MICHAEL GEIST
Thursday, September 7, 2000
Cyberlaw trademark issues tend to be dominated by domain name disputes. But the experience of Pro-C Ltd., a small software developer in Waterloo, Ont., illustrates that trademark confusion extends into the content of Web sites as well.
In a classic David-versus-Goliath action, Pro-C recently won a $1.2-million damage award from computer retailing giant Computer City as a result of a Web-based trademark infringement. In addition to the significance of the monetary award, the case provides an important lesson about several cyberlaw issues including Internet jurisdiction and electronic evidence collection.
The case began in 1994 when Pro-C purchased a software product called Wingen. The purchase included all rights to the product as well as Canadian and U.S. trademarks in the Wingen name. In 1996, Pro-C registered the wingen.com domain name.
In December, 1997, Computer City launched Wingen, a new PC, in the United States. The company promoted the new computer on its Web site and in traditional media outlets in the United States. They were sold only in stores and were not available in Canada.
Despite the fact that sales and promotion were limited to the United States, the effect on Pro-C was dramatic. Its Web site, which had previously averaged 36,000 hits a month, skyrocketed to over 150,000 visits each month. The company's e-mail system was inundated with support inquiries for the Wingen computer. As a result of this activity, the company's computer system began crashing and Pro-C was unable to effectively service its own clients.
Pro-C demanded that Computer City and its parent company Tandy Corp. cease its infringing activity by stopping their use of the Wingen name. Computer City eventually did, but not before Pro-C had received many client complaints and effectively lost control of its own trademark.
Pro-C proceeded to sue Computer City in Ontario for trademark infringement. It argued that Computer City's infringement of the Wingen trademark had caused severe damage and that compensation was in order.
An Ontario judge agreed, awarding the company $450,000 for the losses it incurred as a result of the activity, and $750,000 in punitive damages to deter conduct the judge described as "malicious, oppressive, and high-handed." The judge noted that Computer City had known that it might face legal consequences for its actions but considered the profit potential of using the Wingen name far greater than its potential legal liability.
In arriving at his decision, the judge dealt with several interesting cyberlaw issues that now form the basis for Computer City's appeal of the decision. Foremost was the question of jurisdiction -- can a Canadian court assert jurisdiction over trademark-infringing activity when the only strong connection to Canada is Web-based advertising?
The judge ruled that it can, noting that Canadians do not live in a media vacuum and that Web-based advertising contributes to the "presence" of the product in Canada. Canadian trademark law applies only to infringing use of trademarks within the country. Even though the servers weren't in Canada, the fact that the information was accessible to Canadians was sufficient to meet the statutory requirements.
This approach is at odds with the traditional passive-versus-active test for Internet jurisdiction that has been adopted by other courts in Canada and the United States. That test recognizes that a spectrum of activities occur on-line and that each must be individually examined.
At one end of the spectrum are "passive" Web sites that are largely informational in nature. Courts have adopted a hands-off approach to these sites, noting that they feature minimal interactivity by functioning much like an electronic brochure.
At the other end of the spectrum are "active" sites that feature significant interactivity by functioning as the on-line equivalent of a real-space store. Courts have repeatedly asserted their authority over such sites, arguing that site owners are aware of the risk of facing legal actions in multiple jurisdictions since they are doing business globally through the Internet.
In this case, the judge acknowledged that the Computer City site was passive in nature since it did not sell Wingen computers on-line. But he ruled that the site was an integral part of an overall Computer City presence in Canada and that the Ontario court could assert jurisdiction over the matter.
Of additional interest was the use of Web server logs as evidence in the case. The significant award of punitive damages is attributable in part to Computer City's awareness of the Wingen trademark before it launched its new line of computers.
How did Pro-C prove that Computer City was aware of its Wingen trademark? It pointed to its Web server logs that showed visits from the main Computer City domain immediately prior to the launch. This led the judge to conclude that the company was well aware of Pro-C and its trademark.
Michael Geist is a law professor at the University of Ottawa Faculty of Law specializing in Internet and electronic-commerce law. He can be reached at mgeist@uottawa.ca and on the Web at http://www.lawbytes.com.
