The Great Internet Brand Rip-Off

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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."

Herbst is a reporter for BusinessWeek.com in New York.