Vacation Tours Inc. secures appeal against District Court ruling in favour of Palace Resorts on a Domain Name Suit

Date Published: Jun 21, 2021

Palace Holding, S.A. de C.V (“Palace”) is a Mexican corporation in the hospitality industry, which owns and operates hotels, resorts and spas and sells wedding, meeting and vacation packages. Palace Holdings holds registration for various trademarks related to the names of the hotels and resorts that the corporation operates. On February 1, 2016, Palace Holdings assigned the trademarks and entered into a licensing agreement with Heron to Palace Resorts, S.A. de C.V. Vacation Tours- operating as “Vacation Store of Miami” and “Vacation Store” which is a Florida Corporation which operates as a reservation referral service for hotels and resorts of Palace. The wholesaler relationship with Palace was later terminated. Media Insight Group, also a Florida Corporation, is the registrant of 40 domain names that allegedly infringe Palace’s trademarks. George A. Alvarez and Rosanna M. Mendez are officer/director(s) of Media Insight and Vacation Store (“Defendants”). Heron Development Corporation (“Heron”) is a Panamanian Company with its principal place of business in Panama City and is a wholesale commercial retailer of unsold resort inventory for 8 properties owned by Palace Resorts, which forms part of 13 marks registered by Palace Holdings. Heron Development holds an exclusive license to use certain trademarks owned by Palace for marketing and promoting the abovementioned resorts, and also enforce and protect the trademarks from dilution and infringement in the United States. After termination of the wholesaler agreement, Palace brought a suit against Vacation Tours in the United States District Court for the Southern District of Florida (“District Court”), claiming the effect of Anti- Cyber squatting Consumer Protection Act (“ACPA”), over the registration and use of 40 domain names, related to the Palace’s registered trademarks. The District Court, in granting summary judgement to Palace on this claim, also ordered Vacation Tours to pay statutory damages and determined that the case was “exceptional”, thus entitling Palace to attorney’s fees as well. Appealing against the same before The United States Court Of Appeals for the Eleventh Circuit (“Appellate Court”), Vacation Tours submitted that the district court made an error in adopting the magistrate judge’s factual findings, originally made in the context of deciding for preliminary injunction, since the evidence was weighed and the same is not done at the summary judgement stage. The Appellate Court accepted the submissions of Vacation Tours and ordered vacation of the summary judgement and final judgement, and remanded the case back to the District Court for further consideration. 

As on June 10, 2012, Vacation Tour and Palace Holdings entered into a wholesaler agreement, with specified rates and terms for booking rooms and other properties of Palace Resorts, through Vacation Tours and specified prohibition of unauthorised use or reproduction of Palace Holdings’ trademarks and infringement through domain names and ground for termination thereof. Soon after, Media Insight, functioning for Vacation Tour, began registering 40 domain names, which included the exact name or slight variation of the above listed Palace Holdings property. The websites with these domain names were designed to resemble authentic Palace Resorts’ websites to market its reservation referral business and sell travel services to consumers. All of this was effectuated by Vacation Tour without proper authorisation from, or affiliation with Palace Holdings. 

Basis the use of infringing domain names, in 2014, Palace Holdings’ terminated the wholesaler contract with Vacation Tour, who, on receiving a cease and desist letter from Palace Holding, did not comply therewith, but responded with a proposed domain names license agreement, seeking payment in exchange for transferring the impugned domain names, which was denied by Palace Holdings. Another cease and desist letter was issued to Mendez and Alvarez, stating several instances of consumer confusion resulting from the use of impugned domain names, the compliance which was refused by Vacation Tour. After termination of the wholesaler agreement with Vacation Tours, Palace Holdings entered into a licensing agreement with Heron Development Corporation, giving complete exclusivity of all related registered trademarks. In 2016, Palace Holdings assigned all of its rights, interests and obligation in the various registered marks, including the licensing agreement with Heron, to Palace Resorts. Therefore, Palace Resorts was impleaded as the Plaintiff and Palace Holdings retained the position of a necessary non-party.

Following all this, Heron introduced a seven-count action in federal district court against Defendants, basis the infringement through use of 40 domain names. Shortly after filing the lawsuit, Heron moved for preliminary injunction on all counts, in order to prohibit the defendants from using Palace’s trademarks on their websites and using infringing domain names therefore. The Defendants contended the same basis certain e-mail exchanges between them and Palace, which were eventually ruled out by the magistrate judge, in their Report & Recommendation (“R&R”), post evidentiary hearing, stating that the Defendants had violated the ACPA. The magistrate judge also found the domain names to be confusingly similar and basis this, recommended the district court to enjoin defendants from registering the impugned domain names and forward the traffic on the defendant’s website back to the appropriate Palace websites. The District Court eventually adopted the magistrate judge’s R& R and allowed a preliminary injunction. The Defendants appealed the order granting preliminary injunction as well, but a separate panel of the District Court dismissed the appeal as moot, since the District Court had entered final judgement. 

In moving for summary judgement, basis one of the counts, Heron alleged cyber squatting in violation of the ACPA. This was contended by Defendants on four reasons:

• first, challenging Palace Resorts’ ownership of the marks; 
• second, Defendants stating that the license agreement between Heron and Palace Resorts is a “naked license” or fails to contain quality control provisions;
• third, Defendants stating that the assignment of marks was an invalid “assignment in gross”; 
• Fourth, Defendants stating that Palace Resorts abandoned the marks by failing to use them in commerce.  

The reasons failed as follows: 

• first; Defendants failed to provide sufficient evidence in support of argument; 
• second, Defendants missed the mark in substantiating lack of quality control within Heron’s use and propagation of Palace Resorts’ marks; 
• third, it was observed that the use of assigned trademarks by Palace Resorts and Palace Holdings was exactly similar in selling products and services assigned thereto and thus, presented no risk of invalid “assignment in gross”, as stated in Purity Cheese Co. v. Frank Ryser Co. , 153 F.2d 88, 90 (7th Cir. 1946) (“A trade-mark may be assigned, licensed, or lent, as long as it remains associated with the same product or business with which it has become associated in the public mind . . . .''); 
• Fourth, it was clearly established by Palace Resorts that the marks assigned to them satisfy the “use in commerce” by using said marks to advertise and sell hotel services to U.S. customers over the internet. 

In concretising their claim of cyber squatting, Palace Resorts further went on to prove the four elements through evidence: (1) Defendants registered, trafficked in or used domain names; (2) which are identical or confusingly similar to marks owned by Palace Resorts; (3) the marks were distinctive at the time of registration of domain name by Defendants; and (4) the acts were committed with bad faith intent to profit from Palace Resorts’ mark. Having established sufficient evidence for all the above, the District Court granted the motion for summary judgement on count of cyber squatting. The Court also observed that the Defendants had raised affirmative defences, but since no additional evidence since the issuance of R&R was offered by the Defendants, the District Court adopted the Magistrate Judge’s earlier findings of fact. The Plaintiffs, being Heron and Palace Resorts, then jointly applied to dismiss all other claims, which the District Court granted. 

On suggestion by Palace, the District Court determined that remaining issues be proceeded to bench trial on briefs alone and instructed the parties to submit trial briefs basis (1) Palace’s request for a permanent injunction in transferring infringing domain names to it; (2) entitlement of Palace to statutory damages under 15 U.S.C. § 1117(d), and (3) whether the case be considered “exceptional”, under r 15 U.S.C. § 1117(a), to award attorneys’ fees and costs. The District court, after considering the parties’ briefs, entered final judgement ordering the Defendants to transfer the infringing domain names, awarded Palace $400,000 as statutory damages and considering the case to be “exceptional”, granting Palace attorney’s fees as well. The District Court, however, did not grant a permanent injunction. 

The Defendants filed an appeal against the final judgement and order of the District Court, on the grounds that the Court erred in granting summary judgement to Palace on Count I, since the Court adopted and considered only the Magistrate Judge’s findings of fact, as presented in the R&R, and was made after weighing the evidence presented at preliminary injunction stage. The Defendants argue that by relying on the Magistrate Judge’s findings, the District Court violated the summary judgement standard, which prohibits the weighing of evidence at summary judgement stage. “Making credibility determinations, weighing the evidence, and drawing legitimate inferences from the evidence are functions of the ultimate finder of fact and not of a judge ruling on a motion for summary judgment”, was quoted, as given in Strickland v. Norfolk S. Ry. Co., 692 F.3d 1151, 1154 (11th Cir. 2012). As was given in the order of the District Court, the conclusion was arrived at, basis: “[b]ecause [those] determinations apply with equal force today, Defendants’ affirmative defences fail”. 

The Appellate Court observed that although the District Court’s adoption of the R&R findings of fact was entirely appropriate at the stage of deciding motion for preliminary injunction, it was wrong to implement the same in granting summary judgement. Therefore, it was concluded by the Appellate Court that the District Court erred in granting summary judgement and therefore, the summary judgement and the final judgement of the District Court, in favour of Palace is vacated in its entirety and is remanded for further proceedings. 

Heron Development Corp. v. Vacation Tours Inc. Case number: No. 19-10784