International organisations should step in to prevent the “tasting,” “kiting” and “spying” related to Internet domain names, say representatives from the US telecommunications and trademark industries.

These new activities are dramatically altering online commerce and impacting legitimate businesses, and the United States Federal Trade Commission (FTC), World Intellectual Property Organization (WIPO) and the Internet Corporation for Assigned Names and Numbers (ICANN) should take action, they say.

The US Anti-Cybersquatting Consumer Protection Act (ACPA) had too many loopholes given the actual trends in the domain name secondary market, said Sarah Deutsch, vice president and associate general counsel for Verizon, and Marilyn Cade, former AT&T lobbyist and now consultant on Internet and technology issues.

“That law is ripe for updating,” Deutsch told Intellectual Property Watch. “We would propose that Congress hold hearings on a number of ways to create deterrents for domain name tasters.”

The “tasting” of domain names and the growing secondary market of Internet addresses has been discussed three times now at special ICANN workshops, the private body with technical oversight of the Internet domain name system (DNS). To “taste” a domain means to use the so-called “add grace period” established by ICANN to allow return of domain names registered for a five-day period without payment to the registry (like domain-name wholesalers).

Originally passed to allow registrar companies to send back unintentionally registered domain names, the “add grace” rule over time resulted in an increase in intentional registrations of domains for five days to “taste” their market value without financial risk. Domains registered for tasting now number in the millions and exceed even registered domains, Deutsch and Cade said.

Some “domainers” (individuals whose profession is the accumulation and dealing of Internet domain names, according to online encyclopedia Wikipedia) further elaborated on the scheme to automatically register, drop and reregister the domains—a practice called “kiting.”

But what the domainers see as a viable business model is heavily criticised as the “dark side” of the domain name business by telecommunications companies and trademark owners. While in earlier years, speculators and cybersquatters simply combined, for example, names of merging companies to make a profit, “now you are getting spinning combinations a logical person would not be able to come up with,” Cade said. WIPO in a recent report also pointed to the problems from tasting and other practices.

Cade also warned that more top-level domains besides .com, .net and .org would come under attack from new cybersquatting techniques. “We also see auctioning in the .eu and .mobi zones,” she said.

Deutsch warned against domain “spying” resulting in domains once checked for registration being gone a minute later because the squatters intercept in legal or illegal ways the traffic from customers to the registrars’ domain registration pages.

With regard to domain tasting, Deutsch reported 1,400 names mimicking Verizon hidden in the domain-portfolio of one domainer company alone. The new cybersquatters are well-organized and well-funded companies, Deutsch said, adding, “These are not people in their basement.” Verizon in recent months brought cases against several tasting companies, including iREIT, a company funded by Perot Investment and Maveron, founded by the chairman of the Starbucks coffee chain, Howard Schultz.

What makes prosecution of the trademark violations difficult, said Deutsch and Cade, is the volatility of the registrations, the hiding of the actors behind piles of shell companies, and the fooling of the so-called Whois database that would help to identify the trademark infringer. “Very few people are aware of it,” said Cade. “We are almost in a stealth scenario.”

Whois data ideally provides information about how to contact each domain name holder. ICANN just reported in its regular Whois Data Accuracy Program Report that there were about 34,000 unique reports on wrong Whois data entries, not an excessive number, according to the organisation, as there were 80 million domain names registered.

According to Cade, “ICANN alone is not the total answer to the problem.” But there are four things ICANN could do, she said: Close the five-day add-grace period, strengthen Whois accuracy, add an anti-warehousing rule to their Registrar Accreditation Agreement, (deterring registrars from storing large numbers of domains themselves), and to make registrars accountable for their licensees.

Deutsch recommended an FTC hearing and a US congressional hearing in order to analyse possible deceptive practices and prepare for an update on the Anti-Cybersquatting Protection Act. “Greater power should be given to the FTC to prosecute deceptive acts,” she said. “Some of the activities might even be criminal.”

Possible Cybersquatting Treaty?

On the international level, Deutsch recommends WIPO raise awareness of the problem and consider a possible harmonisation of penalties in a treaty against cybersquatting. Deutsch also proposed discussions at the European Union level.

WIPO is preparing for an event on tasting, kiting and other secondary market phenomena to be held in the last quarter of 2007, according to WIPO Deputy Director General Francis Gurry.

“Now that the UDRP [ICANN’s domain dispute system] is in place, I think we could consider a treaty,” Gurry told Intellectual Property Watch. “I would have given a very different answer five years ago, because then a treaty would have been an inadequate response to cybersquatting. But now we can look at the evidence and experience we got and think about the possibility of the treaty.”

The UDRP, the Uniform Domain Name Dispute Resolution Policy, allows trademark owners to ask for fast-track dispute resolution with WIPO, which is the biggest dispute settlement provider. On a potential treaty, Gurry said there first had to be discussions among member states if they are interested, and also more fact-finding on the problem before there is a decision to pursue a treaty or simply make a modification to the UDRP.

What WIPO could do for now, Gurry said, is raise awareness of the IP community of the negative effects, then bring it before ICANN and ask for it to take some responsibility. With regard to the magnitude of the problem, Gurry said, “We are told it is a big problem and we see evidence in the cases and inquiries we get.” But part of the fact-finding would be to discuss “what is harmful and what is normal practice.”

Overregulation of the Internet would damage the speed with which it is able to penetrate societies and should be avoided, Gurry said, adding a caution against being too quick to ask for criminal measures. “Nobody wants to over-regulate the Internet,” he said. Yet he said he was “not convinced” that there is a benefit to society from tasting practices, and so might be able to be considered for changes.

While it is difficult to come up with statistics on the possible damage caused by tasting or kiting, the “numbers would be staggering,” said Deutsch. “I think there are billions of dollars lost,” she added, taking together everything from diverted revenue streams for advertisements based on the attractiveness of the brand to lost customers who end up with competing providers.

Who Wins, Who Loses in Domainopoly

John Berryhill, a patent attorney practicing in Philadelphia who is well-versed in representing domain registrants and trademark claimants in WIPO UDRP proceedings, drew a different conclusion and viewed the criticism of tasters with some scepticism. “Measuring loss” in advertising is a hard thing to do,” he said. Instead of looking only at the domain name tasters, he recommended a look at what browser software vendors and search engine providers have implemented.

“If I can’t spell the name of a site I am trying to reach, and I type the wrong thing into the address bar, then one of three things will happen,” said Berryhill. “Either I am a very sophisticated user who doesn’t have the default [Microsoft] Explorer browser and do not use search plug-ins, in which case I get an error message; or I am a normal user and my browser’s default search takes over and I get search results, including paid ads, from MSN, Yahoo, Google, AOL, or whatever default search to which my browser falls over.” The third option is that the domain name was registered by someone who connected the domain name with search results - a taster who had parked the domain, for example. From a users’ point of view the second and third results are the same, he said.

“Now, if those search results lead back to an advertiser who owns the correct spelling of the domain name, the argument is that the advertiser ‘loses money’ by paying referral fees for that traffic. Of course, the advertiser could itself own and manage all of those domain names, in which case the advertiser would ‘lose money’ by having to pay for registration and management of the domain names.”

If the add grace period was closed, said Berryhill, “it would certainly benefit the large search companies, since they would get the revenue from non-existent domain searches directly, instead of having to share the revenue with domain tasters.” If he were a Google shareholder, he said, he would certainly want to eliminate domain tasting.

Berryhill has his own interpretation of why the trademark owners were not enforcing their rights against browser vendors and the search companies: “Let’s face it,” he said, “the entire economy of domain tasting is driven by the revenue paid out by Yahoo and Google for advertising systems.”

For trademark owners, a legal claim against a taster, but not against a big search engine company, might be financially more valuable than the domain name, he added. “There have been lawsuits filed on the basis of tasted domain names which were discarded before the end of the five-day period,” Berryhill said. “What that means is that the domain names did not receive any traffic or make any money at all. The ACPA [the US anti-cybersquatting law] permits a damage request by the [trademark] owner of up to $100,000 per domain name. So the proposition is that I can obtain tens of thousands of dollars from a domain taster on the basis of a domain name that didn’t make them five cents, and wouldn’t make me five cents either.”

This article has been featured here with kind permission from Intellectual Property Watch.