Monday, 20 December 2010

Domain name leasing

Is this some new, unnecessary, dodgy activity? That was my first thought when a client asked me for my advice the other day. How do you lease something so nebulous as a domain name? The very idea of it brought out the grumpy old man in me.

Domain names have enough of the attributes of property to stop me, now, from complaining when people treat them as a type of it - though lawyers need to think carefully about how they treat them, especially when they lump them in an omnibus definition of IP and give covenants about ownership. So what about leasing them?

A lease is an agreement governing the use, for a fixed period, by the lessee - so says my oracle in these matters, the late Stanley Berwin (in case you are too young to recognise the reference, it's to The Economist Pocket Lawyer, published in 1987 and never matched as a source of pithy definitions of legal terms - which reminds me of a friend at university, cramming on the morning of one of his final exams from a copy of Law Made Simple. He got a 2:2, but that was a different age, one in which a 2:2 was worth having and before my university ever gave out a third, let alone a pass degree. I wonder whether a new edition of this work - the Berwin, I mean, not the Made Simple - has ever been considered?)  Mr Berwin talks of the agreement being about the use of goods, equipment or land, and about the tax and cashflow advantages of leasing as opposed to outright purchase. My recollection of property law is that a lease of land creates a legal estate in it, so it's rather more than a mere agreement to permit use - which, he confirms, is what a licence is.

Well, domain name leases are also called licences, sometimes, but calling them leases resonates with those who like to think in terms of internet real estate. If it sounds better, and provided terms are properly defined so we know what we are talking about, what's the difference? Whatever - I'll use the word "licence" so I don't get tied up in conceptual problems in my own mind. Which brings to mind one of the most satisfying of the definitions in my Dictionary of Intellectual Property Law - of "bare licence" - but you'll have to wait to get hold of a copy to read it. And just as in the market for real property there is a place for arrangements which separate ownership and use, so too in the market for Internet property.

Developers can invest in domain names - perhaps have the good fortune to grab one nice and early, create some Google juice and make it an attractive proposition for a start-up business. The real estate that people want to occupy on the Net is very different from where they want to be in the real world of business (I should say, where they ought to want to be) - the valuable property on the Internet is in generic domain names, and so on. In the real world there's nothing to stop you using a name like "Sex" for your business, and of course Malcolm McLaren and Vivienne Westwood did it years ago - and I think I might have just disproved what I was about to say, namely that you can use it but you'll have a hard time stopping anyone else doing so - so let me refine that proposition a little ... it's unusual, and counter-productive, to see words used in that sort of fanciful way on the Internet - a generic domain name works when it is used for the goods or services that it identifies, whereas a generic business name or trade mark is as much use as a sheet metal handkerchief - as we used to say. And a non-generic domain name will either be unattractive or a trade mark infringement.

So, there are good reasons why people might have domain names to let, and fairly good reasons why people like the client who asked me in the first place might want to rent them. There are some model leases available on the Net - though they look a bit American to me. But the drawbacks of taking a licence to use someone else's domain name are manifold.

If I were to open a shop, which I could quite enjoy doing, selling books or records - but I digress - though better than selling myself by the 6 minute unit - I might rent premises for it. Unlikely that I'd be able either to come up with the wherewithal to buy somewhere, though I suppose for some it would be possible to borrow the money and buy freehold. Anyway, the point is that renting shop premises is likely to be the way to go. I put up my sign over the door, advertise in the appropriate places, and the world beats a path to my door (in my dreams). Soon I need bigger premises - one of those situations in which size matters - so when there's a convenient break point in the lease I up sticks and move somewhere bigger. Perhaps I leave a notice in the window telling customers where they can find me, and in any case if they see someone else's business name above the window, or just notice that it's now a butcher's shop or something, they will guess what's happened.

What has happened in that situation is, of course, that I have moved my business, with the goodwill, to a new location. Which I couldn't easily do if I were occupying someone else's domain name rather than their commercial freehold investment. So, dear client, if you're reading this, it seems to me that you need:
  • A long-term agreement, perhaps even perpetual, though the lessor is going to need some way of getting you out.
  • A rent that isn't based on your turnover or profit, or footfall, or anything else - a fixed sum, with a formula for increasing it year-on-year.
  • An option to purchase the domain name.
  • A transitional period at the end of the "lease" during which the lessor will put up a notice directing visitors to your new website, and not let anyone else (and least of all a competitor, though who else is going to want to use the same generic domain name?) have the domain name for a certain period.

Whether any of that is palatable to the lessor is another matter. I imagine it pretty well trashes the business model they are working from. If (dear client) you're thinking of a business that will flourish for a couple of years and they disappear for ever (as, now I think about it, most online businesses do) then it might work, otherwise all you are doing is creating capital value for the owner who is going to get your hard-earned goodwill, or most of it, however hard you try to prevent that happening.

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