Judge raises the stakes: domain names are intangible property

Business.com for $345m in 2007. Lasvegas.com for $90m in 2005. Carinsurance.com for $49.7m in 2010. Given the eye watering sums of money paid for some domain names, it is unsurprising that their proprietary (or otherwise) status has been put under the spotlight. Recently in Hanger Holdings v Perlake Corporation SA, the High Court has now concluded that a domain name is actually intangible property.

The case

The case concerned a contractual dispute between Hanger Holdings (based in the Cayman Islands), Perlake Corporation (based in Uruguay) and Mr Simon Croft (sole director and shareholder of Perlake), regarding the ownership of the domain name www.blackjack.com. Given the gambling subject of the domain and its registration in the .com top level domain, it is again unsurprising that this domain name would be very valuable.

In 2003, Hanger agreed to sell the domain name to Perlake for $250,000 and for a commission on future generated revenues. The agreement contained a termination right for material breach which, if exercised, would entitle Hanger to seek the return of the domain name and associated goodwill from Perlake. Hanger claimed that, despite making numerous requests over the years, Perlake still failed to pay commission or provide financial information upon which the commission could be calculated. Finally by July 2015 Hanger had had enough and gave notice to terminate the agreement on the grounds of Perlake's failure to keep records of the operation of the Business, to provide audited statements and to pay appropriate commission.  As it turns out, Perlake was dissolved under Uruguayan company law in October 2015, a fact which Hanger only discovered when it later tried to commence proceedings to recover the domain name and commission in 2017.

To add to the factual drama, Mr Croft alleged that he had entered into a subsequent loan agreement in 2005 with Perlake which, if still in place on Perlake’s dissolution, provided that the domain name would be transferred to him. Upon Perlake’s dissolution in October 2015, Croft transferred the domain name to himself. According to Croft, when Hanger later exercised the termination rights in the 2003 Agreement, Perlake had no interest in the domain name which could be transferred to Hanger.

HHJ Hacon in the High Court held in favour of Hanger. He said that Perlake’s breach was both material and irremediable. Further he found that an equitable interest in the domain name arose in August 2015 when notice was deemed served to exercise the termination right. Significantly, although the discussion was not extensive, he held that a domain name was intangible property. On this point, Perlake argued that a domain name is similar to a telephone number (ie a string of digits which is not a property) because it is information which simply directs communications to a particular place. This argument was rejected by HHJ Hacon noting principally that domain names differ to telephone numbers because they are frequently traded. As for Mr Croft, the Court found him and his evidence in relation to the 2005 loan agreement lacking credibility. If such an agreement was in place, it was in place from September 2015 (so after Hanger’s deemed termination).

The debate around proprietary status

If this sounds a bit familiar, it is because in 2007 OBG Ltd v Allan, Lord Hoffmann (at [101]) suggested (in obiter but for the majority) that a domain name may be intangible property, just like copyright and trade marks. HHJ Hacon in Hanger Holdings v Perlake Corporation SA relied on this opinion, as well as Weiler JA’s judgment in the 2011 Canadian case Tucows.com Co v Lojas Renner SA, where the court considered key domain name characteristics (including definability, exclusivity of the right and the degree of permanence or stability) to conclude that domain names are intangible property.

These views are contrary to the long held general understanding of a domain name. That is, acquiring a domain name means entering into contractual relationship with a domain name registrar to provide you with the exclusive right to use the domain name. All you obtained under a domain name contract was the right to stop another person from registering the identical domain name. It gave you no trade mark rights as such to stop another business from using the same or similar domain name elsewhere in connection with its goods or services. Perhaps for this reason, domain names are usually dealt with by way of an assignment with 'call for assignment back' type provisions rather than a licence with royalties (the latter probably more applicable to the Hanger and Perlake commercial relationship).

Whilst HHJ Hacon’s judgment it is a key step in recognising the importance of domain names, it is equally important to remember that it is a first instance High Court decision. In practical terms, it means that other High Court judges are not bound to follow this decision. Until there is an appeal to a higher court, the debate as to whether domain names are intangible property, rights to use or something else will not be fully resolved.

Many thanks to Marina Goodman for her research assistance in preparing this post.