Trademarks
Create Conflict between Market Value
and Economic Value
The
Office of the Comptroller of Currency
(OCC) defines the “market value”
of an asset as follows:
"The
most probable price in terms of
money which a property should bring
in a competitive and open market
under all conditions requisite to
a fair sale, the buyer and seller,
each acting prudently, knowledgeably
and assuming the price is not affected
by undue stimulus.”
On
the other hand, the economic value
of a domain name is the value resulting
from an action of the owner that
yields the highest profit.
An
owner has three choices of action:
(1)
selling the domain name
(2)
returning it to the pool
of publicly available domain names
(3)
keeping the
domain name.
Let’s
examine each of the above options
in more detail. (In each option,
it is assumed that the domain name
contains a trademarked word.)
(1)
Selling the domain name.
It
is most probable that no one will
want to buy such a domain name,
as it carries with it a high likelihood
of litigation, especially if a
strong trademark is involved.
Thus,
the profit,
if this option were undertaken,
would be practically zero.
(2)
Returning it to the pool
of available domain names.
Suppose
now that the same domain name
as in (1) were not renewed,
allowing a third party to register
it and run it as a porn site.
Such a development could cost
the owner substantial money
either by having to offer the
cyber-squatter money to surrender
the domain name or by paying
litigation fees. There
could also be loss in value
due to the negative perceived
association and questionable
content of the domain name.
Thus,
the profit under this option
is expected to be negative.
(3)
Keeping the domain name.
If
the domain name being sold is
the primary entry point to an
active Web site, the owner needs
to compare the value of cash
flow generated from the associated
site to the market value of
the combined domain and the
associated trademark. If the
former is higher, the owner
should keep the domain name.
Now
suppose that the domain name
being sold is used as a secondary
entry point to the seller’s
main Web site — a doorway. Also
assume that the secondary entry
point contributes to the overall
traffic of the site,
resulting in sales. This scenario
complicates the picture:
it would not be viable for the
owner to transfer the trademark
with the sale of such a secondary
domain name, as the owner would
lose trademark protection associated
with the primary domain name.
In such a case, the market value
of the domain name, which is
practically zero, as
noted in section (1), could
be less than the profits generated
by the domain name as a doorway.
Based on the above
analysis, it is best for the owner
to keep renewing such a domain
name, unless the trademark is
transferred with the sale of the
domain name.
Analysis
that involves action (1) is tantamount
to estimating the market value of
the domain name. Thus, a decision
based on market value is a subset
of economic-value
analysis.
The
potential profits generated from
exercising the above three options
indicate that keeping a domain name
that contains a trademarked word
yields higher expected economic
value than the market value.
Alex Tajirian, President & CEO
DomainMart
|
Opinion