Wednesday, August 24, 2011

Getting the (Right) Domain of Your Dreams

Using a short, brandable domain name has always been an important element of any web startup’s success; a necessary but not sufficient condition (see et al.). Last week Fred Wilson wrote a great post on how he thinks startups should go about procuring domains. He offered a list of tips for those going through the domain buying process, which I was inspired to add some thoughts to:

“Don’t obsess about getting a name that is descriptive.” This is a great point, especially when viewed through the lens of trademark law. To establish trademark rights in a brand that also describes your goods or services, you have to be able to show “secondary meaning”, i.e. that when consumers see your brand, they read it to indicate that you are the source of those goods or services, not just for that descriptive meaning. Tim Ogilvie points out in the comments to Fred’s post that this can lead more people to be comfortable registering similar domains to profit off of your investments in driving traffic. Kickstarter was a great choice that edged up to this line, but arguably stayed in the less problematic territory of “suggestive” marks. Zynga obviously did just fine staying at the far end of the spectrum with a made-up, “fanciful” mark, just like Pepsi, Exxon, Reebok, Verizon, and many other Fortune 500 companies.

“If you own a domain that can work, give it serious consideration.” This is also good advice, with the caveat that you should make sure that domain isn’t already just a typo away from another brand (see above). To work off Fred’s example, you may have owned for years, and it might seem like a perfectly serviceable brand for your crowdsourced directory of “oh snap!” quotes, but that doesn’t mean it’s not going to be more trouble than its worth. I’m not suggesting that Zynga could just waltz up and take the domain from you—we’ve won similar cases—but you could easily spend as much money in such a fight as you could have buying a new domain in the first place.

“Be prepared to pay up for a good domain.” Fred thinks it’s unlikely you’ll find a good domain for less than $10,000, and that’s certainly in the range we’ve seen. It’s a wide range—we’ve been involved with sales ranging from hundreds to millions of dollars—but it’s an important data point to see an expert early-stage investor who is willing to send up to $50,000 of his money out the door immediately to get the right domain. You may not feel like paying for an intangible asset rather than productive man-hours at this point in your startup’s life, but if it’s the right domain, you will end up buying it, and it’s only going to get more expensive.

“Think about rent to own.” This is an interesting option that we’re starting to see more frequently, and it can be the most feasible option if the owner wants cash and you have very little to spare at the moment. It’s also good if you have a fairly tentative, non-descriptive brand that you’re working with, because it may lower the cost of rebranding; you only pay for the time you use, so if you find that just isn’t forging a connection with users, you can leave it behind more easily. That said, you might be able to get more than you paid for a domain in the end, but domain speculation isn’t core to most startups’ businesses; it’s likely not worth the distraction.

“Think about offering equity instead of cash.” You have far more of the former than the latter in the early stages, and the domain seller might very well be interested in taking the risk to get at the potential upside. I’m sure the original owners of and, for example, wish they had taken (or had the opportunity to take) equity. If the owner is reluctant to take equity, you may be able to entice them with some kind of reversion provision—so that if your startup flames out and stops using the domain, they get it back—but be wary of incurring that obligation, and talk it through with your attorney before that becomes part of the deal.

“Find an intermediary.” This can be a key part of the transaction. Negotiating through an intermediary can prevent a rapid escalation in price from the seller seeing your clear need for the domain (or your clear ability to pay). Getting a lawyer  with experience conducting these types of transactions involved will allow you to avoid common mistakes and let you minimize the distraction of the acquisition process.

As is often true on Fred’s blog, there’s a wealth of information in the comments on his post, so make sure to read those, too; there’s a lot of collective expertise in that community.

Lets Tweet Up a Contract!

Attorneys routinely circulate contracts via email, fax, and in counterparts (pages signed by different clients at different times).   When we do, we tend to add paragraphs to the agreement allowing for “execution in counterparts” and “electronic transmission.”   Just to make it clear, this deal is going to stick!

We do these things because of a law called the “statute of frauds,” which requires contracts for the conveyance of real estate (among other things) to be in writing.  Apparently, in the olden days there was a brisk trade in verbal real estate deals, lots of spitty handshakes I’d imagine.  Shudder.

Of course, the inevitable question in today’s modern era is, what is a writing?  Is an email a writing?  A fax?  An IM?  A tweet?

In a noteworthy recent case, Naldi v. Grunberg, the court expressed its willingness to find an enforceable option contract in a series of emails between real estate brokers.  The court ultimately concluded that the emails in question failed to demonstrate that the parties had achieved a good old-fashioned “meeting of the minds,” since they weren’t yet on the same page about material terms such as price.

However, as to the contention that it was “just an email,” the court gleefully cited a long line of cases in support for the position that an email could meet the requirements of the statute of frauds, and bind all concerned.

To avoid this potential pitfall, my fellow real estate professionals, of all stripes, negotiating deals via email, text or tweet, might consider adding a standard disclaimer to their communications that the e-mail in question creates no binding obligations and advising the recipient of the need to memorialize whatever deal they think they might have struck in a signed written agreement.  Skip the spitty handshake. UDRP Fails to .net Desired Outcome

The owner of filed a UDRP complaint against the registrant of, contending that the domain name had been registered in bad faith.  (click here)  In a case where the Complainant sought to use the .net version of a domain name to acquire the more commercial .com extension, the Panel found that, “[the] evidence does not indicate that Respondent registered the disputed domain name primarily for the purpose of selling, renting, or otherwise transferring the domain name registration to Complainant or to a competitor of Complainant.”   The Complainant also failed to submit sufficient evidence from which the Panel could conclude that the Complainant had trademark rights in the domain name at the time that the Respondent registered the domain.  Lewis & Hand represented the Respondent.

Good news for developers, bad news for tenants

The Appellate Division of the Supreme Court of New York, First Department, recently held that, when a rental building is being converted to condominium ownership by means of a non-eviction offering plan, unregulated tenants whose leases expire prior to the offering plan being declared effective by the Attorney General are not entitled to protection from eviction under the Martin Act.

In MH Residential 1, LLC, et al. v. John Barrett, et al., the owners of a large residential building proposed a non-eviction offering plan to convert the building from rental to condominium ownership. Of the 29 market-rate tenants whose leases had expired, only 11 had been offered renewal leases. However, the tenants argued that the renewal offers were not bona fide offers because the leases were shorter (3-12 months) and sought rents that were substantially higher than those previously paid, in some instances nearly double the previous rents. The offers also gave the landlord the right to terminate the lease extension on only 15 days’ notice and to compel the tenants to relocate to another apartment at the same rent, regardless of the new apartment’s size, location or condition. The owners brought holdover proceedings against the 29 unregulated tenants. Once the offering plan was accepted for filing on March 31, 2007, the tenants claimed entitlement to protections under the Martin Act.

The Martin Act states that, under a non-eviction offering plan, eviction proceedings shall not be commenced against non-purchasing tenants for failure to purchase or for any other reason related to expiration of the tenancy. The Martin Act defines “non-purchasing tenant” as a person who has not purchased under the offering plan and who is entitled to possession at the time the plan is declared effective.

The First Department decided in favor of the owners, explaining that, in holdover matters regarding unregulated expired leases, the tenant’s rights have already been extinguished by the expiration of the lease term, and it is irrelevant that the tenant may still be in possession and that a warrant of eviction has not yet issued. Therefore, the tenants in this case were not “entitled to possession” at the time the plan was ultimately declared effective.