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Court Says Forced Domain Name Transfer Is Allowed

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Sep 13, 2004 10:46 AM PDT    Text size: 
NEW YORK — A federal court has ruled that a transfer of domain name registration was appropriate against an Internet merchant that failed to comply with a court order even though no claims of cybersquatting existed.

The case involved defendant Otamedia Ltd., a Belize corporation operating out of Lugano, Switzerland, that sold gray-market cigarettes at its yesmoke.com and yessmoke.com sites.

The business, run by brothers Gianpaolo and Carlo Messina, reportedly grosses about $100 million in annual sales.

Otamedia’s mail-order Marlboros, Camels and Lucky Strikes cost as little as $14 per 10-pack carton, and have won over smokers fed up with paying $7 or more for a pack of heavily taxed U.S. smokes.

The case against Otamedia’s sale of gray-market cigarettes has wended its way through state and federal courts for years, finally landing in U.S. District Court.

Philip Morris, a unit of Altria Group, claimed that Otamedia sold cigarettes in the United States that were intended for the European market. The tobacco giant cited the Imported Cigarette Compliance Act of 2000, 19 USC §1681, and claimed trademark infringement, trademark dilution and unfair competition.

The court ruled for Philip Morris — manufacturer of Marlboro, Chesterfield, Parliament, L&M and Virginia Slims — and granted an injunction.

In its appeal on an injunction, Otamedia claimed that a very small proportion of its sales through the website involved shipments of Philip Morris cigarettes to the United States.

“The court finds, first, that Otamedia’s Internet business is devoted, almost exclusively, to selling cigarettes; second, that it sells a substantial percentage, and very likely a majority, of such cigarettes to customers located in the United States; and third, that a substantial percentage, and very likely a majority, of those cigarette sales consist of gray-market Philip Morris cigarettes and therefore violate the judgment,” Judge Gerald E. Lynch wrote.

Otamedia, which claims to be the largest online cigarette vendor, also said that seizure of its domain names would destroy its business and that an injunction is overbroad. However, the court found Otamedia continued to do business selling the cigarettes over the Internet despite the court order, saying its online sales constituted a very small portion of its business.

Later, the court found that Otamedia failed to comply with the court order. Lynch said the website was primarily being used to violate the original injunction and granted Philip Morris’s request for modification.

That modification last month included a request that the court order the registrar — Network Solutions Inc. of Herndon, Va., — to transfer ownership of the domain name registrations to Philip Morris.

The case is Philip Morris USA Inc. vs. Otamedia Ltd., No. 02 Civ. 7575.

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