Virtual Real Estate

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Virtual Real Estate
Jeremiah Johnston, COO/General Counsel Kathryn
Farooqui, Director of Marketing Sedo.com, LLC
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Virtual Real Estate for the Online Frontier

• Reminiscent of the land rush days of the wild
  west, the domain name industry began fast and
  furious. While some bandits chose to ignore the
  laws of the physical world, most recognized the
  legitimate opportunities to jump in on the ground
  floor of a nascent industry.
• Fast forward ten years and virtual real estate
  has evolved into an industry worth close to 2
  billion annually. Every day, ordinary people and
  companies are buying, selling and developing
  Internet properties.

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Section 1 Domains as Virtual Real Estate

• Today the domain name industry is experiencing a
  rush of investment capital from publicly traded
  companies, private equity firms, venture
  capitalists and individuals all centered around
  the idea of domain names as virtual real estate.
• Even traditional real estate investment models
  have been updated for the new economy with the
  formation of companies such as iReit, a
  Houston-based developer of domain names.
• iREIT purchases domain names and then enhances
  their valuation through increasing the volume of
  site traffic, improving its brand-ability and
  enhancing the website's capacity to generate
  revenue. iReit.com

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• Like the rental value of an investment property,
  natural internet traffic commands a premium
  price. While Google has turned the corporate
  world upside down with the simplicity of its
  advertising model, other companies realized that
  the concept of direct navigation would open
  another avenue to benefit from the Google model.
• Much has been made about click fraud in the
  pay-per-click industry but natural traffic is a
  real and staggering phenomenon of user behavior.
  Millions of people online rely on direct
  navigation to reach their Internet destinations.
  By directly typing a generic or descriptive
  domain name into their browser, they are
  confident that they will land on a website
  catering to that interest.

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Utilizing Direct Navigation to Capture
Consumer-Driven Web Traffic

• Example
• Wifi.com averages 15k unique natural visitors
  each month.
• Traffic through pay-per-click program costs
  nearly 16,800 per month.
• 16,800k x 12 201,600 annually
• Purchasing the domain approximately 350k
• Domain pays for itself within two years

Based on the current bid price of 1.12 for the
term wifi on the Google network.
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• Why is traffic from direct navigation relevant?
  Compare below the conversion ratio for
  advertisements located on a search engine results
  page and advertisements located on a domain
  accessed via direct navigation

Direct Navigation 4.23
Search Engines 2.3
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• All of this activity has led to a sharp and
  stable climb in the number of domain names being
  bought and sold on marketplaces such as Sedo
  everyday.
• The domain name industry is a model of the new
  economy. Investors range from widowers in
  Connecticut to entrepreneurs in the United
  Kingdom to corporations from Japan to Manhattan.
• A look on the next slide of annual sales that
  illustrates the rise in market activity.

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Sedos Annual Secondary Domain Market Growth
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• Like a piece of land with unique physical
  characteristics, each domain has a value equally
  unique. This can be seen from the variety of
  sales by price range in the next slide.
• Domains that are short, memorable, descriptive
  and attached to a well known and popular top
  level domain (TLD) such as .com, .net, .co.uk,
  .de, etc., are worth more than their lengthy and
  unknown counterparts.

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Domain sales according to TLD
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• Sedo alone has a membership base of more than
  850,000 domain professionals in over 240
  countries and Sedo has helped hundreds of
  thousands of businesses start their Web presence
  off on the right foot with a great domain name.
• And its not just .com! Recent sales show that
  even country-code top-level domains (ccTLDs) are
  commanding premium prices. For example
• Chat.de 470,848
• Mobile.co.uk 255,554
• Auto.es 148,181
• Auto.fr 134,710
• One.es 117,197

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Secondary Market TLD Sales
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Secondary Market ccTLD Volume
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Section 2 The Value of Domains to Businesses
and Individuals

• In an online world, if you want to have your
  voice heard or customers to find your door,
  owning the right domain name is a necessary
  asset.
• Whether the use is commercial in nature, intended
  for family and friends, or your outlet for
  expression, your domain name helps define your
  website before the page has even loaded.
• With the exception of domains that contain
  offensive or illegal subject matter, every domain
  name has a potential legitimate use.

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• Free and open speech online can only be assured
  when there is the free trade of domain names
  replenishing the public domain as vehicles of
  expression.
• Trademark infringement may get all of the
  attention, but fair use provisions of
  intellectual property laws are equally important
  as these limitations are designed to protect the
  non-commercial use of terms even if they contain
  protected content. IP protection is not absolute
  and its limitations must be enforced in harmony
  with an trademark owners right to exclude.

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• Legitimate commercial use of domain names must
  also be protected. Once a domain is acquired,
  however, commercial use should not automatically
  warrant a right to exclude similar domain names
  when the terms are generic, descriptive or overly
  suggestive.
• While the upcoming amendments to U.S.
  anti-dilution laws will provide a more
  predictable definition of famous marks, the
  standards for achieving secondary meaning must
  also be more narrowly defined. Failure to do so
  will only result in needless litigation in
  regards to descriptive domains.

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• A company can still take advantage of
  descriptive, laudatory, or suggestive terms
  without asking to cloak the terms in unjustified
  trademark rights.

Generic
Descriptive
Suggestive
Arbitrary
Fanciful
No Protection
Less Protection
Most Protection
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• Domain names are powerful means for companies to
  draw traffic to branded websites by acquiring the
  descriptive or generic terms describing the goods
  or services they provide. For example

• Books.com

• PC.com

• Loans.com

• RentalCar.com

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Section 3 Responsible use of Domain Names

• Just as the owner of physical real estate is
  potentially liable for uses of the land that harm
  the rights of others, owners of virtual real
  estate must constrain their use of a domain to
  uses that do the same.
• While trademark rights get most of the attention
  when it comes to harmful uses of domain names, a
  wide variety of potential uses may harm other
  rights associated with statutory or common law.

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• While trademark rights get most of the attention
  when it comes to harmful uses of domain names, a
  wide variety of potential uses may harm other
  rights associated with statutory or common law.
• Neutral providers of marketplaces such as eBay
  and Sedo have published guidelines and policies
  prohibiting the use of their services in ways
  likely to infringe the rights of a third party.
• eBays VeRO program and Sedos Rights Protection
  Program offer rights owners an easy to use and
  transparent procedure for alerting the companies
  of potential infringing uses and requesting
  removal of suspicious listings.

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• Unfortunately, the negative uses of domain names
  often receive more attention than the wide
  variety of legal uses, whether those uses are
  based on traditional business methods or taking
  advantage of technological advances.
• This has led to a legal environment where domain
  owners who lack the intent to infringe the rights
  of non-famous trademarks lose their domains
  before arbitration panels inherently skeptical of
  anyone who buys and sells domain names.

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• The World Intellectual Property Organization
  (WIPO) is one of the few arbitration
  organizations accredited to hear domain name
  disputes by the Internet Corporation For Assigned
  Names and Numbers (ICANN).
• Despite its role as a neutral arbitrator in
  disputes between trademark holders and domain
  owners, WIPO released a press release in January
  2006 congratulating itself on the number of
  disputes it had ruled on behalf of complainants.
• Press Release
• Commentary

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• This is best illustrated when looking at the
  patterns in disputes heard under the Uniform
  Domain Name Dispute Resolution Policy (UDRP),
  where the key factors are often legitimate use
  and bad faith registration.
• To win a complaint, a trademark owner must prove
• (i) the domain name at issue is identical or
  confusingly similar to a trademark or service
  mark in which the complainant has rights and
• (ii) the domain owner has no rights or legitimate
  interests in the domain name at issue and
• (iii) the domain name at issue was registered and
  used in bad faith.

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• While the text of the UDRP includes non-exclusive
  lists of circumstances to guide the trademark
  specialist assigned as the panelist for the
  complaint, more than 7,000 decisions have shown a
  pattern of panelists interpreting legitimate use
  narrowly and bad faith broadly.
• Such a pattern has the potential to chill
  innovation and makes broad assumptions in regards
  to the reach of niche or regional trademarks.
• WIPO Overview of WIPO Panel Views on Selected
  UDRP Questions

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Section 5 Need for Effective Legal
Representation

• With the extraordinary levels of investment in
  the domain name industry, effective and zealous
  legal representation has become critical.
• Areas where legal services are needed include
• Counseling portfolio owners on how to navigate
  the complex world of international trademark law.
• Reviewing and drafting purchase and sale
  agreements
• Reviewing and drafting partnership agreements
• Defending UDRP complaints and claims of
  infringement

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Thank You!
Sedo GmbH Im Mediapark 6 50670
Cologne Germany Tel [phone]
279 Fax [phone] eMail legal_at_sedo.
co.uk

• Sedo.com, LLC
• 161 First St.
• Cambridge, MA 02142
• USA
• Tel [phone]
• Fax [phone]
• eMail legal_at_sedo.com