In a contractual dispute which provided for the rights to a domain name and associated goodwill to be transferred in the event of termination, the High Court in England has confirmed that a domain name qualifies as intangible property (Hanger Holdings v Perlake Corporation SA & Anor [2021] EWHC 81 (Ch)). On termination of the agreement, the claimant (being the original transferor) had an equitable interest in the domain name and goodwill and, in accordance with the provisions of the agreement, was the entitled owner.
Under an agreement entered into in 2003 (the '2003 Agreement'), Hanger Holdings ('HH') transferred the domain name www.blackjack.com and associated goodwill to Perlake Corporation SA ('Perlake'). Mr Croft was the sole shareholder of Perlake. The 2003 Agreement stated that, if Perlake committed a material breach and failed to remedy the breach within 30 days of being given notice, the agreement would terminate and HH would be entitled to all rights in the domain name and associated goodwill.
In August 2015 and subsequently December 2015, HH gave notice of termination on the basis that Perlake had committed a material breach in its failure to keep records of the business operated via the domain name, its failure to provide audited financial statements, and its failure to pay appropriate commission.
Perlake a Uruguayan company, failed to respond to HH’s notices of termination. It subsequently came to HH’s attention in 2018 that Perlake had been dissolved in January 2015.
In this capacity as director and liquidator of Perlake, Mr Croft instructed the transfer of the domain name registration into his own name.
In August 2018, HH issued proceedings against Perlake (which technically remained in existence under Uruguayan law during the liquidation process) and Mr Croft claiming that Perlake was in material and irremediable breach of the 2003 Agreement, leaving HH entitled to terminate the 2003 Agreement and call for the transfer of the Domain Name and associated goodwill as the equitable owner.
Mr Croft denied that Perlake had committed any breach of the agreement and, in the event that a breach had occurred, said it was neither material nor irremediable. Significantly, Mr Croft also claimed that a domain name was not property in which equitable ownership could arise.
Mr Croft also claimed that, by the time the 2003 Agreement was terminated, Perlake was no longer the owner of the Domain Name because it had been transferred Mr Croft personally as a consequence of a loan agreement between Mr Croft and Perlake.
High Court Judgment
HH submitted (and the judgment aligned with its submission) that the principal issues to be resolved were as follows:
- Whether HH had a claim to an equitable interest;
- Whether there was a material breach of the 2003 Agreement;
- If so whether the breach was irremediable; and
- Whether, as a consequence of the breach, the 2003 Agreement was terminated.
The High Court upheld HH’s claim, finding that Perlake had committed an irremediable material breach of the 2003 Agreement for its failure to provide financial statements and details of transactions conducted via the Domain Name as required under the agreement. This breach was deemed to be material as failure to provide the appropriate documentation and information to HH, 'undoubtedly had a serious effect on the benefit to which HH was entitled to derive from the performance of the 2003 Agreement'. The breach was found to be irremediable as the Hacon J was not persuaded on the evidence that financial records had been kept and could be supplied. HH were therefore entitled to terminate the 2003 Agreement.
Further, Hacon J held that a domain name was intangible personal property, relying on the analysis in Tuscows.com Co v Lojas Renner S.A. [2011].
Despite Perlake’s submissions, Hacon J also found no reason why an injunction restraining the use or transfer of a domain name would engage the Human Rights Act 1998 or raise issues of sequestration of assets if one assumed that a domain name was intangible property, drawing an analogy with trade marks which are explicitly recognised as personal property under section 22 of the Trade Marks Act 1994.
The effect of the termination of the 2003 Agreement was therefore that HH had acquired an equitable interest in the Domain Name and associated goodwill and, accordingly, remained the owner of the Domain Name in equity, despite the transfer to Mr Croft. As such, HH was entitled to request the assignment of those rights.
Comment
The primary point of interest in this case is the High Court’s confirmation that a domain name does qualify as a form of intangible personal property. As such, equitable interests can subsist in domain names in the same way as other forms of intellectual property.
The recognition of domain names as analogous to trade mark rights is a positive step forward in the law keeping pace with technology and recognising domain names as valuable intellectual property.
Authors: Amy Salter, Associate and Chartered Trade Mark Attorney and Emily Roberts, Director.
This article first appeared on WTR Daily, part of World Trademark Review, in February 2021. For further information, please go to www.worldtrademarkreview.com.
For more information or if you have any questions, please contact Amy Salter, Emily Robertson, Jeremy Dickerson or your usual IP team contact.