In this article Robert Holmes, Director of Products at CSC, examines the trends of infringement to help corporations formulate an effective registration and monitoring strategy for their domain names.

In the Domains, Making the Right Decisions article in the last issue of IP Scan, Robert Rozicki investigated the question of whether there is an optimal number of domains that brands should register in order to protect their intellectual property. While we determined that there is no right answer, we concluded that all good registration strategies will have two things in common.

First, the strategy adopted should be an informed decision based on relevant data: if you wish to register only under gTLD extensions, that is fine so long as you have understood and accepted the potential consequences. Secondly, the registration strategy should deliver value for money: whether you register a hundred domains or a thousand, you should make sure that they are the right domains. Risk management enables us to prioritize exposure based on supply-side and demand-side factors. However, ultimately, the size of a portfolio will depend on the brand’s propensity to expose itself to risk in the internet space.

That risk appetite must be born out of an understanding of how potential infringements affect the value of the brand as well as the probability of an infringement occurring. After all, if the brand is not affected by an infringement, why seek to prevent or counter that activity?

Therefore, to address the question posed at the end of the aforementioned article, risk appetite should really drive your budget rather than vice versa. However, risk appetite alone is not sufficient to determine what your budget should be. Rather, budgets should be drawn up in consideration of both risk appetite and risk exposure. And for that, we need to consider the impact of infringements to a brand.

To understand the impact of infringements, we must first investigate the different scenarios and their relative importance.

Infringement web activity patterns

Fundamentally, third parties register domains relating to well-known brands for one of two reasons: (a) they feel aggrieved by or angry towards a brand and wish to tarnish its reputation or seek redress, or (b) they wish to profit from the coattails of the brand. The nature of the first of these is well documented and the extent to which such actions can harm a brand is self-evident. However, the activities of those people wishing to profit from infringement activity merit closer inspection.

These activities include:

1. Featuring advertisements (banner or textual) on the site and reaping “pay-per-click” revenues as users resolving to the site click on the links.
2. Selling associated goods or merchandise (be they genuine or fake).
3. Listing the domain for auction (on sites such as Sedo).
4. Using the domains for spam email blasts (phishing).
5. Luring end users to submit personal details, such as credit card numbers (pharming).

The domain speculation business (variously referred to as “domaining”, “domain-warehousing” or “domain monetization”), as reviewed in the earlier article The Challenge of Pay-per-click Domains, has fast become a huge business. In 2005, the business was worth $400 million; it is believed this will have grown to $1 billion by the end of 2006. Whether or not domains should be recognized as intellectual property is now rather a moot point: domainers believe them to be real estate and are treating them as such.

Nothing demonstrated this more than the recent .EU launch, during which one company gained 400 registry accreditations at an estimated financial outlay of $5 to $7 million in order to secure as much of this prime real estate as possible. Whether or not they were in breach of contract remains to be seen, as EURid has placed 74,000 domains “on hold” pending further legal proceedings.

As with all real estate, it comes in varying degrees of quality that will attract varying degrees of interest, from passing (even inadvertent) traffic through to potential buyers. What is certain is that the bigger brands will lend their greater cachet to domains that relate to those brands. Therefore, as the domain monetization business grows in sophistication, global brands will become even more susceptible to infringement.

Our research indicates that, for every domain registered by a corporation to protect their consumer brand, there are a further two registered by third parties to profit from it. Many offenders seek to transfer the blame for such occurrences to the technology they use to trawl the registries for domains. Web Advertising, Corp’s web site, for example, states that “…we have developed custom software to find good generic domain names whose original registrations have lapsed. We cannot look at each domain we register.” That may be true, but so is the fact that domains relating to each of the brands in our survey were found to be registered to Web Advertising, Corp.

Then there are companies such as Domains by Proxy, Inc. (DBP) who offer bona fide masking services to people who wish to remain anonymous in the Whois. While it may be that they are acting in the interests of the private individual wishing to avoid email spam, their service also attracts those wishing to hide from the enforcement arm of the brands they are infringing. While DBP’s web site clearly states that they “…will not do business with you, nor protect your identity, if you… [v]iolate the law or infringe a third party’s trademark or copyright”, the simple truth is that DBP harbors the largest volume of infringements of any registrant identified in our research to date.

However, it is important to recognize that other activities which may not be as prevalent can have a greater impact to businesses. For instance, phishing and pharming can severely damage the reputation of online businesses and result in lost custom by Internet users losing faith in online security. In February 2006, the Anti-Phishing Workgroup reported over 9000 phishing sites which has quadrupled compared to the previous year.

Infringement domain patterns

As well as analyzing the manner in which third parties use domains relating to brands, we can also consider the domains themselves and the relation to the brand. This will help us predict infringer behavior; once we can predict infringer behavior, we can then decide how or indeed whether to counter it.

The majority of infringements (53% of all such domains identified in the recent research initiative) are registered under .COM. This is perhaps not surprising, given the demographic reach of the extension, its low maintenance fee and the fact that there are no registry restrictions. Along with other gTLDs, .DE, .CO.UK, .EU, .BE and .AT complete the top 10 extensions for infringement activity.

It is, however, worth noting the types of variations of brands that third parties target. In our research, we differentiated between domains containing exact matches of the brands and those containing typos; furthermore, we determined which of the domains also included a negative reference, a word that was relevant to the brand in question or any other character string.

Mapping the domains to these categories, we can see that almost a half of third-party registrations take an exact match of the brand and append an additional term. A particularly prevalent practice is for infringers to register the brand with a prefix of “www” (e.g. wwwbrand.com), thereby capturing traffic from users who unwittingly miss the period out of a web address (www.brand.com) they enter into the address bar of a browser.

Further evidence of the sophistication of domain speculators is the degree to which they are registering typo variations of brands (e.g. brnad.com rather than brand.com). One in eight domains registered by third parties relating to brands is a typo variation. Again, the return on their investment in registering the domain relies on the fact that a certain number of users will unwittingly resolve to their pay-per-click web sites, having mistyped a URL.

While some typo registrations will not deliver a return to the infringer, for one very important reason they need not be out of pocket. That reason is the Add Grace Period (AGP), a five-day window during which newly-registered .COM domains may be cancelled at the registry without registration fees being incurred. While designed to enable applicants to correct mistakes, this has been systematically abused by domainers who register huge numbers of domains every day, test them for the volume of traffic they can generate and then cancel those that do not make the grade.

Domain “tasting”, as it is called, is the reason why, for example, of the 5.8 million .COM domains registered during the last week of March 2006, a mere 450,000 were retained by the time the AGP had elapsed.

Prioritizing and managing the space

So, what can brand owners do in response to such widespread, sophisticated speculator activity? For a 6-character brand, there are 100 million typo permutations across the 750 domain extensions! Moreover, a lot of infringer activity may not actually harm the brand, so why should brand owners seek to prevent it?

In the risk management article of the last issue of IP Scan, we talked about a balanced registration strategy as a means to eliminate risk. However, prevention is not necessarily better than cure: prevention may be too costly and may not account for the fact that the risk is only slight. Risk management affords us other alternatives: brands can seek to reduce risk exposure or they can simply accept it.

Monitoring is a reactive solution to reducing risk. Checking for relevant new registrations is the first step to enabling brand owners to counter third-party activities that may relate to your brand. However, awareness of risk without action is of no value – the notion of laches means that one’s intellectual property rights diminish over time from the moment when you are notified to the moment when you take action against an infringement.

Therefore, the real value of monitoring subsists in enabling brand owners to quickly identify, quantify, prioritize and counter infringements on a case-by-case basis as and when they occur. Time is of the essence: without a means by which to analyze and compare infringements in a short period of time, your brands will be more exposed. A methodical way of classifying and handling infringements will also reduce the time spent processing the cases internally.

Infringement classifications will be based on the interaction of web activity, relevance/closeness of the domain to the brand and extension under which the domain is registered. For example, a typo variant of the brand with an associated term registered in Latvia (e.g. brnad-shop.lv) that is not pointing at a web site would be less of a concern than an exact match of the brand with a negative term registered under a gTLD (e.g. brandsucks.com) that is pointing at a counterfeit goods site.

Balancing a registration strategy with monitoring

There will be many domains that a corporation will want to register for the purpose of conducting and promoting business. Equally, there will be domains that a corporation will seek to register in order to eliminate the threat of infringement – where the probability of infringement is high and/or the cost to the business of being infringed would be high (either in terms of brand impact or in terms of acquisition or legal fees). Through understanding infringer activity, we can start to identify variants of brands that are most prone to be infringed and register accordingly.

There will also, however, be a vast number of brand permutations in many countries that it would be both prohibitively expensive and impractical to register. For these variations, a reactive monitoring solution will be most appropriate.

While there is a growing trend towards brand infringement in the domain space fuelled by real-estate-style speculation, a brand protection strategy that leverages both an optimal registration policy and monitoring solution will ensure that brands are in control of both their assets and their budgets.

¹ CSC Corporate domains market research took 10 brands from the Top 100 most valuable brands as ranked by Interbrand. These included brands from the following industries; computer software, telecommunications, financial, Internet services, pharmaceutical, food & beverage, consumer electronics, luxury goods, automotive and hospitality. The term for each brand was searched against 750 domain extensions for possible registrations.

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