Puffery alive and well in TLD operator marketing – Fourth Circuit

Verisign, Inc. v. XYZ.COM LLC. Verisign sued XYZ for false advertising under the Lanham Act. XYZ’s ad campaign for it’s new top level domain “.xyz” included claims that there was a scarcity of .com domains. Verisign is the exclusive operator of the .com and .net domains and so was understandably not thrilled with this ad campaign.

The district court granted summary judgment to XYZ, and the Fourth Circuit affirmed.

This opinion is interesting because it provides a good primer on how domain operators work – and points out that 96% of all single dictionary word .com domains are taken.

The alleged false claims included:

  • Misleading registration figures in ads touting demand for .xyz domains because the figures included both paid and promotional giveaway registrations;
  • Suggesting that .xyz was the next .com;
  • Overstating the unavailability of .com domains:
    • “All of the good real estate is taken. The only thing that’s left is something with a dash or maybe three dashes and a couple numbers in it.”
    • “Did you know that 99% of all registrar searches today result in a ‘domain taken’ page?”
    • “nine out of ten .com searches show up as unavailable”
    • a 35-second YouTube video comparing a new Audi with a .xyz license plate to a dilapidated Honda with a .com plate, saying, “With over 120 million .coms registered today, it’s impossible to find the domain name that you want.”

A plaintiff asserting a false advertising claim has to establish that:

  1. the defendant made a false or misleading description or representation of fact in a commercial advertisement about a product;
  2. the misrepresentation is likely to influence the purchasing decision;
  3. the misrepresentation deceives or has the tendency to deceive a substantial segment of its audience;
  4. the defendant placed the false or misleading statement in interstate commerce; and
  5. the plaintiff has been or is likely to be injured as a result of the misrepresentation, either by direct diversion of sales or by a lessening of goodwill associated with its products.

XYZ won summary judgment handily at the district court. The district court held that the claim failed on the first prong. Verisign could not show that any of the statements complained of was false or misleading. The registration numbers, provably true. The “next.com” claim, not provably false. The unavailability claims all either opinion, puffery or not proved by Verisign to be false. Even if the claims were false, the district court added, there was no causal link to the alleged damages. Verisign advanced a theory of damages from diverted sales that relied on an expert the district court believed used unreliable methods pointing to correlation, not causation. The court also concluded that Verisign had failed to show any evidence of lessened goodwill.

The Fourth Circuit declined to review the truth of XYZ’s self-promoting statements on the registration numbers, looking instead only at the fifth prong: injury.

For support, Verisign rested on its expert, Lauren Kindler, who indeed opined that XYZ’s statements sapped Verisign’s profits by redirecting registrations away from Verisign’s .net registry. Relying on Verisign’s claim that XYZ’s false statements were the reason consumers signed up for .xyz domains, Kindler also suggested that Verisign was entitled to disgorgement of XYZ’s profits.

The district court, citing Daubert, concluded that Kindler’s methods were questionable and here conclusions unreliable. The Fourth Circuit provides a great summary of the conclusions, and the flaw therein:

Kindler concluded that Verisign lost approximately $527,000 in profits as a result of .xyz registrations diverted from .net. To arrive at that figure, she began by identifying a decline in registrations on the .net domain between June 2014 and May 2015 – the time period during which XYZ made the allegedly false statements at issue. She then attributed to XYZ a percentage of those lost registrations, based on .xyz’s market share of the new top-level domain market. Multiplying that percentage by what would have been Versign’s profits on the lost registrations, she arrived at her figure for lost profits. And Kindler followed a similar approach to calculating potential disgorgement damages, starting with the total registration fees XYZ collected during the relevant time period and subtracting various costs to find the total profits XYZ earned as a result of its alleged misrepresentation.

That analysis suffers from what we have identified as a “fatal flaw” in calculating Lanham Act damages: It assumes rather than demonstrates that every .xyz registration during the relevant time period was the result of XYZ’s allegedly false statements . . . Kindler’s report does show that Verisign experienced a drop in .net registrations after .xyz – along with other new top-level domains – became available, and while XYZ was making the statements of which Verisign complains. What it does not show, however, is anything other than a temporal link between XYZ’s statements and the drop-off in .net registrations – “correlation,” in the district court’s words, but not “causation.” And that is not enough under the Lanham Act, where the plaintiff bears the burden of proving a “causal link between actual damages and [the defendant’s] actions.”

Citations Omitted.

Without the expert opinion on damages, the claim failed to satisfy the fifth prong injury element.

XYZ had also argued that their statements on their blog should not even constitute commercial advertising or promotion covered by the Lanham Act – but the Fourth Circuit declined to consider that argument.

With respect to the statements regarding the unavailability of domains, the Fourth Circuit agreed that these were opinion or puffery.

Statements of opinion, rather than fact, cannot be the basis of a Lanham Act claim. And the Act does not reach what is known as “puffery” – “exaggerated advertising, blustering, and boasting,” or “vague” and “general claim[s] of superiority” – on the theory that no reasonable person would rely on such superlatives.

Like the district court, we think that XYZ’s statements concerning the availability of desirable .com names constitute opinion or puffery, not statements of fact on which reasonable consumers could rely. XYZ’s YouTube video claim that it is “impossible to find the domain name that you want,” we conclude, cannot be interpreted as a verifiable statement of objective fact. That is in part thanks to the indefinite nature of the referenced “you”: Whether an anonymous “you” can find the domain name of his or her choosing is not something that can be proven true or false. . . . [XYZ’s CEO’s] claim during his interview that “[a]ll of the good real estate is taken.” J.A. 593. As the district court explained, what counts as a “good” domain name is a matter of opinion, not fact. . . [Regarding his] next sentence – “The only thing that’s left is something with a dash or maybe three dashes and a couple of numbers in it,” . . . we read the two sentences together, and in context, we think that the overall message must be construed as one of subjective opinion: The available .com names are not “good” because they involve dashes and numbers. And while [he] may have exaggerated when he said that the “only [.com names] left” are of the dashes and numbers variety, that is precisely the kind of puffery or bluster on which no reasonable consumer would rely

Citations Omitted.

Finally, the statement that 99% of all registrar searches result in a “taken” page, unfortunately for Verisign, is provably true. Of the two billion searches Verisign receives each month for .com domains, fewer than three million are actually registered (less than 0.15%).

Accordingly, the Fourth Circuit sided with XYZ and affirmed the district court’s grant of summary judgement.