Law firm warns SMEs at risk from ‘cybersquatters’

Intellectual property specialists Capital Law says SMEs need to do more to prevent themselves falling victim to cybersquatters, who can damage their brand and cost companies tens of thousands of pounds in legal action.

Cybersquatting, also known as domain squatting, occurs when someone registers or uses an internet domain name that is the same as, or similar to, a name belonging to someone else; usually a company, charity or celebrity’s name. Typosquatting, a specific form of cybersquatting, is also popular, where someone registers a popular misspelling of a company’s brand name as a domain name.

The cybersquatter, typically an individual acting alone, buys a domain name for just a few pounds and then aims to profit from the goodwill attached to a company’s brand. This can be done by either selling the domain name to the “wronged” company  at an inflated price or by using the domain name to divert traffic from the legitimate brand’s website to their own. In 2008, there were a record 2,329 cases of cybersquatting according to the World Intellectual Property Organisation (WIPO) – just the tip of the iceberg as WIPO only records cases referred for dispute resolution.

Nicola McNeely, a partner at Capital Law, who specialises in internet-related intellectual property, said: “Many SMEs are not doing enough to protect themselves from the unscrupulous and unlawful acts of cybersquatters who typically hold website domain names hostage and then demand a high ransom to transfer them to their rightful owners.

“Cybersquatters use various tactics to profit from their unlawful activities, either offering to sell the domain name to the company whose trade mark it infringes, or to one of its competitors. They may also use the domain name to offer similar goods and services to those offered by the trade mark owner, benefitting from the goodwill attached to the recognised brand name.

“In some cases the infringing party can create a mock website with misleading and derogatory comments about the legitimate company. The cybersquatter can also make money by directing visitors to pay-per-click advertising. More worryingly, criminals can use cybersquatting to collect customer passwords or credit card details,” he added.

When companies register their domain name they frequently use one or two suffixes such as .co.uk or .com, providing cybersquatters with the opportunity to use a company’s name with another suffixes such as .org, or .net etc. According to Capital Law, businesses that fall victim to domain name infringement can fight back by implementing various cost effective dispute resolution processes.

Nicola continued: “Companies with a registered trademark can take legal action for trademark infringement or, where no trademarks have been registered, action can, in certain circumstances, be taken against the cybersquatters for ‘passing-off’.

“While businesses can seek emergency court injunctions against cybersquatters within a matter of days, this is often costly and, where the cybersquatter in question is a private individual, there may not be the potential to recover legal costs even if successful.”
She added: “When it comes to cybersquatting there is no one size fits all solution and prevention is better than cure. Taking the correct preventative measures can dramatically reduce the potential for cybersquatting. The best way for companies to protect themselves is to consult with legal specialists at an early stage in their business development to ensure there are no gaps in their domain name portfolios and to remain vigilant.”

Top tips to help your business

  • When creating a new brand or product range, always check the intended name/product can be protected by registration and does not infringe other people’s IP rights. The checks are not expensive and are crucial.  Never presume that your brand designers or advisers will check this for you, always ask or do the checks independently via a trademark/patent attorney. 

  • If engaging third parties to do brand development work/photography/web design make sure you get IP in the work they do. A common misconception is that if you engage a consultant to do some work for you and pay them lots of money to do it, you will own the copyright in the designs/photos/website they produce.  This is not the case.  The normal position is that the consultant/designer owns all IP in the works they produce.  It is important that you negotiate terms up front to get an assignment (i.e. a transfer) of the IP rights in the works to your business. 

  • Recognise the value of your Brand and the Intellectual Property (“IP”) within it. Sometimes, the IP is the most valuable and significant asset of a business. IP rights are fundamental to most businesses and need adequate protection.  If you are going to sell the business in the future, it is crucial that you protect your IP rights.

  • Adequately protect your IP. There are a number of ways to protect your IP.  The main ways are by registering for registered IP rights like registered trademarks, registered design rights and patents.  This is a complex area though so proper advice from a trademark/patent attorney is always recommended. In terms of other IP like domain names, it is important to purchase sufficient domain names to protect your brand.  Admittedly, there are so many potential iterations of domain names that it would be costly for businesses to register everything.  The main thing is to identify the key trading names/product names and key markets in which you currently trade or intend to trade in the future and to protect those names. 

  • Develop an IP policy, review your IP policy and IP protection regularly and register further IP rights where needed. In an ideal world, with limitless cash, a business would register everything they can in terms of IP rights.  However, in the real world this rarely happens.  The important thing is to identify what you can get away with protecting as a minimum and to budget and plan for future expansion of the brand protection.  Many businesses expand, develop new product ranges, sub divisions, sub brands etc. without reviewing the protection needed for their IP.  Do this at your peril!

  • Avoid registering IP in personal names unless there are specific reasons otherwise.  Sometimes businesses will register IP rights in the personal names of the directors or sometimes the IT staff in the business.  This can be dangerous, particularly if the directors fall out or one director leaves or if the IT staff fall out with the management.  This leads to difficult situations where businesses are vulnerable to blackmail and other nasty tactics.  Don’t register in personal names unless you get proper advice about how to do it safely. 

  • Ensure your IP is all registered in the name of the right legal entity.  Sometimes IP is registered in the wrong company name.  If you cease to trade through that legal entity and wind up the company, you will lose that IP right.  You should have a consistent policy about how your IP is registered and in what name, so that mistakes do not happen. 

  • Use the brand consistently. Your brand distinguishes one business from another.  It is one of the key drivers in consumer choice and is crucial as a differentiator in the market.  If you use the brand consistently, you will build brand value.  Quite often, people develop their brand but do not use the updated brand consistently.  This leads to devaluation of the brand. 

  • Develop the brand and register any new iterations of the IP in the brand.  It is important to develop a brand over time.  Virgin is a classic example and a quick review of their trademark history show
    s how the brand has developed over time.  It is important to change with the times and also to make sure any changes are also registered. 

  • Take appropriate action in the event of infringement of IP or threats to your brand identity. Nobody wants to litigate or take action against infringers as it costs money.  However, it may be crucial to the survival of your business that you do so.  What if a key member of your staff leaves, sets up a competing business and develops a range of products very similar to your product range?  Do you have enough protections in place (registered designs, patents for example) to make them cease trading/withdraw the products?  If not, it could be fatal to your business. 

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