educational

Analyze Choices When Acquiring Domains

Corey Silverstein

According to the Verisign Domain Report (January 2015), the third quarter of 2014 closed with a base of 284 million domain name registrations across all top-level domains (TLDs). Verisign goes on to report that registrations have grown 6.8 percent year after year. New gTLDs (generic top-level domains) seem to be appearing on an almost daily basis and there is no reason to expect this pattern to change in the near future. The volume of domain sales continues to rise and domain auctioneers and marketplaces continue to enjoy financial prosperity.

The Verisign website (VerisignInc.com) is an incredible resource for individuals and businesses in the domain business. In addition to the detailed briefs that include statistics, analysis and breakdowns, the Verisign website also includes resources related to improving your online presence and cyber security. At no cost to its visitors, the Verisign website contains videos of past live presentations that cover a range of topics. These resources can be invaluable to your success in the domain business.

Whatever mechanism you choose to acquire a domain whether it be an outright purchase, lease, or other arrangement, it is essential that you have a well written contract reflecting the terms of the agreement between the parties.

Many people erroneously believe that buying a domain outright from a seller is the only mechanism to acquire a domain. It is not. The domain leasing business is booming and people are inventing more creative ways to acquire domains.

Acquiring a new domain is similar to acquiring real estate. Like real estate, a domain can be purchased outright, or leased. Also, as with real estate, the value of a domain can be increased by developing a website (on that domain) that grows substantial traffic. And just as you wouldn’t enter into a real estate transaction without a written contact, it is not advisable to enter into a domain lease agreement without a written contract containing the terms of the lease.

Just as with real estate, there are pros and cons of domain purchases and domain leases. When weighing whether to purchase or lease a domain, a careful analysis should be made. It’s important to note that while domain purchases and leases are the most common way to acquire a domain, they are certainly not the only options available.

As we analyze the choices for domain acquisition, let’s assume that the domain you are looking to acquire is fairly substantial in value and the parties are working without the assistance of an intermediary such as sedo or godaddy.

Domain Buying

The simplest and most common manner to acquire a domain is to purchase it outright. Most domain purchasers believe that buying a domain outright is the best option because the transaction is quick, smooth and clean. However, often times the purchase price for a domain may be outside the budget of the purchaser, and the seller may be unwilling to extend payment over time.

For illustration purposes Porn.com was sold in 2007 for $9.5 million and sex.com was sold in 2010 for $14 million. Both of those purchases were well beyond the financial reach of most people and businesses. In these cases, domain leasing may be the more viable option.

Domain Leasing

Leasing a domain name can be very beneficial especially when the acquirer does not have sufficient funds to purchase a domain or when the acquirer is unwilling to outright purchase a domain for reasons such as, concern about not being able to launch a profitable website on the domain or reservations about fully committing to a particular domain. Domain leasing can be quite beneficial in the right circumstances but it can also lead to a big headache in the future. Some of the problems that arise with domain leasing occurs when the domain owner desires to terminate the relationship, when the domain owner desires to raise the lease rate or when the domain owner loses ownership of the domain to a third party. In all of these instances the result can be disastrous especially if the lessee has built a successful product.

The concept of a lease is the same regardless of the product being leased. In a lease transaction a contractual relationship is created between a lessee (user) and the lessor (owner). In a leasing transaction, the lessee gains control over an asset for a set period of time and for an agreed upon rate.

During the lease the lessor maintains his ownership rights over the asset. Domain leases frequently contain an option to buy so that if the lessee desires to keep the domain at the conclusion of the lease term a lessee’s concern that the domain is successful, and he could lose the domain at the end of the lease, is eliminated.

However, leasing a domain with an option to purchase is still dangerous because the possibility exists that a lessee won’t have the money to pay for the option at the conclusion of the term and control of the domain would revert to the lessor.

Whatever mechanism you choose to acquire a domain whether it be an outright purchase, lease, or other arrangement, it is essential that you have a well written contract reflecting the terms of the agreement between the parties.

Domain purchase, and lease agreements will each have unique provisions but they will all contain essential terms such as, the identity of the parties, the domain(s) that are subject to the agreement, the term (length) of the agreement, the consideration for the domain, and other deal specific terms. I cannot count the number of cases that I have seen during my career that have involved domain deals that have gone terribly wrong, mostly as a result of either a lack of or poor contract drafting.

It’s often difficult to see all of the things that can go wrong in the future when you are excited upon acquiring a new domain but it is essential that emotion be pushed aside so that you can think clearly and ensure that you won’t face potential devastating future consequences. Lawyers spend years mastering the art and science of contract drafting and it’s never a bad idea to run your potential domain acquisition past an attorney with substantial domain experience.

Even though books can be written about issues involving the acquisition of domains unfortunately this article is limited by length restrictions. Nonetheless, it is essential that prior to acquiring or registering a new domain that you do some due diligence to ensure that you are not violating a third party’s intellectual property rights, such as a trademark or service mark. Domains and intellectual property disputes are incredibly common and it is very easy to unknowingly (or knowingly) acquire a domain name that infringes upon another’s rights.

Instead of buying yourself a new asset, you can very easily end up purchasing yourself a UDRP proceeding or lawsuit. There are very good lawyers with a tremendous amount of experience in the arena but if you choose to proceed without the assistance of a lawyer (against my recommendation) it is essential that you do your homework, which should include at the very least a search at the USPTO website (USPTO.gov/trademarks), and spending the money on what’s known as a “Thomson Report” (Trademarks.Thomson-Reuters.com/?cid=98).

Acquiring a new domain is always exciting but I hope that this article will slow you down and make you carefully analyze your choices before proceeding.

This article does not constitute legal advice and is provided for your information only and should not be relied upon in lieu of consultation with legal advisors in your own jurisdiction. It may not be current as the laws in this area change frequently. Transmission of the information contained in this article is not intended to create, and the receipt does not constitute, an attorney-client relationship between sender and receiver.

Corey Silverstein is the managing and founding member of the Law Offices of Corey D. Silverstein P.C. His practice focuses on representing all areas of the adult industry and his clientele includes hosting companies, affiliate programs, content producers, processing companies, website owners and performers, just to name a few. Silverstein is especially familiar with the latest amendments to 18 U.S.C. § 2257, DMCA issues, obscenity laws, copyright claims, corporate law (including international incorporation), criminal defense and various other areas of the law. Silverstein can be reached through MyAdultAttorney.com or by email at corey@silversteinlegal.com. He can also be contacted by telephone at (248) 290-0655.

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