Domain Name Strategies for Start-Up Companies

Just as it is important for start-up companies to be mindful of early-stage trademark and copyright protection strategies (see our guides below entitled “Trademark Strategies for Start-Up Companies” and “Copyright Strategies for Start-Up Companies”), savvy start-up founders will be thinking about domain name acquisition and related issues right at the beginning.

These days, it is essential for a start-up company to have at least a basic web presence, and to register a domain name for that purpose.  But sometimes acquiring that perfect domain name isn’t as simple as paying a $10 registration fee, and there are many reasons for start-ups to be thinking about broader domain name issues in order to avoid landing in hot water.  In this article, we discuss some best practices for domain name acquisition.

Act Early

Because a domain name and website are often critically important to a start-up’s overall advertising strategy, it’s important to evaluate and secure domain names in conjunction with initial trademark clearance.  For this reason, most start-up entrepreneurs will consider the interplay between trademarks and domain names in their initial brand brainstorming sessions.  As a practical matter, this typically means making sure that at least one commercially viable domain name (sometimes a .com, though as we’ll discuss many start-ups are more flexible these days) is available before spending time and money on the trademark process.  At the same time, it’s important for startups to play it safe — it’s never a good feeling to spend $15,000 (or much more) on a domain name only to discover critical trademark risks soon after.

Don’t Go Domain Crazy

In the “old days” (a few years ago), the conventional wisdom was for start-ups to secure their core company brand, and key secondary brands, in as many generic top-level domains (gTLDs) as were available — e.g., .com, .net., .org, and so forth.  These days, with hundreds of available gTLDs and more rolling out every week, start-ups need to choose wisely and, of course, control their spending.  While .com is still considered “king,” the relative paucity of available .coms has often led start-ups to migrate to other domains, including .co and .io, two popular country-code top-level domains (ccTLDs) which have been made available for generic use.  Generally speaking, a start-up today should secure core domain names for its company name and for product/service brands that it believes will resonate with its customers and overall branding strategy.  If there is a budget for it, it’s also generally a good idea to secure the old standbys such as .net and .org, as well as key ccTLDs in jurisdictions where the company will be operating, and possibly even some of the new gTLDs that match up with its products, services, or industry.

In addition, some start-ups that are particularly vulnerable to consumer criticism choose to register a few of the more obvious “sucks” variant domain names such as [company name]sucks.com, or [company name].sucks, though generally speaking this can be an expensive exercise in futility — there are an infinite number of viable “sucks” domain names, and a company will not be able to silence fair criticism by registering a few here and there.

Finally, because the risks of cybersquatting (registering, using, or trafficking in a domain name with the bad faith intent to profit from the goodwill of someone else’s trademark) and related domain name abuse increase as a company grows, it’s a good idea for companies to revisit their domain name coverage and acquisition strategy as they secure funding and transition to a “growth” stage.

The Trademark Leverage Myth

Many entrepreneurs believe that adopting a brand or filing a federal trademark application will allow them to obtain, via legal action or threat thereof, domain names that are already registered by others, especially if those domain names are simply “parked” and not in active use.  This is almost always not the case, with legal action being available only if the registrant is truly “cybersquatting” — that is, registering and using domain name incorporating a previously existing trademark in bad faith.  In fact, this mistaken approach can lead to a declaratory judgment action, or have the exact opposite of its intended effect — resulting in the registrant raising its selling price or outright refusing to sell.

Of course, if a start-up does identify true cybersquatting once it has been active in the marketplace, legal relief may be available, and a trademark attorney should be consulted to better understand the company’s rights and remedies.

Consider a Stealthy Approach 

If a start-up does wish to purchase a domain name that’s already registered, it should consider its options and evaluate any risks, as well as determine the approach that’s likely to yield the best sale price.

As an initial matter, if a start-up knows or suspects that the target domain name is actively used (or has been used in the recent past) in connection with the provision of goods or services, there could be trademark infringement risks — risks which could be enhanced by bringing the start-up to the registrant’s attention.  It’s generally a good idea to speak with a trademark attorney before going down this path.

Barring potential trademark issues, where currently registered domain names are sold directly via registrars or other marketplaces, and where the price has already been set (whether or not it is negotiable), it’s often advisable to just go for it — create an account and make the purchase or offer.  Where inactive domain names are not obviously for sale, or where they’re advertised for sale with an invitation to contact the registrant directly, some careful strategizing is in order.  Domainers (those who buy and sell domain names professionally, or as a hobby) can be equal parts savvy and cagey, and like all businesspeople can raise or lower the asking price of a domain name according to their perception of the buyer’s financial position.  For instance, a seller might ask for a premium from the buyer that presents himself as the president of a new company, or if the seller can identify information about the buyer (e.g., its recent funding success) using publicly available sources.  For this reason, and especially when the domain name is expected to sell for multiple thousands of dollars, start-ups should consider making the initial approach anonymously.  There are many companies that provide anonymous domain name acquisition services, including domain name registrars (such as Sedo and Godaddy) and brand protection companies (such as Marksmen).  Ultimately, however, certain sellers won’t agree to sell unless they know the buyer’s identity and the buyer’s intentions for the domain.

Buy Smart

If you do end up purchasing a domain name that’s already registered, you probably don’t want to send money to the registrant via Paypal and hope everything works out.  If you’re purchasing directly via a registrar (e.g., GoDaddy), then the process is generally safe and relatively straightforward.  If the transaction is directly with the registrant, then we recommend using an escrow service such as Escrow.com.  If the purchase price is substantial and/or if the domain name is already in active use for commercial purposes, then you should also strongly consider having an attorney draw up a domain name purchase and sale agreement to address the legal complexities that may arise.

Don’t Engage In Domain Name Misuse

Just as others can be liable for cybersquatting violations if they capitalize on your brand, it’s important for start-ups not to acquire domain names for the purpose of disrupting established competitors or siphoning the goodwill of their trademarks.  While it can be tempting to purchase a few domain names containing a key competitor’s brand name — whether to deprive them of the use of that domain name or to attempt to use the domain name for referral or search engine optimization (SEO) purposes — such behavior is likely to violate U.S. trademark and/or anti-cybersquatting laws, which can lead to a host of penalties including monetary damages.  Play fair.

Parting Thoughts

Domain names can be tricky.  If a start-up company is lucky, domain name acquisition can be a perfunctory and inexpensive endeavor that requires nary a second thought, unlike the complexities that are more routinely involved in trademark and copyright protection.  As we have illustrated, however, sometimes start-ups aren’t so lucky, and there are also related domain name issues that companies should be thinking about at the outset.  By following these best practices, start-ups can stay safe and remain focused on the more important aspects of growing their businesses.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Foley Hoag LLP - Trademark, Copyright & Unfair Competition | Attorney Advertising

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