The value of the domain is that someone could buy it and do an imitation of lamebook.com--just like failbooking.com did. Obviously, it would be original content, but the subject matter would the the same. Anyone who said, I could do a much better job of this than failbooking.com and $50,000 is worth it for an infinitely better domain would see the value. Also, the asking price is not the selling price.
I did a trademark search and can't see where either of them have filed a trademark, so I don't see how there could be a trademark violation or a dilution of the mark. What mark?
Since failbook was registered in 2006, it looks like it was just trying to be a parody of facebook that never got implemented. One could assume they were trying to capitalize on failblog.org, but that wasn't registered until 2008.
Since failbooking.com is just an imitation of other sites like lamebook.com, I have a hard time getting worked up about failbook.com's supposed stealing failbooking's content--especially since it wasn't stolen. It seems clear to me that Pet Holdings wanted failbook.com but didn't want to pay the price. Pet Holdings is the only company that really knows how valuable failbook.com is because it's supposedly getting traffic that's intended for failbooking.com. Since failbook.com was just framing failbooking.com and all the traffic was going to failbooking, the real risk that Pet Holding faced is that one day failbook would either, 1) decide to point somewhere else, or even worse, 2) follow Pet Holding's lead and do a lamebook.com imitation. In that case, Pet Holding would lose the traffic that was going to the infinitely better domain name. Rather than negotiate, Pet Holdings decided to take the nuclear option, file a lawsuit, and use their deep pockets to force the transfer of the infinitely better domain name. Pet Holdings is obviously the slimy one in this case. They ripped off other people's ideas now they're trying to take someone's domain. The calculus is simple: pay $10,000 to $15,000 in attorney's fees or $50,000 for the domain. If you win the lawsuit, you not only save a lot of money on the domain, you also increase your reputation in the online community as one who is willing to drop loads of cash to get your way.
The idea that failbook.com was going to increase there traffic and then sell the domain to an unsuspecting buyer who didn't realize that the domain didn't include the content is crazy. I realize there are lots of unsophisticated people out there, but I don't think those people are paying $50,000 for a domain w/out knowing there's no content behind it. If they are, they can post about it on fmylife.com. And if they do, I'll vote "you deserved it." (Hmm, I wonder if Pet Holdings going to launch FingMyLife.com or fmylifeblog.com?)
I really wish failbook.com had been more than a stub. I would have liked to have seen them go after failbooking to see if they could get the domain.