G. Gervaise Davis, III (Argued and Briefed), Eric B. Boustani (On the briefs), Davis & Schroeder, Monterey, California, for the defendants-counter- claimants-appellants.

 Adrian Mary Pruetz (Argued), and David W. Quinto (On the Briefs), Quinn Emanuel Urquhart Oliver & Hedges, Los Angeles, California, for the plaintiff- counter-defendant-appellee.

 Appeal from the United States District Court for the Central District of California;  J. Spencer Letts, District Judge, Presiding.  D.C. No. CV-97- 00407-JSL.

 Before:  D.W. NELSON, REINHARDT, and TROTT, Circuit Judges.

 TROTT, Circuit Judge:

 Jerry Sumpton and Freeview Listings Ltd. (together, "Appellants") appeal an injunction in favor of Avery Dennison Corp., entered after summary judgment for Avery Dennison on its claims of trademark dilution under the Federal Trademark Dilution Act of 1995, 15 U.S.C. § 1125(c) (Supp. II 1996) ...and the California dilution statute, Cal. Bus. & Prof.Code § 14330 (West 1987).  The district court published an opinion, 999 F.Supp. 1337 (C.D.Cal.1998), holding that Appellants' maintenance of domain name registrations for <avery.net> and <dennison.net> diluted two of Avery Dennison's separate trademarks, "Avery" and "Dennison." ... The district court then entered an injunction ordering Appellants to transfer the domain-name registrations to Avery Dennison in exchange for $300 each.

 ...Because Avery Dennison failed to create a genuine issue of fact on required elements of the dilution cause of action, we reverse and remand with instructions to enter summary judgment for Appellants and to consider Appellants' request for attorneys' fees in light of this decision.

I
Background

 We are the third panel of this court in just over a year faced with the challenging task of applying centuries-old trademark law to the newest medium of communication--the Internet.  ...
 

II
Facts

 Sumpton is the president of Freeview, an Internet e-mail provider doing business as "Mailbank."  Mailbank offers "vanity" e-mail addresses to users for an initial fee of $19.95 and $4.95 per year thereafter, and has registered thousands of domain-name combinations for this purpose.  Most SLDs that Mailbank has registered are common surnames, although some represent hobbies, careers, pets, sports interests, favorite music, and the like.  One  category of SLDs is titled "Rude" and includes lewd SLDs, and another category, titled "Business," includes some common trademark SLDs. Mailbank's TLDs consist mainly of <.net> and <.org>, but some registered domain name combinations, including most in the "Business" and "Rude" categories, use the TLD <.com>. Mailbank's surname archives include the domain-name combinations < avery.net> and <dennison.net>.

 Avery Dennison sells office products and industrial fasteners under the registered trademarks "Avery" and "Dennison," respectively.  "Avery" has been in continuous use since the 1930s and registered since 1963, and "Dennison" has been in continuous use since the late 1800s and registered since 1908.  Avery Dennison spends more than $5 million per year advertising its products, including those marketed under the separate "Avery" and "Dennison" trademarks, and the company boasts in the neighborhood of $3 billion in sales of all of its trademarks annually.  No evidence indicates what percentage of these dollar figures apply to the "Avery" or "Dennison" trademarks.  Avery Dennison maintains a commercial presence on the Internet, marketing its products at < avery.com> and <averydennison.com>, and maintaining registrations for several other domain-name combinations, all using the TLD <.com>.

 Avery Dennison sued Appellants, alleging trademark dilution under the Federal Trademark Dilution Act and California Business and Professional Code § 14330.  ...  The district court then concluded as a matter of law that the disputed trademarks were famous and denied summary judgment to Appellants and granted summary judgment to Avery Dennison on its dilution claims, entering an injunction requiring Appellants to transfer the registrations to Avery Dennison.  999 F.Supp. at 1342.

III
Trademark Law

Trademark protection is "the law's recognition of the psychological function of symbols."  Mishawaka Rubber & Woolen Mfg. Co. v. S.S. Kresge Co., 316 U.S. 203, 205, 62 S.Ct. 1022, 86 L.Ed. 1381 (1942).  Two goals of trademark law are reflected in the federal scheme.  On the one hand, the law seeks to protect consumers who have formed particular associations with a mark.  On the other hand, trademark law seeks to protect the investment in a mark made by the owner.  Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159, 163-64, 115 S.Ct. 1300, 131 L.Ed.2d 248 (1995).

...

With the 1995 enactment of the Federal Trademark Dilution Act, dilution became a federal-law concern.  Unlike infringement and unfair competition laws, in a dilution case competition between the parties and a likelihood of confusion are not required to present a claim for relief.  ...

 V
Dilution Protection

 We now turn to the dilution causes of action at issue in this case, brought under the Federal Trademark Dilution Act and California Business and Professional Code § 14330.

 In Panavision, we held that both the Federal Trademark Dilution Act and  § 14330 were implicated when the defendant registered domain-name combinations using famous trademarks and sought to sell the registrations to the trademark owners.  141 F.3d at 1318, 1327.  Three differences made Panavision easier than the instant case.  First, the defendant did not mount a challenge on the famousness prong of the dilution tests.  Panavision, 141 F.3d at 1324.  Second, the Panavision defendant did not challenge the factual assertion that he sought to profit by arbitrage with famous trademarks.  Id. at 1324-25.  Third, the diluting registrations in Panavision both involved the TLD <.com>. In the instant case, by contrast, Appellants contest Avery Dennison's claim of famousness, Appellants contend that the nature of their business makes the trademark status of "Avery" and "Dennison" irrelevant, and the complained-of registrations involve the TLD <. net>.

A
Famousness

The district court considered evidence submitted by Avery Dennison regarding marketing efforts and consumer association with its marks and concluded as a matter of law that "Avery" and "Dennison" were famous marks entitled to dilution protection.  999 F.Supp. at 1339.  We hold that Avery Dennison failed to create a genuine issue of fact on the famousness element of both dilution statutes.

Dilution is a cause of action invented and reserved for a select class of marks--those marks with such powerful consumer associations that even non-competing uses can impinge on their value.  ...  Dilution causes of action, much more so than infringement and unfair competition laws, tread very close to granting "rights in gross" in a trademark.  See 3 McCarthy, supra, § 24:108.  In the infringement and unfair competition scenario, where the less famous a trademark, the less the chance that consumers will be confused as to origin, see AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 349 (9th Cir.1979), a carefully-crafted balance exists between protecting a trademark and permitting non-infringing uses.  In the dilution context, likelihood of confusion is irrelevant.  See 15 U.S.C. § 1127;  Cal. Bus. & Prof.Code § 14330;  Panavision, 141 F.3d at 1326.  If dilution protection were accorded to trademarks based only on a showing of inherent or acquired distinctiveness, we would upset the balance in favor of over-protecting trademarks, at the expense of potential non-infringing uses. See Fruit of the Loom, 994 F.2d at 1363 ("[The plaintiff] would sweep clean the many business uses of this quotidian word.").

 We view the famousness prong of both dilution analyses as reinstating the balance--by carefully limiting the class of trademarks eligible for dilution protection, Congress and state legislatures granted the most potent form of trademark protection in a manner designed to minimize undue impact on other uses.  ...

Therefore, to meet the "famousness" element of protection under the dilution statutes, " 'a mark [must] be truly prominent and renowned.' " I.P. Lund Trading ApS v. Kohler Co., 163 F.3d 27, 46 (1st Cir.1998) (quoting 3 McCarthy, supra, § 24.91).  In a 1987 report, which recommended an amendment to the Lanham Act to provide a federal dilution cause of action, the Trademark Review Commission of the United States Trademark Association emphasized the narrow reach of a dilution cause of action:  "We believe that a limited category of trademarks, those which are truly famous and registered, are deserving of national protection from dilution."  Trademark Review Commission, Report & Recommendations, 77 Trademark Rep. 375, 455 (Sept.-Oct.1987).

 The Federal Trademark Dilution Act lists eight non-exclusive considerations for the famousness inquiry, 15 U.S.C. § 1125(c)(1)(A)-(H), which are equally relevant to a famousness determination under Business and Professional Code § 14330, see Panavision, 141 F.3d at 1324 ("Panavision's state law dilution claim is subject to the same analysis as its federal claim.").  These are:
(A) the degree of inherent or acquired distinctiveness of the mark;
(B) the duration and extent of use of the mark in connection with the goods or services with which the mark is used;
(C) the duration and extent of advertising and publicity of the mark;
(D) the geographical extent of the trading area in which the mark is used;
(E) the channels of trade for the goods or services with which the mark is used;
(F) the degree of recognition of the mark in the trading areas and channels of trade used by the mark's owner and the person against whom the injunction is sought;
(G) the nature and extent of use of the same or similar marks by third parties;  and
(H) whether the mark was registered ... on the principal register.
 15 U.S.C. § 1125(c)(1).

...

However, the Federal Trademark Dilution Act and Business and Professional Code § 14330 apply "only to those marks which are both truly distinctive and famous, and therefore most likely to be adversely affected by dilution." S.Rep. No. 100-515, at 42 (emphasis added).  The Trademark Review Commission stated that "a higher standard must be employed to gauge the fame of a trademark eligible for this extraordinary remedy."  77 Trademark Rep. at 461.  Thus, "[t]o be capable of being diluted, a mark must have a degree of distinctiveness and 'strength' beyond that needed to serve as a trademark."  3 McCarthy, supra, § 24:109;  see also Krafte-Jacobs, supra, at 690 ("If all marks are distinctive, and a showing of distinctiveness meets the element of fame, what marks would be outside the protection of the FTDA? [T]he FTDA does not indicate that any particular degree of distinctiveness should end the inquiry." (interpreting the Federal Trademark Dilution Act)).  We have previously held likewise under California Business and Professional Code § 14330.  Accuride Int'l, Inc. v. Accuride Corp., 871 F.2d 1531, 1539 (9th Cir.1989) (requiring more than mere distinctiveness).

 Applying the famousness factors from the Federal Trademark Dilution Act to the facts of the case at bench, we conclude that Avery Dennison likely establishes acquired distinctiveness in the "Avery" and "Dennison" trademarks, but goes no further.  Because the Federal Trademark Dilution Act requires a showing greater than distinctiveness to meet the threshold element of fame, as a matter of law Avery Dennison has failed to fulfill this burden.

1
Distinctiveness

...[B]ecause famousness requires a showing greater than mere distinctiveness, the presumptive secondary meaning associated with "Avery" and "Dennison" fails to persuade us that the famousness prong is met in this case.

2
Overlapping Channels of Trade
 We next consider the fifth and sixth factors of the statutory inquiry:  the channels of trade for the plaintiff's goods and the degree of recognition of the mark in the trading areas and channels of trade used by plaintiff and defendant. § 1125(c)(1)(E), (F).  The drafters of the Federal Trademark Dilution Act broke from the Trademark Review Commission's recommendation that only marks "which have become famous throughout a substantial part of the United States" could qualify for protection.  Report & Recommendation, 77 Trademark Rep. at 456.  Instead, fame in a localized trading area may meet the threshold element under the Act if plaintiff's trading area includes the trading area of the defendant.  S.Rep. No. 100-515, at 43;  Washington Speakers Bureau, Inc. v. Leading Auths., Inc., 33 F.Supp.2d 488, 503-04 (E.D.Va.1999) (citing I.P. Lund, 163 F.3d at 46;  Teletech Customer Care Mgt., Inc. v. Tele-Tech Co., 977 F.Supp. 1407, 1413 (C.D.Cal.1997)).  The rule is likewise for specialized market segments:  specialized fame can be adequate only if the "diluting uses are directed narrowly at the same market segment." Washington Speakers, 33 F.Supp.2d at 503.  No evidence on the record supports Avery Dennison's position on these two prongs of the famousness inquiry.

...  In the instant case, by contrast, Appellants' sought-after customer base is Internet users who desire vanity e- mail addresses, and Avery Dennison's customer base includes purchasers of office products and industrial fasteners.  No evidence demonstrates that Avery Dennison possesses any degree of recognition among Internet users or that Appellants direct their e-mail services at Avery Dennison's customer base.

3
Use of the Marks by Third Parties

 The seventh factor, "the nature and extent of use of the same ... marks by third parties," § 1125(c)(1)(G), undercuts the district court's conclusion as well.  All relevant evidence on the record tends to establish that both "Avery" and "Dennison" are commonly used as trademarks, both on and off of the Internet, by parties other than Avery Dennison.  This evidence is relevant because, when "a mark is in widespread use, it may not be famous for the goods or services of one business."  Report & Recommendation, 77 Trademark Rep. at 461;  see Accuride, 871 F.2d at 1539 (affirming the district court's holding that widespread use of elements of a trademark helped to defeat a dilution claim).

...

4
Other Famousness Factors

 Avery Dennison argues that evidence of extensive advertising and sales, international operations, and consumer awareness suffices to establish fame. We agree that the remaining four statutory factors in the famousness inquiry likely support Avery Dennison's position.  Both "Avery" and "Dennison" have been used as trademarks for large fractions of a century and registered for decades.  Avery Dennison expends substantial sums annually advertising each mark, with some presumable degree of success due to Avery Dennison's significant annual volume of sales.  In addition, Avery Dennison markets its goods internationally.  See 15 U.S.C. § 1125(c)(1)(B)-(D), (G).  However, we disagree that Avery Dennison's showing establishes fame.

...

Finally, Avery Dennison--like any company marketing on the Internet--markets its products worldwide.  See 15 U.S.C. § 1125(c)(1)(D). By itself, this factor carries no weight;  worldwide use of a non-famous mark does not establish fame.  Because famousness requires more than mere distinctiveness, and Avery Dennison's showing goes no further than establishing secondary meaning, we hold that Avery Dennison has not met its burden to create a genuine issue of fact that its marks are famous.  Avery Dennison's failure to fulfill its burden on this required element of both dilution causes of action mandates summary judgment for Appellants.

5
Likelihood of Confusion Remains Irrelevant

 We recognize that our discussion of the breadth of fame and overlapping market segments begins to sound like a likelihood of confusion analysis, and we agree with Avery Dennison that likelihood of confusion should not be considered under either the Federal Trademark Dilution Act or Business and Professional Code § 14330.  However, as we discuss above, the famousness element of the dilution causes of action serves the same general purpose as the likelihood of confusion element of an infringement or unfair competition analysis--preventing the trademark scheme from granting excessively broad protection at the expense of legitimate uses.  See Fruit of the Loom, 994 F.2d at 1363 ("Whittling away will not occur unless there is at least some subliminal connection in a buyer's mind between the two parties' uses of their marks.").  The close parallels between the two analyses are therefore not surprising;  nor do they cause us concern.

B
Commercial Use

Addressing the second element of a cause of action under the Federal Trademark Dilution Act, the district court held that Appellants' registration of <avery.net> and <dennison.net> constituted commercial use.  999 F.Supp. at 1339-40.  We disagree.

Commercial use under the Federal Trademark Dilution Act requires the defendant to be using the trademark as a trademark, capitalizing on its trademark status.  See Panavision, 141 F.3d at 1325.  Courts have phrased this requirement in various ways.  In a classic "cybersquatter" case, one court referenced the defendants "intention to arbitrage" the registration which included the plaintiff's trademark.  Intermatic, 947 F.Supp. at 1239. Another court, whose decision we affirmed, noted that the defendant "traded on the value of marks as marks."  Panavision Int'l, L.P. v. Toeppen, 945 F.Supp. 1296, 1303 (C.D.Cal.1996), aff'd, 141 F.3d 1316 (9th Cir.1998).  In our Panavision decision, we considered the defendant's "attempt to sell the trademarks themselves."  141 F.3d at 1325.

 All evidence in the record indicates that Appellants register common surnames in domain-name combinations and license e-mail addresses using those surnames, with the consequent intent to capitalize on the surname status of "Avery" and "Dennison."  Appellants do not use trademarks qua trademarks as required by the caselaw to establish commercial use. Rather, Appellants use words that happen to be trademarks for their non-trademark value.  The district court erred in holding that Appellants' use of <avery.net> and <dennison.net> constituted commercial use under the Federal Trademark Dilution Act, and this essential element of the dilution causes of action likewise mandates summary judgment for Appellants.

C
Dilution

 The district court then considered the dilution requirement under both statutes, holding that Appellants' use of <avery.net> and <dennison.net> caused dilution, or a likelihood of dilution, of "Avery" and "Dennison."  999 F.Supp. at 1340-41.  We hold that genuine issues of fact on this element of the causes of action should have precluded summary judgment for Avery Dennison.

 Two theories of dilution are implicated in this case.  First, Avery Dennison argues that Appellants' conduct is the cybersquatting dilution that we recognized in Panavision.  See 141 F.3d at 1326-27.  Second, Avery Dennison argues that Appellants' conduct in housing the <avery.net> and < dennison.net> domain names in the same database as various lewd SLDs causes tarnishment of the "Avery" and "Dennison" marks.

1
Cybersquatting

Cybersquatting dilution is the diminishment of " 'the capacity of the  [plaintiff's] marks to identify and distinguish the [plaintiff's] goods and services on the Internet.' "  Panavision, 141 F.3d at 1326 (quoting the Panavision district court, 945 F.Supp. at 1304).  We recognized that this can occur if potential customers cannot find a web page at <trademark.com.> Id. at 1327;  see also Brookfield, 174 F.3d at 1045 ("The Web surfer who assumes that " 'X'.com" will always correspond to the web site of company X or trademark X will, however, sometimes be misled.").  Dilution occurs because " '[p]rospective users of plaintiff's services ... may fail to continue to search for plaintiff's own home page, due to anger, frustration or the belief that plaintiff's home page does not exist.' "  Panavision, 141 F.3d at 1327 (quoting Jews for Jesus v. Brodsky, 993 F.Supp. 282, 306-07 (D.N.J.1998)).

In the instant case, Appellants registered the TLD <.net>, rather than <.com>, with the SLDs <avery> and <dennison>.  As we recognized in Panavision, <.net> applies to networks and <.com> applies to commercial entities.  141 F.3d at 1318.  Evidence on the record supports this distinction, and courts applying the dilution cause of action to domain-name registrations have universally considered <trademark.com> registrations.  See Brown, Note, supra, at 251-54 (discussing cases);  id. at 262-63 (addressing the <.com> versus <.net> distinction).  Although evidence on the record also demonstrates that the <.com> and <.net> distinction is illusory, a factfinder could infer that dilution does not occur with a < trademark.net> registration.  This genuine issue of fact on the question of cybersquatting dilution should have prevented summary judgment for Avery Dennison.

2
Tarnishment

Tarnishment occurs when a defendant's use of a mark similar to a plaintiff's presents a danger that consumers will form unfavorable associations with the mark.  See Hasbro, Inc. v. Internet Ent. Group, Ltd., 40 U.S.P.Q.2d 1479, 1480, 1996 WL 84853 (W.D.Wash.1996) (<candyland.com> as a domain-name combination for a sexually explicit web site diluted plaintiff's trademark, "Candyland," for a children's game);  3 McCarthy, supra, § 24:104.  The district court did not reach Avery Dennison's claims regarding tarnishment.

Avery Dennison offers, as an alternative ground for affirming the district court, the fact that Appellants house <avery.net> and <dennison.net> at the same web site as lewd domain-name registrations.  However, the evidence likewise indicates that to move from <avery.net> or <dennison.net> to a lewd SLD requires "linking" through the Mailbank home page, which might remove any association with the "Avery" and "Dennison" trademarks that the Internet user might have had.  See Fruit of the Loom, 994 F.2d at 1363 (requiring some connection between the two parties' uses of their marks).  Whether Appellants' use of the registrations presents a danger of tarnishment is an issue of fact that could not be decided on summary judgment.

D
Injunction

Under the Federal Trademark Dilution Act and Business and Professional Code § 14330, an injunction may issue if Appellants' conduct dilutes, or is likely to dilute, Avery Dennison's trademarks.  15 U.S.C. § 1125(c)(1);  Cal. Bus. & Prof.Code § 14330.  Actual success on the merits of a claim is required for a permanent injunction.  Walters v. Reno, 145 F.3d 1032, 1048 (9th Cir.1998).  Because we conclude that the district erred as a matter of law in finding "Avery" and "Dennison" to be famous and Appellants' use of <avery.net> and <dennison.net> to be commercial use, and because genuine issues of material fact existed as to whether Appellants' use of the domain- name registrations dilutes or is likely to dilute Avery Dennison's marks, the district court necessarily erred in granting Avery Dennison an injunction.

VI
Attorneys' Fees

Finally, we address Appellants' application for attorneys' fees.  The Lanham Act permits an award of attorneys' fees to a prevailing party "in exceptional cases."  15 U.S.C. § 1117(a).  Imposition of attorneys' fees is warranted if " 'a plaintiff's case is groundless, unreasonable, vexatious, or pursued in bad faith.' "  Stephen W. Boney, Inc. v. Boney Servs., Inc., 127 F.3d 821, 826-27 (9th Cir.1997) (quoting Scott Fetzer Co. v. Williamson, 101 F.3d 549, 555 (8th Cir.1996)).

 As an appellate court, we are ill-equipped to determine Avery Dennison's motivation for bringing and pursuing this litigation.  We therefore remand the attorneys' fees question to the district court for determination.

VII
Conclusion

 We reverse the district court's summary judgment in favor of Avery Dennison and remand with instructions to enter summary judgment for Sumpton and Freeview.  We also remand Appellants' request for attorneys' fees for a determination by the district court.  Finally, we deny Avery Dennison's motion to strike portions of Appellants' brief, and we deny Appellants' request for judicial notice.

 REVERSED and REMANDED.