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by Thor Olavsrud

A federal appeals court in Virginia Monday affirmed a lower court's ruling that online service provider Virtual Works Inc. violated the 1999 Anticybersquatting Consumer Protection Act when it registered the domain vw.net with the intent to sell it to Volkswagen of America.

The 4th U.S. Circuit Court of Appeals in Richmond found evidence of bad faith by Virtual Works, citing the famousness of the VW trademark, the similarity of vw.net to the VW mark, the admission that Virtual Works never did business or identified itself as VW, and the availability of domains like vwi.org and vwi.net which satisfied Virtual Works' stated criterion of registering a domain name using only two or three letters.

In the court's opinion , written by Chief Judge J. Harvie Wilkinson III, the court said it did not rely on those circumstantial factors in forming its opinion. However, Wilkinson wrote that statements of intent made by Virtual Works' principals, Christopher Grimes and James Anderson, at the time of registration established bad faith.

"Grimes' deposition reveals that when registering vw.net, he and Anderson specifically acknowledged that vw.net might be confused with Volkswagen by some Internet users," Wilkinson wrote. "They nevertheless decided to register the address for their own use, but left open the possibility of one day selling the site to Volkswagen 'for a lot of money'."

Virtual Works registered vw.net with Network Solutions Inc. in April 1996 upon becoming an ISP. The company used the domain for two years as part of its ISP business. In 1998, various Volkswagen dealerships indicated an interest in the domain. Virtual Works turned around and contacted Volkswagen -- which had registered VW.com on March 5, 1994 -- offering to sell it vw.net. According to the court's opinion, Anderson left a voice mail message for Linda Scipione in Volkswagen's trademark department.

"In the message, Anderson stated that he owned the rights to vw.net," Wilkinson wrote. "He also said that unless Volkswagen bought the rights to vw.net, Virtual Works would sell the domain name to the highest bidder. Anderson gave Volkswagen 24 hours to respond."

Perceiving a threat to its trademark, Volkswagen invoked NSI's dispute resolution procedure, prompting NSI to tell Virtual Works that it would lose vw.net unless it filed a declaratory judgment action against Volkswagen. Virtual Works filed the action and Volkswagen counterclaimed. The district court in charge of the case found in Volkswagen's favor and dismissed Virtual Works' cross-motions. Virtual Works then appealed the case to the U.S. Circuit Court of Appeals.

Anderson, however, disputes that Virtual Works approached Volkswagen in bad faith. His new Web site vwx.com is dedicated to the case.

"We used the domain name for three years -- four years," Anderson told InternetNews Radio Tuesday morning. "And then we contacted Volkswagen because we were receiving phone calls from dealerships indicating they were interested in buying the domain name. So we contacted Volkswagen out of good faith and offered them right of first refusal, one might call it. And we told them that we may very well entertain some of these offers that we were getting. But of course, corporate attorneys have a way of twisting things around and made it sound like we called in a threatening manner -- made it sound like we were going to sell the domain name within 24 hours if we didn't hear from them, I think was their quote."

Anderson added, "There was no dollar value specified. All I wanted was a phone call from them to find out if there was anything they wanted to work out before we moved forward; basically trying to get a good footing so we could move forward without any problems, so we could make sure everybody was happy."

Virtual Works has since gone out of business, and Anderson is now working as an Internet consultant for Sprint. However, he said he will continue to fight the court's decision.

"It's not an issue of money with me," he said. "People think that I did this for the money, but it's not and I'm going to show people that. I'm going to take my hard earned dollars -- I'm on an hourly wage now -- and I'm going to take those hourly dollars and I'm going to put it together and I'm going to try to appeal this to the next level."