Why the Splurge on Generic Domain Names?

Brandweek, Feb 21, 2000 by Martin Schwimmer

A constant stream of press releases from the domain name reselling industry announces the latest record-breaking price: $500,000 for computer.com, then $825,000 for drugs.com; $1.3 million for wallstreet.com, then $3.3 million for wine.com. Next came word that business.com had been sold for $7.5 million.

While would-be e-commerce entrepreneurs are being advised to register generic terms reflecting the nature of their business as domain names, the unfortunate truth is that all the good names are either in use or have been snapped up by resellers. For those who have their hearts--or business models--set on using such a domain name, be prepared to have your domain name purchase constitute the largest single expenditure in your Web site investment.

I can't comment on the correctness of this advice from a marketing point of view, but as a consumer I am skeptical of some of the rationales given in favor of choosing such domain names. One rationale put forth is that consumers who are window-shopping on the Internet will forego using a search engine and "guess" that the generic domain name leads to something they are interested in. This seems plausible for a shoes.com or an autos.com; less so for a business.com (because people are not usually in the market for a business).

A second rationale is that the generic name is short and easy to remember. That is certainly true--except when people like me forget if the ad they heard was for auto.com, autos.com or cars.com? And there doesn't appear to be much of an advantage here over short and easy-to-remember trademarks.

Justified or not, the desirability of generic domain names is a truth in the marketplace (as those prices reflect). Furthermore, because of the nature of the domain name system--specifically the fact that only one person can own and maintain a domain name at a time--the owner might think they have some type of exclusivity in what they have just paid a lot of money for.

From a trademark law point of view, however, trouble may lie ahead for clients who do more than use generic domain names as traffic-builders, and choose to build brands out of such domain names. Under U.S. Trademark Office practice, such names are unlikely to receive federal registration and courts are unlikely to grant monopolies to companies that would effectively take generic words out of circulation.

Generic words are never protectable as trademarks, and descriptive words are protectable as trademarks only upon showing of acquired distinctiveness. No one may receive a monopoly on the generic term for an item. If you claimed a trademark in "apple" for apples, I would retain a fair-use right to use the term to identify my apples as "apples." Because of this lack of protectability, we would never encourage a client to invest heavily in a trademark such as The Apple Company to sell apples.

As for descriptive terms, public policy dictates that they should be free for all in the field to use--free to say that their apples are shiny, red, organic or Internet-ready (if we were talking about computers). The exception is the case of secondary meaning--where through use of the term it has acquired distinctiveness such that it identifies a particular source. Some descriptive terms which have obtained secondary meaning include American Airlines, National Car Rental and International Business Machines.

Be advised, though, that the secondary-meaning rule does not apply to generic terms. If you adopted Computers Inc. to sell computers, a court would never find that you had achieved secondary meaning in the term "computers" (despite the evidence of your Super Bowl commercial), and would allow third parties to continue using the term in or as part of their trademark.

However, applying the generic/descriptive policy to domain names, the Trademark Office has now issued an examination guide advising that the suffix portion of a domain name will be treated like an "Inc" or a "Company" and will not be considered when examining the term for registration. Thus a generic word plus a .com for the sale of turkeys (they give turkey.com as an example) will never be registrable, and a descriptive word plus a .com (they give soft.com for tissues as an example) will only be registrable upon proof of secondary meaning. Under this practice, some of these domain names selling for upwards of six to seven figures would not receive a trademark registration from the Trademark Office.

No court has yet upheld the office's view on this issue, and counter-arguments can be made that, for example, turkey.com does function as a trademark. One argument is that it is understood by the public that only one party can own a domain name (for the most part) and therefore turkey.com signifies a single source in a way that Turkey Company does not. As the use of gateway pages (pages shared by multiple parties) increases, this argument will become less persuasive.

Even if generic domain names are found to be protectable as trademarks, are they strong trademarks which should have a broad scope of protection? Assuming "widgets" is a generic term, should the owner of widgets.com be able to stop the use of widget.com,iwidgets.com, ewidgets.com and widgetsonline.com, as well as widgets.net,widgets.org and that British competitor, widgets.co.uk? At what point does protecting widgets.com violate the policy that no one may receive a monopoly in the generic term? Recent cases involving Ecards.com and Home-Market.com, where plaintiffs were unable to stop the use of E-Cards.com and Home-Market.Net, respectively illustrate the limited protection U.S. courts will grant domain names consisting of generic or descriptive terms.