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The Rise of a Secondary Market for Domain Names (Part 3/4): Domain Names as Virtual Real Estate

Gerald M. Levine

The way the Internet operates drove a wedge between strings of lexical and numeric characters used as marks and alphanumeric strings used as addresses. Domain names were described by Steve Forbes in a 2007 press release as virtual real estate. It is, he said, analogous to the market in real property: "Internet traffic and domains are the prime real estate of the 21st century." [1]

Mr. Forbes was not the first to recognize this phenomenon. In a case decided in 1999 (the same year ICANN implemented the UDRP), a federal district court presciently observed that "[s]ome domain names ... are valuable assets as domain names irrespective of any goodwill which might be attached to them." The court continued: "Indeed, there is a lucrative market for certain generic or clever domain names that do not violate a trademark or other right or interest, but are otherwise extremely valuable to Internet entrepreneurs." [2]

I have already mentioned the reason they are valuable, but how have they become so? The answer (I think) lies in the commodification of words and letters. Before the Internet, businesses had the luxury of drawing on cultural resources of such depth (dictionaries, thesauruses, and lexicons, among them) that it never appeared likely they would ever be exhausted or "owned." However, what was once a "public domain" of words and letters has become commodified, as investors became increasingly active in vacuuming up every word in general and specialized dictionaries as well as registering strings of arbitrary characters that also can be used as acronyms. Even the definite article "the" is registered — the.com — although it has never been the subject of a cybersquatting complaint. The WhoIs directory shows that it was registered in 1997 and is held anonymously under a proxy. The result of commodifying words and letters is that investors essentially control the market for new names, particularly for dot-com addresses, which remain by far the most desirable extension. This is what the Panel meant when it stated that domain names are a "scares resource."

As the number of registered domain names held by investors has increased, the free pool of available words for new and emerging businesses has decreased. Put another way, there has been a steady shrinking of the public domain of words and letters for use in the legacy spaces that corresponds in inverse fashion to the increase in the number of registered domain names. [3]

This is not to criticize investors who have legitimately taken advantage of market conditions. They recognized and seized upon an economic opportunity and by doing so created a vibrant secondary market. Nevertheless, as I have already noted the emergence and protection of this market for domain names has been facilitated by panelists working to establish a jurisprudence that protects both mark owner and investors.

Endnotes:

[1] Further, "[t]his market has matured, and individuals, brands, investors and organizations who do not grasp their importance or value are missing out on numerous levels." Reported in CircleID at http://www.circleid.com/posts/792113_steve_forbes_domain_name_economics/.
[2] Dorer v Arel, 60 F. Supp. 2d 558 (E.D. Va. 1999).
[3] See 848 F.3d 292, 121 U.S.P.Q.2d 1586 (4th Cir., 2017). The evidence in that case indicated that "99% of all registrar searches today result in a 'domain taken' page." The Court noted further that "Verisign's own data shows that out of approximately two billion requests it receives each month to register a .com name, fewer than three million — less than one percent — actually are registered."

Other parts in this series:

Part 1: A Tale of Competing Interests
Part 2: Origins of the Competition
Part 3: Domain Names as Virtual Real Estate
Part 4: Facilitating the Secondary Market

Originally published in Vol. 26, No. 3 of Bright Ideas (Winter 2017), a publication of the Intellectual Property Law Section of the New York State Bar Association.

By Gerald M. Levine, Intellectual Property, Arbitrator/Mediator at Levine Samuel LLP Information about the firm can be found on the Firm’s website at iplegalcorner.com. Mr. Levine has a litigation and counseling practice representing clients in Intellectual Property rights and management, Internet and Cyberspace issues, domain names and cybersquatting, as well as a diverse range of legal and business matters from working with client to resolve commercial disputes, to copyright and trademark counseling and registrations. Visit Page
Related topics: Domain Management, Domain Names
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Promoted Post

Buying or Selling IPv4 Addresses?

Watch this video to discover how ACCELR/8, a transformative trading platform developed by industry veterans Marc Lindsey and Janine Goodman, enables organizations to buy or sell IPv4 blocks as small as /20s.