Domain names are bought and sold every day. There are Web sites devoted entirely to buying and selling these little Web gems. Dot-coms are the most sought after of these jewels--though I cannot understand what the big deal is. Is .com really the Rodeo Drive of the Internet? Does that make .net the Main Street of the Internet? And who really cares?

OK, so they meant something when the Net was young. Maybe some of you actually remember the days of the AUP, ARPANET's Acceptable Use Policy. Back then, you had to offer some sort of network access service to obtain a .net TLD (top-level domain) and were required to show some sort of non-profit (or similar) status in order to register a .org. If you couldn't, and you were not a bona fide educational institution (.edu) or a governmental agency (.gov), you were actually relegated to .com. That was a bad thing. After all, the AUP didn't permit commercial activity to pass through the ARPANET backbone.

Well, the Net has changed. The AUP has gone the way of the dinosaur, the Net has gone commercial, and Wall Street has jumped on the bandwagon. Domain names became more than addresses; they became commodities (as well as the basis for a few lawsuits). Trading domain names can be tricky business, so, as they say on the Street, caveat emptor.

When buying or selling a domain name, there are many pitfalls to avoid. For the buyer, failing to clear the domain name for trademark infringement, or failing to make certain that the transfer takes place in an orderly fashion are just some of the hazards. Inadvertent representation of non-infringement or failing to sell for enough money to cover legal costs are just a couple of the risks that the seller faces.

Regular readers may tire of hearing me suggest that the first thing to do is to find an attorney to assist them in any given legal situation, but I'll risk your temporary boredom. Far from trite, it is good advice, and it's free--so take it. Don't forget to make certain that your attorney understands the subject matter and the related issues.

A domain by any other name

First, understand what exactly is being sold. Ask yourself what a domain name is. It is an Internet address, yes--a domain--but more than that, it is likely a trademark as well. This means that you could be buying or selling a trademark, not just an Internet address.

A seller would do well to consider the agreement to be one giving up registrant status and nothing more. In order to do that, the seller should include an extensive warranty disclaimer provision that, among other things, disclaims warranties or representations of trademark ownership, non-infringement, availability for use in commerce, and validity. By the same token, a buyer may wish to clear the domain as a trademark before spending a great deal of money on it. Even a modest purchase price of $10,000 may not be a bargain when the purchase is followed by a cease-and-desist letter from a third party.

Many people are confused by domain nomenclature and think that a domain name consists of everything in the address, including the "www" that precedes the second-level domain. However, this is not what the buyer should be purchasing. If a buyer purchases "www.computeruser.com," does that include "ftp.computeruser.com," or any other domain within the computeruser.com domain? Does it include e-mail boxes? Should buyers take that chance? No. The agreement should make clear that the entire second-level domain (computeruser.com) is the property being transferred.

How to get there

Now let's look at the transfer process. From the registrar's point of view, all that is necessary is that the correct form is correctly filled in, that the correctly filled-in form is correctly notarized (on the same day that it is signed by the transferor), and that the correct registration fee is paid.

Assuming that the sales price is to be held in escrow, the seller should try to ensure that the escrow is released upon the delivery of the seller-executed transfer form, and not be held pending the actual transfer of the domain to the buyer. The buyer, in turn, should oppose this.

Keeping in mind the nature of the transaction, it seems fair to have the purchase price released to the seller upon the seller's performance of its obligations. The seller cannot warranty the registrar's receipt of the executed form, the registrar's performance of its duties once it receives the form or, for that matter, the stability of the registrar's computers or databases (and should specifically disclaim them). Therefore, it is not fair that the seller should wait until the transfer is complete.

It is not unfair, however, to hold some portion of the sale price to ensure that the seller has a continuing obligation to assist the buyer in effecting the transfer. Sellers should not shy away from a continuing obligation to reasonably assist the buyer in the transfer process. Computers fail, databases become corrupt, forms get lost … you get the point. With the seller's reasonable assistance, the buyer should assume the risks of registrar-failure.

Often, the buyer is a startup company with a great idea. In these cases, the buyer usually believes that a particular domain name is a key point in his business plan. Also in these situations, shares of stock are offered as part of the purchase price. A seller who is willing to sell a domain name (in whole or part) for stock should conduct some due diligence. Buyers should be willing to provide requested information to sellers and allow some extra time for due diligence.

Although I alluded to this point before, it bears repeating. An attorney is usually necessary for these transactions. Attorneys are not free, as I am sure you know. Sellers should factor their legal fees into the sales price.

A word about cybersquatting: Don't do it. Congress, in its infinite wisdom, passed the Anticybersquatting Consumer Protection Act. The act provides, among other things, that the owner of a registered or common-law trademark may bring an action against anyone who, with "a bad-faith intent to profit from" the trademark, "registers, traffics in, or uses a domain name" that is "identical or confusingly similar" to or dilutive of the trademark.

Cybersquatters since Dennis Toeppen (Panavision Int'l L.P. v. Toeppen, Intermatic Inc. v. Toeppen) have paid dearly for domain-profiteering. It isn't worth it. However, just because someone sends a cease-and-desist letter claiming that your domain name registration is infringing on his trademark does not mean that it is. Before you cave in to the demands in that letter, run your situation by a trademark attorney.

Scott J. Fine is a partner with the law firm of Fine Hummel PC in Huntington, N.Y.