Dueling Dealers

Two Toyota dealers in overlapping markets have been involved in overly aggressive competition that has led to lawsuits, and their activities provide lessons for all dealers.

One of the cases has had significant publicity. A Toyota dealer in Eastern Alabama sued a neighboring Toyota dealer in the Florida panhandle. The Alabama dealer, of Iranian descent, claimed that the Florida dealer established a sales strategy to tell customers who were shopping at both stores that the Alabama dealer was a terrorist and that the money his dealership made was being used to support terrorism and to fight American troops in the Middle East, none of which was true. The Florida dealer’s employees went so far as to refer to the Alabama dealer as “Middle Eastern Toyota” and “Taliban Toyota”. The Alabama jury awarded the Alabama dealer $2.5 million in compensatory damages and $5 million in punitive damages. That judgment is now in appeal to the Alabama Supreme Court.

The Florida dealer contended that the bad blood resulted from an internet strategy employed by the Alabama dealer. The Alabama dealer engaged an internet marketing consultant to improve its web presence. The consultant recommended a defensive strategy of buying domain names containing the dealership’s name. He also allegedly recommended an offensive strategy of buying a large number of other domain names, some of which incorporated trademarks of other businesses, including those of the Florida dealer.

Pretty quickly, eBay, whose name was used in one of the URLs acquired as part of the offensive strategy, sent a cease and desist letter to the dealer who relinquished the name back to its source. That was followed by the Florida dealer writing a cease and desist letter to the Alabama dealer on a number of URLs that contained its name. The Alabama dealer agreed to relinquish those names immediately. The Florida dealer, nevertheless, filed suit in federal court against the Alabama dealer under the federal cybersquatting statute and other state and federal laws.

After a trial, the jury in the federal court action found that the actions of the Alabama dealer violated the federal Anti-Cybersquatting Consumer Protection Act. However, the jury awarded no damages since the Alabama dealer relinquished the URLs quickly and had a reasonable belief that the use of domain names was a fair use or otherwise lawful, apparently based on the advice of the consultant. The Florida dealer appealed the decision that awarded no relief to the United States Court of Appeals. However, the Court of Appeals affirmed the federal trial court’s ruling.

The result is that the Florida dealer has a verdict against it of $7.5 million, which is on appeal. The Alabama dealer has a finding that it violated the federal Anti-Cybersquatting Consumer Protection Act even though no damages were awarded. Each dealer has undoubtedly spent armfuls of cash to engage in these battles. And both dealers’ reputations have suffered.

So what is a dealer to learn from these events?

  • Aggressive competition is acceptable; crossing the line is not. Slandering a competitor with untrue statements is over the line. Slanderous charges that someone is a terrorist or aiding the nation’s enemies will lead a jury to award big dollars. Your employees should sell the superiority of your dealership. Running down competitors splashes mud on everyone. And slander will get you targeted for a big verdict.

  • Have an ethics policy or adopt standards of conduct. It is difficult to micro-manage employee’s statements. But if they know that the dealer expects ethical behavior, that will go a long way to help employees to understand how they are expected to behave.

  • Buying URLs with personal names or trade names of others is not a good idea. The federal Anti-Cybersquatting Consumer Protection Act, as well as other federal and state laws, can be used to protect the personal names and business names of others. Acquiring and using those names as domain names can only lead to legal action.

  • When in doubt call a lawyer. Don’t just assume that consultants understand the laws in their field. Solid legal advice can help avoid embarrassment and liability for damages.

  • If you have gone too far, remedy the problem immediately. Apparently, the federal court jury that was considering the Anti-Cybersquatting claims was impressed by the fact that the Alabama dealer immediately relinquished the domain names that improperly contained the business names of other companies. The dealer denied knowing that it had acquired the specific names. But whether he knew or not, he was smart enough not to double down on the problem by insisting on rights to names after having been notified of the problem.

  • A defensive web strategy is a good idea. It was a good idea for the Alabama dealer to acquiring rights to domain names using its own business name. If one owns the variations of its name, others cannot improperly acquire them to link to competitor sites.

  • Be proactive on searching for URLs using your business name. Even if one acquires many variations of the dealership’s name, clever competitors may come up with other variations. From time to time check. Put the dealership’s name in Google or Bing to see what will come up. Put in various URLs with the dealer’s name and misspellings of the dealer’s name to see whether the web surfer is forwarded to competitors sites