By JASON FRY and MEGAN DOSCHER
THE WALL STREET JOURNAL INTERACTIVE EDITION
January 28, 2000

One of the odder domain-name disputes in Internet history came to an apparent end this week as eToys Inc., the Santa Monica, Calif., online toy maker, dropped its lawsuit against etoy, a gaggle of online artists from Europe.

On the surface, it seemed like your typical domain-name fracas.

According to officials with eToys (www.etoys.com), late last spring the company began getting messages from site users who had mistakenly run across the freewheeling conceptual-art site run by etoy (for now, http://146.228.204.72:8080) -- a site that by all accounts included some profanity and pornographic images. EToys went looking for a way to resolve the situation, including offering to buy the etoy domain name, but its negotiations with the artists proved fruitless. So in the fall the online toy retailer turned to the courts, and in November it got a preliminary injunction forbidding etoy to use its domain name, claiming damage to its trademark.

If that sounds like a case of Web-pranksters tweaking a corporate nose, well, it's not that simple. See, etoy was formed in 1994 and registered its domain name in 1995 -- the Mesozoic era, in Web time. EToys, meanwhile, wasn't even formed until 1996 and didn't establish its Web site until the fall of 1997. EToys' case, apparently, was based on the fact that through an acquisition, the company's common-law rights to the U.S. trademark "etoys" dates back to 1990. (Etoy doesn't have a U.S. trademark yet -- though of course conceptual Web artists based on other continents rarely bother with such niceties.)

Etoy decided to treat the whole affair as the very kind of Web-art installation at which its artists excel. It retreated to a numerical Web address and spread the alarm about what eToys was doing. Etoy spoofed eToys on its own site, while members of the arts and Internet communities set up parody sites, bombarded eToys with e-mail, attempted to disrupt eToys' servers and blasted the company on newsgroups and Internet forums such as Slashdot (www.slashdot.org).

Shortly after Christmas, eToys threw in the towel. According to eToys spokesman Ken Ross, the company received a number of e-mail messages from members of the arts and Internet communities that "overwhelmingly urged us to find a way to co-exist with etoy." (One imagines those were the politer messages.) EToys, Mr. Ross says, decided that was indeed what it ought to do, and so eventually dropped the suit and agreed to pay up to $40,000 in legal fees incurred by etoy in exchange for the artists' agreeing to drop a countersuit.

Whatever the reason for it, eToys's capitulation brought exultation from etoy. In a press release, the artists celebrated "total victory for the etoy.corporation and the Internet community (which proved that the Net is not yet in the hands of e-commerce giants.)"

"It was a pleasure to do business with one of the biggest e-commerce giants in the world," etoy continued, no doubt cheerfully aware that the whole struggle had won the group publicity well beyond Web-dada circles.

The lessons of this are many -- and unfortunately, they're ones that are going to have to keep getting learned.

Law still needs to catch up with the Net.

Contrary to the rantings of the Net's obnoxious anarcho-geeks, the U.S. judiciary as a whole is not out to destroy the Net or incapable of "getting it." That was proved way back in 1997, when the Supreme Court eviscerated the Communications Decency Act and showed a considerable grasp of the subtleties of cyberspace in doing so. But it is true that a lot of legal precedents for the Net still need to be set -- particularly for the muddy intersection where domain names and trademarks collide. EToys's chasing etoy away from its domain name looks like classic corporate bullying, and the judge's decision feels unfair -- but eToys did have a legal leg to stand on (at least with one court) based on its trademark rights.

One can argue, of course, that eToys shouldn't have had such recourse, but the fact was that it did -- and it would be naive to expect eToys not to take advantage of it. Eventually, the laws will catch up and get settled -- but until they do, court decisions like the one granting the preliminary injunction against etoy will continue to be seen.

Internet pedigrees are no guarantee of "Internet behavior."

EToys is an extremely smart company that gets the Web, is fanatical about customer service, and understands that a bricks-and-mortgage heritage can in fact be a detriment for a company trying to become an e-commerce power. But that pedigree didn't stop it from behaving like any number of stupid companies that don't get the Web. Yes, a company has to protect its corporate reputation and be responsive to its customers' concerns. But at a certain point, it becomes disingenuous to wage legal war on behalf of customers who are too dim to tell the difference between a toy retailer's site and a Web-artist collective. (And if those customers were really so confused, how did they manage to communicate with eToys, anyway?) As eToys' battle with etoy unfolded, angry Internet users slammed the toy retailer as a corporate Goliath. That was odd, considering that eToys is younger than most mom-and-pop businesses, but it wasn't unfair -- if you don't want to get trashed as a dumb, lawyer-infested corporate lummox, don't act like one.

And the final lesson is most important of all: Beware the power of an Internet soapbox.

When will company lawyers figure out that the Internet has done a tremendous amount to level the playing field for lawsuits between Davids and Goliaths? Today, when the little guy is slapped with a threatening letter from a big company, he or she can set up Web sites and fire off e-mail messages and newsgroup postings sounding the alarm. Petitions and boycotts can spring up overnight and mushroom into public-relations disaster for an unsuspecting company.

Ask Archie Comic Publications Inc., which chose in 1998 to take on David Sams, a Los Angeles man who had reserved the domain name veronica.org to commemorate the birth of his daughter. The comic-book publishers sent Mr. Sams a cease-and-desist letter and asked Net registrar Network Solutions Inc. to freeze veronica.org. Three months later, the Sams family was making its case on the "Today" show. Or take Toys "R" Us Inc., which threatened Gus Lopez, a "Star Wars" collector who ran a popular collecting site at toysrgus.com. Lawyers for the bricks-and-mortar toy retailer demanded that Mr. Lopez not only give up the URL but also notify search engines that it no longer exists and dismantle any links to it. Well aware of the fact that hundreds of "Star Wars" sites linked to toysrgus.com, Mr. Lopez chose to fight, and Toys "R" Us was soon the target of petitions and a deluge of e-mail messages. Mr. Lopez is still happily ensconced at toysrgus.com.

The artists of etoy, if anything, had an even easier time of it: Their fight quickly became a cause celebre not only among artists but also among the Net's hardcore. (Though some of slashdot.org's causally challenged posters continue to fantasize that an extended plunge in eToys' stock price was related to the bad publicity, and not to problems such as order-fulfillment glitches and jitters over e-commerce profit margins.)

EToys maintains that it is "pleased with the outcome" of the affair -- and Mr. Ross says that "we said all along that our only interest was in mitigating confusion in the marketplace and we had hoped to do so amicably."

Why eToys should be pleased is a question, though. After all, nothing will have changed once etoy is again in residence at etoy.com, except for eToys's coffers being considerably lighter after paying two sets of legal fees. Nor has eToys apparently accomplished anything to ensure customers who can't type -- or think -- aren't confused by the two sites.

"We've got to be responsive to our customers and that's what we tried to do," Mr. Ross says -- and in fairness to eToys, it did concede defeat more graciously than many companies would have. But it would have been better off to heed the counsel of "crisis consultants" such as James Lukaszewski.

In a February 1999 interview in the wake of the spats over veronica.org and toysrgus.com, Mr. Lukaszewski offered a useful question for companies to ask themselves in evaluating potential trademark infringements online: Where are the victims? If the victims are confused customers, fine, go to war. But in many cases, he warned, the only victim may be the corporation. And in that case, he said, a company that chooses to proceed should ask a different question: "How embarrassed would you like to be, on a scale from zero to horrifying?"

That was good advice then, and good advice this summer, when eToys began a crusade it would have been better off forgetting about. And it will be good advice when the next company finds its lawyers carrying it headlong into a domain-name debacle.