Your Brand Tastes Great to Cybersquatters

Cybersquatters exploit loophole, gain leverage, and infringe brands on unprecedented scale.

Not long ago, cybersquatting was made worthwhile for Cybersquatters, whenever brand-owners paid them bounties to gain control of squatted names. Today, however, cybersquatters have a very different business model. The technology that allows companies and individuals to buy online ads and have them served to those consumers and partners who make search engine inquiries also allows the cybersquatter to produce substantial revenue by setting up a portfolio of domain names as pay-per-click (PPC) sites. The practice of monetizing domain names in this fashion has created a marketplace valued in the hundreds of millions of US Dollars.

Unlike "click fraud," which requires constant clicking to earn relatively small sums of money, the operation of a pay-per-click "empire," once set up, is relatively passive. If you haven't seen a pay-per-click site, it's a Web site that posts a collection of search engine links that are targeted according to the associated domain name's key phrase. An example is www.swisshotel.com, which by almost no mistake is very similar to Swissotel, a Raffles Hotels brand. When you visit this site, you will see a collection of branded and category-generic hotel terms that generate fees, which are paid to the domain name owner and to the search-advertising provider (Google and Yahoo! are examples). Online advertisers (generally, corporations) are the parties that pay these fees whenever a site visitor clicks on one or more of the links.

Of course, there is nothing wrong with the search engine technology that is being leveraged to generate these advertisements, nor is there anything wrong with the practice of using domain names to point traffic to pay-per-click sites. In fact, pay-per-click sites often serve-up keyword-based advertising links that corporations have purchased through search engine companies, and the traffic that comes from them is beneficial to their businesses.

Domain monetization is very lucrative - some clicks are worth over $20. For example, some law firms will pay $40 for a lead on an asbestos claim. Of course, this kind of a high click-fee is an outlier, but how much is a click worth for a new car, a hotel room, a luxury good, a recipe for dinner, etc? The average click is worth around 40¢, while automakers and insurers, as examples, will pay well over $2.00 per referral for search engine referred traffic whether a visitor purchases something or not.

Most corporations, whether they sell online or not, will pay between 30¢ and $3.00 per click. If you are a brand-owner, and are not familiar with how much your company is spending on click-fees, it would be worth your while to find out.

Pay-per-click is a relevant alternative to search engine navigation given that between 1/4 and 1/3 (conservatively) of Internet surfers "guess" the domain names of their anticipated Web destinations by typing possible Web addresses directly into browser address bars. This is a practice known as "type-in traffic" or "direct navigation." Since pay-per-click landing pages serve a substantial segment of overall Internet users, who stumble on these sites, PPC is not going away.

Direct navigation is largely underestimated. While most brand owners assume that their customers are using search engines to find their intended destinations, at least 25% of Web users (WebSideStory, a digital marketing services and solutions provider, says up to 70%) are direct navigators, who type-in the possible addresses of their intended Internet destinations. While this article intends to show how the reality of direct navigation is why tasting domains and setting up pay-per-click sites in connection with "average-looking" domain names is a lucrative business model for large-scale cybersquatters, who participate in the practice, direct navigation is a real phenomenon to be dealt with in several ways. In addition to the obvious impairments associated with infringers squatting on brand-owners' names that generate fees the same brand-owner has to pay, direct navigation is the reason to possess and leverage the right set of domains to help drive traffic to principal corporate Web sites.

Since domain name Tasters, among other cybersquatters, have secured domain names to capture that traffic, a considerable portion of traffic that would have seen an error page within just this past year are now seeing a pay-per-click site. So now when you enter milerlite.com, masserati.com, appple.com, nestdayblinds.com, or jonsonsbaby.com (all typographical errors), you will no longer find an error message because the domain was unregistered, but rather a pay-per-click site that earns the registrant of the domain name money by leveraging type-in traffic errors (misspellings and "missguessings") associated with known brands.

Since corporations are typically buying the underlying keywords from search engine providers (like Google and Yahoo!), when a Web surfer clicks the relevant link on a pay-per-click Web site, which is associated with a domain name that contains a particular corporation's trademark (or a derivative of it), that same brand-owner also pays a click-fee to the domain name cybersquatter from its keyword advertising budget.

Many of the perpetrators of this advanced form of monetized cybersquatting are part of a known group involved in a practice known as "Domain Name Tasting" or "Domain Kiting."

Domain name tasting is a practice whereby domain registrants, exploiting the 5-day add/drop grace period made mandatory by ICANN, are allowed to "test" a domain name for 5 days and then return it for a full refund if it doesn't meet their expectations. Tasting has become a large-scale tactic, whereby unscrupulous registrars abuse their ICANN accreditations and the 5-day registration add/drop grace period to perpetually register, drop, and reregister millions of domain names per month. Using this cost-free method in an effort to maximize the profit they derive from trademark holders' brand equity, as well as from dictionary words, Tasters are able to both test-drive domains for their monetization values and then keep them in perpetual operation so long as they yield anything - even pennies per day.

When certain domains prove to be more lucrative (yielding traffic worth more per year than the $6.25 registration fee for a .com), the Taster simply allows the transaction to be completed, more-permanently retaining the domain name. In this way, the Taster ensures continued income from the most profitable domain names. It comes as no surprise that the most profitable sites are those that contain addresses that closely resemble the names and addresses of well-known and famous registered trademarks.

According to the minutes of ICANN's June 2006 meeting in Marrakech, John Berryhill stated that "during that [add/drop grace] period, a name can be registered, but it can also be deleted and any registration fee refunded from the registry to the registrar during that five-day period. So what has evolved is many people are using that period to test a name, or the term has been coined to "taste" a domain name, to determine whether or not it has monetization value."

This optimization process has made tasting an extremely efficient means to conduct pay-per-click domain monetization schemes, thereby increasing the costs to brand-owners (since they finance the click fees paid to cybersquatters), while minimizing the operating costs to the cybersquatters. The resulting growth, and current scale of this practice are stunning.

According to Brett Lewis, former Associate General Counsel at Register.com, "the overwhelming majority of domain names currently being registered are part of tasting schemes, and the preponderance of those names are derivatives of known and famous trademarks." Initial research performed by FairWinds Partners confirms that 30-32 million domain names are involved in tasting. One industry insider confirmed that 50% of this number, or roughly 15 million domains, infringe on the rights of trademark holders.

Domain Tasters often target misspellings of registered trademarks in the domains they taste due to the known and much greater likelihood of diverting Internet traffic using those names verse names without brand equity. Once unsuspecting direct navigators land on these Web sites, they are offered a variety of paid advertisement links to other sites; some of which may be associated with the desired company, while others may reference competitors (for example: www.blakberry.com).

Cybersquatting monetization via PPC is an approach that not only costs trademark-holders money (via the click fees these sites generate), but also jeopardizes their brands' identities via dilution, and impacts customer experiences and future sales via product and service confusion. In addition, both the volume of domains involved in tasting, and the pace at which they are "flipped," have hindered detection and enforcement efforts, and have severely hampered anti-Phishing efforts, as well. Phishing site detection is akin to finding a needle in the haystack; and tasting has added 30 million domain names (or 35%) to that haystack from 82 million to 112 million domain names making Phishing-site detection less likely to be done prior to an attack.

In an attempt to quantify the impact of this practice, FairWinds Partners performed some preliminary modeling to value the impact of pay-per-click sites that infringe upon the rights of just one typical global brand. The findings were astonishing. We determined that a typical Global 2000 company, nearly regardless of its business model, is facing an annual impact in the hundreds of thousands of dollars per brand, per year. At times, the annual impact on some very famous brand-owners could exceed one million US Dollars. This figure does not include the long-term costs associated with poor customer experiences, customer confusion, and overall brand dilution.

So what is being done to stop tasting?

The answer, on the institutional level, is not much. ICANN has been slow to respond to this disturbing and wholesale abuse of the Internet.

As a group, brand-owners are suffering excessive losses as their trademarks are being used against them by a small group of entities. If domain tasting is to be stopped, brand-owners will have to work together to educate policymakers, to increase awareness, and to pressure ICANN into action.

Some companies, acting independently, have filed lawsuits against individual domain Tasters. While these lawsuits may result in the remuneration of some or all of the funds obtained by these particular defendants, it is likely that the net-effect will not amount to deterrence. The sheer number of companies being victimized by a handful of known groups (the most aggressive tasting entities) combined with the detection and enforcement challenges that arise from the perpetual motion inherent to this practice demand immediate policy action.

As an immediate stopgap solution, brand-owners should be thinking about making proactive amendments to their domain registration strategies to preempt the Tasters and other PPC operators by acquiring the most valuable domain names before they do.

FairWinds Partners recently founded a new public policy initiative, the Coalition Against Domain Name Abuse (CADNA), to facilitate dialogue, to effect change, and to spur action on the part of policymakers to close the loophole that enables the practice of Domain Name Tasting.

For information on the impact of domain tasting, CADNA, and for more information on what is being done to counteract this abuse, please contact us directly.

Joshua Bourne is a Managing Partner of FairWinds Partners, LLC. Attorney Brett Lewis of Lewis and Hand, LLP and Andrew Friedman of FairWinds Partners, LLC contributed to this article.