[Post by Nathan Webb]

As Internet-based business ventures have exploded over time, the commerce in domain names has followed suit. Here are some issues you should consider when purchasing or selling a domain name:

1)     Sale v. The Legal Route: Confirm you do not have a right to the domain name being offered for sale. Often, cyber-squatters register domain names that are either typo-variations of trademarks, or in some cases, exact matches to a trademark, in an effort to ransom off the domain name to the trademark holder. If this is the case in your instance, consider talking to counsel to determine if you can initiate a legal action to compel the seller to turn the domain name to you (e.g., under the Anticybersquatting Consumer Protection Act or Uniform Dispute Resolution Policy)

2)     Due Diligence: Do your due diligence. Do a thorough background check on the seller and the domain name’s history. A simple Google search on the seller is a nice start. You may be able to learn if the seller is litigious, has a history of “cyber-squatting,” or other red flags. Additionally, use the Internet Archive to research the history of the domain name and the websites previously available on the domain name. You can address red flags in the purchase agreement (e.g., reps and warranties, indemnity). Do your due diligence on the registrar as well.

3)     Mitigate Your Risk by Properly Structuring the Payout: For transactions involving a significant amount of money, do not instantly agree to pay the money up-front to the domain name seller. Under the worst case scenario, the seller can simply keep your money and run to Dubai for some rest and relaxation, without conveying you the domain name. When representing a domain name buyer, we often propose a two-step payment process, i.e., 50% of the purchase price upon signing the deal, and the remaining 50% when the public WHOIS records show that the buyer is the registrant of the domain name. This incentivizes the seller to help with the transfer process. A buyer could also agree to delay payment until it receives an email confirmation from the registrar that the domain name seller has initiated the transfer process. Finally, for larger domain name acquisitions or sellers with red flags, consider an indemnity holdback (e.g., 10% of the purchase price) that gets released to the seller at 6 or 12 months after the purchase (that the buyer can draw upon if the seller breached any reps or warranties that cause the buyer to incur costs). Finally, consider using an escrow service to hold the money until the transfer is complete.

4)     Trademark Rights: Don’t forget about trademark rights. Even if the seller didn’t file a trademark registration for the domain name, the seller could have common law rights in the mark. Consequently, be sure to have the seller assign to you all trademark rights in the mark incorporated into the domain name.

5)     Typo-variations: Consider a restrictive covenant and check for typo-variations. Request that the seller disclose all domain names that the seller owns, so you can ensure that he or she is not keeping typo-variations of your domain name (or perhaps an identical domain name under a different country code or top level domain). Also, there are online services that will allow you to identify other domain names owned by a seller (we are fans of Domain Tools). The purchase agreement should list out all the domain names you are acquiring. Finally, attempt to negotiate a post-closing covenant that provides that the seller will not register similar domains or trademarks that are similar to any domain names and marks you are acquiring.

6)     Website Content: Deal with website content. If the domain name you wish to acquire propagates a website on it, clearly note in the purchase agreement whether you are acquiring the website (and the assets and liabilities that arise from such website). If you are acquiring the website, you should review the website for any red flags (e.g., infringing material, inadequate privacy policy) and deal with such red flags in the purchase agreement. Additionally, if you are acquiring the website, be sure to delineate in the purchase agreement how you will take over such content (e.g., passwords, license agreements, web hosting agreements, hardware). If website content is conveyed to you, propagate a DMCA takedown policy, before the domain name is transferred to you — this may minimize copyright and other infringement claims against you.

7)     Your Communications May be Used in Litigation: Keep in mind that any communications you send may be used in a dispute relating to the domain name. If you intend to assert your rights, it may still be worthwhile to approach a domain name registrant and solicit an offer. But if you do not reach an agreement and proceed to a dispute, your initial communications may be used by the registrant to argue the issue of bad faith (i.e., that they did not offer the domain name for sale, but you approached them with an offer).

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