Sisyph.us? Fighting an Unwinnable Domain War

Antone Johnson , Founding Principal , Bottom Line Law Group

17 Jan 2012

One of the best values a young entrepreneur can absorb early on is the value of learning from mistakes, both your own and those of others.  I’m constantly amazed at the extent to which experienced entrepreneurs and angels are willing to share their accumulated knowledge and wisdom, including some painful battle scars, with others.  This bedrock of Silicon Valley culture is a prerequisite for the whole phenomenon of venture accelerators.  It’s the radical opposite of the prevailing culture in established or contracting industries, where all things proprietary or innovative are jealously guarded and information is shared on a “need-to-know” basis.  This spirit of “coopetition” is one of the things I truly love about the startup community.

In the same vein, lawyers learn from mistakes, both strategic and tactical.  One reason business lawyers tend to specialize is that it’s more practical to amass knowledge of pitfalls to avoid, and things that can go awry, in a given area of focus.  No human being can be equally knowledgeable about all things.  This is why experienced General Counsel know that the most important executive decision to be made at the outset of any new matter is whom to ask, or which firm to engage, to handle it.

In the startup world, we tend to be subject matter generalists but industry specialists.  I will freely admit that I’m not the lawyer to consult if your apparel business is facing a trademark dispute with counterfeiters in Vietnam, but if you’re starting a consumer Internet business, the road from private beta to millions of registered users is strewn with corpses that I’m happy to identify.  The kind of legal advice I find most personally rewarding helps new players steer clear of foreseeable disputes, avoid overinvesting in legal work to mitigate risks that are more theoretical than real, and invest wisely when the best defense is a good offense.

A few weeks ago, I discussed some basic considerations in choosing a name for a new startup.  As you may recall, there are multiple layers of name rights that can come into play, including trademarks, domain names and corporate names.  Things get interesting when a company goes international, becomes a household name, or simply gets popular enough to attract a lot of traffic — which then attracts the squatters looking to monetize that traffic.  It’s an area in which investing early in more protection rather than less, optimistically planning for future growth, can pay dividends down the line.  Nevertheless, when a company is young and strapped for cash, filing trademark applications all over the world and defensively registering every potentially confusing domain name variant in every new top-level domain (TLD) to come along worldwide is not a realistic strategy in a world of competing priorities.

Most startups begin life as single-product, single-market businesses.  Let’s assume for discussion’s sake that it’s a US-based company using the same name for the corporation as for the product (e.g., MySpace, Inc.).  As we’ve discussed, it helps to start out as clean as possible with a brand name that’s available as a corporation, a trademark, and a domain name, with no existing conflicts.  The more “arbitrary or fanciful” the name (e.g., Yahoo!, Google), the less likely there is to be any trademark or domain conflict from inception.  Generic or descriptive names start out in crowded territory to begin with, are harder to protect, and face stiff competition from domainers for similar-sounding names (Widgets.com vs. MyWidgets.com, Widget.com, WidgetCo.com, and so on).

Of course the main disadvantage of going with a name like eBay or Yelp is that it starts out meaningless to the consumer.  The opposite extreme (Buy.com) requires no explanation but is a nightmare to obtain and protect.  My favorites are suggestive names like Twitter, Groupon, YouTube, StumbleUpon and so forth that strike a good balance, being highly suggestive yet not merely descriptive or generic.  Nevertheless, it’s worth noting that even generic or descriptive names can become imbued with what trademark lawyers call “secondary meaning” — that is, even if the name “Windows” is descriptive, after selling hundreds of millions of copies, its use in a computing context can only reasonably be associated with Microsoft Corporation.

So you’ve got a startup with a clever, well-thought-out name, incorporated and acquired the domain name under the most valuable .com TLD.  What next?

Trademarks

• File an application to register the trademark with the US Trademark Office.  Ideally you’ve already engaged a trademark lawyer to do a search to make sure someone else hasn’t already registered the name you have your heart set on, or something confusingly similar.  (Sorry, you probably can’t get away with MeTube or Googol.)  Regardless, as soon as the company starts investing real money in building brand awareness, it would be foolish not to protect that investment with U.S. federal trademark registration at a minimum.
• The process can take a couple years (usually less) but doesn’t require extensive legal work unless you run into a head-on conflict with another company that is willing to expend resources to oppose your use of the name.  In the mean time, the company can begin accruing common-law trademark rights (in the U.S.) by actually using the name in commerce, “as a trademark” (meaning a designation of origin).  It helps to use the TM symbol at least in the first place the name appears in any given page or document.
• International trademark registration is beyond the scope of this article.  Suffice it to say that trademark law is country-by-country (with a few exceptions such as the European Union).  For domain name enforcement purposes, the most urgent priority will usually be to get a trademark registration here in the U.S.

Domain Names

• There’s no reason to hold off acquiring domain names that are available for registration or sale at a reasonable price.  The good news is that domain name registrations are cheap.  The bad news is also that domain name registrations are cheap!  Domainers make a living buying low and selling high, in much the same way as real estate speculators.  If your name is generic or descriptive, it’s virtually certain that the domain name is already taken under the most valuable .com TLD.  Many times it will be “parked” at a site such as Sedo.com and listed as available for sale.  In reality, everything is negotiable provided you can actually get in touch with the domain owner.
• It should be evident from this discussion that the best way to avoid overpaying for every conceivable variation of your brand name is to register them all first, paying the minimum price (“defensive registration”).  Once the business gains traction and appears on speculators’ radar screens, in all likelihood they will grab every close variant they can find, including typos and misspellings (eharmoney.com), punctuation variants (e-harmony.com), and so forth.
• What’s wrong with this picture?  Simple math.  Unfortunately, even if domains only cost $20 apiece, by changing a few characters it’s possible to come up with thousands of variants of a domain name.  This is particularly true with every new TLD that opens up.  (The recent introduction of .xxx is a good example.  That TLD is limited to sites in the adult entertainment industry as well as brand owners that wish to register defensively for obvious reasons.)
• The more your business scales, the more the price of everything will go up.  At a famous brand, high traffic site, even a small percentage of mistyped URLs will net a decent number of hits for an enterprising domain squatter.  That makes it more worth their while to register an ever-widening circle of similar domains in the hope of getting a payoff.

The Carrot And The Stick

• Like an emerging military power, the bigger you become, the more skirmishes are likely to occur at your borders.  As problems go, these are good ones to have, considering they come with scale and rapid growth.  Nevertheless, it helps to be prepared.  Fundamentally, there are three ways to obtain a domain name held by another party:  Negotiate to buy it, file a lawsuit, or pursue arbitration under the ICANN rules known as the Uniform Domain-Name Dispute-Resolution Policy (UDRP).
• Practically speaking, nothing beats simply negotiating to buy the domain for a modest price.  Although it may seem unfair to pay anything to someone who is taking advantage of your success, legal proceedings are expensive, time-consuming and stressful distractions from building your business.  In addition, a good settlement agreement will buy you some comfort in the future (e.g., an agreement not to turn around and squat a dozen other variants of your primary domain name).
• Litigation can be incredibly expensive.  Expect to pay six figures in legal fees for any trademark infringement lawsuit, or even more.  It’s rarely worth it for any startup.
• UDRP is often the only practical alternative for a company that is intent on reclaiming a domain from a party who is unwilling to sell it or insists on an unreasonable price.  Without getting into the gory details (which can be found here), it gives the brand owner an opportunity to make a case for abusive registration — i.e., that the domain name is confusingly similar or identical to your company’s trademark and that the current domain owner has no legitimate purpose for registering it.  This is a key reason why having a registered trademark is important.  UDRP is a “stick” to use against uncooperative squatters that is far less expensive than litigation.  The Chilling Effects Clearinghouse maintains an excellent FAQ with more information on the process.

As the title of this post suggests, a successful business in the Internet age will have to wage an ongoing war against domain name squatters, fought one battle at a time.  There is no practical way to prevent it altogether, but an up-front investment in trademark registration and the most obvious candidates for cybersquatting and typosquatting can save a lot of headache and expense if your startup turns out to be the “next big thing.”

This article is for general informational purposes only, not a substitute for professional legal advice. It does not result in the creation of an attorney-client relationship. All opinions expressed are those of the author, and do not necessarily represent those of Gust.

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