The top 3 legal issues when buying and selling domain names

In this day and age we have local council’s using Google Earth to find illegal structures in people’s backyards. In Queensland, Australia, for example, if you put in an aboveground swimming pool in your garden, you end up with someone knocking on your door, handing you a fine and demanding you drag the kids out of it and destroy it – all because you didn’t comply with the pool fencing regulations! Ok, rant over and I hear you asking, what on earth has pool fencing got to do with domain names?

Well, I was thinking of presenting you with the a-z of regulations for domain names (local registrar = local council) and explaining why every one of them is a possible road-block to your dreams. But in the end I thought that would not only be boring, and potentially stop you from chasing the fun of a great deal, but ultimately unnecessary because in the end it really is quite simple.

What it comes down to is:

1. Does the person selling the domain name actually have the legal right to sell it?
2. Does the person selling the domain name actually have the present ability to transfer the domain name upon sale?
3. Who else out there is likely to want to fight you for the domain name?

And in reality, just like local councils, unless something is out of the ordinary it gets channelled through the automatic processes with very little consideration and comes out the other end transferred, or not transferred. All the regulations only become an issue once there is a problem, and a high percentage of the time there simply isn’t a problem.

So how do you best ensure your transaction is one of the majority that don’t have a problem?

Does the person selling the domain have the legal right to sell?

Remember that domain names are like post-boxes. You only have access to it for as long as you pay the annual fees and the annual fees give you a licence (key) to use the domain name.

In the days before WordPress, lots of development companies registered their client’s domain names. Often this was simply because the client didn’t know the difference. Even today, there are plenty of companies out there that retain a domain name when their clients want to build a site. All those ‘free website’ building packages do exactly that. So the right to transfer a domain name is not necessarily straightforward.

Naturally the first thing to do is check ‘Whois’ to discover who is listed as the named registrant. Only the registrant has authority to transfer the domain name. As a buyer or seller, you don’t want to get a message like this:

This transfer was cancelled as the whois information provided does not match current registrant. When submitting a fax transfer, the registrant information you input when initiating the request must match the current whois information (registrant/admin contacts and address/phone – email does not have to match) from the current registrar. If this information does not match, the transfer will be rejected.

Don’t assume that just because you get the billing information and other updates from the registrar that you are the named registrant. You might just be the listed tech, admin or accounts contact. I’ve seen people go for years thinking they were the registrant because they got all the information, only to discover at the crucial moment that they are not.

If the registrant was a long lost developer we at least have the benefit of LinkedIn and Facebook to find people, something much harder even seven years ago. Issues you need to be prepared for before contacting a long lost developer:

• Does your registrar charge fees for changing the registrant? Some do.
• Who is going to pay a transfer fee? Hint: That would be you.
• What if the developer wants a fee before transfer? The cost of dispute resolution under uniform domain name dispute resolution policies starts at around $2,000, so be prepared.
• What process do you have to go through and how much can you do yourself without the cooperation of the developer?

Tips about negotiating:

• Don’t make demands, ask questions and be helpful.
• Prepare before any conversation and don’t get angry. Most people can’t tone their language down enough to take the anger out of a conversation whether it is via email, skype, phone or text message. Breathe and stay calm. The easy solution is to be persuasive, not combative.
• Know your bottom line and what it means to you if you don’t get it. Be prepared to walk away.

If you can’t correct the registrant details, you can still change the admin, tech and billing details. It is a higher risk, but some people are prepared to take that risk.

If you are the seller, you may have to talk the buyer through this and be prepared to take a cut in your ideal selling price. Know the history and be able to reassure the buyer that the registrant has done nothing in the last 5 years, so you don’t expect that to change.

If you are the buyer in that situation, consider the risk and whether or not it is worthwhile to you. If you’re building something small you can move quickly where the branding doesn’t necessarily match the domain name, is that domain name worth the risk? Maybe. If its big money or brand-centric, the answer is probably ‘No’. Not unless you want to take the legal action to regain control. Always seek the strongest rights possible to control what you are investing in.

Does the person selling the domain have the present ability to transfer the domain upon sale?

This is more of a techy issue than anything else. There are loads of enthusiastic amateurs who don’t actually know what needs to be done to transfer a domain name fully and promptly.

If you are the seller, be prepared to do all the hard work to get the domain transferred. Even if you put in your Flippa add that the buyer has to sort it out, once you take payment for the domain name you are legally obliged to do everything reasonably possible to get that domain name transferred to the buyer. If the buyer is not sophisticated, what is considered reasonable can be a lot more than you expect. Be prepared!

If you are the buyer, don’t expect the domain name to magically appear in your account overnight. Find out who the current registrar is and what is involved in moving a domain name to either a new account, or a different registrar. If you are using a different registrar, look up the rules and processes that your registrar has before the sale is due to complete. Again, be prepared! The more proactive you can be in the process, the quicker you get your domain name. Once the transfer is through, double check all the tech, admin, billing and registrant details to make sure they match what you wanted, and tell the registrar about corrections immediately.

Any delays in a domain name transfer can increase the risk of registration lapsing and you losing your rights.

Who else out there is likely to want to fight you for the domain?

We’re delving into the area of business names and trademarks here. Some examples of cases I’ve been involved in over the years are:

• A person with the same name as the domain name (eg. BarbaraSmith.com).
• A foreign company wanting to move into a new market, whether or not they have any existing presence in that market.
• For generic names, every other business of that type! (eg. Cheapsheds.com.au).
• The supplier of a product or service who has distributors adding the trademark to their domain name without permission (eg. every MYOB site out there).
• Anyone else with a registered trademark of a different class.

Trademarks deserve a little more attention. There are 45 classes of trademark and you can register the same name in different classes without infringing on the first trademark. A great example was when Internet access provider RoadRunner Computer Systems ended up with control of the domain name Roadrunner.com. Not surprisingly, Warner Brothers complained, but had little basis to do so. RoadRunner CS had just as legitimate an interest in the name. The dispute was settled, however, and Time Warner now has control of the domain name.

Look around. Do some online searching and at least check your country’s trademark register before you get too excited about a domain name. It might be alright to own it, but if you have a battle looming as soon as you start to use it, what is the point?

If you are the seller, do your homework and be able to show the buyer how you have mitigated the risk. I’ve recently worked with a client who was excited about buying a niche website just right for them only to discover that someone else had the registered trademark (unused) in the same class and the same country. The cost of a trademark dispute can be anywhere from $5,000 to $25,000. We had to look at the site income, their strategy, risks and prospects. You’ll understand that what they were prepared to pay was immediately reduced.

Different countries have different rules. In some places, it is ‘buyer beware’ and in other places, the seller has to provide full disclosure of all the risks or be liable after the sale. Know the rules that apply to you and be prepared. If there is a risk that there will be an argument over a domain name, whether you are the buyer or the seller, you need to know where you stand and what strategies you are going to use to get the best deal.