Wednesday, February 14, 2007

Anatomy of a Cybersquatter, Part II: Cybersquatting 101

“According to the U.S. federal law known as the Anti-Cybersquatting Consumer Protection Act, cybersquatting is registering, trafficking in, or using a domain name with bad-faith intent to profit from the goodwill of a trademark belonging to someone else. The cybersquatter then offers the domain to the person or company who owns a trademark contained within the name at an inflated price, an act which some deem to be extortion.

“The term is derived from ‘squatting’, which is the act of occupying an abandoned or unoccupied space or building that the squatter does not own, rent or otherwise have permission to use. Cybersquatting is however, a bit different in that the domain names that are being ‘squatted’ are being paid for through the registration process by the Cybersquatters. Cybersquatters usually ask for prices far greater than that at which they purchased it. Some cybersquatters put up derogatory remarks about the person or company the domain is meant to represent in an effort to encourage the subject to buy the domain from them.”

The legal battle between Harrah’s Entertainment and Federico Schiavio over the rights to the domain is, as of thus writing, well into its third year. Most people, upon learning of the dispute, probably ask a question like, “Well, why did Schiavio buy the name?” At first glance the answer seems obvious: It was Schiavio's personal insurance policy possible against the looming Harrah's threat, where he could attempt to re-sell the domain on to Harrah’s for a highly inflated price. While the definition at top captures much of the motivation behind the cybersquatting practice, it actually leaves out one additionally possibility: a site might be so valuable in and of itself that misdirected traffic might hang around and visit referral links, generate site hits for advertisers, perhaps even buy some products.

In fact, ICANN, the international organization that administers domain-name matters, recently proposed a group of three guidelines that would further clarify whether a domain was registered in bad faith. (Photo at right: Federico Schiavio as "tebedu," his online-poker screen name on Microgaming.) The three proposed rules have not yet been adapted as yet, but have already been endorsed by high-level registrars including and AOL. The proposed rules are:
(i) Whether the domain name holder is making a legitimate noncommercial or fair use of the mark, without intent to divert consumers for commercial gain or to tarnish the mark;
(ii) Whether the domain name holder (including individuals, businesses, and other organizations) is commonly known by the domain name, even if the holder has acquired no trademark or service mark rights; and
(iii) Whether, in seeking payment for transfer of the domain name, the domain name holder has limited its request for payment to its out-of-pocket costs.

The attempt to codify these additional concerns addresses the point made above. Pay close attention to the phrase within the first bullet point: “intent to divert consumers for commercial gain.” If you play poker and are reading this, you are almost certainly aware of the World Series of Poker. At some point in the past you may well have typed in the URL “” in an attempt to locate information on poker’s largest event. Toss in the phrasing within the second bullet point about being “commonly known by the domain name” -- which certainly applies to the acronym “WSOP” in this instance -- then there is little doubt that the dispute between Harrah’s and Schiavio already would have been decided in favor of Harrah’s.

However, slightly looser language is in place as of today. Here’s what ICANN currently serves up under the heading “Evidence of Registration and Use in Bad Faith:”
(i) circumstances indicating that you have registered or you have acquired the domain name primarily for the purpose of selling, renting, or otherwise transferring the domain name registration to the complainant who is the owner of the trademark or service mark or to a competitor of that complainant, for valuable consideration in excess of your documented out-of-pocket costs directly related to the domain name; or
(ii) you have registered the domain name in order to prevent the owner of the trademark or service mark from reflecting the mark in a corresponding domain name, provided that you have engaged in a pattern of such conduct; or
(iii) you have registered the domain name primarily for the purpose of disrupting the business of a competitor; or
(iv) by using the domain name, you have intentionally attempted to attract, for commercial gain, Internet users to your web site or other on-line location, by creating a likelihood of confusion with the complainant's mark as to the source, sponsorship, affiliation, or endorsement of your web site or location or of a product or service on your web site or location.

It doesn’t seem much different at that. But read point (ii) carefully: “... in order to prevent the owner of the trademark or service mark....”

Despite the fact that ICANN’s edicts may seem to be the universal answer to all domain-name disputes, the truth is that any such judgments as to rightful ownership must stand within each country’s laws regarding trademarks, copyrights, and other intellectual property. ICANN’s edicts can be and often are challenged within the framework of federal trademark and copyright disputes, and because of this, they have on occasion been disregarded or overturned. Obviously, Harrah’s itself never could have owned “WSOP” as a business mark prior to its acquisition of the Binion’s Horseshoe Casino assets, and Binion’s, both prior to and during the Becky Years, had never secured the mark on its own. This is the linchpin of Schiavio's defense against Harrah's, despite Schiavio's clear failure to pass the smell test outlined in parts (iii) and (iv).

Given the greater legal matters of the existing tax liens and back payments owed by the old Binion’s, a couple of months would elapse before Harrah’s fully realized that proper trademark protection for the acronym WSOP had never been properly secured. Here, though, is where the due-diligence argument concerning Harrah's comes into play. 

Harrah's had the desire to obtain both the "Horseshoe" brand name and the World Series of Poker, but how much research did the company actually do into the complete roster of intellectual property rights that Binion's Horseshoe owned? Harrah's certainly would have known that "World Series of Poker" was a trademarked, registered brand, but did they ever did do any research into "WSOP"? Did they ever visit -- prior to November, 2003, when Schiavio pulled the earlier content down -- encountering Jim Albrecht's faux-porn slap at Becky Binion as shown in Part 1?

The meaning attached to WSOP was well understood, of course, but while Harrah's could have researched the property, they would have had no valid interest in it until they acquired Jack Binion’s in-default note for his original share in Binion's Horseshoe, late in 2003. Perhaps that's when they first realized that owning the World Series of Poker was more than just a hope; it had a high likelihood of occurring. Likelihood, though, is still just a chance; Harrah's was still on the outside looking in as the threat of marshals closing the Horseshoe loomed.

Another factor was Schiavio’s own animosity toward Harrah’s. Schiavio was technically a consultant to Becky Behnen, not a casino employee proper, but it’s clear he realized long before the Horseshoe’s doors were padlocked that he had little future in the enterprise in the event that Harrah’s acquired the property and brand name. One example of this as recounted on Schiavio’s own site is a request Harrah’s made in the days prior to the federal raid, seeking the current player list for the WSOP. Such a request makes perfect sense, because in the event that the Horseshoe’s doors were sealed and the assets seized, the player lists for that spring's WSOP could quite literally have been locked up with everything else.

As Schiavio recounts this (underlining of key text by this author):

And the surprises are not yet over as you can see from the email and the document that was found on the computer of the gal named below.
- - - - - - - - - - - - - - - - - -
From: Federico Schiavio
Sent: Monday, January 19, 2004 12:09 PM
Subject: FW: Emailing: wsop 2004 Points of Discussion Harrahs

This was found on Ionne’s
Sent: Monday, January 19, 2004 12:09 PMTo: 'BEHNEN'Subject: FW: Emailing: wsop 2004 Points of Discussion Harrahs
This was found on Ionne’sSent: Monday, January 19, 2004 12:09 PMTo: 'BEHNEN'Subject: FW: Emailing: wsop 2004 Points of Discussion Harrahs This was found on Ionne’sSent: Monday, January 19, 2004 12:09 PMTo: 'BEHNEN'Subject: FW: Emailing: wsop 2004 Points of Discussion Harrahs This was found on Ionne’s [sic] computer and is dated 1/15/04.


-----Original Message-----
From: Ione Conquy []
Sent: Monday, January 19, 2004 11:14 AM
To: Federico Schiavio
Subject: Emailing: wsop 2004 Points of Discussion Harrahs

Your files are attached and ready to send with this message.

-----Original Message-----From: Ione Conquy []Sent: Monday, January 19, 2004 11:14 AMTo: Federico SchiavioSubject: Emailing: wsop 2004 Points of Discussion Harrahs
Your files are attached and ready to send with this message.
F S -----Original Message-----From: Ione Conquy []Sent: Monday, January 19, 2004 11:14 AMTo: Federico SchiavioSubject: Emailing: wsop 2004 Points of Discussion Harrahs Your files are attached and ready to send with this message. F S -----Original Message-----From: Ione Conquy []Sent: Monday, January 19, 2004 11:14 AMTo: Federico SchiavioSubject: Emailing: wsop 2004 Points of Discussion Harrahs Your files are attached and ready to send with this message.- - - - - - - - - - - - - - - - - -
We found this document on her computer and it indicates that Harrah’s had obtained the player’s list of the World Series of Poker, Binion’s Intellectual Property, as early as January 8th one day before the Marshals shut it down and two months before Harrah’s completed its acquisition of Binion’s. I know this because I was the person that gave her the list on January 8th.The gal had been pestering me the whole week for the list and I was reticent to give it to her because I was thinking, “What does she need the list for in January when the poker tournament is in April?” She finally went crying to Becky Binion with some cockamamie story and so Becky came by my office and told me to give it to her and I did.

According to this, Becky Behnen instructed Schiavio to give the player list to Conquy, to presumably be forwarded on to Harrah’s. But then there’s this, only paragraphs later, on the same page of Schiavio’s own site:

The author of the next email is the President of First State Investments, James Laura who at the time was the personal and financial advisor to Becky Binion Behnen and was involved in the negotiations with Harrah’s from day one to the end. In this email he is advising me that Harrah’s wanted to talk to me regarding helping them with the transition and he also mentions that Becky somehow found out that Harrah’s had come into possession of the World Series of Poker customer database before the deal closed, which was a surprise to all. He says somehow because he was not yet aware that I had discovered the malarkey and the above computer file and communicated it to her in the previous email above and via phone as soon as I found out.
-----Original Message-----From: James LauraSent: Monday, January 19, 2004 12:00 PMTo: Federico SchiavioSubject: RE: Hi
Your working with Harrah's was brought up in the negotiations and they gave a name of someone for you to contact regarding the performing the job for the year end for Harrah's. Angie should have the name of the person to contact.Also, the list of players for the WSOP was given to Harrah's, It should not have been given them as we have not signed off with them. I have to tell them today that they have to return the list if we do not close. Becky some how found out.Jim.

Wait a second -- Becky Behnen ordered the lists be given by Schiavio to the aforementioned Ione Conquy, then professed no knowledge of what that transfer was for? That’s a bit of a stretch, although one well-known, anonymous source described the Behnens as "very lax" in many business matters. The above seems to accuse Ms. Conquy of some sort of malfeasance in the matter, but another source indicates that Conquy, who was hired as the poker administrator in 2003, simply would not have proceeded in any task of this nature without direct marching orders from Becky Behnen or Angela Runz, Binion's Horseshoe Casino's in-house counsel. 

Let’s not lose sight of the greater issue in the ongoing dispute: Schiavio’s well-seated hatred of Harrah’s, for whatever reasons. Schiavio’s site also offers no followup to the matter in Laura’s e-mail above, meaning that the greatest likelihood is that the deal was closed -- because we know that that occurred at some point -- and the ownership of the list was a moot point.

Note the date of the e-mails above: January 19, 2004, or a full week after the preliminary deal between Behnen and Harrah’s. It is not at all unusual for details like this to get jumbled up when an event such as a raid and seizure occurs, nor is it unusual for some time to elapse before the deal is finally inked and sealed. In this instance that process took two months, a wholly unexceptional occurrence.

At the point of these e-mails there would have been no reason not to provide any information connected to the WSOP to Harrah’s, because only under the auspices of Harrah’s would the WSOP even take place, later in 2004. But Schiavio’s antagonism toward Harrah’s was well established. No doubt that had an effect upon Harrah’s no longer wanting to take on Schiavio for any lengthy period, despite the fact that the WSOP software was a custom application designed by Schiavio, as Schiavio again recounts here:

“Harrah's asked to meet with me in February 2004 about my consulting for Harrah's and helping with the transition of the business from Binion's to Harrah's. We were not able to agree on terms, and I later found out that Harrah's just wanted to use me and discard me when I was no longer needed....”

The next paragraph is even more telling:

“When I was not interested in being ‘worked’ and handing over my copyrighted and other protected materials to Harrah's, Harrah's completed its acquisition of Binion's Horseshoe in March 2004 and within two weeks, sent me a cease and desist letter about my ownership of the domain name.”

What do you think Harrah’s thought when they learned that Schiavio himself had personally registered the domain name nearly a year earlier, apart from Binion’s Horseshoe Casino interests? Remember, too, that despite Schiavio’s claim that Becky Behnen had little interest in ongoing Internet matters, Schiavio himself, in his role as Behnen’s acting information technology director, would have had a fiduciary responsibility to advise Behnen as to the real value of the domain name. Knowing this, it's easy to understand why Harrah's would have had little interest in a long-term relationship with Federico Schiavio.

Schiavio’s actions during this period could be interpreted as intentional bad faith, and they are certainly among the issues at play in the civil matters currently pending between Schiavio and Harrah's. But they're only a small part of a longer history.

Next -- Part III: From "World Series of Poker" to "WSOP"
© 2007, Haley L. Hintze. All Rights Reserved.
Creative Commons Rights Superceded on this Material.

Link to Introduction
Link to Part 1
Link to Part 2
Link to Part 3
Link to Part 4
Link to Part 5
Link to Part 6

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