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Domain Name Market Heats Up
National Law Journal - March 23, 1998

AS INCOME TAX SEASON approaches, a new type of question has appeared in legal and accounting discussion groups on the Internet: "I (or my client) would like to donate a domain name to a charitable organization. How do we value the contribution?" Domain names, or Internet addresses, especially those ending in ".com," designating commercial entities, are appearing as assets in bankruptcies or sales and even mortgages. Appraising their value is becoming an important question, especially as new top-level domains, such as ".firm" or ".shop," may soon appear.

Last year, "business.com" was sold for $150,000, one of the highest prices paid for a domain name to date. A domain name seller recently entered e-mail discussions offering "whitehousecrisis.com" for $1 million, predicting that the name will be valuable for years to come. The novelty of domain names makes them unusual gifts. "I bought one as a present for my father-in-law for a business he counsels," says Sacramento, Calif., sole practitioner Michael Ross. But the gift was not well received, he says, as the business owners mistakenly assumed Mr. Ross wanted to ransom the company's name back to them. There was talk of a suit before the gift was accepted.

Such misunderstandings aside, the value of domain names is evidenced by the number of domain-name brokers crowding the 'Net, at such predictable addresses as www.bestdomains.com/, www.domains.com/, www.domainmart.com/ and www.domainoutlet.com.

But, as with all 'Net businesses, proceed with caution. "Ask for references," advises James M. Jordan III, intellectual property counsel at Atlanta's Alston & Bird. "A client of ours was using one of the better-known brokers" and did not have a pleasant experience, he says. What's It Worth to You?  Attorneys may find themselves in the middle of a domain transfer. The values of domain names are "all over the map," says Robert Cumbow, an attorney in the intellectual property group at Seattle's Perkins Coie. "I know some domain names have sold for five figures; I know of others that were sold for as little as a case of beer. There are cases where domain names have been given away, and others in which they have been bartered, sometimes on a straight domain-name- for-domain-name trade, other times a trade for other value received." Sometimes it's the seller who pays, in exchange for a release from liability for infringement, says Carl Oppedahl, an attorney in the Frisco, Colo., office of Oppedahl & Larson.

Domain names can also be stolen, he notes on his Web site, at www.patents.com, so it's wise to obtain a trademark registration for a domain name. "Otherwise you are at continual peril that someone, somewhere in the world, may happen to secure a trademark or service mark registration identical to your domain name, even if it is in a country with which you have little or no contact, and can wrest your domain name from you with very little effort." Of course, a name is worth whatever someone is willing to pay. But as the domain name marketplace grows, criteria for appraisal are emerging.

The more generic the name, the better. In the real world, a bland, generic word like "business," doesn't distinguish a company from others, but on the Web, searchers frequently use broad terms. Mecklermedia Corp. bought "internet.com" in 1997 for $100,000. George Matyjewicz, managing partner of Rutherford, N.J.'s GAP Enterprises Ltd., has handled many domain-name sales. What is most familiar to the Web consumer is of greatest value, he says.  Gather empirical data. Almost all Internet statistics are questionable, but any quantifiable information, such as whether the number of visitors to a site is increasing, will assist in appraising the domain.

Mr. Ross is a consumer advocate who recently sold "consumers.com" for $100,000.   He says that factors influencing the price were the fact that the site has been operating for three years and  attracts about 500 to 750 different visitors a day. The site owner can see if people visit from different domains and discount repeat visitors, who are counted as separate "hits" on a site. Most important, the domain is profitable, says Mr. Ross. He "leased" areas of the site for $300 a month to consumer groups, whose Web pages accompany the sale.  Buyer, beware: Ascertain that the domain name is free of infringement claims, cautions Mr. Oppedahl, and know exactly what you're buying when you buy a name--the contents of a Web site are separate from its domain name.

Check out related domains. Even the Internet registrar fell victim to this. The real registrar, InterNIC, is owned by Network Solutions Inc., and does business at www.internic.net. But there's a "fake" InterNIC happily reaping business at www.internic.com. The former name is less valuable if people mistakenly visit the other site; the latter name is more valuable for precisely this reason.  Look ahead. The biggest unknown is when new top-level domains will emerge.

Mr. Matyjewicz says that names ending in ".com," will always be valuable. Others say that when the new suffixes emerge--perhaps in September 1998--".com" will first gain value in the confusion but will gradually decline, as people grow used to ".inc" and other commercial domains.

That's of little help to those assessing their names now. Lar Kaufman, an attorney at Polymedia Services, of Concord, Mass., is donating "www.conserve.org" to a German non-profit organization. "Before I have to pay my second-quarter estimated taxes, I'll have to come up with a figure on the value of the conserve.org name," he e-mails.  "I'll try to find out how much some of these names have been valued in contested name cases and get some figures for names that have been purchased from other holders. The name is worth the fees I've paid to date, plus the value of my time and effort invested in registering, corresponding, arranging [Internet] host service provider management, etc."

Mr. Kaufman also owns "www.walden.com". He says it's not for sale.

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To find out who owns a domain name, go to Network Solutions' InterNIC site.

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This article is reprinted with permission from the March 23, 1998 edition of The National Law Journal. © 1998 NLP IP Company. LawNewsNetwork.com.


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