Is your domain name at risk from “drop catching”?

B4Can you afford to lose your domain name? What happens to your business if your website and emails suddenly go down because you’ve lost it?  For many businesses, that would be a disaster.  For some, it could spell financial ruin, especially if the new owner wants money – a lot of it – to sell the name back to you.

An adjudication matter recently heard by SAIIPL (the South African Institute of Intellectual Property Law) illustrates how this could happen to you via “drop catching”.

What is “domain drop catching”?

“Drop Catching” is a legitimate business model to acquire and then sell lapsed domain names. It is a fully automated process using software to identify domain names which have (for whatever reason) become available for purchase, and then to register those names to the domain catching business for re-sale.

“Cybersquatting” is different, it’s an “abusive” process whereby “squatters” pre-emptively register trademarks (or the names of famous people or businesses with which they have no connection) as domain names.  They then put them up for sale at inflated prices, or use the goodwill in the names to attract business to their own sites.

An administrative oversight takes a website down, and a price-tag of R200k to get it back

  • A hair extensions business (which we’ll refer to as “the business”) held a registered trademark “Darling”, and for many years had advertised its products on its website at www.darling.co.za.
  • Its domain was administered by its then ISP (Internet Service Provider) which normally sent the business a reminder to pay the annual renewal fee – but no reminder was sent for the year in question and the fee wasn’t paid.
  • The website went down, replaced with a page advertising the domain name for sale. The domain name registration had lapsed due to non-payment of the annual fee, whereupon the new registrant’s drop catching software had acquired it.  Its plan, it said, was to offer the name to the town of Darling as part of a proposal to develop an advertising website for it.
  • The business – no doubt with a sense of rising panic – offered the new registrant R1,000 to get the name back but was told the price was $15,000 (about R200,000) – a lot more than the costs incurred in acquiring the domain name.
  • The subsequent SAIIPL adjudication ended with an order that the domain name be returned to the business, despite the fact that it hadn’t noticed for 4 months that its website was down and hadn’t suffered any disruption to its business (it was, it seems, more active on its Facebook page and its .com website). Moreover, the Adjudicator found that the new registrant had acted in good faith and without any intention of extorting money from the business.
  • What sunk the registrant’s case it seems was the registered trademark held by the business. The fact that the domain name was the same as the trademark placed the onus on the new registrant to show that the domain name was not an “abusive” registration. The Adjudicator distinguished between “bad faith” and “abusiveness” here.  Although the registrant had shown there was no “bad faith” involved, it had failed to prove a lack of “abusiveness”, in that the business still had “residual goodwill” in the .co.za name, and in the potential risk that the name could be sold by the registrant, not to the town of Darling, but to another business with a field of activity similar to the original owner’s.
  • Even then, commented the Adjudicator “This complaint is a borderline case”, and the bottom line is that a simple administrative oversight could very easily have lost the business its domain name.

Don’t let that happen to your business!

Put a system in place to ensure that all your domain names are renewed in good time, and seek legal assistance immediately if you run into any issues.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)