Internet Addresses Fueling Rash of Territorial Disputes

Ross Koty has nothing to do with Carl’s Jr. He doesn’t sell hamburgers, he doesn’t make milkshakes and, as far as anyone knows, he’s never even uttered the words “Happy Star.”

But in the ever-widening universe known as cyberspace, Ross Koty is Carl’s Jr., a vexing situation that the restaurant chain’s lawyers would desperately like to change.

Simply by being first to ask for it, Koty sewed up the rights to the carlsjr.com domain, an electronic address on the Internet. And Koty, a Laguna Hills photographer, has refused to give it up unless Carl’s Jr. pays him $2,800, according to the company’s lawyers.

The ensuing squabble is just one of hundreds of disputes over Internet domains involving giant companies rushing to stake their claims in cyberspace, only to find their prime parcels already in the hands of somebody else. Often, the addresses are controlled by so-called domain “squatters” who are holding them for ransom.

“We’ve spent a lot of money over the years developing our name recognition,” said Robert Wilson, general counsel for CKE Restaurants, the Anaheim parent company of Carl’s Jr. “That mark is identifiable with our brand, and I feel like [Koty] is holding us hostage.”

William R. Mitchell, Koty’s attorney, denies that accusation, and insists that his client should be able to keep the domain because he grabbed it first. “Because Carl’s Jr. is a big company it feels it can bully people,” Mitchell said. Koty refused to comment.

Dozens of companies, including Irvine-based Taco Bell, MTV, Kentucky Fried Chicken and others have had to cajole, pay thousands of dollars or even sue to gain the rights to domain names that match trademarks they have spent millions of dollars cultivating and protecting.

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The number of domain disputes has continued to rise even though Network Solutions, the Virginia-based company that doles out Internet domains largely on a first-come, first-served basis, has adopted policies offering greater protection to companies that hold trademarks.

David Graves, Internet business manager at Network Solutions, said the number of disputes has swelled to nearly 700 in recent years.

Domains have become increasingly valuable to companies, which use them as addresses for sites on the Internet’s World Wide Web, places that feature pictures of their products, list locations of their stores and provide other information.

Some believe that the Internet will become the largest shopping mall the world has ever known, and that Web sites will be this mall’s key storefronts. But, just as in real estate, location is everything on the Net. Logical and predictable addresses are crucial for companies that want their customers to be able to find them.

Carl’s Jr., for instance, has had to settle for putting its Web site at https://www.ckr.com, an address that only those who know the company’s stock market trading symbol, CKR, might stumble into.

As a result, the company says that most visitors to its Web site are investors or stock analysts, and traffic at the site--about 250 visits a day--is probably half what it would be at carlsjr.com, an address the company’s consumers are far more likely to try.

Mitchell insists that his client is not holding carlsjr.com hostage. “All my guy has asked for is reimbursement of his costs,” said Mitchell, who declined to offer more information on the nature of those costs.

The number of disputes is expected to continue to rise as more companies, organizations and individuals clamor for Internet addresses.

Network Solutions, which doles out domains under a contract with the National Science Foundation, registers about 40,000 names a month these days, Graves said. That compares to 3,000 a month less than two years ago.

Handling the complaints and inquiries stemming from the rash of disputes has created an unforeseen strain on Network Solutions’ work force, Graves said.

“When this whole thing started, I was the only one responsible for it,” Graves said. “I’m now at the point where I’ve got a secretary, an assistant and we use a full-time attorney to investigate matters, and I’m close to doubling my staff in the not-too-distant future.”

Not all disputes pit companies against squatters holding domains for ransom. Executives at the Hasbro Inc. toy company, for instance, were horrified when they learned that a domain based on the name of one of their most popular children’s games, Candyland, was being used for a Web site that contained pornography. The company sued the holder of the domain, and the Web site has been shut down.

Perhaps the best-known domain squabble involved MTV and one of the Music Television Network’s original veejays, Adam Curry, who registered mtv.com after he left the company and used it as the address of a Web site that featured music industry gossip.

Curry finally gave up the domain in a settlement with MTV.

Last year, Network Solutions overhauled its rules in an effort to offer greater protection to companies that hold trademarks.

Now Network Solutions requires domain applicants to state that the addresses they wish to register do not interfere with trademarks or other intellectual property rights. When a dispute arises, domain holders are urged to give up names that have been trademarked by another. If the holder refuses, as Koty has done with carlsjr.com, the domain is placed on hold, making it unusable by either side until the dispute is resolved.

But the new policy still often works to the advantage of squatters, whose strategy depends not so much on being able to use the address as being able to keep it from the company that wants it.

As a result, many of the disputes are swept into the legal system. Many of the fights center on trademark laws, which make it illegal for one company to use the trademark of another if the two compete in the same business. But the law does nothing to prevent companies in different businesses from sharing a name.

But trying to resolve domain disputes through trademark laws is problematic because an Internet domain cannot be shared.

“The world of trademark laws doesn’t automatically track onto domain names,” said Maureen Dorney, an attorney at Gray, Cary, Ware & Freidenrich, a Palo Alto law firm that advises Network Solutions on its domain policies.

Many cases are settled out of court, and Dorney said she knew of no case that has gone to trial and ended in a verdict. Therefore, there are no judicial precedents suggesting how these disputes should be handled.

Meanwhile, the Carl’s Jr. battle has dragged on for three months, and Wilson, the company’s attorney, said the options before him now are basically the same options available when the dispute began. The company can sue, try to force Koty to go to arbitration, give up, or pay.

The latter option is not particularly palatable, but may be the quickest, cheapest way out.

“At some point you have to evaluate this from a business standpoint,” Wilson said. “People that obtain these domain names without any intention of using them are relying on that.”