ICAAN Delivers Death Knell to Domain Tasting

ARS Technica reports on the “end of domain tasting” after the implementation of ICAAN’s most recent excessive cancellation penalty of $6.75 per withdrawn domain name. ICAAN’s report on the results of its new policy can be downloaded here.

The future of cybersquatting litigation – battling click-through web directories and typosquatting

The Las Vegas Business Press ran an article today by Valerie Miller entitled “www.catchusifyoucan.com” (link here) on the current state and future trends of “cybersquatting” litigation.

The article notes that, as common domain names become less available, there are a growing number of companies registering domain names containing common misspellings of other well-known domains (so-called “typosquatting”). [See related blog post here].

More noteworthy, however, is what these domain owners are putting up on those pages. Gone are the days where such domain names would lead to an adult website or occasionally even a direct competitor. The trend these days (what the article describes as the next big thing in domain name disputes) is for such sites to host multiple “click-through” links from which such domains then derive revenue for every click.

Not just limited to typosquatting, many companies are in the business of registering domain names incorporating all or part of a well-known trademark (or common misspelling thereof) and then hosting these “web directories” in hopes that enough web visitors will click on the directory links provided that the revenue earned at least pays for the domain registration. The profit margins may be slim, but with the right volume, a very profitable business emerges.

As the article notes, one developing issue is whether hosting such “directories” constitutes commercial use for purposes of causes of action for cybersquatting, trademark infringement, or unfair competition. The article specifically mentions one lawsuit brought by 3700 Associates, LLC, the developer of The Cosmopolitan Resort & Casino, against Softech Ltd., a Cayman Islands company which owns the domain name “cosmopolitanlv.com.” See 3700 Associates, LLC v. Softech, Ltd., Case No. 07-CV-01600 (D. Nev. Nov. 30, 2007). [Click here for prior post on one of the first cybersquatting lawsuits filed by 3700 Associates in Nevada which was dismissed for lack of jurisdiction, but subsequently refiled in Florida]. In the case against Softech, some of the click-through links allegedly generated by visiting cosmopolitanlv.com lead to competing Las Vegas condominium projects or competing Las Vegas hotels such as Mandalay Bay – effectively using 3700 Associates’ trademarks to divert web surfers to competing businesses.

One nuance that the article does not explore is an important aspect of the current domain name registration system that has allowed this business model of hosting click-through links to thrive and prosper – Domain Name Tasting. The problem was noted recently by the World Intellectual Property Organization (WIPO) in its recent report entitled “DNS Developments Feed Growing Cybersquatting Concerns.” (HT: Marty Schwimmer). The report, which notes the unprecedented number of cybersquatting complaints filed in 2007 (2,156 complaints were filed with the WIPO’s mediation center -- an 18% increase over 2006 and a 48% increase over 2005), also highlights the growing concern that trademark owners have over the trend of Domain Name Tasting:

The practice of registering domain names during a five-day registration fee grace period for pay-per-click revenue remained a significant concern for rights owners in 2007. Frequently involving trademarks, the often automated practice of “tasting” effectively prevents rights holders from assembling reliable and timely information that would enable the filing of a UDRP complaint, leading them in some instances to resort to court litigation, especially in the USA.

While the concerns noted in the report are more focused on the ability of trademark owners to file UDRP complaints against alleged cybersquatters, the very fact that domain name registrars have a five day grace period on domain name registrations has enabled such companies to “taste” for free whether a website hosting click-through links will generate sufficient traffic and click-through revenue to pay for itself. Those sites not likely to be profitable are simply deleted and the registrar receives a credit. Fortunately, ICAAN recently announced its intent to take action with this year’s budget to end the five day grace period and begin charging registrars the annual ICAAN fee for each domain. But since the annual fee is still only 20 cents per domain, the issue of businesses registering multiple domains and hosting directories of click-through links will not go away.

One would hope that as more web surfers become more internet savvy, the proliferation of these directory sites would diminish. After all, these directory web sites only make money because people click on the links that are generated. If people, upon realizing that they are not on the site that they expected, would simply retype the domain name again or bring up a well-recognized search engine (like www.google.cm), then the domain name owners would eventually not be able to derive enough click-through revenue to make it profitable for them to keep such vast inventories of domain names.

Dell alleges counterfeiting in trademark infringement lawsuit against Typosquatting Domain Tasters

The Washington Post ran an article yesterday about Dell Inc.’s (“Dell’s”) new “cybersquatting” lawsuit against several domain name registrars. See Brian Krebs, “Dell Takes Cybersquatters to Court,” The Washington Post, November 28, 2007 (link here).

The complaint apparently names three domain name registrars – BelgiumDomains, CapitolDomains, and DomainDoorman – along with several alleged Bahamian shell corporations (e.g,, Caribbean Online International, Domain Drop S.A., Domibot, Highlands International Investment, Keyword Marketing Inc., Maison Tropicale, Marketing Total S.A, Click Cons Ltd., Wan-Fu China Ltd. and Web Advertising Corp.) that the registrars supposedly used to act as the companies registering the domains. The suit also names Miami-resident Juan Pablo "JP" Vazquez and alleges that he is connected to the companies.

The case was apparently filed in the U.S. District Court for the Souther District of Florida in October, but placed under seal until yesterday. The judge in the case sealed the case while federal marshals seized hard drives and other computer equipment from Vazquez's home on November 9th. The judge also issued a temporary restraining order against the defendants barring them from using the practice of “domain tasting” to make money off of and then deleting any domain names that may infringe upon Dell's trademarks.

“Domain tasting” is cyber-squatting business model that came about because of rules established by Internet Corporation for Assigned Names and Numbers (ICANN) which give registrars up to five days to sample domains before actually having to purchase them. This allows these registrars to basically buy up large numbers of domain names, test (or “taste”) their value through pay-per-click ads on the parked domains, and then give up domain names that do not appear to generate enough traffic to provide any value. By purchasing domain names of commonly misspelled web site names, often including registered trademarks (so called “typosquatting”), the domain registrants can often make money on the misdirected web surfers who opt to click on one of the many6 pay-per-click ads rather than retyping the correct domain name address.

According to Dell, however, the defendants have been combining “typosquatting” with “domain tasting” by setting up a network of registrar companies that continually purchase and give up infringing domain names so that the companies never have to pay for them all while still profiting from them.

The lawsuit cites an example where on May 25, 2007, DomainDoorman registered dellfinacncialservices.com. Five days later, then the register dropped the domain name, the same domain was registered by BelgiumDomains within minutes. Five days later, that company dropped the domain name, only to have it be registered by CapitolDomains. When that company gave it up give days later, the domain was again registered by DomainDoorman. The same approach was done with other such domain names as dellinspirion.com, delloutletcom.com, and dellsuportcenter.com.

What has raised interest in this case, however, is that in addition to the standard trademark infringement causes of action, including cybersquatting cause of action under 15 U.S.C. §1125(d), Dell also alleges counterfeiting against the defendants (i.e., that the typosquatting is effectively a counterfeit of the authentic “trademark holder’s domain name”). While federal law allows a court to award damages up to a maximum of $100,000 per domain against cybersquatters, if the same domains are found to constitute counterfeits, then federal law would allow a court to award damages up to $1 million per violation.

If the defendants actually put up a fight in this case, Dell may have some hefty evidentiary hurdles to overcome and is likely to have to engage in some major discovery efforts to untangle this offshore web of “typosquatting domain tasters.”

As for the counterfeiting claim, the court is likely to grant Dell the injunctive relief it wants based on the trademark infringement and cybersquatting claims alone. Dell will also probably be awarded damages on such claims. Should the judge dismiss this novel cause of action, it will be interesting to see if Dell decides to appeal such a decision – either to make some new law or to get a larger damage award. Of course, one wonders whether it would be worthwhile to fight so hard for an additional $900,000 in damages. After all, winning a judgment is one thing, enforcing it is another -- especially where so much of the activity appears to be based offshore.

Dell is probably better off spending that money on a campaign to force ICAAN to change its rules to prevent “domain tasting” – or to at least put enough of a price tag on such tasting that the business model would not be as profitable.