Piliero Mazza &
Pargament, PLLC

Vol. V, Issue 3
March 2000

An Update for Federal Contractors and Commercial Businesses


Electronic Commerce May Utilize Federal Anticybersquatting Consumer Protection Act

DOD Proposes DFAR Amendment to Address Exclusive Teaming Arrangements

Justice Department Issues Guidance for Criminally Charging Corporations




Electronic Commerce May Utilize Federal Anticybersquatting Consumer Protection Act

During the past several years, businesses have realized the numerous benefits of engaging in electronic commerce through use of the Internet. Many companies currently use "web pages" to describe and promote the services that they offer, and to facilitate the provision of their goods and services to consumers. In connection with such web sites, companies select specific addresses on the Internet which are known as "domain names." For example, Piliero, Mazza & Pargament's domain name for its new site is pmplawfirm.com.

Such increased selection and use of domain names, however, has led to a proliferation of intellectual property infringement known as "cybersquatting." Cybersquatting occurs when businesses select and register domain names that contain a trademark or service mark that belongs to a third party. As a result of this practice, consumers may be confused or deceived into believing that the web site associated with a particular domain name belongs to the rightful owner of the trademark when, in fact, the site belongs to a competitor. As a result, the rightful owner of the trademark may be deprived of business, or its goodwill may be tarnished due to this improper use of its intellectual property.

In response to this improper conduct, on November 29, 1999, Congress took a step to combat the theft of intellectual property rights by enacting the Anticybersquatting Consumer Protection Act ("ACPA" or the "Act"). The ACPA is designed to prevent the "bad-faith and abusive registration of distinctive trade and service marks as Internet domain names with an intent to profit from the goodwill associated with such marks." To that end, the Act allows for the imposition of civil liability if a person registers a trade or service mark that is identical or confusingly similar to a distinctive or famous mark belonging to another party. Specifically, such intellectual property infringement can result in cancellation or forfeiture of the domain name to the rightful owner of the mark, and can result in fines of up to $100,000 per domain name if a violation occurred after the passage of the Act.

In the first major case involving the Act, the United States Court of Appeals for the Second Circuit, which includes federal courts in New York, ruled that a company's use of the name "sporty's" in its domain name impermissibly infringed upon the registered trademark of another company. In so holding, the court found that, because the term sporty's was used in conjunction with the rightful trademark owner's catalogue of merchandising and advertising, the term satisfied the requirement of distinctiveness under the Act. The court also noted that, because the rightful owner had registered its trademark, the mark was entitled to a presumption that it was inherently distinctive.

The court also found that the domain name was confusingly similar to the plaintiff's protected mark, and the defendant engaged in bad faith with an intent to profit when it used the mark in its domain name. Specifically, the court noted that, among other things, the defendant's name was not sporty's, and the defendant used the name for commercial purposes, rather than for noncommercial activities.

As a result, the court ordered the defendant to forfeit the domain name to the plaintiff. The court did not award damages to the plaintiff, however, as its infringing activities began before the ACPA was enacted, thus precluding a monetary award. Nevertheless, the court noted that monetary damages may have been available to the plaintiff pursuant to other federal laws designed to protect intellectual property rights, including the Federal Trademark Dilution Act.

In light of the court's ruling, it is apparent that businesses now have another avenue available to them to enforce their intellectual property rights. In order to facilitate the enforcement of these rights, businesses should register their trademarks and service marks with the United States Patent and Trademark Office. In this way, they will be afforded the presumption that their mark is distinctive, and therefore may be able to successfully allege intellectual property infringement under the ACPA.



DOD Proposes DFAR Amendment to Address Exclusive Teaming Arrangements

In November, the Director of Defense Procurement published a proposed amendment to the Defense Federal Acquisition Regulation Supplement ("DFAR") to add a definition of "exclusive teaming arrangement" and to specify that certain exclusive teaming arrangements may evidence violations of antitrust laws.

Under the proposed DFAR amendment, an "exclusive teaming arrangement" occurs when "two or more companies agree, in writing, through understandings, or by any other means, to team together on a procurement and further agree not to team with any other competitors on that procurement." The proposed amendment goes on to state that an exclusive teaming arrangement can violate antitrust laws "if one or a combination on the team is the sole provider of a product or service that is essential for contract performance, and efforts to eliminate the arrangement are not successful."

During the comment period on the proposed amendment, several defense contractor organizations expressed a number of concerns. The Council of Defense and Space Industry Associations ("CODSIA") noted that the proposed amendment fails to provide guidance that would help either contractors or the government to distinguish exclusive teaming arrangements that are anticompetitive from those that are permissible. CODSIA pointed out that exclusive teaming arrangements are commonplace and that companies often form such arrangements for valid reasons, such as keeping proprietary information out of the hands of competitors.

The proposed amendment was published only a few months after guidance on the issue was issued by the Defense Contract Audit Agency ("DCAA"). In March 1999, the DCAA issued a guidance memorandum that was seen by some companies as determining that all exclusive teaming arrangements are anticompetitive and are therefore inherently unlawful. However, after industry representatives appealed, the DCAA revised the guidance memorandum in July to clarify that not all exclusive teaming arrangements are anticompetitive. The revised guidance memorandum stated that anticompetitive effects can result where the proposed supplier is the sole provider of a product or service or has unique capabilities. In such circumstances, the contracting officer can insist that such product, service, or capability be made available to other competitors. The DCAA, therefore, recommended that auditors notify contracting officers if they suspect that a contractor has an exclusive teaming arrangement with a proposed subcontractor so that the arrangement can be scrutinized for anticompetitive effects.

The proposed DFARS amendment incorporates similar language but leaves open a number of other issues of concern to contractors. One such concern is that it is unclear who will make the determination as to whether an exclusive teaming arrangement is anticompetitive. One comment suggested that "[a] requirement to report an exclusive teaming arrangement as a potential violation of law to the Attorney General should only be made after a formal determination of actual anticompetitive impact, and an opportunity to comment or challenge the determination should be provided to the affected company or companies." It was also noted that if competitive market forces are present such that other companies are able to compete, then the fact that there is a sole provider should not render the arrangement anticompetitive. Several comments suggested that more definitive criteria be provided to assist companies in determining whether an exclusive teaming arrangement is anticompetitive.

The Department of Defense is currently reviewing the comments received. A final rule is expected in the coming months.



Justice Department Issues Guidance for Criminally Charging Corporations

The Department of Justice ("DOJ") recently issued a guidance document to federal prosecutors entitled "Federal Prosecutions of Corporations." The guidance document, which was developed by an ad hoc group of U.S. Attorneys and federal lawyers compiled by the fraud section of the DOJ's criminal division, identifies eight factors that should be considered by federal prosecutors in determining whether to pursue criminal charges against a corporation.

The DOJ has emphasized that this document is designed to provide a "useful framework" for federal prosecutors to help them analyze their cases and make informed decisions on whether to bring criminal charges against a corporation. In other words, the document is intended to provide guidance to federal prosecutors, and nothing more.

Importantly, the document also provides guidance to corporations on how they can avoid situations in which they might be held criminally responsible. The eight criteria are summarized below.

Gravity of the Wrong. The nature and seriousness of the conduct is a rather obvious factor. However, the document also stresses that prosecutors should consult with DOJ divisions and regulatory agencies and take into account their "specific policy goals and incentive programs." For example, a criminal enforcement division may have leniency policies that may apply in certain situations.

Pervasiveness of Misconduct. The guidance states that prosecutors should also consider whether the conduct was condoned by the company's senior management, and how many employees were involved in the misconduct. The document points out that management's involvement in, or knowledge of, wrongdoing is important. It also suggests that, although corporate criminal liability can result from the wrongdoing of a low-level rogue employee, it is less likely if management maintains an environment that discourages employee misconduct. Corporations, therefore, are wise to implement and enforce meaningful compliance programs.

Criminal History. The document suggests that corporations that have failed to learn from past mistakes are more likely to be prosecuted. Therefore, a corporation's history of criminal violations, as well as civil enforcement actions brought against it, or even non-criminal warnings, will be considered. The criminal history of affiliates and subsidiaries will also be considered. Clearly, corporations with backgrounds that include these types of violations are at a greater risk of being prosecuted.

Disclosure and Cooperation. Whether the corporation voluntarily disclosed its misconduct in a timely manner, and whether it is willing to cooperate with investigators, are both significant factors. The document suggests that a prosecutor take into account "the corporation's willingness to identify culprits within the corporation, including senior executives, to make witnesses available, to disclose the complete results of its internal investigation, and to waive the attorney-client and work product privileges." Efforts to shield culpable individuals should weigh against a corporation, according to the document. Therefore, a corporation's promise of support for wrongdoers (e.g., payment of attorneys' fees, foregoing disciplinary action) may be considered by prosecutors. Needless to say, there are varying degrees of cooperation. The decision as to whether to cooperate with the government and/or support employees who are targeted as wrongdoers is inherently fact-specific and should be carefully reviewed with counsel.

Compliance Program. While the guidance document states that the existence of a corporate compliance program may play a significant role, it also emphasizes that the program should be enforced. In fact, the occurrence of criminal conduct despite the existence of a compliance program may itself show that the program is not being enforced. The document states that, in evaluating a program, important factors are whether the program is effectively designed to prevent and detect employee wrongdoing, whether staffing is sufficient to enforce the plan, and whether employees have been adequately indoctrinated on compliance procedures.

Restitution and Remediation. The document suggests that a corporation's willingness to make restitution and take other remedial action is a factor that will weigh against enforcement action. According to the guidance document, a corporation's response to misconduct "says much about its willingness to ensure that such misconduct does not occur." Accordingly, corporations should ensure that wrongdoing is promptly investigated and that appropriate disciplinary action is taken against wrongdoers.

Collateral Effects. The guidance document states that collateral harm to innocent employees, officers and shareholders is also an appropriate consideration. Prosecutors should also consider the potential for suspension and debarment of the corporation from federal contracts. The guidance states that the pervasiveness of the misconduct should be considered in determining whether adverse collateral effects will weigh against criminal enforcement.

Noncriminal Alternatives. According to the document, prosecutors should consider whether non- criminal alternatives are available, and if so, whether they will provide adequate deterrence, punishment and rehabilitation. The document points out, however, that non-criminal sanctions may be inappropriate for egregious violations or situations in which there is a pattern of wrongdoing.


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