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Domain Name Conflicts in Germany — An Economic Analysis of the Federal High Court’s Recent Decisions

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Abstract

This article analyses three decisions of the German Federal High Court concerning the German country-code top-level domain ‘.de’ — mitwohnzentrale.de, shell.de and vossius.de. The analysis shows that the Court referred to economic criteria to justify its decisions in this field of law which is barely regulated by statutory law. The questions whether generic terms should be allocated to private persons as domain names (mitwohnzentrale.de) and whether courts should transfer domain names in the case of a conflict between two rightholders to the same domain name (shell.de and vossius.de) are analysed on the basis of economic criteria. The economic analysis of the first question offers two efficient solutions: (1) owners of generic domain names should be obliged to provide links to the websites of their competitors or (2) generic domain names should be administered by the official registrar, which should provide a portal for the whole branch of industry in question. The answer to the second question is that courts should engage in the transfer of domain names only in cases where bargaining between the parties fails due to a situation of bilateral monopoly with asymmetric information. If the courts decide to transfer a domain name, the original owner must be entitled to receive appropriate compensation.

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References

  1. Ott and Schäfer, ‘Emergence and Construction of Efficient Rules in the Legal System of German Civil Law’, International Review of Law and Economics (1993) p. 285 at p. 299.

  2. Federal High Court, 17 May 2001, ref. I ZR 216/99, BGHZ 148, 1; MMR (2001) p. 666; CR (2001) p. 777; WRP (2001) p. 836; NJW (2001) p. 3262; BB (2001) p. 2080; DB (2001) p. 2141; GRUR (2001) p. 1061; 24 EIPR (2002) p. N-31.

  3. Federal High Court, 22 November 2001, ref. IZR 138/99, BGHZ 149, 191; NJW (2002) p. 2031; GRUR (2002) p. 622; K&R (2002) p. 309; available at <http://www.bonnanwalt.de/entscheidungen/BGHIZR138-99.html> and <http://www.netlaw.de/urteile/bgh_13.htm>, last visited on 11 March 2003.

  4. Federal High Court, 11 April 2002, ref. IZR 317/99, NJW (2002) p. 2096.

  5. See WIPO Briefing Paper for the Joint ITU/WIPO Symposium on Multilingual Domain Names, Geneva, 6–7 December 2001, p. 4 ff, available at <http://ecommerce.wipo.int/domains/international/index.html>, last visited on 11 March 2003.

  6. The potential for conflicts is still rising because of the ubiquity of the Internet, which produces conflicts and collisions of enterprises on national markets that nobody was aware of a few years ago. See Mankowski, Comment, MMR (2002) p. 817.

  7. See Nielsen/NetRatings, ‘Global Internet Trends Report’, September 2002, at <http://www.nielsen-netratings.com>, last visited on 11 March 2003. The World Intellectual Property Organisation (WIPO) predicts further rapid growth of the Internet community, especially in Asia and Latin America.

  8. For a technical explanation of the DNS, see Koch, Internet-Recht (1998) p. 571 and J. Postel, ‘RFC 1591’ (Information Sciences Institute 1994) available at <http://www.denic.de/doc/rfc/domain/rfc1591.en.html>, last visited on 11 March 2003.

  9. Maggs, ‘The “.us” Internet Domain’, 50 American Journal of Comparative Law (2002), Supplement, pp. 297–318. For a preliminary version, see Law and Economics Working Paper No. 00-27, September 2001, available at <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=283908>, last visited on 2 July 2002.

  10. MMR aktuell, 2 MMR(2003) p. XII. The most popular TLD is the unrestricted generic TLD (gTLD) ‘.com’ with 21.9 million registered domains.

  11. For further information, see <http://www.icann.org/icp/icp-1.htm>, last visited on 11 March 2003.

  12. For further information on ‘.biz’, unrestricted for business entities, see <http://www.neulevel.biz>; ‘.coop’, for cooperatives, see <http://www.nic.coop>; ‘.info’, with unlimited registration, see <http://www.afilias.info>; ‘.name’, for natural persons, see <http://www.nic.name>; ‘.museum’, for museums, zoos, sights, etc., see <http://www.musedoma.museum>; ‘.aero’, for the aviation industry, see <http://www.nic.aero>; ‘.pro’, for attorneys, doctors and tax consultants, see <http://www.icann.org/tlds/>.

  13. See Wöhe and Döring, Einführung in die allgemeine Betriebswirtschaftslehre (2000) p. 576.

  14. Ullrich, ‘Der Schutz einer Unternehmens-Domain’, WM (2001) p. 1129.

  15. This can be easily illustrated with reference to a particularly successful branch of the Internet, namely, the erotica and pornography industry. In an American lawsuit concerning the domain <http://www.sex.com>, evidence was presented that the name was worth tens of millions of dollars, see Maggs, loc.cit. n. 9, at p. 10 (preliminary version). However, this is an exceptional case.

  16. Tim Schumacher, Thomas Ernstschneider and Andrea Wiehager, Domain-Namen im Internet (2002) p. 155.

  17. At present, there are 243 ccTLDs. They carry a two-letter country code derived from Standard 3166 of the International Organisation for Standardisation (ISO 3166). See <http://www.iso.ch>, last visited on 11 March 2003.

  18. See DENIC’s database at <http://www.denic.de/DENICdb/stats/index.en.html>, last visited on 7 March 2003. See also MMR aktuell, 3 MMR (2002) p. XII. The ‘.de’ ccTLD is the second biggest TLD on the Internet after ‘.com’.

  19. For further information, see <http://www.denic.de>, last visited on 11 March 2003.

  20. See Jens Bücking, ‘Liberalisierung im Vergabewesen deutscher Domainadressen? — DENIC und die “Essential Facilities”-Doktrin’, GRUR (2002) p. 27, which argues for access of competitors to the market of domain name registration in Germany.

  21. DENIC-‘Registrierungsrichtlinien’, see <http://www.denic.de/doc/faq/vergaberichtlinie.html>, last visited on 11 March 2003. The mathematically maximum possible amount of domains under the ‘.de’ ccTLD is approximately 5.7 × 1098 (an inconceivably large number, much higher even than the number of atoms in the universe), but since most domain names are not close substitutes, this large number does not help to avoid domain name conflicts.

  22. See supra notes 2, 3 and 4.

  23. See supra n. 2.

  24. Landes and Posner, ‘Trademark Law: An Economic Perspective’, Journal of Law and Economics (1987) p. 265 at p. 291, which cites ‘airplane’ and ‘computer’ as examples. Names of special services are also generic names.

  25. See Sosnitza, ‘Gattungsbegriffe als Domain-Namen im Internet’, K&R (2000) p. 209 at p. 216.

  26. Ibid.; MMR (2001) p. 666.

  27. Ott and Schäfer, loc. cit. n.1, p. 291 ff.

  28. Ibid., p. 291.

  29. See MMR (2001) p. 666 at p. 668.

  30. Ibid.

  31. WIPO, First WIPO Internet Domain Name Process (1998) p. 1, available at <http://www.wipo2.wipo.int/process1/report.index.html>, last visited on 11 March 2003.

  32. Ibid., p. 3.

  33. After a short period of legal uncertainty, the identifying function of domain names was also acknowledged by the German courts, see OLG Köln, CR 1999 p. 385 (herzogenrath.de); LG Düsseldorf, GRUR 1998 p. 159 at p. 162 (epson.de); OLG Dresden, CR 1999 p. 589 at p. 590 (cyberspace.de); LG Mannheim, K&R 1998 p. 558 at p. 559 (brockhaus.de); Fezer, Markenrecht (2001) § 3, n. 296 ff.

  34. See Landes and Posner, loc. cit. n. 24, at p. 266.

  35. Calabresi and Melamed, ‘Property Rules, Liability Rules and Inalienability: One View of the Cathedral’ 85 Harvard Law Review (1972) p. 1089, distinguishes between these two questions.

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  36. Ibid., p. 45 ff.

  37. Federal High Court, 17 May 2001 (ref. IZR 216/99), BGHZ 148, 1, 9; Rinkler, ‘BGH: Shell.de — Grundsatzentscheidung zu Domain-Namen’, 12 MMR (2001) p. V; Kleespies, ‘Die Domain als selbständiger Vermögensgegenstand in der Einzelzwangsvollstreckung’, GRUR (2002) p. 764 at p. 766. Some scholars regard a registered domain as a protected right sui generis — an opinion that is preferable from an L&E point of view, see Mankowski, Comment, MDR(2002) p. 47; Sosnitza, loc. cit. n. 25, at p. 211.

  38. Landes and Posner, loc. cit. n. 24, at p. 269.

  39. See Kahin, ‘Auctioning Global Namespace: A New Form of Intellectual Property, A New Vision of Universal Service’ (1996) p. 1, available at <http://www.ksg.harvard.edu/iip/cix.html>, last visited on 11 March 2003.

  40. See Landes and Posner, loc. cit. n. 24, at p. 273. The assumption of an infinite number of equally appropriate trademarks is very questionable as the marketplace widens. Carter provides reasonable arguments against this assumption, which he refers to as the irrelevant market assumption in ‘The Trouble with Trademark’, 99 Yale Law Journal (1990) p. 759 at p. 775. According to his Modified Irrelevant Mark Assumption, the elasticity of supply of lower-cost substitute marks varies as a function of the distance of the mark from the generic term.

  41. Rent-seeking in the field of domain name law is a well-known phenomenon. Domain squatters register the names of trademarks and famous persons to sell them later at a high profit. The problematic of cyber squatting (or domain grabbing) has been discussed extensively in the United States and in Germany. For more information, see Bottenschein, ‘Namensschutz bei Streitigkeiten um Internet-Domains’, MMR (2001) p. 286.

  42. See Landes and Posner, loc. cit. n. 14, at p. 275 ff. The model presented is inspired by the Landes-Posner trademark model.

  43. For a formal presentation of this model, see Baum, ‘The Allocation of Internet Domain Names — An Economic Analysis with regard to the Jurisdiction of the German Federal High Court’, German Working Papers in Law and Economics (2002) p. 20, available at <http://www.bepress.com/gwp/default/vol2002/iss1/art10>, last visited on 10 March 2003.

  44. If the website already provides sufficient information regarding the product and its attributes, further investment in its presentation will not significantly reduce the consumer’s search costs. This effect can be referred to as diminishing marginal returns of investment in the website.

  45. Carter, loc. cit. n. 41, at p. 772 comes to the same conclusion with regard to trademarks, which are not as valuable in relation to the transfer of information as others.

  46. In the car industry, for example, trademarks such as BMW or Mercedes-Benz will probably not be at a disadvantage in relation to a car producer that owns the domain auto.de.

  47. Maggs, loc. cit. n. 9, at p. 10.

  48. See supra section B.IV.

  49. See Renck, ‘Scheiden allgemeine Begriffe und Gattungsbezeichnungen als InternetDomains aus?’, WRP (2000) p. 264 at p. 268; Sosnitza, loc. cit. n. 25, at p. 215.

  50. See Kahin, loc. cit. n. 40, at p. 1; Maggs, loc. cit. n. 9, at p. 18. Maggs comes to the conclusion that the treatment of generic SLDs under ‘.us’ is ‘following the pattern of development of intellectual property in the United States in recent years — that of giving away the public domain free of charge to private interests’.

  51. After most of the present generic terms have already been registered, auctions still seem to be a good idea for new generic terms that are created by the emergence of new products and services. The term ‘mitwohnzentrale’ was created about 25 years ago with the emergence of flat-sharing agencies in Germany.

  52. See Wendlandt, ‘Gattungsbegriffe als Domainnamen — Marken- und wettbewerbsrechtliche Behandlung aus deutscher und US-amerikanischer Sicht’, WRP (2001) p. 629 at p. 643; Bücking, Comment, MMR (2001) p. 543 at p. 544; Renck, loc. cit. n. 50, at p. 267.

  53. The registrar should provide forms for this type of demand for a link on a competitor’s website, in order to reduce transaction costs. An alternative to using the courts could be the establishment of a panel of arbitrators that decides whether the demand for a link is justified. The WIPO arbitration (UDRP) has been quite successful in avoiding court procedures resulting from Internet domain conflicts, see Lucky, ‘Das Schiedsgerichtsverfahren der ICANN — Lösung der Domain Disputes?’ NJW (2001) p. 2527.

  54. This idea was developed by Prof. Dr. Claus Ott. As the courts could not define the general range for an appropriate fee, new potential for conflicts between the parties has been created.

  55. Prof. Fernando Gomez focused my attention on this point.

  56. Businesses applying for a link to the generic SLD would have to consent to the publication of the connection data in order to obtain the link.

  57. Hamburg Court of Appeals,13 July 1999, ref. 3 U 58/98, MMR (2000) p.40 ff; JurPC Web-Dok.34/2000, section 29, available at <http://www.jurpc.de/rechtspr/20000034.htm>, last visited on 11 March 2003.

  58. Ibid., section 35.

  59. Ibid., section 38.

  60. Ibid., section 39.

  61. Ibid., section 41.

  62. Ibid., section 43.

  63. Ibid., section 43.

  64. Renck, loc. cit. n. 50, at p. 267; Abel, Comment, MMR (2000) p. 610; Hoeren, Kurzkommentar, EWiR (2000) p. 193 ff; Sosnitza, loc. cit. n. 25, at p. 211; Thiele and Rohlfing, ‘Gattungs-bezeichnungen als Domain-Namen’, MMR (2000) p. 591.

  65. See supra n. 2, MMR (2001) p. 667.

  66. Ibid., p. 667.

  67. Ibid., p. 668.

  68. Ibid., p. 668.

  69. Ibid., p. 668.

  70. Ibid., p. 668.

  71. Ibid., p. 668.

  72. Ibid., p. 669.

  73. Hoeren, ‘Anmerkung’, MMR (2001) p. 669 at p. 671.

  74. See supra n. 2, MMR (2001) p. 668.

  75. Schäfer and Ott, Lehrbuch der ökonomischen Analyse des Zivilrechts, 3rd edn. (2000) p. 16.

  76. Renck, loc. cit. n. 65, at p. 267; Sosnitza, loc. cit. n. 25, at p. 216.

  77. See supra n. 2, MMR (2001) p. 668.

  78. Hoeren, loc. cit. n. 74, at p. 671.

  79. See Landes and Posner, loc. cit. n. 24, at p. 289.

  80. See Abel, ‘Generische Domains’, WRP (2001) p. 1426 at p. 1429.

  81. WIPO, loc. cit. n. 32, at p. 36, states: ‘It is not recommended that portals, gateway pages or other such measures be compulsory in the event of competing claims to common elements of an address, but users are encouraged to consider carefully the advantages of such measures as a means of finding a solution to a good faith shared desire to use common elements of marks as domain names.’

  82. See Eidenmüller, Effizienz als Rechtsprinzip (Tübingen 1995) p. 415.

  83. See supra n. 2, MMR (2001) p. 669.

  84. Kirchner, ‘The Difficult Reception of Law and Economics in Germany’, 11 International Review of Law and Economics (1991) p. 277 at p. 284, correctly states that the judiciary’s ‘factual power is much larger because it may develop the law along the lines stated by the legislature. In many fields of civil law, commercial law, and corporation law, the judiciary is heavily engaged in lawmaking praeter legem, sometimes even contra legem. So long as the constitutional court does not intervene, courts are free to invent new legal rules and doctrines’. Kirchner summarises the position of courts in Germany as ‘factually strong but conceptually weak’.

  85. Uniform Domain Name Dispute Resolution Policy, approved by ICANN on 24 October 1999, available at <http://www.icann.org/dndr/udrp/policy.htm>, last visited on 11 March 2003. See also WIPO Briefing Paper, loc. cit. n. 11, at p. 32 ff; Lee, ‘The Development of Arbitration in the Resolution of Internet Domain Name Disputes’, 7 Rich. J.L. & Tech. (2000), available at <http://law.richmond.edu/JOLT/v7i1/article2.html>, last visited on 11 March 2003; Lucky, loc. cit. n. 54, at p. 2527 ff. UDRP arbitration is also possible for domains under the following new TLDs: ‘.aero’, ‘.biz’, ‘.coop’, ‘.info’, ‘.museum’, ‘.name’ and ‘.pro’.

  86. See LG Hamburg, 1 August 2000, MMR (2000) p. 620 ff. (joop.de); LG Düsseldorf, 4 April 1997, WM (1997) p. 1444 (epson.de); Bücking, Namens- und Kennzeichenrecht im Internet (Domainrecht) (Stuttgart 1999) p. 70 ff.

  87. See supra n. 3.

  88. The defendant used the domain to advertise his translation and word-processing services before abstaining from commercial use of the domain during the trial in the second instance.

  89. See supra n. 3, NJW (2002) p. 2035.

  90. This is a consequence of the Zivilprozessordnung [German Civil Procedure Act], which makes the loser pay the court fees and the legal fees of the winning party even in very tough cases.

  91. See Palandt, ‘Bürgerliches Gesetzbuch’, 61st edn. (Munich 2002) § 12, at n. 26 ff.

  92. Recht der Gleichnamigen, see Palandt, loc. cit. n. 92, at n. 27.

  93. Calabresi and Melamed, loc. cit. n. 36.

  94. In general, see WIPO, loc. cit. n. 32, and WIPO, ‘The Recognition of Rights and the Use of Names in the Internet Domain Name System’, Report of the Second WIPO Internet Domain Name Process, 3 September 2001; available at <http://wipo2.wipo.int/process2/report/pdf/report.pdf>, last visited on 11 March 2003. For a critical approach to the strong development of trademark protection on the Internet, see Mueller, ‘Trademarks and Domain Names: Property Rights and Institutional Evolution in Cyberspace’, in Sharon E. Gillet and Ingo Vogelsang, eds., Competition, deregulation and convergence: Proceedings of the 26th annual telecommunications policy research conference (Mahwah, New Jersey 1999).

  95. WIPO, loc. cit. n. 95, executive summary.

  96. Bücking, loc. cit. n. 87, at p. 23 ff.

  97. Coase, ‘The Problem of Social Cost’, 3 Journal of Law and Economics (1960) p. 1 ff.

  98. See, for example, § 6 section 2 of the English translation of DENIC Registration Terms and Conditions, available at <http://www.denic.de/doc/DENIC/agb.en.html>, last visited on 11 March 2003: ‘The domain is transferable. DENIC will transfer the domain to a third party named by the Customer, if the Customer terminates the registration agreement and if the third party applies for registration. DENIC is entitled to refuse the application for registration, as long as a third party asserts the right on the domain towards DENIC (dispute entry).’

  99. See, for example, § 7 of the DENIC Registration Terms and Conditions.

  100. See for example, § 8of the DENIC Registration Terms and Conditions, ‘whois register’.

  101. In fact, many authors claim that the restraint of legislators with regard to regulating the Internet is one of the key factors in its rapid success. This view appears to be quite reasonable regarding private use of the Internet. For a prospering a commercial use with high monetary investments, however, the aspect of legal certainty grows more and more important. Regulation is necessary to attract and bind investment.

  102. See supra n. 54. The WIPO’s UDRP is available at <http://www.icann.org/dndr/udrp/policy.htm>, last visited on 19 March 2003. Critics think that the UDRP serves only materialistic interests. For further details, see <http://www.icannwatch.com>, last visited on 11 March 2003.

  103. Schmidtchen, ‘Time, Uncertainty, and Subjectivism: Giving More Body to Law and Economics’, 13 International Review of Law and Economics (1993) pp. 61, 77, which emphasises the importance of law as an aid to decision making that reduces secondary uncertainty.

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  104. The Internet service <http://www.sedo.de> offers value assessments for domain names, last visited on 10 March 2003. Regarding the important aspect of uncertainty and bounded rationality, see Schmidtchen, loc. cit. n. 104, at p. 74 ff.

  105. Internet businesses are in fact very different. Direct services (like translation services) will in fact yield a much higher revenue for every visiting user than content providers. A lot of big enterprises use their Internet presence only for public relations and advertising purposes. The individual value of a user viewing the firm’s website is very difficult to assess. Further research must be carried out to determine how big the difference between the valuations of a single visit to a commercial website might be.

  106. As the value of an Internet domain is strongly determined by its capacity to attract attention, the Coase Theorem will apply in most cases, and an increase in search costs will rarely be the outcome. The bargaining parties base their valuation of the domain on the consequences for the consumer’s search costs. If a new allocation can lower consumer search costs, the potential buyer will be willing to pay the domainholder for the transaction.

  107. Schmidtchen, loc. cit. n. 104, at p. 77 ff.

  108. Schäfer and Ott, loc. cit. n. 76, at p. 41.

  109. Pindyck and Rubinfeld, Microeconomics, 3rd edn. (1995) p. 352.

  110. ‘Shell’ is a rare name, as there not are many citizens and probably only one large company with this name in Germany. For a domain like schmidt.de or meier.de there would not be a bilateral monopoly, because many persons would probably be interested in purchasing this name.

  111. Pindyck and Rubinfeld, op. cit. n. 110, at p. 517.

  112. See supra n. 3, NJW (2002) p. 2034.

  113. Ibid.

  114. Ibid.

  115. Rinkler, loc. cit. n. 38, p. VI, states that it is still unclear according to which criteria the interests of conflicting rightholders have to be weighed. See also Strömer, ‘First come, first served: Keine Regel ohne Ausnahme’, K&R (2002) p. 306 at p. 309.

  116. See supra n. 105 (sedo.de). Determining the correct economic value of a domain name in dispute will always be an arbitrary task.

  117. The entitlement of large firms to use their trademark as a domain name is protected by a property rule, while the entitlement of private persons to use their name as a domain name is not protected at all if no compensation would be paid, not even by a liability rule (in the sense of Calabresi and Melamed, loc. cit. n. 36). This allocation of rights does not seem well balanced.

  118. See supra n. 4, NJW (2002) p. 2096.

  119. See <http://www.vossius.de>, last visited on 11 March 2003.

  120. See Weidert and Lührig, ‘Was hat Vossius, was Shell nicht hat und umgekehrt’, WRP (2002) p. 880.

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Baum, S. Domain Name Conflicts in Germany — An Economic Analysis of the Federal High Court’s Recent Decisions. Eur Bus Org Law Rev 4, 137–170 (2003). https://doi.org/10.1017/S156675290300137X

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