Buying Sites? Use Trusts To Avoid Google Domain Demolitions

Author: Gab Goldenberg

At the Domain Roundtable, Matt Cutts said that Google will cut down any sites that get sold back to zero ranking value. So after a site has built up SEO strength for a few years, the asset could be worthless on the search market because Google – which controls the overwhelming majority of North American and most Western search – makes the rules.

This is clearly unfair to webmasters. Not to mention that the Fortune 500 are again on a different playing field, because their purchases are just mergers and acquisitions, not “site purchases”…

Update: Apparently this treatment is reserved for sites that also change topics. The technique thus remains useful, but obviously the problem it resolves is narrowed to particular situations. Hat tip to Gustavo Cardial for pointing out the error.

Lady Justice: blindfolded and with scales of justice

Lady Justice, blindfolded with scales and sword by California Criminal Defense Lawyer Rob Miller.

In an effort to balance out the scales, I’m sharing a legal technique called “the trust.” My hope is that it will enable webmasters to buy sites and sell them without fear that their hard SEO work will go to naught.

Disclaimer: As I’m just a law student and not a lawyer, let alone an expert on trusts, please only take this as information, not legal advice, and please correct any errors you find.

What is a trust?

Trusts evolved through the [feudal] tax-evasion efforts of commoners and low-level knights in the Middle Ages. Before running off to rape and pillage in the Crusades, a person (“A”) would leave their property with a trusted friend (B) – who thus acquired legal title through an inter-vivos transfer – to the use of A’s family or kids.

(The reason this was tax-evasion was that higher up lords or the King would perceive taxes if property was transferred in a will. By transferring inter-vivos, you had no taxes to pay.)

Problems arose where the “trusted” friend tried to claim the property for his own use rather than be its custodian for A’s family. The courts of equity resolved them by holding that the “cestui que trust” (today known as the trustee) was bound to hold the property for the benefit of A’s family. A’s family thus had what is known as “beneficial title.”

The difference between beneficial title and legal title is that the former was created and enforced by the courts of equity (whose jurisdiction was more about morality) while the latter was enforced by the courts of common law. Today both courts are merged. But for reasons of history and lawyers having fun finding new uses for outdated legal mechanisms, the trust (the “use” ‘s modern cousin) is still around.

So the trust is by definition a devise of property to another party for the benefit of a third party. The devise, aka settlement, is made by the settlor (A). The person receiving the property is known as the trustee (B), and he holds legal title. B holds the property in trust for C, the third party designated by the settlor. C has the beneficial title and is thus known as the beneficiary. (A is left with nothing, though if a court finds that the trust “failed,” the property will usually return to him.)

Note: You can have trusts created by wills nowadays. It need not be an inter-vivos transfer. Which makes sense, since we no longer have the feudal tax system.

Why should webmasters who want to buy or sell websites care?

The reason I shared the history lesson was to make clear the distinction between legal and beneficial title. By taking advantage of that distinction, webmasters should be able to write contracts that transfer control of a site without getting it shot down by Google.

In essence, the contract simply states that the site’s seller is creating a trust in favour of the buyer, with the seller as trustee. The property in question would be specified as being the website.

The Result of Using a Trust?

The Whois record for the site’s domain will read that the property is still owned by the site’s seller, since he as trustee retains legal title. However, the beneficial ownership of the property passes to the purchaser. Thus Google has no way of knowing that the site was sold, afaik (if you know of other methods beyond whois, please say so in the comments.

Caveats On This Technique

You need to make sure that you draft the trust document very precisely. In particular, you need to show the three certainties:

  • Certainty of intent [on the part of the settlor] to create a trust. If he meant it as a gift, lease, power of appointment etc. you might have trouble. Best to use the word “trust.” Obvious, but you’d be obvious how many people screw that up.
  • Certainty of the subject-matter of the trust, i.e. the property. Is it just the domain? Hosting too? The backend? vBulletin licenses? Take an inventory of everything and specify it in the trust instrument (and in the contract specifying that you’re to have this trust created). Then make a clause that if you forgot anything, your intent was to include all things reasonably required for the site’s operation in the subject matter.
  • Certainty of objects, i.e. the beneficiaries. Who exactly is getting the property? You? Your business partner? Your company? Note: If it’s your company, it had better be incorporated or else you get into really grey areas of the law. Good for your lawyer’s billings, not so good for you.

Penalty clauses for breach of the trust on the part of the trustee should be included and heavy, but not so harsh that a court would overturn them as unconscionable. This is tricky, and I know very little about these, so again, consult a real lawyer for advice.

If you’re buying a site without knowing the owner other than online, be aware that you run the risk of them “selling” the site a second time. As beneficial owner, you can sue the new purchaser to ‘trace’ your property and get it back, though you might have problems if they purchased it in good faith. Of course if it gets to this point, the site will have been sniped by Google and so you’re better off suing the trustee/seller for damages, since the rankings will be gone. This is probably the biggest problem I can see with the whole deal, since on paper (i.e. the Whois record for legal title), the seller still owns the property.

Finally, the last caveat is that if Google’s legal department gets jerky, they might argue that whois represents legal and beneficial title. It’s a weak argument, imho, but it’s there. And judges mostly don’t get the web (with some exceptions), so there you go… Rule #1 in law is avoid litigation.

Conclusions on Using Trusts to Beat Google’s Domain Demolitions

Whoa! Breaking Google’s rules can be legal and ethical? Shocking I know :P. More interestingly, I’m sure that jurists with more knowledge than me could find other areas of application for legal mechanisms in search (beyond trademarks). Incidentally, I think I’ve found an application for another legal fiction, and I’ll be blogging about it as the second part of this two-part “law and search marketing” series.

Like these tips on buying sites and using trusts? Get my rss feed..

I’d like to highlight that while I haven’t yet studied the civil law’s parallel mechanism, “la fiducie,” my understanding is that it should work the same way. After all, as you might have derived from the name, a “fiducie” is where property is held by a “fiduciaire” (French for fiduciary) for the benefit of another party. And trustees owe fiduciary obligations to beneficiaries, like website purchasers…

Update: As my presentation at SMX Advanced on the site buying panel was well received, and this is something I have an interest in, I now offer site buying services and consulting.

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Comments

  1. Very interesting idea! Anyway, it seems that Google plans to only reset the rankings if the site gets sold AND, for example, changes its topic/niche - because then the inbound links would have no more value. (links = context)

    Comment by Gustavo Cardial - May 10, 2008 @ 2:00am
  2. Gustavo, I'm glad you liked it. I've edited the post to highlight this important point, as you've mentioned.

    Comment by Gabriel Goldenberg - May 17, 2008 @ 11:38pm
  3. A very creative legal approach to an important internet marketing issue. You covered the materials very thoroughly. Thank you for a great read Gab!

    Comment by Sarah Bird - May 18, 2008 @ 10:41pm
  4. This does not seem very fair. I was planning to perhaps sell a few domains after I built them up a little bit.

    Comment by wisdom - May 19, 2008 @ 11:23am
  5. I was at that conf and heard Matt talking about this. As I recall, he was only referring to domains that were picked up as expired domains, not sites that were sold to a new owner, and not necessarily whether they change topics or not. Although the bank example he gave kind of alluded to that concept. The trust idea is none the less a very interesting one. Possibly not worth all the hassle, though, unless Google really does penalize new site owners. Any evidence of a penalty happening for a new site owner outside of dropped domains?

    Comment by Dave Bascom - May 19, 2008 @ 5:29pm
  6. Sarah, thankee kindly! Means a lot coming from you! Wisdom, get cracking then! Dave, I've got a friend who bought a site, moved it's hosting (topic even stayed the same) and got nailed. You'll have to test this one out to find out the truth, I imagine.

    Comment by Gabriel Goldenberg - May 19, 2008 @ 11:59pm
  7. Hey quit writing this out-of-the-box thinking stuff. Don't you know that people just want to hear about title tags!? :-)

    Comment by Marios Alexandrou - May 20, 2008 @ 9:43pm
  8. Honestly, I'd just sell the domain and let the new owner setup his own project within it. If he has to lose the PR, then it's the new owner's problem. It may sound a bit direct but that's how I see things ; )

    Comment by Claude Gelinas - July 20, 2008 @ 12:59am
  9. I thought Google was going for not-evil?! If they're in league with hurting the little guys then...ouch.hey!..dkf

    Comment by Steven - July 27, 2008 @ 12:54am

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