DECEMBER 15, 2006
Technology
By Moira Herbst
The Great Internet Brand Rip-Off
The growing practice of "domain tasting" is creating junk Web sites and headaches for companies
Sarah Deutsch is steaming. The attorney for Verizon Communications (VZ) regularly scours the Web from her Arlington (Va.) office and finds hundreds of new sites that use variations of Verizon's name. A mid-December browse uncovers a constellation of Verizon-inspired domains such as verizonpicture.com, vorizonringtone.com, and varizoncellularphone.com.
What angers Deutsch is that none of the sites have anything to do with Verizon. Instead, they're registered by companies like Nassau (Bahamas)-based Wan-Fu China and Pompano Beach (Fla.)-based Moniker.com. They're engaged in a little-known activity called "domain tasting," a legal practice that lets registrars snatch up Internet domains for five days at no cost. Typically, these companies jam the borrowed Web sites full of ads and pull in money as visitors click on the ads. Because they can use the Web sites for no charge, these firms are registering mass quantities of domain names each day, getting under the skin of companies trying to protect their brands online. "Domain tasting is destabilizing the entire domain name system," says Deutsch. "People are purposefully exploiting trademarks and misleading consumers."
The practice has soared in the past two years. In late 2004, roughly 100,000 domain names were tested on any given day, and now, the number has ballooned to 4 million, according to Jay Westerdal, chief executive officer of the domain consultancy firm Name Intelligence. Experts estimate that less than 2% of the sites that are tried out for a few days are ultimately purchased by registrants. It's a bit like being able to get clothes from a store, wear them for five days, and then return them at no charge.
With an ever-expanding menu of domains on offer, tasting will likely continue its exponential growth. There are more than 250 suffixes besides ".com" to choose from, and more companies are getting in the game of domain registration. Today search engine giant Google announced it will work with top registrants GoDaddy.com and eNom to register addresses ending in ".com," ".net," ".biz" and ".info."
Critics Crying Foul The explosion in domain tasting can be traced back to the practices and policies of the Internet. The organization responsible for regulating domain names is the Internet Corporation for Assigned Names & Numbers, better known as ICANN. Long ago, it established the "Create Grace Period," a five-day stretch when a company or person can claim a domain name and then return it for a full refund of the $6 registry fee. It was originally intended to allow registrars who had mistyped a domain to return them without cost.
Now, with the system being used in ways it was never intended for, a growing chorus of critics is crying foul. Verizon, Time Warner (TWX), Dell (DELL), and others are calling on ICANN to change its practices. Bob Parsons, the chief executive of GoDaddy.com, which helps companies and individuals register Web sites, has advocated that registrars like GoDaddy.com pay a 25-cent nonrefundable fee for every domain registered, even if the name is not kept past the five-day grace period (see BusinessWeek.com, 6/5/06, "Getting the Drop on Domain Name Abuse").
Some companies aren't waiting for ICANN. The Neiman Marcus Group brought a federal lawsuit against Dotster, one of the largest domain name registrars. The suit alleges that Dotster has participated in a massive campaign of domain tasting and other activities, targeting companies such as Google (GOOG), Playboy (PLA), Disney (DIS), and Cingular, the wireless joint venture between AT&T (T) and BellSouth (BLS). David Steele, an attorney for Neiman Marcus on the case, likens regulating domain names to gun control. "Are guns unlawful to own? No," says Steele. "But they can be used for unlawful purposes. So can the system of domain tasting."
Providing a Service There are 25 to 30 firms that are the most active practitioners of domain tasting, experts say. Executives at these firms point out that what they're doing is legal and, in some cases, they can even provide a service. For example, if a Web surfer mistypes a Web address and lands on one of their sites, they can have an ad that redirects the surfer to the proper site. T. Salonen, manager of Mountain View (Calif.)-based Maltuzi, says his company is a "bulk registrant" of domain names, but says there's nothing wrong with that. "We are actively buying domain names based on a variety of criteria," he writes in an e-mail interview. "We…purchase those domain names which have certain traffic levels or pay-per-click viability and return those which do not meet those and other criteria."
Critics say some of these firms engage in what's called "kiting," or registering a domain name, returning it within five days, then quickly grabbing it again, without ever paying for it. MarkMonitor, a San Francisco-based online corporate identity management and protection firm, contends that companies like Wang Lee Domains engage in the practice. Wang Lee of Wang Lee Domains says that his company does register domains en masse, but insists that only rarely does his company "fail to verify whether a domain was registered before." Furthermore, "We consider the expression domain 'kiting' derogatory," says Lee.
ICANN says it is not its place to change the practices of registering domain names, at least on its own. Tim Cole, chief registrar liaison for the organization, says that it is up to ICANN's community to make a clear proposal to change the policy so that ICANN's board of directors can consider adjusting it. "We're definitely taking action to inform the community about the issues involved, and it's up to them to decide what they want to do," he says. "If someone really wants to change the process, they have to get into public policy debate."
New Education Campaign But some of the most prominent figures in the ICANN community don't want to change the process. Verisign (VRSN) is the most powerful force in domain names, controlling both the .com and .net names and selling them to companies like Wang Lee Domains. Michael Denning, Verisign's general manager of digital brand management services, says Verisign is against domain kiting and any abuse of domain tasting, but his company does not advocate the elimination of the five-day grace period because it can sometimes be legitimate.
Verisign says it's trying to help companies that are suffering from domain abuse. This week, the company is launching a new product called "digital brand and fraud protection" that in part helps corporations combat trademark infringement through practices like tasting. The service costs between $100,000 and $400,000 annually.
Some critics see financial interest in Verisign's support of the current system. When Wang Lee Domains and others register a domain name, they put down a $6 deposit, which is returned after the grace period. As the practice of domain tasting has taken off, the amount of money on deposit has soared. Westerdal of Name Intelligence estimates that Verisign has $25 million to $30 million on deposit, an amount that at 5% interest would earn the company as much as $1.5 million a year. (Verisign's revenues this year are on track to hit $1.6 billion. It has not been reporting net income because it's in the process of restating some figures after an investigation into its stock option awards.)
Denning says he doesn't know how much money the company may hold in deposits and isn't familiar with how, or even if, Verisign invests the money. A spokesman for the company didn't respond to requests for more information. Denning says the company's support of the five-day grace period has nothing to do with profit. Rather, the company wants to protect legitimate experimentation with domain names.
People like Verizon's Deutsch aren't waiting for Verisign to change its ways. She and other legal staff at the telecom company have provided evidence in the case filed by Neiman Marcus. She says legislation may be needed to stop Internet domain abuse. "It's become a feeding frenzy," she says. "Tasters aren't adding anything to the Internet but instability. And if ICANN doesn't do anything, we may need legislation to increase liability for registrars."
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