Brands Under Assault in China

Goldman Sachs Among Most Heavily Targeted

As first reported by FairWinds Partners (see Perspectives Volume 2, Issues 3 and 4), the China Internet Network Information Center (CNNIC) significantly reduced the annual cost of domain name registrations in China’s CN name space to one yuan (13 US cents) this past March. The reduction was part of CNNIC’s “.CN Rocketing Initiative” campaign and was originally intended to run from March 7 through May 31. The duration of the campaign has now been extended to December 31, 2007. At the end of the promotion, the renewal price of these domains will go back to their normal rate, which is approximately 100 times the current promotional price. FairWinds received confirmation from an industry insider that CNNIC is currently running the promotion with domestic Chinese registrars as well as CNNIC’s registrar partners outside of China that must connect to the registry through Neulevel.

It is of no surprise that the lowering of this barrier to entry in China has proved to be an open invitation to domain name abusers. To assess the results of this shift in the online infringement risk landscape, we performed a thorough analysis of how the world’s 100 most valuable brands (as represented by Interbrand) were impacted during the original promotional window running from March through May. Analysis of registrations during the original window highlighted problematic trends that should be top of mind for brand owners during the remainder of the CNNIC campaign.

The analysis took into account the top 100 brands across 40 CN extensions (.CN, .COM.CN, .TW.CN, etc) to determine if they were registered and, if so, who had registered them. Rather than the expected 4000 domain names, our sample included 4360 names since we supplemented the list with nine common alternative uses of several Interbrand ranked brands. For example, we included both ‘TIFFANY’ and ‘TIFFANYS’ for Tiffany & Co. and ‘KELLOGG’ and ‘KELLOGGS’ for Kellogg’s.

Only the domain names formed with the exact brand name plus each of the 40 CN extensions were analyzed - no misspellings or other derivatives were considered in order to ensure the strength and consistency of the sample. The resulting data provided vital information as to registration activity occurring during the original period when the cost of registration was reduced, and should offer brand owners valuable insights to protect their brands so long as CN registration prices remain at artificially low levels. Even though it is increasingly apparent that domain name abuse is costing brand owners billions of dollars, analysis showed that overall they failed to recognize the added risk of low prices during the original March through May CNNIC promotional period. During the same period, infringing parties capitalized on the lower registration costs and acquired much of brand owners’ critical Internet real estate.

The analysis revealed that the reaction by major brand owners to the challenges posed by the decreased cost of registration varied widely. While a small number of companies did take action (both within Interbrand’s top 100 brand list and outside of this), most did not. Predictably, during the original window between March 7 and May 31 of this year, when CNNIC (the registry authority for CN domain names) drastically lowered the registration fee, third party registrations represented 917 distinct domain names or 96.9% of the registered names in the surveyed sample, while trademark owners were responsible for only 29 domain name registrations or 3.1%.

Companies such as Amazon.com, Canon, Richemont, Cisco, Pfizer, Philips, Rolex, Tiffany and Volkswagen had already registered and protected their brands in China’s domain space long before the CN promotional period. Thus far, other companies such as Nike have successfully navigated through this threat ahead of infringers by proactively registering CN domain names through domain registrars that were able to provide them with the reduced pricing available to any interested party in China.

One brand owner in particular made a serious effort to protect itself during this higher risk period due to their prior experience with infringements in China. IKEA managed to claim 96.4% of all available CN registrations that exactly matched their master brand IKEA and lost just one domain to an infringer. Prior to CNNIC’s low price period, eleven IKEA domains had already been secured in various second and third level CN domain name extensions; seven domains had been taken by third parties and the home furnishings retailer had secured the other four.

Meanwhile, third parties hit the unprepared Goldman Sachs brand during the original low price registration window by registering 95% of possible “goldmansachs” CN registrations. Other major brands such as Budweiser, McDonald’s, BMW and Oracle were hit at similarly alarming levels, ranging from 82% to 90% of possible CN registrations that exactly matched the domain name equivalent of their brands (e.g. budweiser.bj.cn, mcdonalds.sh.cn, etc).

Clearly, the abusers took full advantage of the opportunity presented to them. They were well organized and were fully aware of the opportunity, which allowed them to successfully register a significant number of names that they deemed to be valuable. It is probable that similar infringements will continue until the CNNIC campaign ends in December. The top ten infringers identified within our data sample accounted for more than half of all infringements and 47% of all infringements during the reduced price period were filed in the very first week of CNNIC’s promotion. These findings conclusively support the original concerns expressed in the March FairWinds alerts related to the potential consequences and damages associated with the lowered cost of domain name registration in China.

As dramatically illustrated in the case of significant registry fee drops in China, third parties can and will register thousands of domain names for little to no cost in hopes of monetizing Web traffic that predictably flows to brand-rooted names. Thus, it is our hope that as other registries plan to rollout similar changes sure to negatively impact brand values and Internet users’ experiences, such actions will be reconsidered. If registry administrators of other critical top-level domains do not learn from the results of CNNIC’s one yuan promotion, trademark owners must be prepared in advance and do what is necessary to stay one step ahead of the infringers. We similarly hope that domain name registrars geared toward corporate services will work with the TM community to offer their clients the ability to secure names quickly and cheaply in scenarios such as these so they can compete with infringers and protect their marks.

It is also our hope that as ICANN looks to a potential “restocking fee” solution to address Add Grace Period (AGP) abuses; they will take note of China’s one yuan promotion as an example of the infringement that followed a similar economic proposition. A white paper presenting an in-depth analysis of the relationship between registration fee and likelihood of infringement will follow this release and be available to FairWinds readers.

We did not include information in this release regarding those Interbrand 100 brand owners that have available names in the 40 CN extensions in order to help prevent further infringement of those brands. If you would like to know the status of your Interbrand 100 brand name in China, please contact us for a confidential report.

Please contact us with any questions or for additional information regarding this topic.