Sarah B. Deutsch is steaming. The Verizon Communications (VZ) lawyer regularly scours the Web from her Arlington (Va.) office and finds hundreds of new sites that use variations of Verizon's name. A mid-December browse uncovers domain names such as verizonpicture.com, vorizonringtone.com, and varizoncellularphone.com. But none of the sites has anything to do with Verizon. They're registered by companies such as Wan-Fu China Ltd. in Nassau, the Bahamas, and Maltuzi Holdings in Mountain View, Calif.
Blame it on a little-known but rapidly growing activity called "domain tasting." The practice, perfectly legal, lets registrars profit from the complex money trail of pay-per-click advertising. Exploiting a regulatory loophole, "tasters" snatch up Internet domains for five days at no cost and jam them full of advertisements filtered down from Google (GOOG) and Yahoo! (YHOO) That means the taster vorizonringtone.com gets cash every time a visitor clicks on an ad like one for Cingular found on that site in the last week of December. With zero risk and 100% profit margins, bulk registrants are now registering mass quantities of domain names every day—some of them over and over again. A Cingular spokesperson said the company's advertising team members were not immediately available for comment. According to Deutsch, the Verizon attorney, "people are purposely exploiting trademarks and misleading consumers."
The source of tasters' profits is ultimately the search engines whose paid-search programs spill ads onto these sites, often through intermediaries. For its part, Google says it doesn't support the practice. "We discourage domain tasting," a company spokesperson says in an e-mail. A Yahoo spokeswoman said the company could not immediately comment.
In late 2004, roughly 100,000 domain names were being sampled on any given day. Now the number is 4 million a day, says Jay Westerdal, CEO of consulting firm Name Intelligence Inc. Experts estimate that less than 2% of the sites that are tried out for a few days are ultimately purchased by registrants. It's a bit like being able to get clothes from a store, wear them for five days, then return them at no charge. And with more than 250 suffixes besides ".com" to choose from, there's no end in sight.
The explosion in domain tasting can be traced back to the practices and policies of the organization responsible for regulating Web names, the Internet Corp. for Assigned Names & Numbers (ICANN). In 2000, ICANN established the "create grace period," a five-day stretch when a company or person can claim a domain name and then return it for a full refund of the $6 registry fee. That was to allow someone who mistyped a domain to return it without cost.
Now a growing chorus of critics is crying foul. Verizon, Time Warner (TWX), Dell (DELL), and others are calling on ICANN to change its practices. In June, the Neiman Marcus Group Inc. brought a federal lawsuit against Dotster Inc., one of the largest domain-name registrars, alleging that Dotster participated in a massive campaign of domain tasting and other activities targeting companies such as Google, Playboy Enterprises (PLA), and Walt Disney (DIS). David J. Steele, a lawyer for Neiman Marcus, likens regulating domain names to gun control. "Are guns unlawful to own? No," says Steele. "But they can be used for unlawful purposes. So can the system of domain tasting." Dotster did not return calls for comment on the suit.
ICANN says it is not its place to change the practices of registering domain names. Tim Cole, chief registrar liaison for the organization, says its constituents should make a clear proposal to change the policy so that ICANN's board of directors can consider adjusting it. "We're definitely taking action to inform the community about the issues involved, and it's up to them to decide what they want to do," he says.
OOPS, WRONG ADDRESS
Executives at domain-tasting companies maintain that they can provide a service. For example, if a Web surfer mistypes a Web address and lands on one of their sites, the companies can have an ad that redirects the surfer to the proper site. T. Salonen, manager of Maltuzi, says his company is a "bulk registrant" of domain names, but says there's nothing wrong with that. He writes in an e-mail interview: "We...purchase those domain names which have certain traffic levels or pay-per-click viability and return those which do not meet those and other criteria."
Other powerful forces oppose changing the system. VeriSign Inc. (VRSN') controls both the .com and .net names and sells them to various companies. Michael Denning, general manager of digital brand management services, says VeriSign is against any abuse of domain tasting but does not advocate the elimination of the five-day grace period, because it can sometimes be legitimate.
Critics say VeriSign likes the status quo because it makes so much money from it. The float from those $6 deposit fees is piling up. And VeriSign recently launched a new product called "digital brand and fraud protection" that in part helps corporations combat trademark infringement through practices like tasting. The service costs $100,000 to $400,000 a year.
Verizon's Deutsch compares domain tasting to "a feeding frenzy" and says legislation may be needed to stop the abuse. "Tasters aren't adding anything to the Internet but instability," she says.
By Moira Herbst