Taking Websites and Domain Names as Collateral
“Domain names are virtual real estate: If your grandmother purchased a piece of oceanfront property 70 years ago for $1500 and today it’s worth $5,000,000, would anyone question the value of the property?"
I recently had the pleasure of presenting the topic of Secured Lending in Websites and Domain Names on a Canadian Bar Association webinar with two other panelists, Sylvia De Sousa, Partner at Thompson Dorfman Sweatman LLP, Winnipeg, Manitoba and John Loughnane, Partner at Nutter McClennen & Fish LLP. The webinar is available here.
We examined how domain names and websites fit under secured transactions law concepts, how to conduct due diligence and the types of filings required to perfect security interests on these assets. We also discussed how to ensure a successful enforcement of security interests against domain names and websites. On this topic, John gave us some interesting examples of website value extracted in bankruptcy auctions:
Univision agreed to pay $135 million for Gawker, blog network, in bankruptcy auction: Gawker Website Acquired by Bustle Owner for $1.35 Million in Bankruptcy Auction (7/12/18).
CSC Generation, which advertises itself as a “decentralized, multi-brand technology platform that is saving companies from Amazon,” bought the American online retailer and department store Bon-Ton’s intellectual property for $900,000. The IP included all the data and trademarks associated with the brand, including 180 website domain names: Judge signs orders approving sale of Bon-Ton's intellectual property (9/10/18).
With the holidays just around the corner, it is also worth mentioning that the Toys “R” Us Inc. lenders that took control of the retailer during its liquidation have now cancelled the plan to auction off the company’s IP. They are now looking to reorganize the assets into a new company that will control the trademarks e-commerce assets and data related to the Toys R Us and Babies R Us brands: Toys ‘R’ Us Lenders Plan Brand Revival (10/1/2018); compare with Bankrupt Toys R Us Is Auctioning Off Hundreds Of Domain Names in Fire Sale (5/16/18).
Given these examples of retail setbacks (and others…), companies are investing more time and efforts in e-commerce. The objective is to adapt to the growth of consumer online retailing habits. Domain names and websites play an important role in this context. Lenders should leverage their value in their credit analysis of borrowers and take enforceable security interests in the underlying contractual and intellectual property rights.