by Brian Orsak

It came just in time for Christmas--one of those heartwarming stories where a big, Internet toy retailer sues a little art company for "trademark dilution" and posting pornography on its site. Yet this story has a twist. Pasadena, California-based eToys (Nasdaq: ETYS), which successfully lobbied for a Nov. 29 preliminary injunction that shut down the European art site etoy.com, is now facing growing criticism from an online P.R. offensive aimed at avenging the injunction.

The dispute began when eToys, which has a $6 billion valuation, began receiving "a number of complaints" from consumers who mistakenly left off the "s" in the company's domain name. Instead of finding the corporation's online store, Net wanderers found a site by a group of European online performance artists, known as etoy.com, who portrayed themselves as agents that lived on the Internet.

eToys, realizing that the site was potentially offensive to its consumers, filed suit against the art collective and, two weeks ago, was granted an injunction by a California Superior Court that suspended the offending site until the case goes to court tomorrow, Dec. 17.

Etoy.com and its supporters consider the ruling unfair because etoy.com registered the domain in 1995, two years before eToys.com registered its name.

The incident has since escalated into a veritable toy war. Approximately 20 "fan or resistance pages" have appeared on the Web, many asking sympathizers to boycott eToys, dilute eToys' message boards with disparaging appeals, or stage virtual sit-ins to shut down the site at its busiest time in retribution.

eToys and the California Superior Court justify the injunction in several ways. Although etoy.com first had the domain name, eToys.com filed for trademark rights to its name in May 1997. Etoy.com didn’t file until June 1997, in a registration that is still pending. The California-based corporation also accused etoy.com of indiscriminately obscuring its trademark, causing it to lose "any distinctive, signifying meaning," according to an eToys press release.

What has taken a primary role in the debate, despite marginal legal relevance, is the content of the etoy site. Net surfers stopping at the pre-injunction site could find pictures of the Oklahoma City bombing with the inscription, "Such work needs a lot of training" and a picture of nude female breasts pierced by acupuncture needles, entitled (according to a rough translation by etoy spokesman agent zai), "It is the same wind that pollinates the flowers that destroys the houses."

According to the eToys spokesman Johnathan Cutler, the corporation has a real interest "in protecting our core customers" from the site’s images.

zai also claims that eToys.com was aware of the group’s pre-existing domain name and wanted to obviate confusion by buying it. etoy.com refused. Composed of artists, musicians, media designers, and even a lawyer, the group has typically met online. The name "etoy" came from a computer program the group had written specifically to find a four-letter word to describe itself. The group then pasted the results of the name search in an IFC chat room.

"When ‘etoy’ appeared on the screen, everyone stopped and said, that’s it. That’s the name we wanted. It looks very short. It looks like a corporation," said zai. "Toy has a good feeling. It’s playful and it’s strange, but at the same time we act very serious. But at the same time we never meant it to mean electronic toy."

The group, however, feels strongly about retaining the domain name. As a pseudo-corporation that sells "stock" that can also function as a poster (which is, as of Nov. 29, illegal to buy in the U.S.), the group believes the ".com" is an integral part of its identity.

"etoy needs a corporate identity because it is not about individuals or genius artists. It is a brand and we work under a genius name. The point is that we started to work on this brand to show that things are changing in this world. Every company, every business, everyone is changing, so also the artists should change," said zai.

The case isn’t etoy’s first run-in with an U.S. authority. In 1996, the group claimed it was investigated by the C.I.A. for a now famous "digital hijacking" prank. The digital hijack, also mentioned in the injunction, caused search engines to give an etoy.com page precedence when someone entered any of the numerous and random parameter words, such as Playboy or David Bowie. Net surfers were greeted with a notice that they had been "hijacked." The project earned etoy the top prize at the 1996 Ars Electronica Festival, held in Austria every year.

Once merry pranksters of the Internet, etoy now feels victimized. zai claims that court costs and adjustments in sleeping schedules are wearing on the group. Ironically, zai says that the now-defunct site often received complaints from etoy fans who mistakenly added a "s" and, being confused by the eToys website, accused the art group of selling out.

According to etoy, coverage of the case has brought the group into contact with several lawyers who are willing to waive fees in order to help etoy win back the site. EToys’ failure to receive trademark approval may force the company to change its trademark dilution argument (or simply forget about it in the post-holiday season) when the case comes to court this Friday. Whatever the outcome, zai indicated etoy’s willingness to fight what they see as unfair corporate aggression.

"We will not stop until we get the domain back," said zai. "It may take 10 years."

Zentropy Partners’ aggregate revenues total over $50 million for 1999. Zentropy’s CEO Ryan Magnussen will serve as president of the Cambridge, Massachusetts-based company, but he will remain in Los Angeles, with stints on the East Coast. Magnussen will also head up an incubation group and manage the growth of Zentropy’s broadband/convergence studio, Zentertain.

"I think we kind of get the best of both worlds—the ability to become part of a global network, and L.A. will continue to be a major office," says Steve Voci, Zentropy’s chief marketing officer.

Zentropy Partners will compete with Alley-based agencies like Razorfish (Nasdaq: RAZF) and Agency.com (Nasdaq: ACOM) as well as consulting companies like Ernst & Young and Andersen, according to Voci. "I think we have a little different positioning—we’re focused on integrating the building and the marketing of digital businesses," he says.

Zentropy’s big-name clients, served out of the company’s Los Angeles and New York offices pre-Zentropy Partners, include Brooks Brothers, Coca-Cola, Dun & Bradstreet, General Motors, Johnson & Johnson, Lucent, Microsoft, Warner Brothers, PricewaterhouseCoopers, Royal Dutch/Shell, and Reebok International, among others.

Lucky for Zentropy, its new, larger form keeps its brand fairly intact. "On the website, one of the values/principles is to be sexy and buttoned-up. ‘Zentropy’ represents sexy, and buttoned up is represented in the ‘Partners’ name," explains Voci.

While it seems IPG is positioning Zentropy Partners for an IPO, Voci said he could not comment on the possibility, revealing only that "IPG is going to do what’s necessary to make sure the company is competitive."

HSX will use the cash to expand its popular stock market emulation game’s music and television coverage. The game substitutes famous actors, movies, and musicians for money, and stock values fluctuate based on the famed commodity’s popularity. HSX makes money by selling the information to third-party companies as market research, in addition to selling banner advertising and e-commerce.

Founded in 1995, the Santa Monica-based company estimates that over 400,000 people have registered for the game and over 800,000 people visit the site each month. Company spokesman Geoff Sherr says HSX plans to offer prizes that can be exchanged for virtual stock.

Last year, The Hollywood Stock Exchange raised $9 million in its first round of VC funding, primarily from Keystone Venture Capitalists.

The company recently signed a deal with CBS for a half-hour radio show based on its entertainment research. Co-founder and co-chairman Max Keiser currently appears on the NBC television show Access Hollywood once a week to talk about who’s hot on HSX; HSX is also featured on the Access Hollywood website.

Contact Geoff Sherr; 310-385-8530
http://www.hsx.com/

New York-based A&E Television Networks (AETN) has created a new interactive division and promoted VP of AETN Enterprises Thomas Heymann to oversee it. As senior VP and general manager of AETN Interactive, Heymann will "exploit opportunities in the Internet and interactive television markets," according to Whitney Goit, executive VP of AETN. AETN’s sites include Biography.com, AandE.com, and HistoryChannel.com. The company is also an investor in Genealogy.com, along with Hearst Interactive Media, Mattel, Thomas H. Lee Partners and Weston Presidio Capital.