Interesting legal issue

[Chappy]

So I'm negotiating with a Company to buy a name they used to use. They want me to sign an agreement stating (i) the name will not be used for anything related to their "industry" and (ii) if I sell it then I will give them first refusal to reacquire it.

Obviously I plan to sell this name at some point. My concern is that once I have sold it and no longer in control, am I still liable for whatever becomes of it? i.e. if I sell it to another domainer and he sells it to a Company in their 'industry' then am I in trouble? Of course, it sounds like I would have to offer it back for sale to the Company I bought it from first.

Any advice appreciated.

 

[fonzie_007]

I wouldn't sign anything restricting your rights unless you have to (or you are paid compensation). That being said, what they are asking for seems legitimate (assuming they have a strong argument in favor of their right to the domain). You will have to abide by what you agree and jump through the extra hoop of contacting them when you want the domain sold. Instead of signing the agreement, I would try negotating with them now for a sale.

EDIT: if you are giving them first right of refusal, all you need to do is go out to find another buyer. Say that buyer will pay you $5k for the domain. You then have to go to the company and give them first right of refusal to purchase the domain at $5k. If they refuse, you can sell and their rights in the agreement would be terminated (assuming your contract said nothing to the contrary).

 

[Chappy]

Thanks Fonzie. First, this is a premium name so I don't want to lose it by not agreeing to enter into this agreement. I will try and ask them to add wording which limits my obligations for only as long as I actually own the name. Then, if I find a buyer I would first offer it back to them and if they refused then there is an argument that my obligations under the agreement are terminated.

 

[fonzie_007]

If they are so interested in the domain, they should be willing to shell out the money now. There is a risk that the value of the domain may go up in the future. Say the domain is worth $10k now, if they wait and have a right of first refusal, a future prospective buyer may be willing to pay $50k. If you aren't super familiar in this area and don't want to consult a lawyer, I'd suggest trying to make a quick sale back to this compan that wants you to sign the agreement.

EDIT: Why doesn't the company just wnat to buy the domain from you right now? Was it formerly their domain or did you beat them to buying it from a third party?

 

[Chappy]

Let's be clear - it is the Company who owns the domain right now. I am buying it from them. They are willing to sell me the name providing that the name is not used as a financial institution site (they are a financial institution). They want me to agree it wont be used as such. Also, they say if I decide to resell it to someone else, they want me to offer it back to them first. Sounds strange.

 

[fonzie_007]

Sounds goofy to me, but if it is a premium domain and you think that someone else will purchase it from you at a higher price, give it a go. Just make sure you have in your contract that your only duty is to give them first right of refusal and that you personally will not use it for financial means (in other words, make sure it is worded properly so that your future buyer MAY be able to use the domain for finanical purposes).

 

[Chappy]

Got it.
Sent you PM.
Thanks

 

[AdoptableDomains]

It sounds to me like they just want to insure that no one in their industry uses the domain to compete with them, since they had probably built some traffic on it or people relate the domain to them. That is a reasonable request from them. However, what is not reasonable is that you state no timeframe. It's likely someone could use it for confusion for some time period, maybe anywhere from 2 to 5 years. After that any previous connection with them should fade away so that it wouldn't be a detriment to them. I'd suggest you ask them to limit the time period to something manageable. I forsee them holding you to making the non-compete clause pass on the the next owner as well.

However, where would they be if you just let it drop next year and a competitor picked it up. They would have no way to enforce a contract with you.

To read between the lines, it sounds like this is what they considered:

1. I don't need the domain but want the value from it.
2. I want to make sure that it isn't used to compete against me.
3. If an attempt is made to compete by selling to a third party, I want the right to buy it back to prevent that.

It sounds like they overlooked these considerations:

1. What happens if the right to refusal is higher than they considered paying, and they MUST refuse?
2. What happens if you just let the name drop or expire?
3. What happens if you sell to a third party and they later decide to compete, or sell to a fouth party who does?

If I were them, I'd handle it this way.

1. I would continue to own the domain to maintain control that it didn't get used in a competing way for some specified period (maybe 5 years), or dropped to the open market.
2. I'd allow a non-competing party to lease or rent the domain for my safety period, after which they could buy it for a specified price, maybe with the lease payments going toward the purchase.

Optionally, they could employ you as a third party while they own the domain to find an end user for them for a commission. You agree on a price now, and you keep any sales amount over that cost as long as the final end user will agree to their terms for a specified period. By knowing what they want, you can provide them income from an unused asset and still provide a profit for yourself and maybe development or PPC income in the mean time. I would guess if they knew you just intended to resell in stead of develop, they probably wouldn't sell to you in the first place.

 

[Chappy]

I can see what they are trying to do but I don't think they've thought it through fully.
I attach the exact wording below (names deleted). Lets say they were known as "Union Bank of Montana" (name UBM.com) but changed their name. Therefore, they don't want the name to go to a "United Bank of Maine", for example, as people may then assume a connection perhaps between the two.

I have suggested they add the words "While ownership resides with the Buyer..." at the ** marked below.


DOMAIN NAME TRANSFER AGREEMENT
This Domain Name Transfer Agreement ("Agreement") is by and between [COMPANY] (“Owner”) and [MY NAME] ("Buyer"), and is made effective as of
the date of electronic execution. This Agreement sets forth the terms and conditions of the transfer of [NAME].com Domain Name and represents the entire agreement between Buyer and [Company].

This Agreement sets forth the terms and conditions of transferring [NAME].com, a registered domain name from the current Network Solutions (as "Registrar") to your Network Solutions account ("[MY ACCOUNT]"). By participating in this transaction, Buyer acknowledges that Buyer has read, understands and agrees to be bound by
all the terms and conditions of this Agreement.

The price of the [NAME].com domain name will be $[AMOUNT].00 U.S. dollars. All escrow fees and costs will be paid by Buyer immediately prior to the time of transfer. **Buyer agrees that the domain name [NAME].com will not be associated with any banking/financial institutions or for any other purpose that could be interpreted at seller’s sole discretion to be financial related and that the domain name would not be used for any illegal or immoral purpose.

Buyer further agrees that, in the event Buyer desires to resell the rights to [NAME].com, Buyer will first offer to [Company] the opportunity to repurchase the
[NAME].com Domain Name.

 

[AdoptableDomains]

My question would be to repurchase at what price. The market price, the price of the new offer, or the price originally paid. Interpreting that open sentence could put a few attorney's kids though college.

Actually, they have left a lot open to interpretation and room for many loopholes. You'd think a bank would be more careful about a deal like that.

Good luck.

 

[WebTech]

Chappy, if in contract was an clause that the further buyer must succeed obligations
((i) the name will not be used for anything related to their "industry" and (ii) if I sell it then I will give them first refusal to reacquire it.) to buy domain, there is no wories for them.In this way there is obbligation for every next buyer of this domain to those clauses.

all this IMHO.
Good luck

 

[sdtrader]

This must be over my head but maybe someone can explain it to me.The value of this domain appears tied to its relationship with some financial institution.If it can not be used for "anything related to their industry" then what value does it have.

I guess the picture I have in my mind is a site dedicated to instructions on making table doilies at ABCbank.com.This would be an utter failure.I must be missing something unless the name is truly generic in nature and and it is hoped that traffic generated from residual financial institution customers can be utilized for something other than financial business.

 

[fonzie_007]

The value is that it can be resold to another party. The restriction of the use only applies to Matt while he owns the domain. If the new owner wants to use it for a financial purpose, they can. However, the original company has an option to repurchase the domain for the price a prospective buyer is willing to pay for the domain. It is usually assumed that right of first refusal means you have to pay the price the prospective buyer is willing to pay; however, it never hurts to amend the contract to read that the repurchase right is based on the price the prospective buyer is offering just to be 100% clear.

 

[Chappy]

This must be over my head but maybe someone can explain it to me.The value of this domain appears tied to its relationship with some financial institution.If it can not be used for "anything related to their industry" then what value does it have.

I guess the picture I have in my mind is a site dedicated to instructions on making table doilies at ABCbank.com.This would be an utter failure.I must be missing something unless the name is truly generic in nature and and it is hoped that traffic generated from residual financial institution customers can be utilized for something other than financial business.

The domain is a 3-letter .com (do I deal in anything else?!) so much of its value is retained. Like Fonzie says - the key is ensuring that my obligations do not survive once I sell it on. Surely the courts would be hard pressed to find me at fault when the domain is not even in my control!

I think it works like this (example) - if Bank of America sold me BOA.com, they don't want Bank of Arizona using it, and want the opportunity to buy it back if I try to sell it to Bank of Arizona.

 

[AdoptableDomains]

I presume their right to refusal would bring up the question as to who you intend to sell to. If they can't verify it isn't another bank, they would want to buy it back to make sure it didn't get used that way. If you want to insure they buy it back for the price you were offered, I would make sure that is clearly stated in the agreement. Otherwise, they may insist on buying it back at the price you paid. If you disagree to the understanding of the agreement, you end up in a court battle against a bank with virtually unlimited funds and probably on-staff attorneys. Best to tie up loose ends now.

 

[Ronald Regging]

I think given the non-specific wording involving the right to repurchase the domain, they couldn't win a case stating that they have a right to buy it back at the initial sales price. It just doesn't say that and it can not be implied. I believe it would be considered by default as a fair market value, which would probably be set at the offering price of the Third Party. Though, as Adoptable says, they would have unlimited resources, so it may be a pain. I'm thinking on the other hand, if you ask for clarity and they insist they be given the option to repurchase it at the initial sales price, well then, you'd really have no point in buying the domain at all, because you couldn't possibly resell at a profit.

I don't know if I like the part about them having the sole discretion to determine whether you are using the domain for immoral uses... Immoral is such a grey area

 

[Chappy]

Update : I got them to agree to add in the words "While ownership resides with the Buyer,..." at the ** place I indicated in the agreement above. Therefore, once I sell, the new owner can do what they want. Also, I think its clear that if I sell it, then I offer it to them at the new fair value and not the original cost.

 

[fonzie_007]

Matt, just make sure that if you think if anything is ambiguous you put it in the contract. When you are signing that contract you are attesting that your FULL agreement of the transaction is contained in the document. A smart lawyer for them could bring a suit saying the language of the buy-back clause was ambigious. I think you would win this issue, but it still would cost you lawyer's fees. To be safe, I'd try to add the language of either "first right of refusal" or specific the buy back price to be what the fair market value is (or what the prospective purchasers is offering).