Taste Test

There's a land rush in cyberspace, and it's nothing like the old days. Back in the 1990s, individuals raced to grab names such as ibm.com and then sell them to the highest bidder.

Today, well-heeled companies known as "domainers" have replaced those individuals. These companies often have millions of dollars in assets and are headed by savvy business people such as Ross Perot and Starbucks Chairman Howard Schultz.

Their goal is to amass a portfolio of domain names that users are likely to type directly into their browsers--such as tennissports.com. Users go to these sites looking for information, goods or services, but instead end up on a site filled with links and ads. Every time a user clicks on one of the ads or links, the site's owner makes money. According to investment bank RBC Capital Markets, these types of sites pulled in $650 million last year.

Unfortunately, some of these cyberspace prospectors aren't limiting themselves to domains that contain generic terms. Instead, they are registering variants of other companies' trademarks--and are doing so on a massive scale-- thanks to a legal loophole known as "domain tasting." This loophole allows a company to temporarily register an unlimited number of domain names at no cost.

Between 10 million and 20 million domain names are tasted each day, according to David Steele, an expert in trademark and Internet law at California-based Christie, Parker & Hale. And many, perhaps most, of these names involve misspelled trademarks, says Sarah Deutsch, vice president and associate general counsel at Verizon.

"Most companies and trademark owners are not aware of the scope of the problem," Deutsch says. "It is huge."

Picking Names

Domain tasting began innocently. The goal was to help companies and individuals who accidentally register the wrong domain such as rtading.com instead of trading.com. To address the problem, the organization responsible for administering the Internet's domain names, the International Corporation for Assigned Names and Numbers (ICANN), created a five-day grace period for new domain-name registrations. At any time during this five-day period, a registrar could cancel a registration and get a complete refund of the $6 registration fee.

However in the past several years, some registrants and registrars have gamed the system by registering huge numbers of domain names, many of which are variations on existing trademarks. These domainers then measure how much traffic goes to each of their new domains. If a name attracts enough traffic, the domainer keeps the registration. Otherwise, it cancels the registration before the five-day grace period ends.

This gives domainers a cheap and easy way to uncover valuable "typosquatting" domains. "Before this practice, individuals and companies registered domain names only because they did their research," Deutsch says. "Now, there is absolutely no risk in registering millions of names because this can be done without having to pay."

Unhappy Owners

Most of those involved in the domain name system have little interest in curtailing domain tasting because they are profiting from it. The registrants make a profit from ad revenue, and the registrars, registries and ICANN make money when domain tasters keep the domain names. Advertisers are happy because they get more traffic and sales through their online ads. And companies such as Google that market the online ads get more business. "Everyone is happy but trademark owners," Steele says.

But unhappy trademark owners have very little recourse because the overwhelming majority of the tasted typosquatting domain names disappear within five days. By the time a trademark owner learns about the offending domains in a search report they are gone. Ferreting out who owns the few remaining typosquatting domains takes time and money. As a result, many trademark owners give up because the costs outweigh the benefits of shuttering a few domains.

If a trademark owner perseveres and finds the owner of an offending domain name, relief is usually swift. After the trademark owner sends a complaint letter, the domainer will typically transfer the domain name to the trademark owner without a fuss. But such a successful outcome isn't cheap.

"By the time the client discovers the problem, contacts me, and pays me to write a letter and handle the paperwork for transferring the domain name, the client has spent a good bit of money," Steele says.

Moreover, this piecemeal solution doesn't penalize the domainer or stop it from engaging in further typosquatting. A lawsuit might have a stronger deterrent effect, but because the offending domainers keep just a few of their tasted names, many trademark owners figure it isn't worthwhile to sue.

"Will corporate counsel bring a federal lawsuit over just one domain name if the domainer is willing to hand over that domain name?" Steele asks. "Most companies will simply cut their losses and move on."

The Neiman Suit

One company, however, has sued. On May 30, 2006, Dallas-based Neiman Marcus Group Inc. sued Dotster Inc. for violations of trademark law, dilution law and the federal anti-cybersquatting act. Dotster, a Washington-based domain name registrar, allegedly tasted numerous names that were similar to trademarks owned by Neiman and other trademark owners. The tasted names included neimanmarcuse.com, nehmanmarcus.com, ballystotalfiness.com, disenyland.com, halllmarkflowers.com, and louisviution.com.

It is one of the first suits against a domain taster, and Neiman was able to file the suit--one of the first of its kind--because the company was unusually vigilant. "We caught them during the tasting period and were able to do enough forensic evidence to prove they had registered the infringing names," says Steele, who represents Neiman in the suit.

It is uncertain, however, whether Neiman will win. To prevail, Neiman must prove Dotster used the offending marks in commerce, and the courts are split on whether the mere ownership of a domain name is a use in commerce.

Imposing liability under the anti-cybersquatting act also may be tricky because Neiman must prove that Dotster registered the domain names in bad faith. "That's a high standard," says Andrew Bridges, a litigation partner in Winston & Strawn's San Francisco office.

Dotster claims it did not register its domains in bad faith because it used an automatic process for selecting and registering domain names--a process designed to avoid registering variants of trademarks. Moreover, Dotster claims that its policy is to always return a disputed name if a trademark owner complains.

The lawsuit is scheduled for trial in October. A verdict against Dotster could go a long way toward ending indiscriminate domain tasting, according to Milton Mueller, a professor at Syracuse University's School of Information Studies.

"If a company engaged in this behavior got a legal slap on the wrist, it would have a big impact on other registrars," he says.

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Steven Seidenberg

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