RegisterFly Lawsuit Ensnares Demand Media

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 following the collapse of RegisterFly left regarding 75,000 domains in limbo.

This spells trouble for Demand Media, the domain firm 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 since 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.

Fresh domain name firms, 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 purchased 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 firms 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 purchased. 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 ought to write two items into contracts:

1. They are only buying the assets of the firm (i.e. the domain portfolio), not the actual firm.
2. The seller warrants that there are no trademark-infringing domains in the portfolio.