What's a Collateral LoanWhat's a collateral loan?
E-journals - YILT 1999 (2)
What is contained in a (domain) name? historically, lenders have been able to use most corporate name and brand as collateral under a standardized mortgages or fees. In this regard, however, the advent of the web presents new challenges. Now it has become the case that an easily retrievable web domainname usually represents a significant added value for a company that operates via the World Wide Web.
But since such designations are not "property" in the narrower meaning of the term, they are in theory not available to lenders as collateral. In this paper, we examine whether it is possible for a financial backer to adopt any kind of safety or "quasi-safety" through a company's web name. Domainname: What is a Domainname?
Even though the technological characteristics of web domains are quite complicated, certainly for attorneys who are not trained in information technologies, the layman's comprehension is somewhat easier. Essentially, a domainname is a simple word in Arabic or Arabic that is associated with a numerical IP address[ 1] by the competent registry office for domainnames.
The website must have an IP addressing initially issued by the IANA[ 2] (Internet Allowed Numbers Authority). A IP addressee is an online e-mail addressee identifiable by a set of numbers, such as 123.45.678.90. Everyone who is interested in surfing on a website can find the corresponding website by referring to these numbers.
Since it is much simpler to memorize an alphabetic adress than a numerical adress, however, web domains were born. This is a string of characters that are mnemonically represented by a letter that is assigned to an IP server by a DNS (Domain Name System). It' much simpler to memorize a domainname like than your corresponding numerical IP adress.
Domains are used on the web on different "levels" of name. Every Domainname consists of a Top Level Domains ("TLD"), e.g. '.com' or '.au', and a Second Level Domains ("SLD"), e.g. "Microsoft" in the example above. To obtain a domainname, it is necessary to contact the registry office in charge of registrating the requested TLD; for example, Melbourne Information Technologies Pty Ltd ("Melbourne IT") is currently in charge of registrating registrations of registrations under the '.com. au' TLD[ 3], while Network Solutions, Inc. is in charge of the '.com' TLD[ 4] in the United States.
The majority of jurisdictional authorities assign domains under a TLD that is very similar to the jurisdictional name, e.g. '. au' for Australia.
Even if there are many companies worldwide with the same or similar trade name, only one of them can still registrate a specificomainname. An example is the name "ms.com", which was initially recorded on Morgan Stanley in the United States. When a company signs up with a domainname that is easily remembered in the context of the company, it helps bring the customer to the website.
More and more companies are posting commercial and other material on the web. While a few years ago ten or twenty pages were searched for a specific word, the same query could result in ten to twenty thousand pages today, as the use of the web grows from year to year due to commercial and private use.
But if a respondent can readily guessed and recall a website, they can go directly to the site without having to depend on searching engines. This way, a malemonic domainname can be very precious for a company. Ownership in domains name? Domainname ownership issues become important for secure funding in circumstances where the value of a particular company may be materially dependent on its web site and associatedomainname.
Historically, companies looking for credit financing have often been able to secure collateral in the shape of tangible assets and capital goods in their jurisdictions. As trading and therefore finances become more boundless and companies are trading less in tangible assets than in immaterial assets such as good will, know-how and sofware, financers must look for and safeguard the immaterial value of a company as collateral for a loan.
An essential part of such protections is likely to be an effort to obtain some kind of certainty about the particular Domain Name as a significantly valued part of a company active over the Internet[ 6]. After all, it is not possible to impose a simple default fee on a given name and grant an appropriate right of ownership to the creditor in the name.
Originally, the registry bodies designed domains to correspond to a personalized number. In order to move the registry of a'.com' registry from one company to another, companies must complete the necessary Network Solutions formality. In spite of the fact that most registries believe that domains are not owned, there are some who believe that domains should be viewed as such and that the assignment regulations should and will be liberalized in the future:
In addition, fees and Mortgages are not advisable until the ownership structure of domains has been determined. An alleged encumbrance or surrender through a Domainname is valueless, while such Domainnames are not deemed by law to be owned by any person or entity suitable to establish rights of ownership and reasonable title for the purpose of this Agreement.
There is a need for creditors trying to take over some kind of safety via an online domainname to consider alternative options. After all, the lender has to find out what could eventually occur if the loan defaults. Most likely, the investor will either nominate an executor, liquidator and/or managers for the company in dispute, or he will exclude and dispose of certain precious company property to an interested third person in order to offset his loss.
In the first case, it must, inter alia, make sure that it has the right to use the givenomainname. Within the framework of this Directive, it must make sure that it has the right to resell the domainname and it must provide some information on the value of the domainname on the pertinent markets.
However, a more general name, or a name that could refer to a number of enterprises, for example with similar trade marks, will be more profitable as a salable good of the enterprise than a name unique to the borrowing operation. When considering a strategy for securing a given name, the first issue that arises is how to determine the value of the name, both for the borrowing transaction and for the overall brand as well.
It may also be possible in some legal systems to obtain from the competent registry authorities a record of the number of other undertakings which have indicated an interest in having the name registered. It cannot be an appropriate ownership right under a default fee voucher as domainnames are not necessarily considered ownership of the right or ownership, as mentioned above.
You also need to consider policies to avoid that third parties' interests in the name take precedence over those of the sponsor where possible. Presumably, as with transferable bonds of individual ownership, creditors will want to make sure that the debtor does not give anyone else any right or interest in the name without the creditor's approval.
This would presumably mean that the debtor would not assign the name to another company without the creditor's agreement or request the cancellation of the name. Web transactions can coexist in one or more physical jurisdiction (s) that are entirely separate from the jurisdiction from which they are seeking most of their habit, and even from those from which their financer is based geo-location.
In the context of such an eventuality, the sponsor may need to consider including an appropriate eligibility provision in the appropriate documents to address such cases. It is also a downside that the creditor may not have a claim against a third person in good faith who bears the name of the creditor without having communicated the creditor's interests.
Therefore, it may also be useful to obtain additional assurance from individual managers of companies active on the web or affiliated companies. For some smaller independents, however, this may not be a very useful choice even if the company's managers are destitute and there are no related companies.
Online retailing offers smaller companies more "level play " with bigger retailers. It is clear that there are two ways in which a financial or business operator can take a controlling interest in the name of another entity: (1) by taking a controlling interest in the company on which the name is incorporated; and (2) by organizing an inductive delegation of the name in accordance with processes established by the competent registry authority[ 13].
This name could be assigned to the lender and then licenced by the lender to the borrowing company. The competent registration body, Melbourne IT, demands that domainnames be directly deduced from the name of the organization requesting the domainname[ 14]. Where the name in issue was to be directly inferred from the name of the borrowing company that wished to use it, it would not be likely to coincide with the name of the financing company concerned.
When the name matches the company name of the sponsor, it is unlikely to be of great benefit to the borrowers according to the eligibility requirements. It was considered equal to the assumption of responsibility for the safety of the domainname itself by the financier[ 15]. Probably the simplest choice for a lender is to take full responsibility for the borrower's operations and thus take automatic responsibility for the respective domains in the event of failure.
The majority of these records relating to a company's property and operations contain authority to nominate an officer, recipient and/or executive in the event of non-performance. If such a file has been run, there should be no issue with the name of the Domain. They can be described explicitly and in detail in the respective technical specifications.
Nonetheless, the term in dispute should also contain a more general terminology if the relevant process ever changes. o' name, these may only be recorded for companies that have a similar company name. Of course, the sponsor himself could not make a transmission of a'.com. au' domainname, unless he happened to have a similar name.
An interested purchaser with a similar name would have to be found or a company with a similar name established in order to take over the assignment. If, however, there is no justification for the sponsor not to assume general responsibility for all asset values and the operation of the company in issue, this is the preferred policy which, if correctly formulated, guarantees the sponsor's right to the name in the event of non-performance.
Also, in all cases, the sponsor should make sure that he has provided collateral for all related trademarks that are in the possession of the Mortgagor or can be granted a license. Otherwise, the name of the domainname may be worthless on the marke. Collateral can be provided for many types of prospective ownership, such as prospective debt and prospective payments from a trustee.
Deferred tax liabilities are recognised to the extent that it is probable that taxable profit will be available against which the deferred tax asset can be utilised. One example could be that a debtor commits himself to give a lender a first choice on the assignment of domains registered by the debtor in the near term.
A company of this type could also contain a clause whereby the exercising of the options by the financing company could be made contingent on the loan in question being defaulted on. In order to provide a degree of convenience to the creditor, compensation could be required from the debtor and/or its related units and executives to address such a case.
Every domainname later recorded for the debtor would pass into the hands of the lender if he took complete responsibility for the economic unit and/or eventually sells it. Of course, this does not exclude the possibility that a domainname that has been registrated after the fee has been executed may be resold to an acquirer during the term of the loan.
If, however, the debtor stays insolvent during the pertinent horizon, this should not be a serious problem for the creditor. The topic, however, is and will remain important for donors who want to place safety or "quasi-safety" above immaterial and increasing amounts of e-commerce in the new information world.
From the above debate it can be seen that there are a number of ways in which donors can work within the present context for web domains to put safety or "quasi-safety" above them. Funders who are likely to participate in such funding should also consider changes to the entire system of registering and transferring domains, at least in relation to the most sought-after domains such as '.com'.
At the beginning of the world wide web, IANA gave all IP address to companies that wanted to establish an online-site. IANA has then allocated IPs to various ISPs and other agencies in different jurisdictional areas, which they then allocate to candidates in their respective jurisdiction.
While an in-depth debate of trademark litigation goes beyond the purview of this document, interested reader should see, for example, Fitzgerald et al., Comment 1; United States Department of Commerce, "Management of Internet Names and Addresses" (Docket Number 980212036-8146-02, 5 July 1998); Nathenson, I.S., "Showdown at the Domain Name Corral":
au' Domainnamen, see also Hourigan, P, 'Domainnamen und Warenzeichen: Regulatory Issues for Electronic Commerce, Multimedia and the Internet' (Prospect Media, New South Wales, 1998), c77. Hayward, E.,'Surviving the Domain Name Business' (verfügbar unter < http://www.igoldrush. com>, 20. November 1998). Also see Waelde, footnote 5; Elson, J., "A Domain Name Success Story" (available at , 24 November 1998).
8 Journal of International Banking Law 330 ; Stone, J.B.,'The'Affirmative' Negative Pledge' 6 Journal of International Banking Law 364 ; Han, T.C.,'The Negative Pledge as a'Security' Singapore Journal of Legal Studies 415 ¹ ; Wie man die hypothek neu erfindet' 8. One of the first online hit stores, amazon.com, the online bookstore that has grown into a video, CD and softwares store, favored this one.
This was based on own funds and not on credit financing. Refer to "Country domain names - Filing requirements - Australia" (available at , 24 November 1998). Swinson, J., "Intellectual Property Security Interests" in Wappett, C. and Allan, D., Securities Over Personal Property, Butterworths, Sydney, 1999, 121, 161-162. So far, there have been a number of cases in different legal systems, albeit none related to secure funding, in which claimants have successfully applied for injunctive relief to stop another company from using and / or maintaining a domainname if it could violate the claimant's trademark name.