From the Ninth Circuit Court of Appeals (and Eric Goldman’s always-excellent blog ) comes a cautionary tale of how not to handle a domain name.

First, don’t let an individual register your company domain name in his or her personal name. In DSPT Int’l v. Nahum,  the Founder of DSPT Int’l (”DSPT”), a clothing importer and distributor, brought in a Partner to help evolve the brand. Partner’s brother handled the Web site design and then registered the domain in Partner’s (but not the company’s) name. This became a problem for the company when Partner left to go to work for a competitor – and partner had the ability to (and, in fact, did) shut down DSPT’s heavily trafficked site.

Second, don’t hold the domain hostage in order to lever up your position in a business dispute. Here, Partner alleged that Founder and the company owed him several thousand dollars in commissions. Founder disagreed. Soon after Partner left, as the court noted, DSPT’s Web site “mysteriously disappeared.”

DSPT sued Partner, alleging, among other things, that Partner had violated the Anticybersquatting Consumer Protection Act (”ACPA” — which is part of the federal Lanham Act). At trial, partner testified that “he would transfer the domain to DSPT after [Partner] and DSPT were able to resolve the ‘monetary issues regarding [Partner’s] commisions.’” A jury found that Partner had violated ACPA and awarded DSPT $152,000 for lost sales and other damages. Partner appealed, seeking to overturn the jury verdict.

The question on appeal was whether Partner’s decision to hold the domain and Web site hostage constituted “registration or use”  with “a bad faith intent to profit from plaintiff’s mark” under ACPA. Partner argued his conduct was not prohibited by ACPA — that “he used DSPT’s mark to gain leverage over DSPT in bargaining for money he claimed he was owed, not to sell under DSPT’s mark or sell the mark to DSPT.”

The appeals court  affirmed the trial court  and ruled that Partner had violated ACPA. The court noted that while ACPA “was intended to prevent cybersquatters from registering well-known brand names as internet domain names in order to make the trademark owners buy the ability to do business under their own names,” the statute was, nevertheless, ”written more broadly than what may have been the political catalyst that got it passed.” As a result, the court ruled that “[i]t is bad faith to hold a domain name for ransom where the holder uses it to get money from the owner of the trademark rather than to sell goods.”