Arbitration of Domain Name Disputes

On February 20, 2003, the Third Circuit decided that appeals of arbitration awards rendered under the Uniform Domain Name Dispute Resolution Policy (UDRP) are not subject to the lenient standard of appellate review afforded under the Federal Arbitration Act (FAA), but are instead subject to normal appellate review, provided that there is an underlying basis for federal jurisdiction in the form of a claim under the federal Anticybersquatting Consumer Protection Act (ACPA). Dluhos v. Strasberg, No. 01-3713 (3 rd Cir. Feb. 20, 2003).

The UDRP is a set of policies and agreements to which every domain name registrant is subject by virtue of the registration process. The UDRP provides that parties to disputes about domain name registration ownership may resolve such disputes by arbitration. The arbitration awards are "binding" in the sense that they are honored – absent an appeal or the commencement of litigation of the dispute in a court – by the "operators" of the Internet domain name system (the Internet Corporation for Assigned Names and Numbers, a/k/a ICANN, which has agreements with all the domain name registrars). Thus, they are not truly binding, final awards. Nor do they require both parties’ participation, since a defaulting party may set to have the dispute heard in a court after losing in arbitration.

In this case, an individual (Dluhos) registered the domain name <leestrasberg.com>, and the estate of the late acting coach filed a proceeding under the UDRP to obtain the registration. The Strasberg-related defendants went on to win an award of the registration for the domain name in the UDRP arbitration proceeding. Dluhos then filed a proceeding in federal district court to set aside the award. The court affirmed the arbitration award under the lenient standard applied under the FAA. Dluhos then appealed to the Third Circuit and argued, among other contentions, that the arbitration award was not subject to the extremely deferential review afforded under the FAA (i.e., partiality, corruption, misconduct, or manifest disregard of the law by the arbitrator(s)), but rather was subject to normal appellate review for erroneous application of the law.

The Third Circuit reversed and remanded, holding that the UDRP does not constitute true arbitration under the FAA, at least the type that statute contemplates, since its resulting awards are not truly final. The appellate court held, however, that the ACPA provided a basis for the federal court to retain jurisdiction and remanded to the state court. It did so despite the fact that the defendants had not plead a claim under the ACPA.

In our counseling of clients with domain disputes we have generally advised that domain names "worth fighting about" should be obtained via litigation due to the consideration by a court (or jury) and the finality it affords, since a losing party is likely to challenge a UDRP arbitration award if the domain name is valuable. In such a case, the inevitable litigation is simply delayed and made more expensive. This decision validates that advice. However, the UDRP process remains available and may be appropriate in certain cases, such as cyber squatting by offshore domain registration hoarders unlikely to challenge an unfavorable result. (Such cyber squatters are less likely to seek to set aside unfavorable UDRP awards because by doing so they would have to subject themselves to the jurisdiction of a court.)