Know Your Rights As A Domainer

The practice of buying and selling domain names has quickly become a lucrative business. With that comes personal responsibility and precautions that need to be taken to protect assets—in this case, domain names. Since domaining is a relatively new industry and the laws are not set in stone, it is important to keep current with its developments.

All domainers should know:

• how to defend themselves from domain sniffing
• how to avoid trademark issues
• how to decide whether to donate domains or not
• how to declare domain assets when filing taxes
• how to avoid domain re-registration

Defense Against Domain Sniffing

Protecting intellectual property as it pertains to domain names is a bit tricky since there is no legal claim to a domain name just for coming up with it. The domain legally belongs to the person who registered it. How does one prove that an idea or intellectual property was stolen? In cases of domain sniffing, many claim that a domain name idea was stolen by programs or software that keeps track of popular names researched and proceeds to purchase the domain names before anyone else does. Although there has not been solid evidence to prove that domain sniffing exists, there are more and more cases building up against it.

The best recourse for these situations is to file a claim of privacy infringement or a compromise of proprietary information by writing a Cease and Desist letter. As with any lawsuit, make sure claims are legitimate and not reckless to avoid being countersued. Here are some points to focus on in a Cease and Desist letter to build a strong case to get a domain name back:

• When dealing with a Privacy Violation of Proprietary Information make sure to focus on concrete evidence like login information, usernames and passwords may have been compromised through computer hacks.
• When looking at Privacy Violation for Financial Gain make sure to show that there was a financial motive for the theft.
• When showing a Privacy Violation by Wire Fraud make sure to show that proprietary information was compromised by wire (which includes the internet).
• When dealing with a Privacy Violation of a Trade Secret show that a trade secret, in this case, a domain name was disclosed for financial gain.

Avoiding Trademark Infringement

Conducting proper research before acquiring a domain can help avoid trademark infringements. Buying domain names based on a large corporation with hopes that the company will turn around and buy the domain name back is known as cybersquatting and may cost a lot of time and money to resolve should a company file a trademark infringement claim against the domain owner.

The Anticybersquatting Consumer Protection Act facilitates the takeover process of domains that are similar to their names or trademarks. A self-regulatory board, the Internet Corporation for Assigned Names and Numbers (ICANN), created the Uniform Domain Name Dispute Resolution Policy (UDRP) to streamline the trademark infringement dispute process. The party seeking control needs to only prove three things: 1) ownership of trademark; 2) the other party has no legitimate reason to own the name; 3) the registered name was used in a manner contrary to the trademarked image. There are exceptions to using a trademarked name in a domain and that is if the name is used fairly, as a parody, for non-commercial use and for non-competing use.

Donate, Deduct or Depreciate?

Since domaining is a business, the income earned or lost must be reported to the IRS. However, since domain names can be classified as intellectual property, inventory, business assets, government licenses, a form of real estate, or a host of other things so filing taxes on a domain business may require some creativity to avoid audits.

Should you Deduct or Depreciate?

While the debate whether a domain should be considers a business expense that can be 100% deductible or an expense that depreciates over a span of 5 to 7 years, most domainers always deduct in full the registration fee for any new registration domains bought. Deductions are better tax advantages that depreciations, which should only be used when accompanied by the credible professional opinion of an accountant.

When to Donate

Knowing the options available and being able to justify deductions is key to determining whether a domain name can be donated to maximize the deduction. The best approach is to have a third party assessor appraise and document the valuation of the domain names. Also, be consistent in classification to avoid audits.

The classification of domain names will help determine how to file.

Intellectual Property

For intellectual property deduct the lesser of the cost basis in the domain name or fair market value. Also if the domain name has increased in value since the purchase of it, only deduct the amount paid for the domain minus any depreciation.

Inventory

For inventory deduct the lesser of the cost basis in the domain name or fair market value and if the domain name has increased in value since the purchase of it , only deduct the amount paid for the domain name minus any depreciation.

Long-term Business Asset

As a long-term business asset, if the domain name has been held by a company for over a year it can be deducted at the full market value.

Don’t lose domain names to inaccurate WHOIS information

The easiest way to lose a domain is by not providing accurate WHOIS registration information. ICAAN requires that all domain names are registered with accurate ownership information so if a domain appears to contain false information, it can be reported to the registrar for verification. Once the registrar reaches out to the domain owner for clarification, there is a 15-day window for a response.

If no response is received during this time, the domain registration will be cancelled and will be up for sale again. Sometime domainers provide false information to avoid being flooded with e-mails from interested buyers and the easy way around that is to request an anonymous registration. The easiest way to keep a domain is by providing accurate WHOIS registration information.