For many businesses, a domain name is among its most valuable assets.
Lenders routinely seek to use domain names as collateral. However,
perfecting a security interest in a domain name is only the first step
because conflicting laws and the realities of technology create hurdles to
foreclosing on this collateral after a default.
Perfecting a Security Interest
Practitioners and scholars disagree on the legal nature of a domain name.
Some argue that a domain name represents only a conditional contractual
right for the term of registration. Others compare a domain name to an
intangible property, like a telephone number. In the absence of definitive
law to the contrary, courts generally consider domain names to be “general
intangibles” under the Uniform Commercial Code.
A security interest in any property (including general intangibles)
attaches only to whatever rights a debtor has in that property and only if
that property is properly described in the security agreement. Lenders must
take care to determine who owns and controls any domain name intended to be
collateral, and that entity must be party to the security agreement. To
cover domain names, the collateral description in a security agreement
should include “general intangibles”; for additional clarity, that
collateral description also could include “domain names” (including a list
of specific domain names) and any associated trademarks and goodwill.
To perfect a security interest in general intangibles, a lender must file a
proper financing statement in the UCC filing office in the state where the
debtor is deemed to be located under the UCC (typically, the state where
the debtor is organized).
Obstacles to Enforcement
A properly perfected security interest in a domain name does not guarantee
success in taking control of that domain name after a default. Domain name
registrars often require the approval of the domain name holder before
making any transfer. A registrar risks violating its registration agreement
with the owner by transferring the domain without the owner’s permission,
and is therefore unlikely to circumvent the owner’s wishes without a court
order. Furthermore, under the UCC a registrar has no duty to cooperate with
Even if a buyer is willing to agree to the transfer, the domain name
registrar must cooperate as well. Many registration agreements include
non-assignment provisions, which could render any domain registration void
if transferred without the consent of the registrar. Lenders might seek an
agreement with the registrar to acknowledge the security interest and
effect a transfer on notice of default, but a registrar has little or no
incentive to make such an agreement.
Lenders might address these limitations in other ways. The debtor could
deliver a power of attorney or escrowed instruction letter empowering the
lender to take any action on behalf of the debtor to maintain or transfer
the domain name. For that approach to be effective, the domain name
registrar would need to recognize the validity of that document and
cooperate with the lender. The debtor also might transfer the domain name
to the lender or a third-party escrow agent for the duration of the loan,
which would enable the lender to control the domain name but need not
affect the debtor’s continued use of the domain name prior to a default. If
these challenges are not properly contemplated at the deal phase, a
lender’s only option is to file suit.
Even if a lender successfully secures a domain as collateral, it may be
impossible to monetize if it violates a third party’s trademark. The
Anticybersquatting Consumer Protection Act creates a cause of action
against an individual for registering or using a domain name diluting
or infringing on a trademark. Congress created the law to prevent
“cybersquatters” from purchasing domain names infringing on valuable
brands with the plan to sell these domain names back to the trademark
holder. Therefore, if the domain name is sold, the buyer may be
infringing on the trademark rights of a third party — or even the
original owner. At a minimum, the transfer of the domain must include a
transfer of the owner’s associated goodwill in that name.
Careful planning is needed prior to the closing and funding of a loan
to mitigate or avoid pitfalls to enforcing a security interest in a
The private equity practice group at McGuireWoods is dedicated to keeping clients advised of new legislative and business developments as they occur. If you have any questions regarding these issues, please feel free to contact
Ensing (+1 312 849 8111),
Bryan P. Bylica
(+1 312 750 3617),
Clayton J. Stallbaumer (+1 312 641 2096) or your primary attorney at