proposals to the agencies.
Advocacy is greatly concerned that the proposals made in the Interim Report are overbroad and would have an undue detrimental effect on small businesses who are not infringing on trademark rights. In particular, Advocacy believes that the alternative dispute resolution process proposed would provide large corporations with deep pockets the ability to unjustly expand their trademark protections beyond the rights accorded by law by leveraging the expensive and extensive arbitration process proposed in the Interim Report. Furthermore, Advocacy is concerned that the notice of WIPO’s proceeding was insufficient to provide small business an opportunity to comment on this far-reaching and important subject.
The Interim Report Recommendations Are Overbroad
The WIPO Internet Domain Name Process was initiated in response to the White Paper published by the U.S. Department of Commerce, which asked for WIPO to: (1) develop recommendations for a uniform approach to resolving trademark/domain name disputes involving cyberpiracy, (2) recommend a process for protecting famous trademarks in the generic top level domains, and (3) evaluate the effects of adding new general top level domains and related dispute resolution procedures on trademark and intellectual property holders.
The Office of Advocacy does not support cybersquatters who register domain names solely to extort payment from trademark holders. However, Advocacy believes that any effort made to counter cybersquatting should be narrowly tailored in such a fashion to curb this abuse without infringing on the rights of legitimate domain-name registrants. After reading the Interim Report, Advocacy believes the alternative dispute resolution process is not narrowly tailored. Instead, it is overbroad and raises the possibility of First Amendment violations, as it acts as a prior restraint. Any business must think twice about using a domain-name based off of a non-trademark corporate identity.
The Interim Report Recommendation Would Detrimentally Impact the Economy
Advocacy also believes that the alternative dispute resolution procedure would have a significant economic impact on small businesses who are not infringing on a trademark protections.
In 1998, there were 23 million small businesses in the United States, who represent more than 99 percent of all employers. Small businesses employ 52 percent of private workers and employ 38 percent of private workers in high-tech occupations. Virtually all of the net new jobs in the United States were provided by small businesses. Small business is the engine that drives the U.S. economy.
And small business uses the Internet. As of November 1998, 41 percent of small and mid-sized businesses have a Web site, 22 percent of small and mid-sized businesses are using the Internet to sell goods and services, and 18 percent are using the Internet to purchase goods and services for their firms or to share data with suppliers and customers. Therefore, a policy that would detrimentally affect them would undermine the goal of increasing Internet usage and encouraging e-commerce.
Five of the provisions in the Interim Report would have a significant economic and legal impact on small businesses.
- The alternative dispute resolution forces the registrant to agree to jurisdiction in many places including foreign nations. As written, the registrant can not only be sued in its home country, but also in any country that has a registration authority.
- The lack of a predictable legal scheme in arbitration will drive up costs. Arbiters are to "make reference" to the law that a national court would use. Therefore, the registrant must be familiar not only with the intellectual property laws of its own nation but those of other nations.
- If a challenger to a domain name loses, its ability to sue in court is preserved. This would effectively add a layer of litigation, extending the proceedings and making them more costly and intimidating for small businesses.
- The arbiter has the ability to allocate costs of the proceeding. If the arbiter decides that the registrant has violated the trademark holder’s rights, the registrant is responsible for paying all the arbitration fees. Even if unlikely, the mere possibility would cause grave concern to small businesses who do not have deep pockets.
- If the registrant loses at arbitration, the transfer or cancellation of the domain name is effective immediately. The losing-registrant must get a stay from a national court which has jurisdiction over the winning party, and the losing-registrant now has the burden of proof.
Practical Effect on Small Business
Advocacy believes that most domain name disputes will involve large companies, who hold a trademark, challenging small companies and individuals, who do not, for the right to a domain name. Advocacy believes this will be the case for several reasons. First, most likely only the large companies have the financial and legal resources to initiate litigation or an arbitration process. Second, while many small companies do hold trademarks, most do not. They are small businesses with a limited scope and range and do not need trademark protection. Third, even when they are trademark holders, small businesses will rarely challenge a prior registrant, because of the cost and delay of doing so. Instead, these small businesses will use an alternate domain name. Fourth, large corporations do register trademarks, so attempts to challenge their domain names will fail because of the trademark protection. For these reasons, Advocacy believes that the vast majority of the time the challenger to a domain name registration will be a large company with deep pockets and the defending registrant will be a small business, organization, or individual.
The recommendations in the Interim report favor the large corporation to such a drastic extent that it would de facto expansion trademark rights far beyond current law. Advocacy believes that large companies, who are trademark holders, can threaten small business registrants, who are not violating anyone’s trademark, with the process recommended in the Interim Report to force them to surrender their domain name. Imagine a small business whose domain name is challenged by a large company who is a trademark holder. This small business is not infringing on the trademark holder’s rights because they operate in different industries and there is no likelihood of confusion. Unfortunately, the small business must defend its domain name before an arbiter to show that there is no infringement. This arbiter is expensive and can make decisions based on references to national laws, especially problematic if the large company is a multi-national corporation. Also, the arbiter could decide that the small business must pay the fees for the proceeding. Furthermore, the rights of the large company to sue in court are preserved de novo. With its deep pockets, the large company will certainly sue the small business as soon as the ink is dry on an arbitration decision against them. As part of the registration process, the small business has agreed to jurisdiction not only in its own locality but also in the venue of the registration authority. Potentially, the small business would have to travel to a foreign country or to another state if the authority is located domestically. This entire process favors the deep pockets who can afford the multiple layers of litigation, the travel, and the international legal research. When faced with the daunting task of defending its domain name, small businesses will not defend it under this process. They cannot afford it in time or money. Rather they will simply give up. They will surrender the domain name, even when they are not infringing on a trademark and are legitimate registrants.
The alternate dispute resolution process proposed in the Interim report will act as a Sword of Damocles over the heads of small businesses that want to establish an Internet presence and engage in e-commerce. Because they cannot afford to defend themselves against challenges to their domain names, they will always be vulnerable to sudden and unpredictable forced changes in their Internet addresses. This uncertainty will act as a barrier, keeping small businesses from establishing a presence on the Internet. It will inhibit their ability to use the medium and will deny useful products and services to consumers. Advocacy asks that the Panel consider the effect upon small businesses when making its final recommendation.
Small Business Did Not Have Adequate Notice To Make Meaningful Comments
Lastly, Advocacy believes that small business did not receive adequate notice of these proceedings to make meaningful comments to these proceedings. Notice and comment is a central feature of the United States’ Administrative Procedure Act. When properly followed, it allows all parties a chance to participate in an agency’s rulesmaking process. It also allows the U.S. federal agency the opportunity to receive comments which may identify problems or issues the agency did not consider. Although WIPO is not subject to the APA, Advocacy believes that ICANN’s relationship with the U.S. Department of Commerce makes it appropriate to follow its procedure and allow opportunity for notice and comment.
The lack of adequate and equitable notice to small business has limited their ability to participate in this proceeding. With the comment deadline two days away, the Panel is still holding regional hearings, and this is the first to be held in the United States. Advocacy recommends that the Panel extend the comment deadline and make a more adequate solicitation of comments, including publication in the U.S. Federal Register and similar widely-distributed publications.
On behalf of the Office of Advocacy, I thank you for this opportunity to speak. On behalf of small business, I encourage the Panel to consider the overbroad nature of the Interim Report’s proposals and the significant economic impact they would have on small business, as well as giving small business an equitable opportunity to contribute to this process.
Thank you.