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This Simple, But Brilliant Legal Strategy Saved Dropbox

This Simple, But Brilliant Legal Strategy Saved Dropbox

The year was 2007, MIT students, Drew Houston and Arash Ferdowsi, had the computer science background and started to put together some of the code that would become the seed of today’s most popular file-sharing software.  The idea of a simple computer folder that would allow users to access files anywhere was born.

Drew and Arash knew they were onto something when Y Combinator, the now-renowned Silicon Valley start-up accelerator, invested their business.

There was just one problem. Drew and Arash did not own the company’s name.

The domain name www.dropbox.com was owned by an individual who was not using the domain.  Drew and Arash tried to contact the owner several times and were told the domain was not for sale, no matter the price.  After their last attempt, the owner ignored them for 6 months and Drew and Arash decided to drive to the guy’s house with a bottle of champagne.

At one point, Drew and Arash offered the owner stock in the company which would be worth hundreds of millions of dollars today

The two explained why they were interested in the domain and that they had just gotten funding from Sequoia, a prominent investment fund.  Despite their efforts, their offer to buy the domain was rejected once again and the individual said not to contact him again.

Left with no other choice, Drew and Arash launched Dropbox with the domain GetDropbox.com.  At that time, the owner of Dropbox.com added advertising to profit from his otherwise blank webpage because it started getting so many hits with the launch of Dropbox.

Now, what had be a mere annoyance at the inability to get the domain name of their company, was becoming a real problem for Drew and Arash because competitors’ ads appeared on the website.

At this point their trademark attorney helped them file a lawsuit alleging violation of U.S. Trademark laws.  The lawsuit specifically cited the Anticybersquatting Consumer Protection Act. The Anticybersquatting Consumer Protection Act (ACPA), 15 U.S.C. § 1125(d), is a U.S. law enacted in 1999 that established a cause of action for registering, trafficking in, or using a domain name confusingly similar to, or dilutive of, a trademark or personal name.

For this strategy to work, they had to show that they had a registered trademark with the U.S. Patent and Trademark office.  They rushed to get Dropbox filed, but when they filed for the trademark in 2009, their application was rejected because there were two other registered trademarks using the words “Drop” and “Box.”  The U.S. Trademark Examiner cited these two registered trademarks as precluding the use of the name by Drew and Arash completely.  Not only could they not register the name Dropbox, but they were forbidden from using it.  This could have sunk the company before it ever got off the ground.

Their trademark attorneys argued using a series of case citations and legal precedent that the trademark should be allowed and they ended up succeeding.

Now that Dropbox had the trademark, the owner of Dropbox.com had no choice, but to settle.  At one point, Drew and Arash offered the owner stock in the company which would be worth hundreds of millions of dollars today, but he turned it down.  Eventually, the strength of the trademark lawsuit forced him to settle, and settle he did…for $300,000 Dropbox.com was Drew and Arash’s.

 

If you have any questions or comments, drop me a line ben@greenandgreen.com

 

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