Tuesday, June 18, 2013

An Annotated Domain Name Purchase Agreement: Explaining the Key Provisions

By Zak Muscovitch.

The following article will present a fairly standard domain name purchase agreement and will explain some of the main provisions through annotations. The purpose of this article is to provide a basic guide to understanding some of the typical legal provisions that buyers and sellers of domain names will often see in a domain name purchase agreement. The text of the agreement is in black text, and the annotations are in blue. This is not intended to be an exhaustive examination of a domain name purchase agreement, nor is this purchase agreement intended to be relied upon without legal advice, and accordingly this article is for general information purposes only and is not a substitute for obtaining legal advice from a qualified lawyer. It is of course always a good idea to seek experienced domain name legal counsel prior to entering into a domain name purchase agreement.

                                     DOMAIN NAME PURCHASE AGREEMENT


THIS AGREEMENT is made as of the ___ day of _____________, _____, between [Insert Name of Purchaser], [if a corporation: a company incorporated and existing under the laws of ____________________ with a registered office at _______________________,] [if an individual: an individual resident of_______________ with an address at] ________________, ____________, ______________, __________ ("Purchaser") and ________________________ [Insert Name of Seller], an [individual/corporation incorporated pursuant to the laws of______________________] residing at ___________________, _______________________, _________________, _________________ ("Seller").

Annotation: It is always a good idea for each party to satisfactorily identify each other at the outset. If a party is an individual, obtaining government identification setting out the person's full name and current address, is advisable  If the party is a corporation or other business entity, obtaining that party's business registration documents, such as a certificate of registration or articles of incorporation is advisable. In addition, if the party is a business entity, conducting a business entity search to verify status, address, and official representatives, is also a good idea. Sometimes a search of registered liens is also advisable, to help ensure that no third party has asserted a security interest against the subject domain name. 

WHEREAS Seller owns all right, title and interest in and to, and possesses all rights necessary to use on the Internet, the domain name, __________________________ (the "Domain Name”);

AND WHEREAS Seller has agreed to sell and Purchaser has agreed to purchase all of the right, title and interest of Seller in and to the Domain Name;

Annotation: Sellers should ensure that the domain name is registered to the Seller as reflected in the current Whois records so that the Seller is truly the registrant. Buyers should also ensure this, in order to satisfy themselves that they are purchasing the domain name from the actual registrant. A Whois history search is also advisable for Buyers, in order to satisfy themselves that the domain name has not recently changed hands, as this can sometimes be an indicator of a domain name theft, fraudulent convenyance, or other issue.

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants and agreements contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

1.                     Purchase and Sale.  Seller hereby agrees to sell, transfer, assign and convey to Purchaser all of the right, title and interest of Seller in and to the Domain Name.

Annotation: Sometimes when trademark rights associated with the subject domain name are important to the Buyer, there needs to be further provisions for assignment of goodwill and/or trademark rights, and possibly an assignment as well of registered trademark rights.

2.                     Purchase Price.  The purchase price (the "Purchase Price") payable by Purchaser to Seller for the Domain Name shall be US $_______________ (___________________ Dollars), inclusive.

Annotation: The currency (i.e. Dollars, Euros, etc.) should be agreed upon and set out. If staggered or part payments are involved, this needs to be clearly set out and will also involve a consideration of the escrow provisions, including what happens if there is a default.


3.                     Escrow of Purchase Price.  The Purchase Price shall, upon execution of this Agreement, be sent by Purchaser to [Escrow.com/Ecop.com]. [Escrow.com/Ecop.com] shall act as Escrow Agent for the transaction contemplated by this Agreement in accordance with [Escrow.com/Ecop.com]'s standard terms of escrow. For greater clarity, Purchaser shall instruct [Escrow.com/Ecop.com] to release the Purchase Price to Seller upon the Domain Name being transferred to Purchaser as reflected in the Whois records for the Domain Name.

Annotation: Many purchasers and sellers use commercial escrow-type services such as Escrow.com or eCop.com, for example, to process payment of the purchase price and/or hold the domain name. Every party should satisfy themselves as to how these services work and whether they offer the desired degree of security for the transaction. When using Escrow.com or Ecop.com, for example,  the parties should become familiar with their various terms and conditions which are found in a series of documents and policies that they make available. Often these terms and conditions should be incorporated into the Purchase Agreement by reference. 

Some purchasers and sellers instead to use a licensed lawyer to act as escrow agent, particularly when the transaction is complex or of high value. In that case, there should be a comprehensive escrow agreement drafted and executed which clearly establishes the terms of the escrow and in particular, what happens in the event of a default or dispute.

Also consider whether the domain name itself should be held in escrow pending the closing of the transaction, depending on the circumstances and nature of the transaction. Note however, that some registrars have "hold periods" so that once a domain name is transferred to the escrow agent, it cannot again be transferred to the purchaser for a period of time, such as 60 days, thereby creating an obstacle to the closing of the transaction.

4.                     Seller to Cease Use of Domain Name. Seller covenants that Seller has ceased use of the Domain Name and agrees that Seller shall not recommence any and all use of the Domain Name.

Annotation: If the Seller is a business entity that has registered itself under a name similar to the subject domain name, the Seller should cancel this registration and furnish proof of same to the Buyer. The Buyer should familiarize itself with the Seller's previous use of the Domain Name on its website, etc., in order to know what particular uses should cease. If the domain name was used for email by the Seller, then sometimes a provision for continued interim use should be considered, or alternatively, an express provision that the Buyer is not responsible for continuing availability of email for the Seller.

5.                     Representations and Warranties of Seller.  Seller represents and warrants to Purchaser as follows, and acknowledges that Purchaser is relying upon these representations and warranties in connection with the entering into of this Agreement and the purchase of the Domain Name:

Annotation: Note that while having a representation and warranty may be a good idea, being able to successfully rely on it is sometimes a different question, i.e. once the money is paid to a seller, what is the purchaser able to reasonably do to enforce the rep or warranty against the seller? Accordingly, due attention to this issue is often required.

(a)        Business and Existence.  [Seller] is the owner of all right, title, and interest in the Domain Name and has the power to dispose of the Domain Name. Seller has made all necessary filings that are necessary to own and use the Domain Name.

Annotation: Buyer should satisfy itself of the Seller's ownership and status through searches and I.D.

(b)        Business Power.  Seller has good and sufficient power, authority and right to enter into and deliver this Agreement and to carry out the transactions and perform each of its obligations provided for herein.  Seller has good and sufficient power, authority and right to transfer the legal and beneficial title and ownership of the Domain Name to Purchaser as provided herein free and clear of all liens, encumbrances, claims, and charges.

Annotation: Often a Buyer will ask a corporate Seller to furnish a certified director's resolution which sets out that the corporate Seller has been authorized by its directors to enter into this transaction.

(c)        No Agreement to Sell Domain Name.  There is no contract, commitment, option or any other right of any person binding upon, or which at any time in the future may become binding upon, Seller to sell, transfer, assign license or in any other way dispose of or encumber the Domain Name other than pursuant to the provisions of this Agreement.

Annotation: As part of the due diligence prior to purchasing a domain name, it is often a good idea to investigate the name's ownership history and to try to find out if there have been any previous deals that fell through for the domain name. This is particularly important if it appears that more than one individual has been involved in the ownership or management of the domain name prior to the purchase.

(d)       Title to Domain Name.  Seller is the sole beneficial and registered owner of the Domain Name, with good and marketable title thereto, free and clear of any license, lien, charge or encumbrance and has the right to sell, transfer, and covey the Domain Name to Purchaser.

Annotation: Conducting lien searches is often advisable. In addition, if the domain name is more than a domain name, i.e. is a website business, consideration should also sometimes be paid to any applicable Bulk Sales Act provisions, as well as creditor issues.



(e)        No Infringement.  Seller has not received any threats of legal action or been made a party to any legal action for transfer of the Domain Name and/or damages in connection with a claim for trademark infringement or cybersquatting.

Annotation: Aside from the Seller's representation, a Buyer should satisfy itself as to any potential trademark issues by conducting registered and common law searches for trademark rights in all applicable jurisdictions, and sometimes a formal legal opinion on trademark issues should be obtained by the purchaser. An investigation of the nature of the previous owner's use of the domain name should be undertaken in order to identify the field of goods and/or services that the domain name was previously used in connection with.

Sometimes a Buyer will also ask for an express warranty that the domain name does not infringe, however Sellers are reluctant to provide such a warranty.

Where there are issues surrounding trademarks, sometimes a holdback of part of the purchase price is asked for by the Buyer.

(f)        Brokers. The Seller and Purchaser represents to each other that each has not, directly or indirectly, employed any broker, finder or intermediary in connection with the transactions contemplated hereby who might be entitled to a fee or commission upon the execution of this Agreement or consummation of the transactions contemplated hereby and indemnifies each other for any such claims that may arise.

Annotation: If a broker was used by either party, then this provision should be replaced with an appropriate acknowledgement of who is to pay the broker's fees.

g)         Taxes. Any taxes applicable to the Purchase Price shall be borne by Seller.

Annotation: Depending on the jurisdiction of the parties and the nature of the transaction, sales taxes may be applicable and therefore tax advice should be sought. For Sellers, sometimes a transaction can be structured to minimize tax consequences,and accordingly the advice of an accountant should be sought.

6.                     General.
(a)        Definition of "Person".  For the purposes of this Agreement, "Person" means any individual, legal or personal representative, partnership, company, incorporated syndicate, unincorporated association, trust or governmental authority.

(b)        Further Assurances.  Each of Seller and Purchaser shall execute and deliver such further and other documents, assurances and conveyances as may be necessary from time to time to give effect to this Agreement and to carry out its provisions.

Annotation: Often this provision is related to another provision for how the actual transfer of the domain name is to occur, e.g. via a "push", etc., since on occasion, a registrar will require further documentation and therefore cooperation is required from each party.

(c)        Time of Essence.  Time shall be of the essence of this Agreement provided that the time for doing or completing any matter provided for herein may be extended or abridged by agreement in writing signed by Seller and Purchaser.

Annotation: Often this provision will be related to another provisions which establishes when the purchase price is to be paid by, and the consequences if it is not.

(d)       Fees.    Each of Seller and Purchaser shall pay their respective and other professional advisory fees, costs and expenses incurred in connection with the purchase and sale of the Domain Name and the preparation, execution and delivery of this Agreement and all other documents and instruments executed pursuant hereto.

Annotation: Frequent domain name purchasers and sellers will tend to have a relationship with an experienced domain name lawyer who maintains their preferred form of agreement, or who is able to quickly review a draft of an agreement that has been presented to them.

(e)        Successors and Assigns.  This Agreement shall ensure to the benefit of and be binding upon the respective successors and permitted assigns of the parties hereto.

Annotation: Though seldom an issue in straight purchases, if there is a staggered payment of the purchase price, this provision can become an issue, as each party will want security that the party that they are dealing with will not change mid-transaction.


(f)        Entire Agreement.  This Agreement constitutes the entire agreement between the parties hereto relating to the purchase and sale of the Domain Name and supersedes all prior negotiations and agreements, whether written, oral, implied or collateral between Seller and Purchaser. There are no representations, warranties, terms, conditions, undertakings or collateral agreements, expressed, implied or statutory, between the parties other than as expressly set forth in this Agreement.

Annotation: It is important for the parties to realize that they should not generally be relying upon email or other correspondence or conversations in order to establish the terms of the transaction. Any important term should be included in this agreement.


(g)        Amendments and Waiver.  No modification of or amendment to this Agreement shall be valid or binding unless set forth in writing and duly executed by both the parties hereto and no waiver of any breach of any term or provision of this Agreement shall be effective or binding unless made in writing and signed by the party purporting to give the waiver and, unless otherwise provided, shall be limited to the specific breach waived.

Annotation: Sometimes the terms of the agreement will need to be revised mid-transaction for any number of reasons. In that even, there should be a written and formal amendment that makes reference to this provision.

(i)         Notices.  Any notice, document or communication required or permitted to given hereunder shall be in writing and delivered by hand, facsimile or Internet e-mail transmission to the party to which it is to be given as follows:

TO SELLER:

            [ADDRESS]

TO PURCHASER:

            [ADDRESS]

        Annotation: It is often advisable to give some though to how the parties intend to notify each other of important things that may arise, particularly when they are far apart geographically. Sometimes relying upon email is easiest, but receipt of such emails is not always easily provable. Accordingly using a courier or an attorney's contact information may be advisable in some circumstances.



or to such other address as either party may in writing advise by notice given in accordance with this Section.  Any notice, document or communication shall be deemed to have been given, in the case of delivery by hand, when delivered, and in the case of delivery by facsimile or e-mail transmission, when a legible facsimile or e-mail transmission is received by the recipient.

(j)         Governing Law and Specific Performance.  This Agreement shall be governed by and construed in accordance with the laws of _________________ . The Parties hereto irrevocably attorn to the jurisdiction of _____________________________ for any dispute arising from this Agreement, and the Seller acknowledges and agrees that failure to convey the Domain Name in accordance with the terms of this Agreement shall entitle the Purchaser to seek injunctive relief and/or mandatory orders for specific performance of this Agreement as money damages will not suffice if a failure to convey the Domain Name occurs.

Annotation: Seldom to both parties reside in the same jurisdiction, so there is frequently an issue about what the governing law and jurisdiction should be. Sometimes one party accedes to the other's request, and sometimes "neutral" territory is mutually selected. This can be a very important provision where a dispute arises. 

Sometimes a purchaser will include a "specific performance" clause such as the one above, since if the Seller somehow fails to convey the domain name, the purchaser will not be satisfied with mere damages, and will want the agreement to expressly set out that it is entitled to the domain name itself as well.

(k)        Counterparts.  This Agreement may be executed and delivered in separate counterparts and delivered by one party to the other by facsimile or email transmission, each of which when so executed and delivered shall be deemed to be an original and all such counterparts shall together constitute one and the same agreement.

Annotation: It is handy to execute agreements via PDF/fax in counterparts, which means that the parties do not necessarily have to sign on the same page; they can instead sign their own signature page.

IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first written above.

[Buyer]
I have authority to bind the corporation.

By:________________________________
Name:
Title: President
[Seller]

________________________________





Annotation: It is advisable to clearly identify who is signing on behalf of a business entity and that they are authorized as a signing officer.

4 comments:

Louise said...

Good job! Bookmarked it! :)
Louise

Anonymous said...

Optional non-disclosure clause regarding price would be appreciated if listed as well.

Anonymous said...

No time to read it now but I also bookmark it.

We are very lucky you be sharing so much legal help lately. Thanks!

Ken said...

Very interesting post, a lot of great information. Looking forward to reading more.