Proving, once again, that business arrangements by handshake or loosely written contracts are a bad idea, two Dutch entrepreneurs found themselves arguing over who owns a domain name that is used to promote their e-cigarrette and smokers’ supply business.

Splitting Up the Business

The parties agreed to form a corporation in which they own equal shares. The business operates under the name XSMOKE and its web address is at the disputed domain name,  Despite the creation of this company, the Complainant filed a trademark application for XSMOKE and the Respondent registered the domain – each in their own personal names.  The troubles erupted when the Respondent decided he wanted out and refused to turn over the domain to the company unless his exit demands were met first.

Filing the UDRP

Since the company itself doesn’t own the XSMOKE trademark, the Respondent’s business partner named both himself (personally) and the company as joint Complainants in this dispute.  The Panel’s first task, then, was to determine if such consolidation of complainants was appropriate.

The Panel starts out by noting that the UDRP language does not provide for multiple complainants or respondents but refers to each in the singular.  Not be deterred, however, he points to the body of precedent (non-binding) that has been created from past UDRP decisions and found that this issue has come up in the past.  A seminal case on this issue held that consolidation of multiple complainants, in a single complaint, should be permitted if they have a truly common grievance against the Respondent and if it is equitable and procedurally efficient to consolidate.  One of the fact situations which support a common grievance is where the multiple complainants have a shared interest in a particular trademark.  This doesn’t mean that they have to be co-owners of the mark – one could hold a licensee from the other.

In this case, the individual Complainant is the owner of a significant share in the Complainant company and is also its CEO. Given the very close association between the two in relation to the registration and use of the XSMOKE trademark, the Panel found that a common legal interest exists.

Next, the Panel turned to the thorny issue of deciding who has superior rights to the disputed domain.

Who Prevails in the UDRP Dispute?

The  Respondent claims to have registered the domain prior to the creation of the Complainant company and prior to Complainant’s having obtained trademark rights to the XSMOKE name.  Nevertheless, the Panel found that:

  • The Respondent had no rights or legitimate interests in the domain apart from the company in which he owned shares.
  • Further, at the time he acquired the domain, the Respondent was fully aware of the company’s plans and did not act innocently. The fact that he set up the domain to resolve to the company’s website supports this.
  • Finally, certain correspondence between the parties provided further evidence that the Respondent actually had the intention to transfer the disputed domain name to the Complainant company but later refused to do so based on his separate commercial dispute with his business partner.

The Panel concluded that “the disputed domain name <> is more or less being taken hostage by the Respondent.”

In the end, the domain was ordered to be transferred to the Complainants.

The Takeaway

It goes without saying that many small business partners, either through ignorance, arrogance, or lack of funds, enter into arrangements without consulting a lawyer or drawing up a comprehensive agreement. I expect the majority of these situations never result in any sort of irreconcilable dispute.  However, when disputes do flare up, the expense of time and money to put in place a solid business agreement looks, in hindsight, like a rather inexpensive insurance policy. In this case, the business went up in smoke but the Complainant looks like it will be able to burn on for the foreseeable future.

Steve Levy

Steve Levy

Senior Advisor at FairWinds Partners
It can be difficult tackling domain name and social media infringement without the right expertise. Steve covers UDRP cases, URS cases, and all other acronyms and topics related to cybersquatting and usersquatting.
Steve Levy
UDRP Spotlight: Business Partner vs. Business Partner

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