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The Spontaneous Development of the Domain Name Market

From a panel talk at the Fordham International IP Conference, New York City April 6, 2018

If we traveled back in time, we would discover that unauthorized squatting on someone else’s property is an ancient tort, but in cyberspace, it dates from the mid-1990s. Its emergence brought together governments and intellectual property stakeholders to demand a rights protection mechanism devised to deal with this new form of squatting. In 1999 the World Intellectual Property Organization (WIPO) completed its work on a proposal for an online rights protection mechanism which the Internet Corporation for Assigned Names and Numbers (ICANN) crafted into the Uniform Domain Name Dispute Resolution Policy (UDRP). WIPO, in its Final Report, included some harsh words for those who engaged in unauthorized squatting, branding them as “predators” and “parasites.”

That was not the whole story, of course. The recommendations for assessing abusive registrations of domain names also recognized there were innocent and good faith registrants, although the cases decided in U.S. courts before Congress enacted the Anticybersquatting Consumer Protection Act (ACPA) were of the predator/parasite variety. There were not then any clear principles or set of factors ready-made to separate the wheat of innocence from the chaff of guilt.

The job of creating a new jurisprudence fell to UDRP Panels appointed to hear disputes of alleged cybersquatting. They immediately began filing reasoned decisions. WIPO in its provider hat administered around 1800 disputes in the first year. As of today, all the providers combined have administered over 60,000 disputes, yielding (roughly) 40,000 plus decisions (approximately 20% of complaints are withdrawn and proceedings terminated). It can be roughly guessed why complaints are withdrawn, but one of them may be surprising, and I will hold it until the end.

It is clear in reviewing the 18 years of decisions that Panels accepted the twin propositions from the WIPO Final Report and ICANN’s Second Staff Report that 1) it was not the goal of the recommended process “to accord greater protection to intellectual property in cyberspace than that which exists elsewhere” and 2) there are many reasons for registering domain names that by happenstance correspond to marks earlier used in commerce (but not known by the registrant when acquired).

As Panels immediately began construing the minimalist prescriptions of the Policy and Rules, there emerged a jurisprudence mark owners, and investors could rely on in that it produced consistent and predictable decisions. It quickly became apparent that as marks descended the classification scale to dictionary words, common expressions, acronyms (not particularly or alone associated with any particular complainant), and descriptive phrases, over which owners could not claim to have exclusive rights, they had less protection than those well-known and famous. Even though marks predated domain name registrations there had to be proof that their reputations were such as to put registrants on notice of their existence. Reputation can be a key factor in determining bad faith.

So, for example, in September 2000 (the 16th decision), a Panel determined that registering dictionary words (in this case “allocation”) as domain names could not be found unlawful absent concrete proof respondent was actually targeting complainant’s mark. The parties were located in Germany and the United States. There was no proof of targeting, and the complaint was dismissed. The decision was good news for investors in bolstering their confidence that trading in domain names was viable even though at that time there was no secondary market for profiting from them.

Very briefly I want to offer some thoughts on 1) how the secondary market took root, 2) What facilitated its rise and consolidation, and 3) where the inventory for the secondary market came from. Paradoxically, the emergence and consolidation of a secondary market lies in the convergence of four intertwined circumstances:

  • First, there is a well-established trademark law principle that parties cannot monopolize words to the exclusion of their lawful use by others;
  • Second, there was a consensus among competing interests that the UDRP was to be a conjunctive regime. Both WIPO and ICANN rejected arguments from the trademark constituency to have a disjunctive requirement for defining abusive registration.
  • Third, the commodification of language parts which I will briefly explain (dealt with at greater length in Origins of the Competition; and
  • Fourth, the emergence of a jurisprudence of domain names based on an accumulating base of well-reasoned decisions available in publicly accessible databases.

I am not claiming that there would be no secondary market without this convergence, but I am claiming that such a market would never have become what we are now experiencing if there had been no convergence.

We must approach the three questions about the secondary market by first recognizing that there is a direct correlation between the shrinkage of cultural resources that businesses once drew upon for finding appropriate names in the marketing of their goods and services and the market’s emergence and consolidation.

What I mean by a shrinkage of cultural resources is that twenty-five years ago (before the Internet) words, random letters, phrases, and descriptive expressions were as free as air. The only competitors for such common lexical parts were other businesses looking for suitable marks to identify and distinguish themselves from others. That is no longer the case. Now, if businesses are looking for a one to four or five letter domain name or combined words (adjectival or adverbial phrases) corresponding to their marks or brands they most likely will have to pay for them from investors who got there first.

Immediately upon the implementation of the UDRP, Panels conscientiously began measuring the metes and bounds distinguishing good from bad faith registration of domain names in well-reasoned and publicly available decisions. At the same time, investor-entrepreneurs intuitively began vacuuming up immense inventories of domain names composed of dictionary words and other common terms, in essence taking them out of the public domain and privatizing them.

This had an immediate impact on both owners of the earlier acquired marks and new businesses. Mark owners discovered they had to live with a new reality that others could legitimately hold identical or confusingly similar domain names even though they were identical or confusingly similar to earlier acquired marks. New businesses learned they had to pay for lexical strings that before the Internet were waiting to be discovered.

Certainly by 2005 when WIPO published the first of its overviews of the jurisprudence, now in its third edition, it was evident that the UDRP was not a rubber-stamp forum for owners whose marks were capable of having unrelated and therefore noninfringing associations. So, for example, there are numerous decisions involving what complainants allege are acronyms and respondents deny as random letters—“lgg,” “dw,” “lfo,” “ssx,” “usu,” “ktg,” jat,” “ivi,” “dll,” and many more. Recent words and combinations include <glory.com>, <fabricator.com>, <myboutique.com >, and <insuremyfood.com>.

The jurisprudence as it has developed has affirmed a well-established principle of trademark law, namely that it is not unlawful to have registered domain names identical or confusingly similar to trademarks as long as the registrations are not for the purpose of taking advantage of the goodwill and reputation mark owners have built up in their names. What trademark owners learned was that they could only prevail by proving respondents both lacked rights or legitimate interests in the accused domain names and had registered them in (conjunctive) bad faith. This is not an easy burden to satisfy for marks composed of common lexical parts.

As the jurisprudence matured and consolidated, so has the market for domain names. The reason for this is obvious. Consistency stabilizes markets by giving confidence to investors that they can rely on the application of a stable body of law. As a result, we find that domain names sold on the secondary market are rarely contested in UDRP proceedings. For the most part, the UDRP docket is filled 90% with claims of infringing well-known and famous marks for which there is no unassailable defense. The balance of claims is against large and small investors holding domain names composed of strings attractive to many businesses. It is rare (very rare!) for complaints against domain names acquired in the secondary market. There have some challenges of domain names acquired through public auctions [Rolyn Companies Inc. v. Mediablue Inc., D2018-0072 (WIPO April 4, 2018) (<rolyn.com> auctioned after company by that name went out of business, thus not unique to Complainant).

As seen from the perspective of new businesses, domain names can reach into the stratosphere. Examples of recent sales in the secondary market include <myworld.com> and <super.com> both for $1.2 million, <great.com> at $900K, <pisces.com> at $80K, and <resolution.com> at $50K, but there are numerous reported every week in the low hundreds or less. With the secondary market having reached a degree of maturity, beginning in 2015 portfolios of domain names began to be purchased by larger domain businesses. We can think of these new investors as the Woolworths of the present age. They operate supermarkets of domain names. If you go to any of them, you can search for a desired string. Prices range from a few hundred to many thousands of dollars.

These portfolios carry some risk. Whenever there is a transfer of rights to domain names the transferee’s good faith is measured from the date of its acquisition not from the acquisition by the original registrant. This creates a potential exposure for successor domain businesses selling domain names from portfolios that may have been lawful when originally purchased but may no longer be lawful for the transferee. As a consequence, and because they do not want to be labeled cybersquatters, these supermarkets generally transfer domain names if they believe mark owners can prevail in UDRP proceedings (this from private conversations), hence the reason for some of the withdrawals of complaints.

Final thoughts: We owe a healthy secondary market for domain names to a set of fortuitously converging circumstances. If there had been no convergence, there would be no or only an anemic secondary market for buying and selling domain names. If the UDRP were to be suddenly stripped of any of its key provisions (amending conjunctive bad faith to disjunctive for example), the market would collapse.

By Gerald M. Levine, Intellectual Property, Arbitrator/Mediator at Levine Samuel LLP

Information about the firm can be found on the Firm’s website at iplegalcorner.com. Mr. Levine has a litigation and counseling practice representing clients in Intellectual Property rights and management, Internet and Cyberspace issues, domain names and cybersquatting, as well as a diverse range of legal and business matters from working with client to resolve commercial disputes, to copyright and trademark counseling and registrations. He is the author of a treatise on Trademarks, Domain Names, and Cybersquatting, Domain Name Arbitration: A Practical Guide to Asserting and Defending Claims of Cybersquatting Under the Uniform Domain Name Dispute Resolution Policy. A Second Edition of the treatise was published July 2019 and is available from Amazon or from the publisher, Legal Corner Press (LCP). For inquiries to LCP write to .(JavaScript must be enabled to view this email address) or Mr. Levine at .(JavaScript must be enabled to view this email address).

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