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Security Agreements and Domain Names: Is your debtor’s most valuable property secured?

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Scott H. Hogan, Laura J. Genovich and John R. Taylor II
Foster Swift Business & Corporate Law Report
March 27, 2014

Increasingly, many companies are conducting much of their business online. Building recognition of a domain name, or the company’s digital address, often represents a significant investment of time and money. When one thinks of the super-retailer Amazon, it is almost impossible not to think of the “.com” at the end of the company’s name. Yet, because of the slow pace at which law often reacts to changes in society, there is still some ambiguity as to how domain names are, or should be, treated under security agreements. Are domain names property? Can a creditor place a lien on a domain name? When entering into a security agreement with a company that conducts a significant portion of its business online, it is important to keep these considerations in mind.

A domain name may fall under the definition of a “general intangible” under UCC Article 9. The UCC, as adopted in Michigan, defines “general intangibles” as “any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil, gas, or other minerals before extraction. The term includes payment intangibles and software.” MCL § 440.9012(1)(pp).

Because it is not specifically excluded from that definition, a domain name would seem to be included as a general intangible. A recent article from the American Bankruptcy Institute also suggests that domain names should be considered either conditional contract rights or general intangibles.[1] This article notes that regardless of how they are characterized, domain names embody property rights that have value, and security interests can be perfected in them under Article 9 of the UCC.

A domain name may also contain a trademark and may be subject to the Anti-Cyber Squatting Consumer Protection Act (“ACPA”). The ACPA protects American consumers and businesses from the registration or use of domain names that are confusingly similar to other distinctive trademarks and provides a trademark remedy for cybersquatting. A trademark may be included in the items expressly secured under a security agreement, and therefore rights to a domain name may be at least partially secured under the rights to a trademark of the same name.

Michigan courts have not yet considered the issue of obtaining a security interest in a domain name. The Supreme Court of Virginia has written that “a domain name registrant acquires the contractual right to use a unique domain name for a specified period of time.”[2] The court held that a domain name is a right to use a service rather than a property right, and therefore the domain name could not have been garnished. The court did note, however, that domain names were being bought and sold in today’s marketplace.[3] In a contrasting view, the Ninth Circuit has held that domain names are property subject to conversion.[4]

Regardless of what a domain name is technically considered, it should be properly and specifically listed under any security agreement to ensure that these valuable assets are protected for the benefit of a secured party. It should also be specifically identified in the financing statement to ensure that the security interest is properly perfected.

If you have any questions about a security agreement involving domain names, do not hesitate to contact your Foster Swift attorney.

[1] Danny C. Kelly, Bria LaSalle, and David J. Pacheco, Lien on Me, What’s in a (Domain) Name?, Considerations for Perfecting Liens on Cyber Assets, 32-8 ABIJ 22 (2013).
[2] Network Solutions, Inc. v. Umbro Int’l, Inc., 259 Va 759; 529 SE 2d 80 (2000).
[3] Id.
[4] Kremen v. Cohen, 337 F. 3d 1024 (9th Cir. 2003).