Cybersquatting!

We were recently asked to address a question involving cybersquatting. Cybersquatting is a controversial practice where an individual or a business registers an internet domain name (the website address) that someone else may have an interest in. The “cybersquatter” then often refuses to do anything… until they have been paid, of course.

This sort of behaviour often arises from the “first come first serve” nature of the domain name registration system, as well as the relative ease and low cost of registering a domain name. Cybersquatters often register a large number of domain names that other people may have an interest in, and then auction them off or sell them for a higher price than the price of the registration.

Over the last decade or so there have been a number of high profile cases where this sort of behaviour took place. In the 2000s, websites such as “madonna.com” and “singaporeairlines.com” were occupied by alleged cybersquatters. In 2004, the rapper Eminem won a case against a cybersquatter. There were disputes over “juliaroberts.com” and “jimihendrix.com”.

This practice still continues. As a small business, you might have encountered such practices in the past, or you may be a target of cybersquatters. If something like this does happen to you, you can take some action through the WIPO’s Uniform Domain Name Resolution Policy or, if the domain name ends with “.au”, the .au Dispute Resolution Policy.

An example of a complaint would be one where you have registered a business or a trade mark within Australia, and the “cybersquatter” registered the domain name, in bad faith, some time after you registered your business or your trade mark, and has no intention of using it in any way.

The UDRP or the .auDRP have some remedies, such as cancelling or transferring the domain name registration. Unfortunately the process requires putting together sufficient evidence to support your case, does take some time, and may not be cost effective – you also are unlikely to recover legal costs spent to pursue this.

In the alternative, complainants may lodge a complaint saying that the person who registered the domain name is not eligible to register that name – however this would likely result only in the revocation or cancellation of the registration.

Because the internet is such an important aspect of small business these days, it is very important to plan ahead for these things. Before starting up, you should check out if the domain name related to your brand or your company is taken. Even if you have no intention of putting up a website immediately, you should take steps to preemptively block out or register domain names related to you or your business. For a small cost, this will likely save you the hassle of going through the lengthy dispute resolution process that you would have to go through if you didn’t do these from the beginning.

Shareholders and Partnership Agreements

Starting up a business can be challenging. While it is important to try to get the business up and running as soon as possible, a lot of entrepreneurs fall into the trap of not paying attention to matters that, if left unattended, may cause problems in the future. An example of these sorts of matters is matters that involve legal documentation, such as confidentiality and non-disclosure agreements, terms of trade, and partnership or shareholder’s agreements.

One of the commonly missed steps in setting up a business is a shareholder’s or partnership agreement. This is used in a situation where there are two or more entrepreneurs working together in a business. Whichever agreement is used depends on the structure of the business, however the best time to prepare the agreement is right at the start of the business, before any disputes arise between the parties.

One of the matters that a shareholder’s agreement deals with is in regard to exiting the business. This may happen due to retirement, disability or even death. In the instance of a shareholder retiring, the shareholder’s agreement may give the other shareholders the option or first right to purchase the shares.

In the instance where a shareholder has passed away, the shares may be of little value to any other party other than the other shareholders. This can result in the shares being sold to other parties at a fraction of what they may be worth. In such a circumstance the shareholders agreement may specify that the other shareholders must compulsorily purchase the shares.

As many of the matters that a shareholder’s agreement covers is typically not covered by the company’s constitution, a shareholder’s agreement operates as a supplement to the company constitution. An ideal agreement deals with issues that have a distinct possibility of arising during the life of a business. It can also provide for a mechanism which resolves those same issues without the need of court intervention.

A shareholder’s agreement can include provisions regarding:

  • Direction and type of business undertaken
  • Meeting Procedures
  • Policies, Management, and Structure
  • Procedures of appointment of directors or executives
  • Voting rights and what decisions require votes
  • What decisions are considered major decisions and what percentage of votes are required to pass these decisions
  • The rights of minority voters
  • Breaking deadlocks
  • Shareholder’s exit strategies (including what happens if a shareholder passes away)
  • Shareholder’s warranties
  • Confidentiality agreements
  • Restraint of trade
  • Dispute Resolution

In summary, a shareholder’s agreement can deal with a wide variety of matters that may arise in the life of a business. The failure to address these issues can lead to expensive litigation or even to the failure of the business itself. It is therefore very important to have these matters dealt with early. Don’t leave these matters to chance or ignore it just because there are no problems at this point in time. You never know what is around the corner.