RegisterFly collapse creates headache for eNom’s buyer.
The Dummit Law Firm of Winstom-Salem, North Carolina is leading a class action lawsuit against RegisterFly, ICANN, and eNom after the collapse of RegisterFly left about 75,000 domains in limbo.
This spells trouble for Demand Media, the domain company that launched last year and has collected over $200M in investments. Demand Media purchased eNom and is now on the hook for any potential liabilities. eNom is a party in the lawsuit because RegisterFly started as its life as an eNom reseller. Demand Media’s pockets are bigger than RegisterFly’s and ICANN’s, which is probably why they were included in the lawsuit.
New domain name companies, such as Demand Media and iREIT, have found themselves on the defending end of lawsuits based on acquisitions. In the iREIT case, the former business partner of one of the domain portfolios it acquired has filed suit. The allegations in the lawsuit have nothing to do with iREIT, other than that it bought the domain portfolio in question. This is a legal risk that these companies have probably paid little attention to. Instead, they’re more concerned with the legalities of trademark domains. It’s hard to do due diligence on portfolio acquisitions other than reviewing the domains being acquired. I imagine that the lawyers for these firms write terms into contracts to state that they are only acquiring the portfolio, not the business that owns them. But this may be a tricky proposition.
Domain portfolio buyers should write two items into contracts:
1. They are only buying the assets of the company (i.e. the domain portfolio), not the actual company.
2. The seller warrants that there are no trademark-infringing domains in the portfolio.