Click and Deliver! Your Money or Your Name!

January 10, 2008

There is a tendency to label anyone who is in the business of making money out of domain names a cybersquatter, and in the process to regard them as guilty of fast practice verging on the fraudulent. But is it appropriate to regard the growing body of entrepreneurs, known as “domainers”, whose livelihood turns on building up large portfolios of domain names, cybersquatters?. Although some domainers may well be cybersquatters, many of them are not cybersquatters in the sense in which the term is generally understood in the law.

Cybersquatters

Cybersquatters register domain names, usually a well-established trade mark, in bad faith to gain some commercial advantage. This usually involves trying to sell it back for an inflated price to a party known to be interested in having the domain name, again usually the trade mark owner. Alternatively, the domain is used to direct traffic to the cybersquatter’s own website and away from a competitor’s. Worse still, some cybersquatters use the domain to damage the true owner’s reputation. Generally though, the difficulties that have arisen between trade mark owners and registrants of certain domain names have been some of the main reasons giving cybersquatters a bad name.

The first-come, first-served system of domain registration, which generally prevails, creates a pressure to be the first to register a domain name. This tends to lead to disputes on the “right” to register. However, simply because you have a registered trade mark or have been using a trade name for a lengthy period does not mean that another person with a legitimate reason for registering the domain and using it in good faith must give it up. One example of this is the Prince Sports case in which Prince Sports were unsuccessful in having the domain www.prince.com transferred to them from Prince Computers in the UK.

Administrative procedures to resolve disputes

There are administrative procedures in place so that domain disputes can be resolved without recourse to the courts. This is vital in view of all the problems with jurisdiction that inevitably arise in a global system like the internet. Domains and disputes are managed by the Internet Corporation for Assigned Names and Numbers (ICANN). ICANN manages generic Top Level Domains (gTLD) such as .biz, .com, .info, .name, .net, and .org, and delegates the registration of domains to registrars. There are over 1,500 accredited registrars, each with their own policies and procedures for registering, maintaining and handling disputes regarding domains.

When registering gTLD domains, the Uniform Dispute for Domain Names Resolution Policy (UDRP) is automatically incorporated into the registration agreement. Complaints can be filed with one of four bodies, the largest of which is WIPO in Geneva. Typically filing a complaint temporarily freezes the domain and prevents it from being transferred to any third party until a decision has been reached. The process is relatively quick and reasonably cheap, with decisions given between 30 – 60 days of filing the complaint.

Countries not using ICANN’s UDRP may use a different form of dispute resolution. For example, Nominet is the Dispute Resolution System (DRS) used for .uk domains, which like the UDRP is conducted online with no requirement for legal representation. Nominet’s DRS is administered by the Centre for Dispute Resolution (CEDR). It will order the transfer of rights of .uk domains, provided you can show that (on the balance of probabilities) you have rights (either “passing off” rights or registered trade mark rights) in the name which are identical or similar to the domain name. Nominet will consider a registration abusive if it creates an unfair advantage or is unfairly detrimental to the complainant’s rights.

Desirable residences

The domains which have reportedly changed hands for high sums of money tend to be generic names in which it is difficult for anyone to claim trade mark rights. For example, “Business.com” was sold for $7.5m, while “Wines.com” went for $3m and “Mortgage.com” for $1.8m. Misspelled domain name “Voyuer.com” was auctioned for $112,100 at Snapnames (apparently this is the highest sale price ever for a misspelled domain name). Clearly even if these figures are inflated hype, domain names can be valuable commodities, and are of huge importance to e-commerce, and on-line branding.

The prices some generic terms have fetched serve to highlight their attractiveness. Even the owners of famous brands and trade marked names have made good use of generic terms as website addresses.

Generic names and domaining

So, generic names are gold for domainers, but names that target a specific audience are also valuable (for example, people looking for information on “eating disorders”). The way in which domainers make money from domain names is not limited to reselling.

Indeed, the business model in the US tends more towards holding domains in a portfolio for web advertising revenue rather than for resale. The function of the domain is then to attract traffic and generate click revenue. The model specifically depends on the 15-20% of surfers who reportedly type a name into a web browser rather than into a search engine. This brings “direct navigation” traffic (as opposed to indirect traffic through a search engine like Google) to the page at which the domain is “parked”(that is the place the domain address arrives at), or to its website if there is one developed, as there sometimes will be.

Where the money comes from.

Imagine you are seeking internet information on job openings, and type into your web browser “careerinfo.com”, hoping to find a useful site. You would reach a website populated with job-related keywords. The domain owner, (sometimes referred to as a “click farmer”) would collect revenue each time you clicked on one of the featured ads.

The domainer’s revenue would be by way of a commission from Google or other search engines. Although the amounts per click may be quite low, for a high volume site the numbers soon mount up to large figures.

The reason the revenue comes from Google or Overture or other search engine is that advertisers enter into arrangements with Google or other search engines to pay whenever someone clicks on their ads. In order to get their links listed high in search results they bid on keywords. So, if the amount being paid per click for a keyword like “career info” were $3.06, then Google or other search engine would keep the entire amount if the click on the advertiser’s ad came directly from the results displayed on its own pages. However, as ads are sometimes also sub-contracted out, so that they display on a network of third party sites (that is, domainers’ sites), if the click on the advertiser’s ad comes from a third party’s page or website then Google or whichever other search engine has the primary contract with the advertiser, would share the $3.06 with the click farmer.

Internet marketing firm Marchex Inc reportedly paid $164.2 million recently for a company, Name Development Ltd, which owns a large portfolio of domain names. Marchex estimated that the Name Development portfolio had more than 17 million unique visitors in November.

There are many facets to domain names, and knowledge about how the industry works is useful for businesses seeking to do business online, and choosing domain names. In future articles we will look at pitfalls in speculating on domains, valuation of domains, the UK domainer business, domain disputes, and the pros and cons of using administrative procedures as against court proceedings to retrieve domain names.