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Architelos files bankruptcy after Afilias lawsuit

Kevin Murphy, March 21, 2016, Domain Services

Afilias has managed to bury domain security software provider Architelos, which filed for bankrupcty today.

Architelos filed Chapter 7, which basically means the company will close and its assets will be liquidated to pay off creditors.

Its only major creditor is Afilias, which won a patent lawsuit against it last August.

The jury in the case set damages at $10 million, finding that Architelos had misappropriated Afilias trade secrets, but the trial judge recently indicated her intention of reducing the award to $2 million.

Even that was a bit too rich for the company, which floated the idea of operating NameSentry on a revenue share with Afilias until its debt was paid.

Clearly, that’s no longer going to happen.

Architelos was founded by Alexa Raad in 2011, to exploit the new gTLD opportunity as a consulting and software tools provider.

It made seven figures in its first year, mainly through gTLD application consulting fees, but saw modest adoption of its subsequent security offering, NameSentry.

The flagship service only made $300,000 in revenue, according to court documents. After the August verdict, Architelos’ sales pipeline dried up.

The software and the US patents covering them are the company’s key assets, though Afilias is expected to be awarded at least partial ownership rights of the patents.

The company had about 10 employees at its peak, but has been operating on a skeleton crew of two or three for the last few months.

Architelos said in a blog post that NameSentry customers will be able to continue to use the service in the short term, but what happens to it in future depends on how the bankruptcy court appointed trustee does with it.

Afilias also has an outstanding lawsuit against Architelos and Raad in Canada.

Afilias $10 million court win slashed by judge

Kevin Murphy, January 18, 2016, Domain Services

A US judge has dramatically reduced a $10 million ruling Afilias won against Architelos in a trade secrets case.

Architelos, which a jury decided had misappropriated trade secrets from Afilias in order to build its patented NameSentry domain security service, may even be thrown a lifeline enabling it to continue business.

A little over a week ago, the judge ordered (pdf) that the $10 million judgment originally imposed by the jury should be reduced to $2 million.

That won’t be finalized, however, until she’s ruled on an outstanding injunction demanded by Afilias.

The judge said in court that the original jury award had been based on inflated Architelos revenue projections.

The company has made only around $300,000 from NameSentry subscriptions since launch, and its sales pipeline dried up following the jury’s verdict in August.

The service enables TLD registries to track and remediate domain abuse. It was built in part by former Afilias employees.

Afilias has a similar in-house system, not available on the open market, used by clients of its registry back-end business.

Even a reduced $2 million judgment is a bit too rich for Architelos, which is desperately trying to avoid bankruptcy, according to court documents.

But the judge seems to be considering an injunction that would enable Architelos to continue to exist.

It may even be permitted to sell NameSentry, as long as it gives almost a third of the product’s revenue to Afilias for up to five years or until the $2 million is paid off.

The injunction might also grant joint ownership of the disputed patents to the two companies, allowing them to jointly profit from the technology.

This has all yet to be finalized, however, and Afilias can always appeal whatever injunction the judge comes up with.

It emerged in court earlier this month that Architelos offered to give full ownership of its patent, along with NameSentry itself, to Afilias in order to settle the suit, but that Afilias refused.

Afilias is also suing Architelos over the same matters in Canada, but that case is progressing much more slowly.

Afilias seeks to freeze Architelos patent after $10m lawsuit win

Kevin Murphy, December 22, 2015, Domain Registries

Afilias seems bent on burying domain security software maker Architelos, after winning a $10 million lawsuit against it.

The registry on Friday filed a court motion to freeze the patent at the heart of the lawsuit, which Afilias says — and a jury agreed — was based on trade secrets misappropriated by former Afilias employees.

Afilias said it wants to make sure Architelos does not attempt to sell the so-called ‘801 patent, which covers domain abuse-monitoring software.

Its motion asks for a court order “prohibiting Architelos from taking any action that would dilute… or diminish Architelos’ rights or ownership interests” in the patent.

It notes that Architelos has stated that it does not have the means to pay the $10 million damages awarded by a jury in August, which might give it a reason to try to sell the patent.

Afilias said Architelos had “raised the prospect of bankruptcy” during post-trial negotiations.

The motion seems to have been filed now because the judge in the case is taking an unusually long time to render her final judgment.

Despite the case being heard on a so-called “rocket docket” in Virginia, the two companies haven’t heard a peep out of the court since late October.

According to Afilias’ motion, the judge has indicated that Afilias will wind up at least partially owning the ‘801 patent, but that the jury’s $10 million verdict may be “tweaked”.

Judging by a transcript of the August jury trial, the judge herself was not particularly impressed with Afilias’ case and did not expect the jury to crucify Architelos so badly.

Out of the jury’s earshot, she encouraged Afilias to attempt to settle the case and said “if the jury verdict comes in against what I think is the clear weight of the evidence, I will most likely adjust it.”

She also said: “I would have trouble believing that any reasonable jury would find even if they were to award damages to the plaintiff that there’s any significant amount here.”

She clearly misread the jury, which a few days later handed Afilias every penny of the $10 million it had asked for.

That’s much more money than Architelos is believed to have made in revenue since it launched four years ago.

Afilias’ latest motion is set to be heard in court in early January.

Architelos: shadiest new gTLD is only 10% shady

Kevin Murphy, September 4, 2015, Domain Registries

Disputing the recent Blue Coat report into “shady” new gTLDs, domain security firm Architelos says that the shadiest namespace is just under 10% shady.

That’s a far cry from Blue Coat’s claim earlier this week that nine new gTLDs are 95% to 100% abusive.

Architelos shared with DI a few data points from its NameSentry service today.

NameSentry uses a metric the company calls NQI, for Namespace Quality Index, to rank TLDs by their abuse levels. NQI is basically a normalized count of abusive domains per million registered names.

According to Architelos CEO Alexa Raad, the new gTLD with the highest NQI at the end of June was .work.

Today’s NameSentry data shows that .work has a tad under 6,900 abusive domains — almost all domains found in spam, garnished with just one suspected malware site — which works out to just under 10% of the total number of domains in its zone file.

That number is pretty high — one in 10 is not a figure you want haunting your registry — but it’s a far cry from the 98.2% that Blue Coat published earlier this week.

Looking at the numbers for .science, which has over 324,000 names in its zone and 15,671 dodgy domains in NameSentry, you get a shadiness factor of 4.8%. Again, that’s a light year away from the 99.35% number published by Blue Coat.

Raad also shared data showing that hundreds of .work and .science domains are delisted from abuse feeds every day, suggesting that the registries are engaged in long games of whack-a-mole with spammers.

Blue Coat based its numbers on a sampling of 75 million attempted domain visits by its customers — whether or not they were valid domains.

Architelos, on the other hand, takes raw data feeds from numerous sources (such as SpamHaus and SURBL) and validates that the domains do actually appear in the TLD’s zone. There’s no requirement for the domain to have been visited by a customer.

In my view, that makes the NameSentry numbers a more realistic measurement of how dirty some of these new gTLDs are.

Afilias wins $10m judgment in Architelos “trade secrets” case

Kevin Murphy, August 25, 2015, Domain Services

Afilias has won a $10 million verdict against domain security startup Architelos, over claims its flagship NameSentry abuse monitoring service was created using stolen trade secrets.

A jury in Virginia today handed Afilias $5 million for “misappropriation of trade secrets”, $2.5 million for “conversion” and another $2.5 million for “civil conspiracy”.

The jury found (pdf) in favor of Architelos on claims of business conspiracy and tortious interference with contractual relations, however.

Ten million dollars is a hell of a lot of cash for Architelos, which reportedly said in court that it has only made $300,000 from NameSentry.

If that’s true, I seriously doubt the four-year-old, three-person company has even made $10 million in revenue to date, never mind having enough cash in the bank to cover the judgment.

“We’re disappointed in the jury’s verdict and we plan to address it in some post-trial motions,” CEO Alexa Raad told DI.

The lawsuit was filed in January, but it has not been widely reported on and I only found out about its existence today.

The original complaint (pdf) alleged that three Architelos employees/contractors, including CTO Michael Young, were previously employees or contractors of Afilias and worked on the company’s own abuse tools.

It claimed that these employees took trade secrets with them when they joined Architelos, and used them to build NameSentry, which enables TLD registries to monitor and remediate abuse in their zones.

Architelos denied the claims, saying in its March answer (pdf) that Afilias was simply trying to disrupt its business by casting doubt over the ownership of its IP.

That doubt has certainly been cast, though the jury verdict says nothing about transferring Architelos’ patents to Afilias.

The $5 million portion of the verdict deals with Afilias’ claim that Architelos misappropriated trade secrets — ie that Young and others took work they did for Afilias and used it to build a product that could compete with something Afilias had been building.

The other two counts that went against Architelos basically cover the same actions by Architelos employees.

The company may be able to get the amount of the judgment lowered in post-trial, or even get the jury verdict overturned, so it’s not necessarily curtains yet. But Architelos certainly has a mountain to climb.