## Facts

- VeriCheck, Inc. provided electronic financial transaction services and used the mark VERICHECK in commerce, operating online at vericheck.net.
- In 1999, VeriCheck unsuccessfully attempted to obtain the domain vericheck.com from a third party.
- In 2003, David Lahoti registered vericheck.com, asserting he was registering “veri-” domains for anticipated ventures.
- The district court found Lahoti registered over 400 domain names associated with well-known marks and used vericheck.com to divert traffic and redirect users to VeriCheck’s competitors.
- Lahoti attempted to sell vericheck.com to VeriCheck for a substantial sum (including an asserted demand of $72,500) and did not develop a bona fide business under the domain.
- After VeriCheck prevailed in a UDRP arbitration ordering transfer of the domain, Lahoti filed a federal declaratory-judgment action asserting no Lanham Act violation.
- VeriCheck counterclaimed for trademark infringement (Lanham Act), cybersquatting (ACPA), and violations of Washington statutory and common law.
- The district court entered judgment for VeriCheck, finding VERICHECK inherently distinctive, finding ACPA bad faith, and awarding injunctive relief, statutory damages, and attorneys’ fees.

## Issues

1. Whether the district court applied the correct legal framework in concluding that VERICHECK is inherently distinctive (and thus protectable) for purposes of Lanham Act and ACPA claims.
2. Whether the district court clearly erred in finding Lahoti had the “bad faith intent to profit” required for liability under the ACPA.

## Decision

- Affirmed the district court’s finding that Lahoti acted with bad-faith intent to profit under the ACPA.
- Vacated the judgment to the extent it rested on the determination that VERICHECK is distinctive/protectable.
- Remanded for reconsideration of distinctiveness using the proper legal standards.
- Disposition: affirmed in part; vacated and remanded in part.

## Legal Principles

- Trademark distinctiveness is assessed on the spectrum of distinctiveness (generic, descriptive, suggestive, arbitrary/fanciful) and must be evaluated in relation to the particular goods or services at issue.
- A mark may be descriptive if it immediately conveys a significant feature or characteristic of goods or services; a mark is suggestive if understanding its meaning requires imagination, thought, or multi-step reasoning.
- Courts may consider component terms within a composite mark when determining whether the composite is descriptive or suggestive.
- PTO registration without proof of secondary meaning can be evidence supporting inherent distinctiveness, but it does not substitute for a correct distinctiveness analysis.
- Under the ACPA, liability requires a bad-faith intent to profit and registration, trafficking in, or use of a domain name confusingly similar to a distinctive or famous mark; bad faith is determined using nonexclusive statutory factors and the totality of circumstances.
- Evidence supporting ACPA bad faith includes a pattern of registering domains corresponding to known marks, lack of bona fide offering of goods or services, diversion of consumers to competitors, and attempts to sell the domain to the mark owner for an inflated price; asserting a legal theory about nonprotectability does not negate bad faith where the defendant intentionally took the risk.

## Conclusion

The Ninth Circuit upheld the finding that Lahoti acted in bad faith under the ACPA based on his pattern of mark-targeting registrations, diversionary use, and sale attempt, but vacated and remanded the distinctiveness ruling because the district court’s analysis contained legal errors in determining whether VERICHECK was descriptive or suggestive.


Lahoti v. VeriCheck, Inc., 586 F.3d 1190 (9th Cir. 2009)