Dell suit reveals lucrative trade in domain names

A civil suit filed in Florida by Dell and its Alienware subsidiary has given insight into the money involved in Web pages full of advertising links.

A civil suit filed in Florida by Dell and its Alienware subsidiary is giving insight into the enormous sums of money that can be made by creating Web pages full of advertising links.

In October, Dell sued a group of domain registrars, alleging the companies bought more than 1,100 domain names with trademark-infringing characteristics, such as "dellbatterrogram.com" in order to put advertising links on the pages.

The practice, known as typosquatting, is illegal. It's intended to draw unwitting Web surfers to pages with URLs (uniform resource locators) that are similar to legitimate sites, and then redirect them to other sites. The owners of these Web sites get revenue from advertising referral programs every time a link is clicked.

The defendants -- Belgiumdomains, Capitoldomains, Domaindoorman, Netrian Ventures, iHoldings.com, Juan Pablo Vazquez and 10 unnamed defendants -- deny the claims. Dell contends the businesses, most of which are registered outside the US, are shell companies engaged in collusion.

Dell sought a court order in November to freeze their assets so the money from their operations wouldn't disappear. Last month, the court amended the freeze order, and contained in the details of the new order are clues to just how much money the defendants may be raking in.

Google, whose AdSense advertising-placement program was used to monetize the domains, was ordered to hold in a special account the first US$1 million collected on behalf of the defendants each month. The second US$1 million that accrues in the account every month will be given to the defendants. If more than US$2 million accrues in one month, the money is split between the defendants and the Google account.

Google takes a cut of AdSense revenue, which shows that it in part benefits from this kind of abuse of the Internet. However, Google recently announced it will not allow AdSense campaigns on "kited" domains.

Kiting is a technique used by some rogue registrars to avoid having to pay the fee for using a domain. The domain is repeatedly registered and unregistered within a five-day Add-Grace Period. The grace period, which applies to a handful of TLDs (Top Level Domains) was intended to let people get a refund of their domain registration fee if they made a spelling mistake.

Kiting often goes hand in hand with another abusive practice, "domain tasting." A domain name is registered and monitored during the grace period to see if it gets sufficient traffic to pay for its registration fee. The domain owners then get refunds on the sites with low traffic. However, the Internet Corporation for Assigned Names and Numbers (ICANN) is considering keeping a $0.20 fee it normally refunds as part of the registration process in order to stop tasting.

Dell has accused the typosquatter defendants in its lawsuit of both practices and is claiming their profits as well as $US100,000 per infringing domain used.

Google's antikiting policy doesn't apply to domain tasting, meaning the company will still potentially benefit from Web sites intended merely for advertising. A Google spokesman said Tuesday, however, that Web sites are supposed to have legitimate content in order to be accepted into AdSense.

Other information in the court documents shed light on the economics of monetizing domain names. Dell contends the defendants control some 1 million domain names, and believes they also have used at least 64 million other unique domain names.

When the court froze the defendants' assets in November, it also froze their ability to stop renewing domain names that weren't producing enough revenue to justify the registration fees. Since the defendants controlled so many domain names, the automatic renewal of those names -- likely around 3,000 domains a day -- cost them US$20,000 per day.

However, the defendants successfully petitioned the court to cancel domains that were generating less than US$8 a year in revenue.

"These [figures] tell us that there's lots of money in tasting, and it's a game of huge volume," wrote John Levine, a consultant and author of "The Internet for Dummies" on his blog.

The Dell case continues in US District Court for the Southern District of Florida.

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