Renew Domain Names!
Deborah A. Wilcox and Rosanne T. Yang

For the past few years, many companies have been downsizing their domain name portfolios in the belief that the domain name speculation market had cooled.  There has not been, however, a corresponding decrease in domain disputes.  Last year saw a 20%  increase in the number of domain name cases filed with the World Intellectual Property Organization.  The domain name market has been reinvigorated due to the development of new and abundant revenue sources for cybersquatters, and large corporations backed by venture capital are getting in on the act.  Companies must now re-examine their domain name portfolio strategies in light of this novel environment.

"Drop Catching"

Today’s cybersquatters focus intently on “drop catching”—being the first to register domain names that are released back into the pool of available domain names when registrants fail to pay the renewal fees. When those domain names correspond to trademarks, danger lurks. There are several companies who facilitate this by allowing domain “investors” to back order desirable domains years before they expire. Once a domain name drops from registered status, the domain is awarded to whomever has back-ordered it (if there is only one) or auctioned off to the highest bidder. This process assures that almost every domain name that was once registered will be picked up by an investor if it is allowed to expire. However, the danger does not stop there.

"Domain Monetization"

This new breed of investors in Internet domain names is reaping fantastic profits by virtue of two Web trends: direct navigation and pay-per-click advertising. Articles published in The Wall Street Journal, Business 2.0, and Maclean’s within the past few months discussed the revision of the business model used by domain name buyers. Rather than passively holding a registration in the hopes of receiving a lucrative offer for the name sometime in the future, domain registrants sow their digital fields with ads, thereby ensuring a daily harvest for the here and now.

The value of a particular domain name often is a function of the amount of type-in traffic it receives, i.e., the number of Internet users who bypass a search engine by entering the term directly in the URL field of their browser. For example, those interested in opening a checking account might type CHECKINGACCOUNT.COM into their Web browser. Today, the user is very likely to be served up a “portal” site. The site contains “sponsored results” that are advertisement links for which the advertiser has agreed to pay a fixed amount each time the ads are clicked on by an Internet user.  To compel viewers to click through portals expeditiously, the sites are made purposefully ugly.

“Sponsored results” can be a random selection of advertisements, but increasingly, they specifically target the users most likely to key in the domain name. The speculators hope to build off the traffic that the prior registrant had established under the domain name. This targeting of content and ads dramatically increases the chance that an Internet user will click on the ads. Although the revenue from each click is often only a few cents, or a fraction of a cent, the aggregate profit from thousands of these portal sites can be substantial.  Yun Ye, a legendary pioneer of pay-per-click exploitation, amassed a portfolio of 100,000 domain names that earned him around $19 million per year before he sold it for $164 million in 2004.

“Dictionary” Words

While the hosts of portal sites claim to target generic, dictionary terms in building their domain portfolios, the vast majority of trademarks are also words that can be found in the dictionary. This means that the many domains registered by investors will be capable of some kind of trademark meaning.

While some domain investors may have a solid “generic use” defense, there are many who register domain names in bad faith, i.e., with the intent to wrongly profit from the goodwill associated with its trademark meaning. When the owner of a domain name that is both a trademark and a dictionary word has registered the name in bad faith, this is often evident from the fact that the particular combination of registered “dictionary terms” has no meaning other than as a trademark.

The investor’s bad faith can also be evident from the types of advertisements and other content appearing at the monetized site: these sites will often display prominently—or even exclusively—pictures, substantive content and advertisements relating to the specific goods and services to which the trademark is applied. These advertisements are often for the trademark owner’s competitors.

"Conclusion"

Many domain registrations are lost when the prior registrant accidentally fails to pay the renewal fee, or when registrants deliberately allow seemingly superfluous registrations to lapse, such as domains embodying common misspellings of their trademark. In addition to proactively registering at-risk domain names, trademark owners need to take active measures to guard the domain names that they already control. If they do not, someone else will register them and will likely use them to trade off the goodwill of the trademark and advertise goods and services competitive to the trademark owners’ business.

Deborah A. Wilcox is Co-Chair of Baker & Hostetler's Intellectual Property Litigation Team. Ms. Wilcox manages complex copyright, trademark and e-commerce litigation, from contractual software disputes to the ex parte seizures of infringing character and sports merchandise. Ms. Wilcox is also experienced in copyright, trademark and Internet domain name selection, registration and licensing, both in the U.S. and internationally.

Ms. Wilcox has given many interviews, speeches and continuing legal education presentations on domestic and international e-commerce issues, including online brand reputation and search engine marketing, and has served as an adjunct professor of trademarks.  Ms. Wilcox is a member of the American, Ohio and Cleveland Bar Associations, the International Trademark Association, and the International AntiCounterfeiting Coalition.

Rosanne T. Yang is a member of the firm's Intellectual Property team and is active in the firm's Internet law practice. Ms. Yang has managed the domestic and international trademark, copyright and domain name portfolios for numerous clients, advising clients regarding the selection, registration, licensing and litigation of trademarks, copyrights and domain names.  Ms. Yang's experience also includes advising on the implications and handling of open source software in the business environment, developing Terms of Use for websites, and recovering domain names from cybersquatters. Ms. Yang is well versed in many of the technical and protocol requirements of the Internet, having researched and evaluated software programs, DNS issues, and the legal ramifications of real-time computer intrusion detection.  She is a member of the American, Ohio and Columbus Bar Associations and the International Trademark Association.

About Baker Hostetler

Baker Hostetler is Counsel to Market Leaders. Our clients include businesses and individuals that are leaders nationally, globally, regionally and locally. Many are in the top of their market segments in virtually every industry, and many are household names. Others are leaders of the future—companies with the aspiration and will to drive tomorrow’s high-growth industries.

Founded 90 years ago in 1916, Baker Hostetler is a full-service law firm among the nation’s 100 largest firms, with more than 600 attorneys coast to coast. The firm has ten offices in Cincinnati, Cleveland, Columbus, Costa Mesa, Denver, Houston, Los Angeles, New York, Orlando and Washington, D.C.  For more information, visit the firm’s new Web site at www.bakerlaw.com.