194 F.3d 980
Link to Full Text Version of Case

 LOCKHEED MARTIN CORPORATION, Plaintiff-Counter-Defendant-Appellant,
NETWORK SOLUTIONS, INC., Defendant-Counter-Claimant-Appellee.

No. 97-56734.

United States Court of Appeals,
Ninth Circuit.

Argued and Submitted June 8, 1999.

Filed Oct. 25, 1999

 David W. Quinto, Quinn Emanuel Urquhart Oliver & Hedges, Los Angeles, California, for the plaintiff-counter-defendant-appellant.

 Ronald L. Johnston, Suzanne V. Wilson, Blanc Williams Johnston & Kronstadt, Los Angeles, California, for the defendant-counter-claimant-appellee.

 Appeal from the United States District Court for the Central District of California;  Dean D. Pregerson, District Judge, Presiding.   D.C. No. CV-96- 07438-DDP (ANx).

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

 TROTT, Circuit Judge:

 Plaintiff Lockheed Martin Corp. ("Lockheed") appeals summary judgment in favor of Defendant Network Solutions, Inc. ("NSI") on Lockheed's action for trademark infringement, unfair competition, dilution, and contributory infringement under the Lanham Trademark Act of 1946, 15 U.S.C. §§ 1051- 1127 (1994 & Supp. I 1995), as amended (the "Lanham Act").   The district court published its decision granting summary judgment to NSI and refusing to grant Lockheed's motion for leave to amend its complaint.  985 F.Supp. 949 (C.D.Cal.1997).   Lockheed contends that (1) genuine issues of material fact remain on its contributory infringement claim, (2) the district court erred in holding that 15 U.S.C. § 1114(2) did not create an independent basis for liability, and (3) the district court should have permitted Lockheed to amend the complaint to add a cause of action for contributory dilution.   We have jurisdiction under 28 U.S.C. § 1291 (1994), and we affirm the judgment of the district court.


 This appeal concerns the NSI registration scheme for domain-name combinations, which we discussed in our recent Avery Dennison Corp. v. Sumpton, 189 F.3d 868 (9th Cir.1999), decision.   An interested reader may wish to review the district court's in-depth discussion of the Internet technology that forms the basis of this cause of action.  985 F.Supp. at 951-53.



 At all relevant times, NSI was the sole National Science Foundation contractor in charge of registering domain-name combinations for the top-level domains . gov, .edu, .com, .org, and .net. (For clarity, we set off Internet-related character strings with the caret symbols (" ").)  After registration, NSI entered the combination and the corresponding IP Address in its database, permitting automatic translation when an Internet user entered a domain-name combination.   NSI is no longer the exclusive registrar.   Since oral argument on this appeal, a new competitive scheme has been implemented.   See Jeri Clausing, 3-Week Delay in Opening Up Internet Name Registration, N.Y. Times, June 28, 1999, at C1.

 When registering with NSI to receive a domain-name combination, an applicant submits NSI's "template" electronically over the Internet.   On approval, NSI puts the domain-name combination in its database in conjunction with the correct IP Address.   NSI then routes Internet users who enter a certain domain-name combination to the registrant's computer.   At the time of argument on this appeal, NSI was receiving approximately 130,000 registrations per month, although evidence indicates that the number of monthly registrations has been increasing steadily and is possibly much larger today.   Ninety percent of templates are processed electronically, and the entire registration process for each application requires between a few minutes and a few hours. Ten percent of the time, an employee of NSI reviews the application.   Human intervention might occur because of an error in filling out the form or because the applied-for domain name includes a "prohibited" character string--such as specific variations on the words Olympic, Red Cross, or NASA, and certain "obscene" words.   NSI also performs a conflict check on all applications, which compares an application to other registered domain-name combinations. However, NSI does not consult third parties during the registration process, check for a registrant's right to use a particular word in a domain-name combination, or monitor the use of a combination once registered.   NSI is also not an Internet Service Provider.   It performs none of the "hosting" functions for a web site.

 NSI does maintain a post-registration dispute-resolution procedure.   Anyone who feels that his or her rights are violated by the domain-name combination maintained by a registrant can submit a certified copy of a trademark registration to NSI. NSI then requires the registrant to obtain a declaratory judgment of the right to maintain the domain-name combination.   If the registrant fails to do so, its registration is terminated.


 Lockheed owns and operates "The Skunk Works," an aircraft design and construction laboratory.   Since 1943, The Skunk Works has developed prototypes of this country's first jet fighter, the U-2 and SR-71 spy planes, and the F- 117 and F-22 fighter planes.   The Skunk Works is currently involved in designing a possible replacement for the space shuttle.  "Skunk Works" is a registered and incontestable service mark.


 Third parties, not involved in this litigation, have registered domain-name combinations with NSI which are variations on the phrase "skunk works."   These include:  <Skunkworks.com>, <skunkworks.net>, <skunkwrks.com>, < skunkwerks.com>, <skunkworx.com>, <theskunkworks.com>, <skunkworks1.com>, < skunkworks.org>, <skunkwear.com>, <the-skunkwerks.com>, <skunkwurks.com>, and < theencryptedskunkworks.com>.  Lockheed alleges that many of these registrations infringe and dilute its "Skunk Works" service mark.

 Lockheed sent two letters, on May 7 and June 18, 1996, bringing the < skunkworks.com> and <skunkworks.net> registrations to NSI's attention. Lockheed's letters informed NSI of its belief that the third-party registrants were infringing or diluting Lockheed's service mark.   Lockheed requested that NSI cancel the allegedly offending registrations.   Lockheed also requested that NSI cease registering domain-name combinations that included "Skunk Works" or variations on the phrase and report to Lockheed all such domain-name combinations contained in its registry.   NSI took no action on Lockheed's requests, informing Lockheed by letter that Lockheed had failed to comply with the terms of NSI's dispute resolution policy.   Due to Lockheed's dealings with the third-party registrants, <skunkworks.com> and <skunkworks.net> ceased being used, but NSI did not immediately cancel the registrations and later permitted a new registrant to register <skunkworks.com>.

 Lockheed sued NSI on October 22, 1996, claiming contributory service mark infringement, infringement, unfair competition, and service mark dilution, all in violation of the Lanham Act, and also seeking declaratory relief.



Contributory infringement occurs when the defendant either intentionally induces a third party to infringe the plaintiff's mark or supplies a product to a third party with actual or constructive knowledge that the product is being used to infringe the service mark.  Inwood Lab., Inc. v. Ives Lab., Inc., 456 U.S. 844, 853-54, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982).   Lockheed alleges only the latter basis for contributory infringement liability and therefore must prove that NSI supplies a product to third parties with actual or constructive knowledge that its product is being used to infringe "Skunk Works."  Id. at 854, 102 S.Ct. 2182.




Hard Rock and Fonovisa teach us that when measuring and weighing a fact pattern in the contributory infringement context without the convenient "product" mold dealt with in Inwood Lab., we consider the extent of control exercised by the defendant over the third party's means of infringement. Hard Rock, 955 F.2d at 1148-49 (noting the common-law responsibilities of a landlord regarding illegal activity on a rented premises);  see Fonovisa, 76 F.3d at 265 (adopting Hard Rock 's analysis).   Direct control and monitoring of the instrumentality used by a third party to infringe the plaintiff's mark permits the expansion of Inwood Lab.'s "supplies a product" requirement for contributory infringement.

The case at bench involves a fact pattern squarely on the "service" side of the product/service distinction suggested by Inwood Lab and its offspring.   All evidence in the record indicates that NSI's role differs little from that of the United States Postal Service:  when an Internet user enters a domain-name combination, NSI translates the domain-name combination to the registrant's IP Address and routes the information or command to the corresponding computer.   Although NSI's routing service is only available to a registrant who has paid NSI's fee, NSI does not supply the domain-name combination  any more than the Postal Service supplies a street address by performing the routine service of routing mail.   As the district court correctly observed,
Where domain names are used to infringe, the infringement does not result from NSI's publication of the domain name list, but from the registrant's use of the name on a web site or other Internet form of communication in connection with goods or services....  NSI's involvement with the use of domain names does not extend beyond registration.
 985 F.Supp. at 958.

 The "direct control and monitoring" rule established by Hard Rock and  Fonovisa likewise fails to reach the instant situation.   The district court correctly recognized that NSI's rote translation service does not entail the kind of direct control and monitoring required to justify an extension of the "supplies a product" requirement.   See 985 F.Supp. at 962 ("While the landlord of a flea market might reasonably be expected to monitor the merchandise sold on his premises, NSI cannot reasonably be expected to monitor the Internet.").   Such a stretch would reach well beyond the contemplation of Inwood Lab. and its progeny.

 In an attempt to fit under Fonovisa 's umbrella, Lockheed characterizes NSI's service as a licensing arrangement with alleged third-party infringers. Although we accept Lockheed's argument that NSI licenses its routing service to domain-name registrants, the routing service is just that--a service.   In Fonovisa and Hard Rock, by contrast, the defendants licensed real estate, with the consequent direct control over the activity that the third-party alleged infringers engaged in on the premises.  Hard Rock, 955 F.2d at 1149;  see Fonovisa, 76 F.3d at 265.



Finally, Lockheed argues that the district court abused its discretion in failing  to grant leave to amend its complaint to (1) add a contributory dilution cause of action and (2) include allegations of several other offending domain-name combinations.   As a general rule, leave to amend should be "freely given when justice so requires."  Fed.R.Civ.P. 15(a); Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962).   We consider four factors when reviewing a decision whether to permit an amendment:  (1) bad faith on the part of the plaintiffs;  (2) undue delay;  (3) prejudice to the opposing party;  and (4) futility of the proposed amendment. Griggs, 170 F.3d at 877.


Although we conclude from the above discussion that the district court was well within its discretion to deny Lockheed leave to amend its complaint, the fourth factor--futility of the proposed amendment--also supports the decision.   Where the legal basis for a cause of action is tenuous, futility supports the refusal to grant leave to amend.  Morongo Band, 893 F.2d at 1079.   Although courts have discussed contributory dilution, no appellate court or statute has yet established the cause of action.  Academy of Motion Picture Arts & Sciences v. Network Solutions, Inc., 989 F.Supp. 1276, 1279 (C.D.Cal.1997).

 The one court to recognize the contributory dilution cause of action defined the claim as encouraging others to dilute.  Kegan v. Apple Computer Inc., 42 U.S.P.Q.2d 1053, 1062 (N.D.Ill.1996).   The proposed cause of action thus appears to import the definition of "contributory" from Inwood Lab., 456 U.S. at 854, 102 S.Ct. 2182.   Indeed, Lockheed's proposed amended complaint alleged that NSI continued to supply its routing service to registrants, knowing that these parties were diluting Lockheed's "Skunk Works" service mark.   As we have already concluded, however, NSI does not supply a product or engage in the kind of direct control and monitoring required to extend the Inwood Lab. rule.   We agree with the district court that futility supports its decision to refuse leave to amend the complaint.


 NSI requested attorneys' fees pursuant to the Lanham Act, 15 U.S.C. § 1117(a).   We deny its request because Lockheed's appeal was not sufficiently unreasonable or frivolous to constitute an "exceptional case[ ]" as required by the Lanham Act for attorneys' fees to be warranted.


 NSI is not liable for contributory infringement as a matter of law.   Lockheed does not appeal the district court's decision on its infringement, unfair competition, and dilution claims against NSI, and the district court did not abuse its discretion in refusing leave to amend the complaint.   We have also considered Lockheed's request for judicial notice and motion to strike and deny both.