Tesco beats affiliate in domain name battle

Out-Law News | 10 Mar 2006 | 2:55 pm | 3 min. read

Tesco won a trade mark action on Wednesday against an affiliate company that tied to earn sales commissions from a suite of domain names such as tesco-diets.co.uk and tescodvd.co.uk which redirected visitors to the supermarket's website.

Elogicom became an affiliate of Tesco through a programme run by internet firm TradeDoubler. Elogicom had two websites, Avon4me.co.uk and Avonlady.co.uk, that carried ads for Tesco. Both sites were approved by Tesco for participation in the affiliate deal. So TradeDoubler tracked clicks on the ads and, when purchases resulted, Tesco paid a 2% commission to Elogicom.

But TradeDoubler's system allowed an affiliate to register additional domain names and list them under its account. So Elogicom registered numerous domain names, such as tesco2u.com, tesco2you.co.uk, tescojersey.com, tescodvd.co.uk, tescodiet.com, tescodiet.co.uk, tesco-diet.co.uk and other variations.

These names did not take visitors to Elogicom’s websites. Instead, they went directly to Tesco websites – and the traffic was duly credited by TradeDoubler as being generated by Elogicom. Accordingly, Elogicom was paid a cut of the sales.

Tesco was alerted when Elogicom's monthly commission entitlement jumped from £75.42 in April 2005 to £26,688 in May 2005. The latter sum was not paid out.

Tesco accused Elogicom of trade mark infringement and passing off and sought a transfer of the domain names. It went to court when Elogicom refused to comply. Elogicom counterclaimed, seeking payment of the commission.

Mr Philip Sales, sitting as Deputy Judge in the High Court, rejected the counterclaim on Wednesday. Instead, he granted Tesco a summary judgment and an injunction.

The ruling

The judgment does not suggest any promotion of the unauthorised domain names. Mr Sales reasoned that "Elogicom was seeking to benefit from use of domain names which incorporated the word 'tesco' by 'fishing' for persons browsing the internet who might be searching for goods or services provided by Tesco and, being unsure of the precise address for a Tesco website, might by guesswork enter in the address bars on their computers names closely associated with Tesco in the hope that those addresses would take them to the Tesco website they were searching for."

This so-called type-in traffic can be lucrative. Business 2.0 magazine profiled one domain name collector who claims to earn $2 million a year in ad revenue generated by people who guess a domain name rather than relying on a search engine. Marchex, a Seattle-based start-up, reckons type-in traffic accounts for nearly 10% of the global paid search market, valued at $9 billion last year.

Mr Sales ruled this week:

“By registering and making its 'tesco' related domain names available as pathways on the internet to Tesco websites with a view to generating income for itself in the form of commission, Elogicom did use in the course of trade a series of signs (those domain names) which were each similar to the trade marks registered by Tesco and were each used in relation to services (the provision of internet access to Tesco websites) identical with or similar to those for which the trade marks were registered, and in circumstances where there existed a likelihood of confusion on the part of the public, including the likelihood of association of Elogicom's service (the provision of internet access to Tesco websites) with the trade marks.”

Although Elogicom had not used its ‘tesco’ domains to direct consumers to websites competing with Tesco, and was not using them to sell goods or services of its own, it had infringed upon Tesco's trade marks.

“In my view, Elogicom took unfair advantage of the Tesco brand, reflected in its trade marks,” said the Judge.

He found that “the situation which Elogicom brought about would also fall to be regarded as detrimental to the distinctive character or the repute of Tesco's trade marks”.

Mr Sales rejected defence arguments that Elogicom’s use of the ‘tesco’ domains simply enabled web users to access the Tesco websites and that they were therefore used in order to identify goods and services – a defence under the Trade Marks Act.

“The use by Elogicom of the 'tesco' related domain names was not in accordance with honest practices in commercial matters and without due cause took unfair advantage of the distinctive character or repute of Tesco's trade marks,” he wrote.

He also rejected an argument that the dispute should have been resolved by using internet domain name dispute resolution procedures rather than by means of litigation. The dispute resolution procedures were an alternative to court proceedings, said Mr Sales, and did not exclude recourse to the courts.

Mr Sales then considered the issue of passing off – where a business is misrepresented in such a way that could damage its goodwill and reputation. He found:

“There is no doubt that Elogicom, by its registration and use of the 'tesco' related domain names, has sought to associate itself with and trade upon the considerable goodwill which attaches to the name 'Tesco' for the benefit of Tesco. There is also no doubt that Elogicom continues to threaten to make use the Tesco name, so damaging Tesco's goodwill, both by retaining those domain names with the option of starting to use them again at some point in the future and by virtue of maintaining their registration against Elogicom's name in the register.”

Finally Mr Sales dismissed Elogicom’s counterclaim for payment, ruling that the traffic generated by the firm amounted to ‘Artificial Traffic’, which is prohibited under the TradeDoubler affiliate agreement.