This is the 5th chapter of “How To Evaluate a Internet Property”. You can read part 1 – Financials here and part 2 – part Rate of growth here and part 3 – The Run Rate Here and part 4 – Resources here
When reading below please please please keep in mind I am not a lawyer. I am writing from my own experiences. Please seek legal advice before acting.
I originally did not included a chapter on the legal issues but after a couple conversations recently with friends about some past deals in which we were selling/buying internet properties I decided to write this part in. Also ironically about the same time my friend QuadZilla from SEO Blackhat said I should include a chapter on legal issues. It just seems to fit.
Trademark in Domain Names:
Let me tell you a little story. About 4 years ago I was presented a offer to purchase a website in the mobile space. This website was an authority with a large successful forum and tons of great original content. I inquired about the site and if it was for sale and the owner came back and said it was not actively for sale but to make a offer. I offered high 4 figures $x,xxx for the site and he countered with mid range 5 figures $xx,xxx. Now I will tell you I thought even what he countered was worth it. There was only one problem. The website contained a trademarked term. This was also about the time the dust was just settling from our battle with Nextel INC over our own sites. I debated about buying this site for a long time and ended up passing. When there is a trademarked name in the domain its such a wildcard. YES I know a lot of legal people out there are saying you can win the case even using a trademark name and I did against Nextel but it still cost me 1 year of time and over $75,000.00 in legal fees. So this site for $xx,xxx was just not worth it for me at the time. A couple years later I came in contact with a nice guy named Lee Dodd who had bought the site years back when I passed. We talked for a bit then sometime later he let me know he was making a month in profit what I had passed on for the whole site. Missed that one!
I am always very very leary to purchase domain names with trademark names in them. Especially now. Because of who I am and what I do many people watch exactly everything we do. So if we buy a trademarked domain odds are someone will blog it and it will eventually show on a companies radar… then they come here …. see I have money and could come after me for damages. These companies don’t even care about winning or losing. They have more money then I do and will force me to settle out of court and take the domain cause I don’t want to fight and be bled dry.
Another big thing is that I am located in Nebraska and am pretty much a anomaly. When companies sue you… they don’t sue you in your state they sue you in their state. So you have to get representation in their state and also appear for court dates in their state. This costs TONS and companies know it.
Content Sites:
User generated content sites are all the rage but they are also a massive liability. When YouTube started everyone said they would never make it because of all the legal issues but they went on…. and did very well. Mostly big companies knew they had no money so all they could do was DMCA them and get the content removed. But then Google purchased YouTube and the lawsuits started coming in. This is the best example I can think of to drive home this point. If you are looking at buying a site with a lot of user generated content that could be copyrighted (lyrics, mp3s, videos, ebooks) make sure you are considering the fact that news of the *sale* could trigger a bunch of sharks now that blood is in the water.
Representation:
When buying the property be very careful you do not mis represent who you are or what you are doing with the site once you purchase it. Even if it is a oral question over the phone. I recently had a friend who purchased a domain name for a few hundred dollars get sued for thousands when the seller discovered he was not using the domain for a non profit company as he had told him on the phone. Instead he was using the site for a profit site. The seller filed suit in court and my friend ending up settling for about 5x what he had originally paid for the domain. Again the person likely would not have won the case but being he had filed the case in a state across the country it would have cost him much more to defend himself then just to settle the case.
Most of the time I think people make waaaaay to big of a legal issues. Even with all this said above sometimes a legal issue is a blessing in disguise. The few times I have been dragged into court it has worked out really well for me. BUT its something you have to keep in mind when you are valuating a internet property.
About the author...
Jeremy Schoemaker – who has written 2416 posts on ShoeMoney.com.
Hi I am Jeremy Schoemaker and ShoeMoney.com is my blog. 99% of the post here are done by me but you will see others occasionally make guest posts. This blog is fun to write but for my day job I run several online companies.
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{ 30 comments… read them below or add one }
Yeah, that’s what I always have to remind myself of. It’s not a matter of being right. It’s a matter of how much time and energy it takes to prove that you’re right — especially against large companies who have deep pockets and nothing to lose by taking you to court.
Shoe, I think you have the wrong URL for QuadZilla’s site ??
thanks got it!
whew… im on the boat before that youtube won’t make it… but they proved me wrong
The legal issues always have to rear their ugly heads, even if it is only during the last installment. Some cracking examples you shared with us, Shoe….win some, lose some!
Corporates will willfully bankrupt you with endless court proceedings they can afford, and you can not. It is an old and proven tactic, best not to go heads up against them!
ShoeMoney, this has been a great series. Going back to revisiting the earlier posts. Thanks for sharing.
That must have been ever so slightly annoying when he relived the earnings of the mobile site!. I wonder how this works with people outside of the states. For instance I live in the UK if I were to buy a site with a trademark in the domain would I be governed by International law or also have to be represented in the state of the person I was being sued from. That sounds very expensive indeed!
“If you are looking at buying a site with a lot of user generated content that could be copy written”
Copywriting is not the same as copyright. There are enough people already who think otherwise, why do you have to join them?
good info to share
Hear, hear. The challenge is that small businesses quite often run on shoestring budgets, and the last thing there is cash available for is legal advice. When an issue that needs resolving raises its head it can quite often lead to the scuppering of otherwise sound plans, which could’ve been avoided by seeking legal council from the word go.
Also, having a trademarked name is not always a problem. I once owned a website/community which was a .net of a trademarked game name (the domain was just the trademarked name, no other words), and we ended up forming a very nice relationship with the creators of the game. It ended up being like the official unofficial resource for that particular niche.
The serious information. Sets thinking
>>that could be copy written
Dude, copyrighted. Two different concepts.
o god =( fixed it lol
Litigation isn’t necessarily the end of the world or overly expensive. One of the key things you have to make sure your counsel does in the event of a lawsuit is assert a *ton* of colorable (not necessarily winnable) affirmative defenses, and some counterclaims as well. That and some heavy discovery requests typically serve the same purpose as hitting a shark with a bang stick. Yes, it may take some time, but it works.
Lawsuits are always a pain in the A$$. Especially when a big company sues a small business you are usually a sitting duck.
The upside, if you want to call it that, for a small company getting sued by a big company is the PR and sympathy (in most cases) it generates. A wise company can use this to their advantage. Still, there are easier ways to generate PR!
This is a great series – so much useful information. Thanks for sharing.
“If you are looking at buying a site with a lot of user generated content that could be copy written”
Copywriting is not the same as copyright., There are enough people already who think otherwise, why do you have to join them.
I say its better just to stay away from domain disputes. SME business need to concentrate on business and not legal battles and invariably its the owner of the business that gets involved. The owner should be involved in running the business as oppose to that sh#t. All we have is 173 hours a month if we work 8 hours a day.
The big companies will purposely bankrupt you with neverending legal proceedings, just because they can.
Thanks for the tips.
Yeh domain disputes can quite taxing and not much fun but good job on informing people on the legal side of it all.
I used to work for a web hosting company and helped clients registering/transferring their domain names on a daily basis. I remember someone was forced to take down their site because their domain name and logo were too similar to a big well known corporation. On the other hand, I knew someone who was able to make a lot of money by selling off top domains. I came upon the book called Trademark, legal care for your business and product name, published by Nolo. It has some really excellent information on domain names and trademarks plus other trademark issues in cyberspace. If you are interested in getting an overall picture, this is an excellent book.
I read a book of theirs like that called… let’s see… it was Patent, Copyright and Trademark… it explained all about registering domain names when you already have a trademarked product, something that we needed for our business and probably other businesses need as well! Didn’t know that they had one just on trademarks! I’ll have to check that out– thanx for the info!
I used to have pokerfordummies dot whatever and the For Dummy’s people threatened to sue so I just dropped it. I always wondered what they could do if I just went ahead.
It’s perhaps worthwile to add that your representation is heavily colored by legal practices in your country. I guess at least half of the issues would not even be considered to be a problem in Europe…
I think that the most valuable thing in a website is the content and the visitors.
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