Another David fells a Goliath; will e-lummoxes ever learn?

Another David fells a Goliath; will e-lummoxes ever learn?



TECH WEEK By Jason Fry and Megan Doscher THE WALL STREET JOURNAL


Jan. 28 — 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.


		Firms run risk of a backlash in battles over domain names (Feb. 11, 1999) More technology news from The Wall Street Journal. eToys etoy Slashdot

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.

ON THE SURFACE, it seemed like your typical domain-name fracas.
According to officials with eToys, late last spring the company began getting messages from site users who’d mistakenly run across the freewheeling conceptual-art site run by etoy — 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.
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.

ARTISTS EXULT
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.”

PROTECTING DIM CUSTOMERS
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’d 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 there’s a final lesson that’s 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 between lawsuits’ 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’d 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.)

GRACIOUS IN DEFEAT
EToys maintains that it’s “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’ll be good advice when the next company finds its lawyers carrying it headlong into a domain-name debacle.

HARDWARE AND SOFTWARE
Grupo Sanborns SA said it would buy the 85% portion of CompUSA Inc. it doesn’t already own for $10.10 a share, or about $800 million. The personal-computer retailer’s stock surged 32% on the news (see article).

A federal judge reinstated an injunction against Microsoft Corp., preventing it from tinkering with Sun Microsystems’s Java programming language (see article).
Seagate Technology Inc. agreed to pay Rodime PLC $45 million to settle a patent-infringement lawsuit (see article).
Microsoft Corp. reached pacts with Intertainer Inc. and Liquid Audio Inc. to supply content for personal computers and TV set-top boxes that use Windows media technologies (see article).
Personal-computer shipments grew at a slower pace in the fourth quarter, two research firms said, raising the prospect of cooler world-wide sales this year. Dell Computer Corp. held its lead in the U.S. (see article).
Legato Systems Inc. and Ontrack Data International Inc. called off the $134 million merger they announced in November, after Legato posted fourth-quarter earnings that fell far short of expectations last week (see article).

INTERNET AND ONLINE
Walt Disney Co. plans to reposition its Go.com site as an entertainment and leisure destination, after struggling to challenge Yahoo!, AOL and others as a general-interest portal (see article). Separately, an appeals court ruled Go.com must drop its green traffic-light logo pending full trial of the trademark-infringement suit it faces from GoTo.com (see article).
Chinese authorities vowed to crack down on any Internet companies leaking state secrets, marking the latest sign of government unease over the free-wheeling sector (see article).
Healtheon/WebMD Corp. confirmed its agreement to buy the Envoy Corp. unit of Quintiles Transnational Corp. for $2.68 billion, a deal that would make it the largest electronic processor of medical claims (see article).
Ask Jeeves Inc. agreed to acquire closely held search engine Direct Hit Technologies Inc. for about $507 million in stock (see article).
The co-founders of theglobe.com, Stephan Paternot and Todd Krizelman, said they plan to resign as co-chief executives of the struggling Web community (see article).
MP3.com Inc. faces a suit from 10 record companies alleging that their music copyrights are being violated by the firm’s new digital-music services (see article).
Ziff-Davis Inc. announced it is spinning off its ZDNet Group Internet arm into an independent public company. It is also in serious discussions to sell off its events business, the company said (see article).
StarMedia Network Inc. has lured two high-profile Brazilian business-people to lead the day-to-day operations of the company, including the former head of America Online Inc.’s Brazilian service (see article).
USA Networks Inc. is expanding its presence in online retailing by taking a majority stake in Web retailer Styleclick.com Inc. for cash and assets valued at about $500 million (see article).
CMGI Inc. formed a joint venture with Pacific Century CyberWorks Ltd. to create and operate Internet-related businesses in the Asia-Pacific region (see article).
Telecommunications and Cable
Qualcomm Inc. agreed to buy Snaptrack Inc. for about $1 billion and said it would add Snaptrack’s position-location technology to cell-phone chips (see article). Separately, Qualcomm warned that sales of its phones and chip sets may slip (see article).
Bell Atlantic Corp. and GTE Corp. filed a plan to split off GTE’s Internet backbone in a bid to speed merger approval (see article).
BroadVision Inc. agreed to buy Interleaf Inc. for $851.6 million in stock, part of its move to deliver e-commerce software for the Web and wireless devices (see article).
C. Michael Armstrong, AT&T Corp.’s chairman and CEO, collected a 1999 salary and bonus of $3.7 million, slightly higher than what he received in 1998 (see article).

EARNINGS
AT&T Corp. met its revenue targets for the fourth quarter and year, but net was pulled down 42% on cable investments to deliver phone and Internet service. The company set an April date for an initial public offering of its wireless unit (see article).
Compaq Computer Corp. said fourth-quarter net fell 56%, despite a gain from selling investments. The results met forecasts (see article).
Computer Associates International Inc. posted stronger-than-expected quarterly profit on strong demand for its e-commerce software and services (see article).
Corning Inc. said its sales and profit rose substantially, helped by booming demand for its optical equipment used to expand the carrying capacity of the Internet (see article).
Dell Computer Corp. warned that fourth-quarter earnings will miss forecasts and that sales growth is likely to slow this year (see article).
EBay Inc. said fourth-quarter net income rose 85%, as revenue more than doubled, and the online-auction firm said revenue growth may exceed current estimates by about 10% (see article).
EMC Corp. reported profits exceeded expectations but the computer-storage maker’s shares fell on fears of increased competition and a slowdown in growth (see article).
Telefon AB LM Ericsson reported 1999 pretax profit dropped 10% to $1.89 billion, beating analysts’ expectations. The Swedish telecom company also gave a bullish outlook for 2000 (see article).
EToys Inc. posted a wider quarterly loss, but excluding one-time items, the online retailer met Wall Street estimates with strong holiday sales (see article).
GTE Corp.’s earnings rose 18% in the fourth quarter, helped by growth in the phone company’s wireless and Internet businesses. The results matched expectations (see article).
Hewlett-Packard Co. released a breakdown of its earnings by business segment for the first time, revealing that its computer business accounts for less than 25% of its operating profit (see article).
Lexmark International Group Inc. said fourth-quarter earnings grew 22%, as the popularity of low-priced personal computers stoked demand for the company’s ink-jet printers (see article).
Nortel Networks Corp. reported a 53% jump in fourth-quarter earnings from operations, beating analysts’ estimates and prompting plans for a stock split (see article).
Priceline.com Inc. said revenue rose nearly ninefold in the fourth quarter and set a $1 billion sales target for this year. The company posted a deep loss, however (see article).
RealNetworks Inc. topped analysts’ estimates with its second-consecutive profitable quarter and announced it has acquired Netzip, a maker of download-management software, in a $268 million stock deal (see article).

SAP AG’s earnings rose 14% last year, but were weighed down by spending on the software company’s employee-incentive program and a delay in the release of Internet software (see article).
Silicon Graphics Inc. reported operating net income that met analysts’ expectations as revenue slipped 5% (see article).
Sony Corp. reported group net profit fell 17% to $881.6 million in its fiscal third quarter as the company continued to suffer from the effects of a stronger yen (see article).
Taiwan Semiconductor Manufacturing Co. reported fourth-quarter net profit rose 229% to $270 million from the same period a year earlier as wafer shipments hit a record high (see article).
Tellabs Inc. posted fourth-quarter results in line with Wall Street’s expectations, but its shares tumbled after the telecommunications-product maker warned that first-quarter earnings will fall short of estimates (see article).
Texas Instruments Inc. said fourth-quarter profit more than doubled as sales rose sharply for the semiconductors it makes for wireless phones and digital music players (see article).
Veritas Software Corp. posted a fourth-quarter loss, but its revenue surged and its income excluding charges beat Wall Street’s expectations (see article).
Webvan Group Inc. matched Wall Street’s expectations for fourth-quarter operating losses, and said it was able to trim its loss from the third quarter as sales soared (see article).
Western Digital Corp.’s loss narrowed in its second quarter on improving demand in the disk-drive industry and a one-time gain (see article).
Xerox Corp. said fourth-quarter net income plunged 52% and warned that results won’t improve soon because it plans another restructuring charge (see article).

INITIAL PUBLIC OFFERINGS
Neoforma.com Inc. kicked off the new year of IPOs in the technology sector with a bang as its share price quadrupled in its first session (see article).
Extensity Inc. launched an IPO, with shares of the Internet-software maker opening at more than three times their offer price (see article).
Shares of 724 Solutions Inc. surged in their first day of trading (see article). The maker of wireless banking software has several large backers, including Banc of America Corp. and Citigroup Inc.