Lahoti v. Vericheck Inc ( 2009 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
DAVID LAHOTI, an individual, 
Plaintiff-Appellant, No. 08-35001
v.
 D.C. No.
CV-06-01132-JLR
VERICHECK, INC, a Georgia
Corporation, OPINION
Defendant-Appellee.

Appeal from the United States District Court
for the Western District of Washington
James L. Robart, District Judge, Presiding
Argued and Submitted
March 9, 2009—Seattle, Washington
Filed November 16, 2009
Before: William A. Fletcher, Ronald M. Gould, and
Richard C. Tallman, Circuit Judges.
Opinion by Judge Gould
15233
LAHOTI v. VERICHECK, INC 15237
COUNSEL
Derek A. Newman, Randall Moeller, and John Du Wors,
Newman & Newman, Attorneys at Law, LLP, Seattle, Wash-
ington, for the plaintiff-appellant.
15238 LAHOTI v. VERICHECK, INC
Shannon M. Jost and Aviva Kamm, Stokes Lawrence, P.S.,
Seattle, Washington, for the defendant-appellee.
OPINION
GOULD, Circuit Judge:
David Lahoti appeals the district court’s bench trial judg-
ment that his use of the “VeriCheck” Georgia state service
mark owned by Vericheck, Inc. violated the Anti-
Cybersquatting Consumer Protection Act (“ACPA”), 15
U.S.C. § 1125(d), the Lanham Act, 15 U.S.C. §§ 1051 et seq.,
the Washington Consumer Protection Act (“WCPA”), Wash.
Rev. Code § 19.86, and various Washington common law
doctrines. Lahoti, who has previously been found liable for
cybersquatting activities, obtained the domain name “veri-
check.com,” but did not use the website to offer any goods or
services. We conclude that the district court’s factual decision
that the “VeriCheck” mark was a distinctive, legally protect-
able mark under the ACPA and federal trademark law was
based in part on reasoning contrary to federal trademark law
and based in part on reasoning that could support the district
court’s conclusion. Because we believe the district court
should decide the issue of distinctiveness in light of the prin-
ciples we explain, we vacate the district court’s opinion and
remand for further proceedings not inconsistent with this
opinion.
I
Vericheck, Inc. (“Vericheck”) is a Georgia corporation that
provides electronic financial transaction processing services,
including check verification, check guarantee, check collec-
tion, account verification, automated check handling, and pay-
ment processing services. Vericheck has advertised itself on
its website as “[t]he leader in Check Verification and Guaran-
LAHOTI v. VERICHECK, INC 15239
tee Services,” and check verification underlies a large part of
its operations. Vericheck operates a website at vericheck.net
and also owns the domain names vericheck.org, vericheck.cc,
vericheck.us and vericheck.biz. Vericheck unsuccessfully
attempted to secure the vericheck.com domain name (the
“Domain Name”) from a Canadian company in 1999.
In 2001 Vericheck gained a Georgia state registration for
its service mark,1 which consists of a checkmark over the
word “VeriCheck” (the “Disputed Mark”). The Georgia regis-
tration states that the mark is used in connection with “Check
Verification and Check Collection Services.” Vericheck tried
to obtain federal registration of the Disputed Mark, but in
2003 the United States Patent and Trademark Office (“PTO”)
denied the application because an Arizona company (the “Ari-
zona Company”) had already registered a “Vericheck” trade-
mark (the “Arizona Mark”) for use with “check verification
services.” The Arizona Company first obtained federal regis-
tration in 1975 and renewed its mark in 1996. The Arizona
Company did not use the Arizona Mark in connection with
services that compete with Vericheck, and there is no evi-
dence that the Arizona Mark was used on the Internet. The
Arizona Company did not further renew its registration in
2006, and its mark expired while this case was pending.
David Lahoti considers himself an “Internet entrepreneur.”
Lahoti claims that in the late 1990s he contemplated going
into the business of transaction verification and security. As
a preliminary move, as he tells it, he began registering a num-
ber of domain names with the “veri-” prefix. Lahoti success-
fully acquired the vericheck.com domain name in 2003, but
he never developed a transaction verification service. Instead,
1
Under the Lanham Act, “the only difference between a trademark and
a service mark is that a trademark identifies goods while a service mark
identifies services. Service marks and trademarks are governed by identi-
cal standards . . . .” Chance v. Pac-Tel Teletrac Inc., 242 F.3d 1151, 1156
(9th Cir. 2001) (citations omitted).
15240 LAHOTI v. VERICHECK, INC
the vericheck.com website consisted only of a few lines of
code redirecting visitors to a different website with search
result links, including links to Vericheck’s competitors.
Lahoti earned income when visitors to vericheck.com clicked
on links at the website to which they were redirected.
Vericheck frequently received calls from its customers
complaining that they were confused because they visited
vericheck.com but could not find information on Vericheck.
Lahoti told the district court that before registering the
Domain Name in 2003 he performed a trademark search and
Internet search and he concluded that his use of the Domain
Name would not be a trademark issue. He also said that when
he reserved the Domain Name he was not aware of Veri-
check’s existence.
This case does not reflect the first time Lahoti has regis-
tered domain names that were similar to the names or trade-
marks of other companies.2 Lahoti had previously registered
more than four hundred domain names containing the trade-
marks of other companies, including nissan.org, 1800mat-
2
Lahoti’s past condemnation as a cybersquatter has no bearing on the
classification of Vericheck’s Disputed Mark as suggestive, and thereby
distinctive, or merely descriptive, and thereby not entitled to trademark
protection. As one example, the text of the ACPA states that a cybersquat-
ter is liable if he or she uses a domain name that “in the case of a mark
that is distinctive at the time of registration of the domain name, is identi-
cal or confusingly similar to that mark.” 15 U.S.C. § 1125(d)(1)(A)
(emphasis added). Similarly, the distinctiveness of the Disputed Mark is
a prerequisite to claims of trademark infringement under federal and state
law trademark claims. See generally 2 McCarthy on Trademarks and
Unfair Competition § 11:2 (4th ed.).
However, we would be remiss if we did not note Lahoti’s cybersquat-
ting activities, because they are relevant under the ACPA to whether a per-
son acted in bad faith. See 15 U.S.C. § 1125(d)(1)(B)(i)(VIII) (providing
that in evaluating bad faith under the ACPA, courts should consider “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”).
LAHOTI v. VERICHECK, INC 15241
tress.com, and ebays.com. In at least two cases, the United
Nations World Intellectual Property Organization ordered
Lahoti to give up control of some of his domain names
because they infringed on a trademark. In 2000 the United
States District Court for the Central District of California in
E-Stamp Corp. v. Lahoti (the “E-Stamp Case”), No. CV-99-
9287, concluded that Lahoti was a “cybersquatter” and that
his registration, attempted sale, and use of the estamps.com
domain name violated federal trademark law and the ACPA.
In 2004 Vericheck contacted Lahoti and offered to pur-
chase the vericheck.com domain name. Doubtless this fit into
Lahoti’s business plan as an Internet entrepreneur. Lahoti first
asked for $72,500, and then reduced his demand to $48,000,
but negotiations soon ended. In 2006 Vericheck filed an arbi-
tration complaint pursuant to the Uniform Domain-Name
Dispute-Resolution Policy. The arbitrator ordered the transfer
of the Domain Name to Vericheck, but instead of complying,
Lahoti sought a declaratory judgment in the district court that
he did not violate the Lanham Act’s cybersquatting or trade-
mark infringement provisions. Vericheck counterclaimed that
Lahoti’s actions violated the Lanham Act, the ACPA, the
WCPA, and Washington state common law. Thus the issues
were first framed in the district court.
Both parties moved for summary judgment. The district
court granted summary judgment to Vericheck, but only on
the question of whether Lahoti acted in bad faith. The district
court found that Lahoti did not use the Domain Name to sell
goods or services or for a legitimate non-commercial use, and
it stated that the Domain Name linked to several of Veri-
check’s competitors. It also noted Lahoti’s past cybersquat-
ting activities. The district court concluded that Lahoti “acted
in a bad faith attempt to profit” from his use of the Domain
Name and that no reasonable jury could decide otherwise.
After a bench trial on the remaining issues, the district
court decided for Vericheck on all claims and counterclaims.
15242 LAHOTI v. VERICHECK, INC
The district court determined that the Disputed Mark was
inherently distinctive, which was necessary for Vericheck to
prevail on any of its trademark or ACPA claims. The district
court concluded that Vericheck had established the other ele-
ments of its counterclaims, granted Vericheck injunctive relief
and statutory damages, and awarded Vericheck attorneys’ fees
under both the WCPA and the Lanham Act. Lahoti appeals
the district court’s merits decision and its award of attorneys’
fees.
II
[1] This case turns in large part on the standard of review.
We have previously held that a district court’s classification
of a trademark’s strength is a factual determination to which
we apply clear error review. See Jockey Club, Inc. v. Jockey
Club of Las Vegas, Inc., 595 F.2d 1167, 1168 (9th Cir. 1979)
(stating that “the strength or weakness of the mark in ques-
tion” is a “factual issue[ ]” that is “not to be set aside unless
clearly erroneous”); Norm Thompson Outfitters, Inc. v. Gen.
Motors Corp., 448 F.2d 1293, 1294 (9th Cir. 1971) (review-
ing “[w]hether the trial court was clearly erroneous in finding
as facts . . . [t]hat the slogan is descriptive, rather than a sug-
gestive slogan, or a coined, arbitrary, or fanciful slogan”).3
3
Every other circuit that has considered the question has also held that
the clear error standard applies. See, e.g., Bristol-Myers Squibb Co. v.
McNeil-P.P.C., Inc., 973 F.2d 1033, 1039-40 (2d Cir. 1992) (“[T]he initial
classification of a mark to determine its eligibility for protection is a ques-
tion of fact left to the determination of the district court. We will substitute
our own judgment on the matter for that of the district court only if the
district court’s determination is clearly erroneous.”); Anheuser-Busch Inc.
v. Stroh Brewery Co., 750 F.2d 631, 635 (8th Cir. 1984) (“[T]he categori-
zation of a term for which trademark protection is claimed is considered
to be a factual issue, and thus is to be reviewed under the clearly erroneous
standard . . . .” (citation omitted)); 2 McCarthy on Trademarks § 11:3
(“The vast majority of courts has held that categorization of a term on the
spectrum of distinctiveness is a factual issue which can be reversed by a
federal appellate court . . . only if found to be clearly erroneous.” (citing
cases from nine circuits)).
LAHOTI v. VERICHECK, INC 15243
Under the clear error standard, “we defer to the lower court’s
determination unless, based on the entire evidence, we are
possessed of a ‘definite and firm conviction that a mistake has
been committed.’ ” SEC v. Rubera, 350 F.3d 1084, 1093 (9th
Cir. 2003) (quoting Easley v. Cromartie, 532 U.S. 234, 242
(2001)). “So long as the district court’s view of the evidence
is plausible in light of the record viewed in its entirety, it can-
not be clearly erroneous, even if the reviewing court would
have weighed the evidence differently had it sat as the trier of
fact.” Id. at 1093-94 (citing Anderson v. City of Bessemer
City, 470 U.S. 564, 573-74 (1985)).
[2] When reviewing for clear error, we do not defer to a
district court’s categorization of a mark if its decision is based
on incorrect law. See Forum Corp. of N. Am. v. Forum, Ltd.,
903 F.2d 434, 439 (7th Cir. 1990) (stating that a review of a
district court’s trademark classification must “toe a line
between reweighing the evidence and disregarding our
responsibility to make sure that the district court’s trademark
classification was based on correct legal standards”);
Anheuser-Busch Inc. v. Stroh Brewery Co., 750 F.2d 631,
635-38 (8th Cir. 1984) (reviewing the district court’s trade-
mark categorization de novo for legal error before applying
clear error review). Although we may affirm on “any ground
supported by the record, even if it differs from the district
court’s rationale,” Lambert v. Blodgett, 393 F.3d 943, 965
(9th Cir. 2004), where it is unclear whether the district court
relied on proper law, we may vacate the judgment and remand
with instructions to apply the correct legal standard. See
United States v. Pintado-Isiordia, 448 F.3d 1155, 1158 (9th
Cir. 2009).
III
[3] To show trademark infringement, Vericheck “must
demonstrate that it owns a valid mark, and thus a protectable
interest,” and it must show that Lahoti’s “use of the mark ‘is
likely to cause confusion, or to cause mistake, or to
15244 LAHOTI v. VERICHECK, INC
deceive.’ ” KP Permanent Make-Up, Inc. v. Lasting Impres-
sion I, Inc., 408 F.3d 596, 602 (9th Cir. 2005) (quoting 15
U.S.C. § 1114(1)(a) & (b)). Federal trademark registration is
not a prerequisite for protection under the Lanham Act, and
for infringement claims such as Vericheck’s, “the same stan-
dard applies to both registered and unregistered trademarks.”
GoTo.com, Inc. v. Walt Disney Co., 202 F.3d 1199, 1204 n.3
(9th Cir. 2000) (quotation omitted). On its ACPA claim, Veri-
check also must prove that Lahoti acted “with a bad faith
intent to profit” from the Disputed Mark. 15 U.S.C.
§ 1125(d)(1)(A)(i).
On appeal Lahoti challenges the district court’s determina-
tion that the Disputed Mark is a distinctive and valid mark; he
argues that the district court clearly erred in finding that his
actions created a likelihood of consumer confusion; he chal-
lenges the district court’s conclusion that he acted in bad
faith; and he argues that the district court erred by awarding
Vericheck attorneys’ fees.
A
[4] Vericheck cannot prevail on its trademark claims unless
its Disputed Mark is distinctive. See Disc Golf Ass’n v. Cham-
pion Discs, Inc., 158 F.3d 1002, 1005 (9th Cir. 1998) (“To
recover for the infringement of a trademark . . . [the plaintiff]
had to prove that . . . the design is inherently distinctive or
acquired distinctiveness through a secondary meaning . . . .”);
2 McCarthy on Trademarks § 11:2 (“Without achieving dis-
tinctiveness . . . a designation does not have the legal status
of a ‘trademark’ or ‘service mark.’ No distinctiveness—no
mark.”). Distinctiveness is also required to sustain an ACPA
claim. 15 U.S.C. § 1125(d)(1)(A)(ii) (establishing liability “in
the case of a mark that is distinctive at the time of registration
of the domain name”). “Suggestive,” “arbitrary,” or “fanciful”
marks are inherently distinctive, but a mark that is “generic,”
or one that is “descriptive” and lacks a secondary meaning, is
not distinctive and does not receive trademark protection. Two
LAHOTI v. VERICHECK, INC 15245
Pesos, 505 U.S. at 768. The district court determined that the
Disputed Mark is suggestive and thus distinctive, and on
appeal Lahoti contends that the Mark is descriptive.4
Deciding whether a mark is distinctive or merely descrip-
tive “is far from an exact science” and is “a tricky business
at best.” Banff, Ltd. v. Federated Dep’t Stores, Inc., 841 F.2d
486, 489 (2d Cir. 1988); see also 2 McCarthy on Trademarks
§ 11:2 (“As with tonal shade variations in the colors of the
visible spectrum of sunlight, the categories of the trademark
spectrum often become difficult to distinguish at the bounda-
ries.”). Some cases pose an easy conclusion that a mark is
merely descriptive, as for example would be the case if a res-
taurant chain sought a trademark in a name such as “Delicious
Foods,” or a taxicab company sought a trademark in the name
“Reliable Cab,” or a clothing company in a name such as
“Ready Wear.” Other marks are just as plainly distinctive, as
for example in fanciful marks where the letters do not form
a word in the dictionary and there is no apparent logical con-
nection to the goods, such as Exxon gas or Xerox copiers. But
legions of trademark lawyers can stay busy arguing about
how marks in the middle, not so plainly descriptive, nor so
plainly distinctive, should be categorized. See Pizzeria Uno
Corp. v. Temple, 747 F.2d 1522, 1528 (4th Cir. 1984) (“The
line between descriptive and suggestive marks is scarcely
‘pikestaff plain’ and the distinction to be given the two terms
is frequently made on an intuitive basis rather than as a result
of a logical analysis susceptible of articulation.” (alteration
and quotation omitted)).
We have said that the “primary criterion” for distinguishing
between a suggestive and a descriptive mark “is the imagina-
4
Because the district court determined that the Disputed Mark was sug-
gestive, it did not analyze whether the Mark had secondary meaning.
Additionally, because “suggestive” and “distinctive” are terms of art and
the issue is whether the Disputed Mark was suggestive and thus distinc-
tive, we use the terms interchangeably for the purposes of this appeal.
15246 LAHOTI v. VERICHECK, INC
tiveness involved in the suggestion, that is, how immediate
and direct is the thought process from the mark to the particu-
lar product.” Self-Realization Fellowship Church v. Ananda
Church of Self-Realization, 59 F.3d 902, 911 (9th Cir. 1995)
(quotation omitted). A mark is suggestive “if ‘imagination’ or
a ‘mental leap’ is required in order to reach a conclusion as
to the nature of the product being referenced.” Filipino Yellow
Pages, Inc. v. Asian Journal Publ’ns, Inc., 198 F.3d 1143,
1147 n.3 (9th Cir. 1999). By contrast, a mark is descriptive if
it “define[s] a particular characteristic of the product in a way
that does not require any exercise of the imagination.” Yellow
Cab Co. of Sacramento v. Yellow Cab of Elk Grove, Inc., 419
F.3d 925, 927 (9th Cir. 2005).
But after taking note of the general rule of law that a mark
is suggestive if it takes imagination or a mental leap to iden-
tify the referenced product, and applicable guiding principles,
a trier of fact is still left with a hard task of judgment. Where
does “VeriCheck” fall in the continuum between marks that
are plainly suggestive, and therefore distinctive, and those that
are plainly distinctive? As the reviewing court, our role is lim-
ited to determining whether the district court clearly erred in
deciding that the Disputed Mark was suggestive in the context
of Vericheck’s financial transaction processing services,
which include check verification services.
Both parties support their arguments with references to
other appellate decisions on distinctiveness. However, as with
other areas in which we apply a deferential standard of
review, past appellate decisions affirming on clear error
review do not establish that the trademark at issue or similar
trademarks are distinctive or descriptive per se, but only that
the district court’s classification was a plausible interpretation
of the record. Stated another way, an appellate decision
affirming that a trademark is or is not distinctive, after that
conclusion was reached in a trial, means only that the decision
of the trial court, to whose judgment we significantly defer
when a fact-intensive issue such as this has been tried, is
LAHOTI v. VERICHECK, INC 15247
within the range where an appellate court should affirm
absent clear error.
[5] Not surprisingly, appellate courts have upheld district
court classifications of arguably distinctive trademarks as
descriptive, and vice versa. Compare Jockey Club, 595 F.2d
at 1167-68 (affirming district court classification that “Jockey
Club” is not distinctive when applied to condominiums and a
private membership club), with Playtex Prods., Inc. v.
Georgia-Pacific Corp., 390 F.3d 158, 163-64 (2d Cir. 2004)
(affirming district court classification that “Wet Ones” is sug-
gestive as applied to individual pre-moistened towelettes).
Our analysis of these past precedents reinforces the principle
that appellate courts grant considerable deference to district
court trademark classifications. Indeed, we are aware of only
a handful of published opinions in the past forty years in
which a district court’s determination that a mark is sugges-
tive rather than descriptive was held to be clearly erroneous
on appeal. See Forum, 903 F.2d at 443-45 (reversing district
court’s classification of “Forum” as suggestive as applied to
business training programs); Security Ctr., Ltd. v. First Nat’l
Sec. Ctrs., 750 F.2d 1295, 1298-1300 (5th Cir. 1985) (revers-
ing district court’s classification of “Security Center” as sug-
gestive as applied to private storage facilities); Vision Ctr. v.
Opticks, Inc., 596 F.2d 111, 116-17 (5th Cir. 1979) (reversing
district court’s classification of “Vision Center” as suggestive
as applied to “a clinic providing optical goods and services”).
These few exceptions are entirely consistent with the maxim
that absent legal error we owe great deference to a district
court’s factual decision on whether a mark is distinctive. And
these cases mean more in establishing the boundaries between
the fact-finding trial courts and the appellate courts than they
do in establishing for all cases that a particular mark is dis-
tinctive or descriptive.
The district court determined that the Disputed Mark was
suggestive in part because the PTO had granted federal trade-
mark registration to the Arizona Mark, which like the Dis-
15248 LAHOTI v. VERICHECK, INC
puted Mark consisted solely of a design around the word
“Vericheck.” There can be no serious dispute with the princi-
ple that a federal trademark registration of a particular mark
supports the distinctiveness of that mark, because the PTO
should not otherwise give it protection. Registration alone
may be sufficient in an appropriate case to satisfy a determi-
nation of distinctiveness.5 See 15 U.S.C. § 1115(a) (stating
that PTO registration is “prima facie evidence of the validity
of the registered mark”); Retail Servs., Inc. v. Freebies
Publ’g, 364 F.3d 535, 542 (4th Cir. 2004) (“[T]he fact that a
mark is registered is strong evidence that the mark satisfies
the statutory requirements for the distinctiveness necessary
for trademark protection.”). Moreover, we agree with the dis-
trict court that the PTO’s registration of the Arizona Mark is
evidence of the Disputed Mark’s distinctiveness, given the
strong similarity between the appearance and purposes of the
Arizona Mark and the Disputed Mark.6 Deference to the
PTO’s classification decision is sensible because the PTO has
special expertise that we lack on this fact-intensive issue. See
Lone Star Steakhouse & Saloon, Inc. v. Alpha of Va., Inc., 43
F.3d 922, 934 (4th Cir. 1995) (“Given [the difficulty] in deter-
mining whether a mark is descriptive or suggestive, courts
have often given due regard to the determination of the Patent
and Trademark Office, which necessarily decides whether a
mark is descriptive or suggestive in its decision whether to
register the mark.”).
[6] Although the statutory presumption of distinctiveness
applies only when the mark holder’s own mark has been reg-
istered, courts may also defer to the PTO’s registration of
5
The PTO will also register a descriptive mark if it has secondary mean-
ing, but the PTO did not request a showing of secondary meaning from
the Arizona Company.
6
The Arizona Mark consists of the word “VERICHECK” inside a geo-
metric shape, and the mark was registered for use with “check verification
services.” The Vericheck mark consists of the word “VeriCheck” over a
checkmark, and the mark is registered in Georgia for “check verification
and check collection services.”
LAHOTI v. VERICHECK, INC 15249
highly similar marks. See Borinquen Biscuit Corp. v. M.V.
Trading Corp., 443 F.3d 112, 119-20 (1st Cir. 2006) (holding
that “the PTO’s acceptance of these other marks [containing
‘rica’] for registration supports the idea that ‘rica’ can be an
inherently distinctive term”); 2 McCarthy on Trademarks
§ 11:69 (“[T]hird party mark registrations may in some cases
support the argument that a designation is not descriptive. The
fact that the [PTO] registered a number of marks containing
the same designation without requiring proof of secondary
meaning is some evidence that the PTO considers the desig-
nation not descriptive.”). In particular, we agree with the
Fourth Circuit that nearly identical marks used for similar
products may be viewed in a common light when the PTO has
found one of them to be suggestive. See U.S. Search, LLC v.
U.S. Search.com Inc., 300 F.3d 517, 524 (4th Cir. 2002) (stat-
ing that the principle that a mark is suggestive because PTO
found a “nearly identical” mark to be suggestive “seems to
make some intuitive sense” when the marks describe similar
services).
[7] However, it should be noted that in some cases a series
of prior registrations is evidence of the descriptiveness of a
mark. As McCarthy explains:
[T]hird-party registrations of composite marks
including an allegedly descriptive term can be used
to help prove the descriptive nature of that term. For
example, introduction of many third-party registra-
tions for electronic products of marks with a
-TRONICS or -TRONIX suffix could be evidence
that those third parties and the public consider such
a suffix descriptive, such that there would be no
likely confusion between DAKTRONICS and TEK-
TRONIX.
2 McCarthy on Trademarks § 11:69. See also Cutter Labs.,
Inc. v. Air Prods. & Chems., Inc., 189 U.S.P.Q. 108 (T.T.A.B.
1975); McCarthy § 11:69 (“Another test of descriptive-
15250 LAHOTI v. VERICHECK, INC
suggestive connotations is to determine the extent to which
other sellers have used the mark on similar merchandise. That
is, if others are in fact using the term to describe their prod-
ucts, an inference of descriptiveness can be drawn.”). Lahoti
has made a version of this argument in this case, noting that,
in addition to the use of the Arizona Mark by one business,
a number of other businesses use a variation of the mark in
conjunction with check verification services. It will be for the
district judge to consider any such argument on remand.
[8] The PTO Appeal Board has cautioned that a third party
registration is not “determinative” of distinctiveness if cir-
cumstances have materially changed since the third-party reg-
istration or if the registration is distinguishable because it
combines one part of the disputed mark in that case with non-
descriptive terms. See In re Sun Microsystems, Inc., 59
U.S.P.Q.2d 1084, 1087-88 (TTAB 2001) (holding that third
party registrations of marks containing “beans” are not evi-
dence that “Agentbeans” was distinctive for software written
in the Java computer programming language because other
registrations “combine[d] ‘beans’ with what appear to be non-
descriptive terms,” and because “beans” had recently become
a popular term for a form of Java code). Here, by contrast, the
Arizona Mark and Disputed Mark are not just similar but are
identical in text, and both were registered for use with “check
verification services.” More importantly, the parties did not
present any evidence with regard to whether technological
changes impact whether the term “Vericheck” should be con-
sidered to describe or rather only to suggest “check verifica-
tion.” We conclude that the federal registration of the Arizona
Mark shows that the PTO thought “Vericheck” was distinc-
tive and not descriptive of “check verification services.”7 The
7
Lahoti argues that the federal registration of the Arizona Mark is
instead evidence that the Disputed Mark was not distinctive in 2003, when
Lahoti registered the Domain Name, because the Arizona company then
had the exclusive right to use the mark and, according to Lahoti, only one
of the two marks could be distinctive because they described similar ser-
LAHOTI v. VERICHECK, INC 15251
district court’s decision to rely on the third party PTO regis-
tration of the Arizona Mark for evidence that the Disputed
Mark is distinctive was legally proper and not clearly errone-
ous.
[9] Nonetheless, the district court based its decision that the
Disputed Mark was distinctive in part on reasoning that is
contrary to federal trademark law. Context is critical to a dis-
tinctiveness analysis. Whether a mark is suggestive or
descriptive “can be determined only by reference to the goods
or services that it identifies.” Rodeo Collection, Ltd. v. W.
Seventh, 812 F.2d 1215, 1218 (9th Cir. 1987); see also 2
McCarthy on Trademarks 11:64 (“[T]he mark BRILLIANT
may be ‘descriptive’ on diamonds, ‘suggestive’ on furniture
polish, and ‘arbitrary’ on canned applesauce.”). A related
principle is that a mark “need not recite each feature of the
relevant goods or services in detail to be descriptive.” In re
Dial-A-Mattress Operating Corp., 240 F.3d 1341, 1346 (Fed.
Cir. 2001).
[10] The district court erred to the extent it required that the
Disputed Mark describe all of Vericheck’s services to qualify
as “descriptive.” The district court reasoned that the Disputed
Mark does not “immediately call to mind the broad array of
electronic transaction processing services that Vericheck pro-
vides.” However, a mark does not have to meet this require-
ment to be found descriptive. The inquiry is “whether, when
the mark is seen on the goods or services, it immediately con-
veys information about their nature.” In re Patent & Trade-
mark Servs. Inc, 49 U.S.P.Q.2d 1537, 1539 (T.T.A.B. 1998).
vices. See 15 U.S.C. § 1125(d)(1)(A)(ii)(I) (stating that for liability under
the ACPA a mark must be “distinctive at the time of registration of the
domain name”). However, the federal registration of the Arizona mark
actually makes it more likely that the Disputed Mark is distinctive, and “a
third party’s prior use of a trademark is not a defense in an infringement
action.” Comm. for Idaho’s High Desert, Inc. v. Yost, 92 F.3d 814, 820
(9th Cir. 1996).
15252 LAHOTI v. VERICHECK, INC
The district court further erred when it reasoned that the Dis-
puted Mark could have described services that are unrelated
to those offered by Vericheck, such as baggage checking and
pre-employment background verification. The mark must be
evaluated as if it were “seen on the goods or services,” which
means the mark must be examined in the industry context
rather than in the abstract. See id.[11] The district court also misapplied the law by asserting
that “Lahoti improperly breaks down the mark into two com-
ponent parts, ‘veri’ and ‘check,’ in order to argue that con-
sumers will immediately presume that Vericheck provides
‘check verification’ services.” (Emphasis added.) Rather,
courts may analyze all components of the mark in determin-
ing whether those parts, taken together, merely describe the
goods or services offered. In re Oppedahl & Larson LLP, 373
F.3d 1171, 1174 (Fed. Cir. 2004) (“In considering a mark as
a whole, the [Trademark Trial and Appeal] Board may weigh
the individual components of the mark to determine the over-
all impression or the descriptiveness of the mark and its vari-
ous components.”).
In analyzing the compound “VeriCheck” mark, the district
court may therefore have broken the mark into “veri-” and
“check,” to “separately view the component parts as a prelim-
inary step on the way to an ultimate determination of probable
customer reaction to the composite as a whole.” 2 McCarthy
on Trademarks § 11:27; see also Bernard v. Commerce Drug
Co., 964 F.2d 1338, 1341-42 (2d Cir. 1992) (holding that “Ar-
thriticare” is descriptive of an arthritis medication by analyz-
ing “arthriti” and “care” separately); Telemed Corp. v. Tel-
Med, Inc., 588 F.2d 213, 217-19 (7th Cir. 1978) (holding that
“Telemed” is a descriptive mark by analyzing meaning of
“tele” and “med”). Even though the district court ultimately
analyzed the Disputed Mark’s component parts individually,
we cannot be sure that the district court, having earlier mis-
stated the law, properly accounted for those individual com-
ponents.
LAHOTI v. VERICHECK, INC 15253
[12] We conclude that the district court’s decision that the
“VeriCheck” mark was a distinctive, legally protectable mark
under the ACPA and federal trademark law was based in part
on reasoning contrary to federal trademark law and based in
part on reasoning that could support the district court’s con-
clusion. Accordingly, because the district court did not rely
exclusively on the proper legal standard, we vacate the judg-
ment to the extent it determined the Disputed Mark was dis-
tinctive. We remand to permit the district court to determine
whether the Mark is distinctive or descriptive taking into
account the principles that we have outlined here. See
Pintado-Isiordia, 448 F.3d at 1158.8
B
Lahoti contests the district court’s determination on sum-
mary judgment that he acted with “a bad faith intent to profit”
from the use of the Disputed Mark.9 15 U.S.C.
§ 1125(d)(1)(A)(i). We review the district court’s grant of
summary judgment de novo. JG v. Douglas Cty. School Dist.,
552 F.3d 786, 802 (9th Cir. 2008).
[13] “A finding of ‘bad faith’ is an essential prerequisite to
finding an ACPA violation,” though it is not required for gen-
eral trademark liability. Interstellar Starship Servs., Ltd. v.
8
Because we vacate the district court’s finding of distinctiveness, we
accordingly need not reach the issues of confusion, attorneys’ fees under
federal law, and attorneys’ fees under the WCPA.
9
The district court properly granted summary judgment on the issue of
Lahoti’s bad faith even though it later held a trial on the issue of trademark
distinctiveness. Although Vericheck must prove all the requisite elements
to recover under the ACPA, including distinctiveness, the district court
may render partial summary judgment on those facts, including bad faith,
not genuinely at issue. Fed. R. Civ. P. 56(d) & advisory committee’s note
(“The partial summary judgment is merely a pretrial adjudication that cer-
tain issues shall be deemed established for the trial of the case . . . and
likewise serves the purpose of speeding up litigation by eliminating before
trial matters wherein there is no genuine issue of fact.”).
15254 LAHOTI v. VERICHECK, INC
Epix, Inc., 304 F.3d 936, 946 (9th Cir. 2002). Evidence of bad
faith may arise well after registration of the domain name. See
Storey v. Cello Holdings, LLC, 347 F.3d 370, 385 (2d Cir.
2003) (“Congress intended the cybersquatting statute to make
rights to a domain-name registration contingent on ongoing
conduct rather than to make them fixed at the time of registra-
tion.”).
Congress has enumerated nine nonexclusive factors for
courts to consider in determining whether bad faith exists. See
15 U.S.C. § 1125(d)(1)(B)(i). “We need not, however, march
through the nine factors seriatim because the ACPA itself
notes that use of the listed criteria is permissive.” Virtual
Works, Inc. v. Volkswagen of Am., Inc., 238 F.3d 264, 269
(4th Cir. 2001). “[I]nstead, the most important grounds for
finding bad faith are the unique circumstances of the case
. . . .” Interstellar Starship, 304 F.3d at 946 (quotation omit-
ted). Congress has said that in evaluating bad faith, courts
may consider a person’s prior cybersquatting activities. See
15 U.S.C. § 1125(d)(1)(B)(i)(VIII) (providing that courts may
consider “the person’s registration or acquisition of multiple
domain names which the person knows are identical or con-
fusingly similar to marks of others that are distinctive”). Also,
Congress has provided a safe harbor for ACPA defendants
who “believed and had reasonable grounds to believe that the
use of the domain name was a fair use or otherwise lawful.”
Id. § 1125(d)(1)(B)(ii).
[14] Viewing the evidence in the light most favorable to
Lahoti, the record still supports the district court’s summary
judgment determination that Lahoti was motivated by a bad
faith intent to profit from his use of the Disputed Mark. Lahoti
never used the Domain Name in connection with a bona fide
offering of goods and services. Instead, Lahoti earned income
when customers clicked on links when visiting the Domain
Name website, some of which directed them to Vericheck’s
competitors. Lahoti then asked for as much as $72,500 to sell
the Domain Name to Vericheck even though Lahoti had no
LAHOTI v. VERICHECK, INC 15255
interests associated with the “Vericheck” name. Finally, it is
undisputed that Lahoti is a repeat cybersquatter who has reg-
istered hundreds of domain names resembling distinctive or
famous trademarks and has been admonished by judicial
bodies for doing so. Lahoti’s response is a vague objection
that the district court did not consider the facts in the light
most favorable to him. But even in this favorable light, Laho-
ti’s behavior shows “the sort of misconduct that Congress
sought to discourage” by enacting the ACPA. Virtual Works,
238 F.3d at 270.
[15] Lahoti argues that he is entitled to protection under the
bad faith safe harbor because he reasonably believed his use
of the Domain Name was lawful. See 15 U.S.C.
§ 1125(d)(1)(B)(ii). However, courts should “make use of this
‘reasonable belief’ defense very sparingly and only in the
most unusual cases.” Audi AG v. D’Amato, 469 F.3d 534, 549
(6th Cir. 2006) (quoting 4 McCarthy on Trademarks
§ 25:78)). Otherwise, the defense would “undermine the rest
of the statute” because “[a]ll but the most blatant cybersquat-
ters will be able to put forth at least some lawful motives for
their behavior.” Virtual Works, 238 F.3d at 270. We agree
with the Fourth Circuit, which, in affirming a summary judg-
ment determination of bad faith, has held that “[a] defendant
who acts even partially in bad faith in registering a domain
name is not, as a matter of law, entitled to benefit from the
[ACPA’s] safe harbor provision.” Id. As we see the record,
there is no genuine appellate issue on Lahoti’s bad faith. He
has made his cybersquatter bed and now cannot persuasively
challenge the district court’s conclusion that he must lie in it.
A different case might be presented if Lahoti had a genuine
business marketing service for which the Vericheck name was
an aid, but there was no credible evidence of that here, noth-
ing but his self-serving affidavit.10
10
Lahoti claimed that in the late 1990s he decided he “might start a busi-
ness to verify and secure online payments, checks, and credit.” The district
court rejected this testimony and found that Lahoti “has never used the
Domain Name in connection with the bona fide offering of goods or ser-
vices.” We see no clear error in the district court’s factual determination.
15256 LAHOTI v. VERICHECK, INC
[16] A reasonable person in Lahoti’s position—that is, a
reasonable person who had previously been declared a cyber-
squatter in a judicial proceeding—should have known that his
actions might be unlawful. Lahoti has previously advanced,
unsuccessfully, the same trademark defenses he argues here,
including the claim that the mark at issue was only descriptive
and that he is entitled to the safe harbor. Lahoti’s failed
defenses in these other cases make it unlikely that he legiti-
mately believed that his use of the Domain Name was wholly
lawful in this case. See Coca-Cola Co. v. Purdy, 382 F.3d
774, 788 (8th Cir. 2004) (rejecting the defendant’s safe harbor
defense because the defendant had previously been enjoined
in a prior Internet trademark case while advancing a similar
defense). Although Lahoti may have believed that Veri-
check’s Disputed Mark was descriptive, his use of the
Domain Name to link to Vericheck’s competitors and his
willingness to sell the Domain Name only for an exorbitant
profit are quintessential cybersquatting practices. Lahoti acted
at least “partially in bad faith” in gambling that the district
court would agree with his interpretation of trademark law,
and he knew or should have known that he would risk cyber-
squatting liability if his gamble failed. Virtual Works, 238
F.3d at 270. Lahoti is not entitled to the safe harbor. We
affirm the district court’s grant of summary judgment that
Lahoti acted in bad faith.
IV
Whether a mark is suggestive or descriptive is a fact-
intensive question that poses a difficult decision in many
close cases. It is a foundational point that we owe substantial
deference to the trier of fact on its decision, made after a trial,
as to whether a mark is merely descriptive, and not worth
trademark protection, or is instead suggestive, and able to
gain the benefit of trademark law. Yet where it is unclear
whether the district court properly applied the law in deter-
mining suggestiveness or descriptiveness, we may vacate the
judgment and remand with instructions to apply the correct
LAHOTI v. VERICHECK, INC 15257
legal standard. While the district court perhaps could have
relied exclusively on the registration of the Arizona Mark to
determine suggestiveness, it did not do so. Instead, the district
court improperly required that the Mark describe all of Veri-
check’s services, examined the Mark in the abstract, and con-
cluded that it could not analyze the Mark’s component parts.
Accordingly, we vacate the judgment and remand with
instructions for further proceedings not inconsistent with this
opinion.
In light of this conclusion, we need not assess the district
court’s conclusions that Vericheck established all other ele-
ments of its trademark infringement, ACPA, and WCPA
claims, and that Vericheck was entitled to attorneys’ fees
under the Lanham Act and the WCPA. However, we affirm
the district court’s conclusion reached on summary judgment
that Lahoti acted in bad faith.
Pursuant to Federal Rule of Appellate Procedure 39(a) and
Ninth Circuit General Order 4.5(e), each party shall bear its
own costs.
AFFIRMED IN PART, VACATED IN PART, AND
REMANDED.