news The dark side of granting “lease to own” domain sales via Afternic

[News]

Afternic is rolling out the option of offering lease to own (LTO) opportunities to potential domain buyers.
Copied from Dan.com that streamlined the process, the Afternic process appears to be a welcome option for domain investors.

Read More.

 

[yb1313]

Yes there's the risk that a domain will be abused by a buyer once he rents it, but as domainers we should probably just deal with it/hope for the best and still provide the lease to own option, since it increases the chance of selling a domain i.e. sell-through-rate, to the best of my knowledge. Also, once you sell a domain using LTO you're not really its owner anymore as it goes to an escrow account of the middleman (AN) and you don't operate it anymore so logically you're not liable for it.
Furthermore, I'd like to believe that Afternic will act reasonably too, and in the case of extreme domain misuse would comply with a request to end such LTO deal if the seller or anyone reports and proves that the buyer completely misuses it - after all, Dan and Afternic (which control this secondary market) want to protect themselves too.

 

[Optixgroup]

Does anybody know how/if Afternic’s indemnification on LTO plans differs from Dan’s?

 

[jberryhill]

Also, once you sell a domain using LTO you're not really its owner anymore as it goes to an escrow account of the middleman (AN) and you don't operate it anymore so logically you're not liable for it.

Afternic's terms literally contradict that.

In order to protect themselves, they keep you as the underlying registrant, but they control the domain name as your agent, as further explained in the terms. If you were not maintained as the registrant, there is no reason for them to get to specifically acknowledge that you are bound by the UDRP - which ONLY applies to the registrant.

 

[yb1313]

@jberryhill
The above does not contradict my point, which is that Afternic is expected to act with common if a LTO domain is abused (also, it's easy to prove that someone else uses it so generally sellers should be legally protected). By the way, in the terms you quoted, it doesn't say that Afternic keeps the seller as the "underlying registrant", but instead it makes clear they can transfer it to a third party; I'm not sure where you got that info from but it'd be great to know.

 

[jberryhill]

Afternic is expected to act with common if a LTO domain is abused (also, it's easy to prove that someone else uses it so generally sellers should be legally protected)

“act with common”? I don’t know what that means, along with it being “easy to prove that someone else uses it”. Could you clarify what you mean there?

As far as the way the UDRP works, GoDaddy redacts most Whois information these days. When a UDRP is filed, the provider notifies the registrar and the registrar identifies the registrant.

There is no need for anyone other than the registrant to agree to “be bound by the UDRP” so perhaps you might explain the point of having someone other than the domain registrant agree to be bound by the UDRP. The only people to whom a UDRP applies are the registrant, the complainant and the registrar. So, since the seller is not the complainant or the registrar, then perhaps you might fill me in on how one “agrees to be bound by the UDRP” if they are not the registrant.

It makes total sense to maintain the seller as the registrant of the domain name, but to have them agree that they don’t control the name during the LTO. That provides protection to Afternic, since they don’t get dragged into a dispute proceeding the way that Domain Capital regularly does.

 

[jberryhill]

For example, take a look at the nonsense that goes on when an escrow service is the registrant:

https://www.adrforum.com/domaindecisions/1609855.htm

Because Afternic is affiliated with a registrar, it’s a lot simpler just to keep the seller as registrant but have them agree to surrender control during the term, and it reduces exposure. GoDaddy also runs a TLD registry and one is disqualified from obtaining new TLDs if one has three UDRP losses within a few years (the exact number escapes me at the moment). It would be idiotic for them to put that on the line for LTO sellers.

 

[D Haynes]

The latest DNW podcast covers exactly this issue with Kate Buckley. She explains how she approaches LTOs to try to mitigate the risks of domain abuse. Worth a listen.

 

[yb1313]

@jberryhill, Again, where does it say that the seller remains the registrant in a LTO deal @Afternic? It cleally says that Afternic will "control the LTO domain during the LTO period" (see last paragraph of the terms you quoted). It's the opposite of what you're saying - AN says they will be the registrant! But if my understanding is wrong please enlighten us otherwise you seem to have extensive knowledge in this field - with official TOS citation.
Btw, here's my own experience with this matter: Last year I sold a domain through LTO at Dan (I still receive monthly payments for it) - as soon as I sold it I transferred it away from my account to Dan's account, therefore I'm not the owner/registrant anymore, Dan appears to be (proved by a simple whois search too that shows a different Holland-based registrar&t). As Dan and AN are now both Godaddy properties and they make things similar in both (same commission for example) we can assume it will be similar in AN too.

Note that this post's article's touches upon the issue of what sellers can do in cases of "unlawful usage", arguding that sellers are quite limited, which I agree is a big issue but yet I think we should expect AN to act with "common sense" in such cases, i.e. AN it will act in reasonable manner if our domain is abused and they're informed about it, and terminate such a deal. Thus sellers should generally trust we'll not be responsible for usage of domains we lease-to-own to someone else, because A) someone else technically uses it, not us, obviously, and B) A LTO buyer also has to abide by the law as well UDRP rules of course, and AN would redirect any blame on the buyer (yes, unfortunately they can still misuse it, but not without consequences).

 

[jberryhill]

@jberryhill, Again, where does it say that the seller remains the registrant in a LTO deal @Afternic?

Because the terms require the seller to acknowledge they remain "bound by the UDRP". That makes no sense absent them being the registrant. It also reduces potential liability by Afternic.

Explain why, in your opinion, the terms require the seller to acknowledge they are "bound by the UDRP" absent them being the registrant of the domain name.

AN it will act in reasonable manner if our domain is abused and they're informed about it, and terminate such a deal.

Knowing that someone is sending out, for example, phishing emails, or that a URL under the domain name is the reference target of phishing emails is not something that is readily observable.

But, more importantly, knowing that someone is pitching an otherwise dictionary-word domain name to a longstanding TM owner is not something that anyone is going to know.

But stopping abuse is not really the point. Yes, GoDaddy will generally shut down ANY domain names which are credibly involved in abuse - LTO deal or not. That's not really the issue.

The point is that the terms do acknowledge, correctly, that the domain name could end up being lost as a consequence of the buyer's actions. But the terms DO NOT, anywhere I can find, state that the buyer remains liable to the seller for the value of the domain name.

In fact, there is not even a coherent set of terms between buyer and seller which even match up. I had posted a Twitter thread about my hunt for those terms and while, yes, I found the LTO seller terms on Afternic, I could not find the buyer terms. Afternic responded and said that the buyer agrees to the LTO terms on Dan:

Now, again, let's remember what is the question:

What, if any, recourse does the seller have if the LTO buyer does something that results in loss of the domain?

What's truly banana pants about Afternic's response is that my question relates to the AFTERNIC LTO terms to which the seller agrees, and under which, for example:

The terms to which the buyer agrees, at Dan, say:

So you have a situation in which the seller makes an agreement with one company, Afternic, subject to the terms posted by Afternic. On the other side, the buyer makes an agreement with a different company, Dan, subject to the terms posted by Dan.

Since you have all this figured out, then why not just enlighten me, because I'm obviously too damned stupid:


---------------------
Bob has MonsterFan.com. It is on PPC for horror movies. Bob lists the domain name on Afternic for LTO purchase. Charlie agrees to buy the domain name in an LTO deal for $60,000, paying $5,000 per month for one year.

One day after getting the DNS set up for the domain name, Charlie sets up email and sends an email to the people who make Monster brand energy drinks and says, "Hi, I'd like to sell you this domain name for $100,000." Charlie's plan is to get them to agree, pay off the balance of the LTO deal, and make $40,000 profit.

Instead, the Monster people file a UDRP, say that Bob tried to sell them the domain name using an email address from the domain name itself. Bob says, "It wasn't me, it was the guy using the domain name." The UDRP panel doesn't care, because registrants are responsible for conduct which occurs using their domain name. The UDRP panel orders the domain name to be transferred.

Bob now has no domain, and no $60,000. What recourse do the terms provide Bob against Charlie?
------------

How anyone was supposed to be knowing what emails Charlie was sending, or how a domain abuse policy would have prevented it from happening?

Is Bob is entitled to recover the remaining $55,000 from Charlie?

Should he file an arbitration in the US under the terms he agreed with Afternic, or a lawsuit in the UK under the terms the buyer agreed with Dan?

Now, yes, there are risks with an LTO. But you are handing the keys to your car over to someone who can drive that car over a cliff, and the terms to which everyone agrees provide you with NO recourse if that happens. At least with your car, you can insure it, but you can't do that with a domain name.

So, go ahead and tell me what you would suggest Bob do?

What section of the terms - at Afternic or Dan - Bob will enforce against Charlie to get the $55,000 in value which Charlie destroyed.

 

[jberryhill]

Thus ws sellers should generally trust we'll not be responsible for usage domains we lease-to-own to someone else, because A) someone else technically uses it, not us, and B) Obviously, a LTO buyer has to abide by the law as well UDRP rules too, and AN would redirect any blame to him (yes, ofc they can still misuse it).

That's simply not true. Afternic doesn't have the power to "redirect any blame" if someone is suing you for cybersquatting, trademark infringement, or any of the various things one can get sued for.

In fact, the "but the registrar was parking my domain name" defense loses all of the time in UDRP disputes, because the registrant of the domain name is held responsible for whatever happens with the domain name. That's actually one of the things that ICANN requires you to acknowledge when you REGISTER a domain name.

https://www.wipo.int/amc/en/domains/search/overview3.0/#item35

3.5 Can third-party generated material “automatically” appearing on the website associated with a domain name form a basis for finding bad faith?​

Particularly with respect to “automatically” generated pay-per-click links, panels have held that a respondent cannot disclaim responsibility for content appearing on the website associated with its domain name (nor would such links ipso facto vest the respondent with rights or legitimate interests).

Neither the fact that such links are generated by a third party such as a registrar or auction platform (or their affiliate), nor the fact that the respondent itself may not have directly profited, would by itself prevent a finding of bad faith.

People lose domain names in UDRP disputes as a consequence of "something someone else did" all of the time.

 

[yb1313]

Good research on the topic. And if you ask for my opinion, I agree with most of those concerns.
It should not be a shocker however, that selling a domain through lease-to-own (LTO) entails some risk. Let's remember that the selling side enjoys some benefits too, such as a higher sale price (if the sale period is longer than 1 year) as well as a chance to get the domain back after receiving payments for it (if buyer stops paying and defaults).

As for the risks involved, to the best of my understanding in this situation:
- LTO deals at AN do come with the risk of abuse that may lead to loss in domain reputation or in extreme cases, ownership, indeed. Spammers/scammers usually register cheap-ass domains, but of course one may invest in a serious name and engage in things like spamming/phishing/whatever, causing the domain to lose online authority/reputation, and in rare cases its entire possession, due to TM issue for example as you rightly noted. (As opposed to a car sale, at least the buyer can't run away and disappear with your domain without paying in full tho, lol)
- TOL deals at AN do not appear to legal risks for sellers in the sense that they will be liable for buyer's actions; there's still no indication that the seller remains the registrant; to the contrary - it appears Afternic will be the registrant (or maybe even the buyer is? It's probably easy to find out by simply making such a transaction). It's worth noting that Afternic states above that a seller in a LTO deal is "bound by our Uniform Domain Name Dispute Resolution Policy" i.e. bound by their own terms, simply as the domain seller in a LTO deal (which does not necessary mean the selling side remains in a registrant position), as one may wish to complain or anything. Thus there's practically no way that (in your example, the seller) Bob will be in legal trouble for abuse done by Charlie's (buyer) behavior, as the latter did the abuse and that's easily provable (surely, buyers may still harm the domain).

To sum it up, the risk of losing the domain's authority or possession is a serious and legitimate concern, which can hardly be mitigated (as noted, people lose domains they own too). If someone had any experience with the above, it would be interesting to hear it here.
As for getting in legal trouble for buyer's action, that would just make no sense - A should not be responsible for B's actions and the law must take it into account (whether A is officially the registrant or not, and it appears he's not); it's not the same as one displaying ads on a domain they control.
Note that Afternic also has an arbitration process for such matters. Ironically there may be an issue with my sold LTO domain at Dan and luckily it seems to have a better and rather fair conditions for sellers but I hope there will be no need to find out nor dig into that subject further.

 

[jberryhill]

A should not be responsible for B's actions and the law must take it into account

I hear a lot about what the law "should" do. People have the weirdest ideas, based on nothing, about what the law "should" do or not do.

Do you remember this whole debacle:

https://techstartups.com/2022/02/04...cease-using-brand-due-trademark-infringement/

Canvas.com loses its domain name after district court judge ordered the diversity recruiting startup to cease using the brand due to trademark infringement​

Maybe you do, or maybe you don't... but it got a lot of attention at the time.

That name was on a payment plan through Escrow.com.

Note that Afternic also has an arbitration process for such matters

That's between Afternic and its customers. There is utterly nothing that would require the buyer to show up or care.

 

[mdent]

Would it help if the registrant information were changed to that of the buyers, while the domain is in the LTO holding account? Would it even be feasible, considering the legal side of things, 60-day locks, etc?

 

[Future Sensors]

Because the terms require the seller to acknowledge they remain "bound by the UDRP". That makes no sense absent them being the registrant. It also reduces potential liability by Afternic.

Explain why, in your opinion, the terms require the seller to acknowledge they are "bound by the UDRP" absent them being the registrant of the domain name.



Knowing that someone is sending out, for example, phishing emails, or that a URL under the domain name is the reference target of phishing emails is not something that is readily observable.

But, more importantly, knowing that someone is pitching an otherwise dictionary-word domain name to a longstanding TM owner is not something that anyone is going to know.

But stopping abuse is not really the point. Yes, GoDaddy will generally shut down ANY domain names which are credibly involved in abuse - LTO deal or not. That's not really the issue.

The point is that the terms do acknowledge, correctly, that the domain name could end up being lost as a consequence of the buyer's actions. But the terms DO NOT, anywhere I can find, state that the buyer remains liable to the seller for the value of the domain name.

In fact, there is not even a coherent set of terms between buyer and seller which even match up. I had posted a Twitter thread about my hunt for those terms and while, yes, I found the LTO seller terms on Afternic, I could not find the buyer terms. Afternic responded and said that the buyer agrees to the LTO terms on Dan:


Show attachment 243537

Now, again, let's remember what is the question:

What, if any, recourse does the seller have if the LTO buyer does something that results in loss of the domain?

What's truly banana pants about Afternic's response is that my question relates to the AFTERNIC LTO terms to which the seller agrees, and under which, for example:

Show attachment 243538

The terms to which the buyer agrees, at Dan, say:

Show attachment 243539


So you have a situation in which the seller makes an agreement with one company, Afternic, subject to the terms posted by Afternic. On the other side, the buyer makes an agreement with a different company, Dan, subject to the terms posted by Dan.

Since you have all this figured out, then why not just enlighten me, because I'm obviously too damned stupid:


---------------------
Bob has MonsterFan.com. It is on PPC for horror movies. Bob lists the domain name on Afternic for LTO purchase. Charlie agrees to buy the domain name in an LTO deal for $60,000, paying $5,000 per month for one year.

One day after getting the DNS set up for the domain name, Charlie sets up email and sends an email to the people who make Monster brand energy drinks and says, "Hi, I'd like to sell you this domain name for $100,000." Charlie's plan is to get them to agree, pay off the balance of the LTO deal, and make $40,000 profit.

Instead, the Monster people file a UDRP, say that Bob tried to sell them the domain name using an email address from the domain name itself. Bob says, "It wasn't me, it was the guy using the domain name." The UDRP panel doesn't care, because registrants are responsible for conduct which occurs using their domain name. The UDRP panel orders the domain name to be transferred.

Bob now has no domain, and no $60,000. What recourse do the terms provide Bob against Charlie?
------------

How anyone was supposed to be knowing what emails Charlie was sending, or how a domain abuse policy would have prevented it from happening?

Is Bob is entitled to recover the remaining $55,000 from Charlie?

Should he file an arbitration in the US under the terms he agreed with Afternic, or a lawsuit in the UK under the terms the buyer agreed with Dan?

Now, yes, there are risks with an LTO. But you are handing the keys to your car over to someone who can drive that car over a cliff, and the terms to which everyone agrees provide you with NO recourse if that happens. At least with your car, you can insure it, but you can't do that with a domain name.

So, go ahead and tell me what you would suggest Bob do?

What section of the terms - at Afternic or Dan - Bob will enforce against Charlie to get the $55,000 in value which Charlie destroyed.

@GoDaddy

I think Mr Berryhill has some excellent points here. Could you please answer his main concerns here in this thread?

 

[jberryhill]

Could you please answer his main concerns here in this thread?

No one from GoDaddy is going to get into a discussion over the terms of service. They aren't allowed to.

If a GoDaddy employee were to post something along the lines of "Oh, this clause in the contract means X" then someone could attempt to use that as an authoritative "official" interpretation of the contract in a dispute later on. So, no, the GoDaddy legal folks aren't going to let employees do that, and the employees know better than to stick their necks out and try to tell you what the terms of service mean. The only time that will happen is when they are acting as puppets and repeating the lines they've been told to repeat.

 

[jberryhill]

Would it help if the registrant information were changed to that of the buyers

In a word, no.

Would it help if the buyer went bankrupt during the LTO and a freeze was put on all assets held in the name of the buyer during the bankruptcy?

No, that would not help.

Look, any business decision has its risks and its rewards. If you want to reap the value of a domain name from a buyer who does not have or prefers not to pay, the total value up front, then an LTO is an attractive option. In exchange for that bargain, you take on the risk that the domain name might be lost for any of a variety of reasons, that the buyer will not pay the rest of the balance after that, and you'll be left with a bucket of nothing.

The Afternic terms are designed to protect Afternic, not you. That's not some sort of evil machination. That's just the way a large public company has to manage THEIR risks in dealing with people who do all kinds of unpredictable and potentially risky things.

My only curiosity in this was whether the Afternic, or even the Dan, terms attempted to allocate risk of loss of the domain name between the parties by even pretending to keep the buyer on the hook for the remaining balance in the event the domain name is lost. I've been helping parties manage LTO transactions for quite a long time for very high end domain names, and how to allocate the risk of various kinds of losses is always an interesting discussion in mediating those kinds of negotiations.

There aren't a lot of options that are going to make everyone happy in the kind of "one size fits all" volume business for low-end transactions that GoDaddy is seeking to facilitate here, and it pretty much looks like they (a) decided not to explicitly address the topic because it can be a can of worms, or (b) just don't care. Option (b) makes a lot of sense because that is a "customer problem" and not a "GoDaddy problem". GoDaddy doesn't pay legal staff to solve YOUR problems.

 

[biggie]

Hi

@jberryhill

question:
since the buyer in an LTO does not own the domain,
a then shouldn't AN/GD have a clause that states buyer cannot offer or solicit the domain name for sale or sublease, while LTO is still in effect or until payments have been made in full.

there should be some stated restrictions on usage during the LTO period.

BTW: thanks for your input on this subject

imo....

 

[Future Sensors]

No one from GoDaddy is going to get into a discussion over the terms of service. They aren't allowed to.

Thanks for giving GoDaddy this simple escape to not have to respond anymore.

 

[jberryhill]

shouldn't AN/GD have a clause that states buyer cannot offer or solicit the domain name for sale or sublease, while LTO is still in effect or until payments have been made in full.

You can make an argument either way about whether this should or should not be allowed. This sort of thing goes on under all kinds of LTO arrangements.

Example - You set up a company to sell rugs online and you buy rugs.tld for $12,000 in 12 one month payments. You expect to sell $15,000 of rugs in a year. Two months into it, someone comes along and says, I'd like to buy rugs.tld for $100,000. What are you going to do?

If the LTO agreement allows you to pay off the balance early, you surely might consider arranging to sell the name, use the payment to pay off the LTO balance and transfer it to the buyer.

In fact, LTO arrangements are one way of securing an exclusive option to sell, which has been the basis of several LTO arrangements I've done for clients.

The Dan.com terms ("updated July 24, 2023, lol) say...

https://dan.com/terms_of_use

c. Buyer may not grant any third party any rights to the LTO Domain, including any right to use the LTO Domain.

That would cover your subleasing prohibition, and would, arguably, prohibit granting a buyer the right to purchase the domain name in a transaction contingent on your paying off the balance.

But, and you might want to think about how you set up your LTO purchase... If you had set up a single-purpose company to operate rugs.tld in the first place, you can certainly offer to sell your company to anyone, and they would buy your company along with the LTO agreement to which your company is a party.

But you can see how much skill, thought and care they put into these things:

So, if you want to buy a previous LTO domain, then get some beer and a DJ, I guess.

They don't even read the crap they have you agree to.