Domain Name Squatting and Deceptive Practices

By: Aaron Kelly | Posted: 16th December 2010

Suppose you have an inside lock on the world's best widgets. Not now, but at some point in the indeterminate future, you intend to create an Internet ecommerce site from which you'll sell them.

So you choose a domain name, say "widgetworld.com" You find a registrar who does the necessary search and discovers that "widgetworld.com" has not been snagged by some prior distributor of widgets, and is, in fact, unique. You pay the extremely modest registration fee, secure in the knowledge that the domain name you have chosen is yours and yours alone, to do with what you like.

But is it?

A common practice among less scrupulous domain registrars is something called domain parking. You registered "widgetworld.com" to reserve it for future development. But since you haven't yet linked the name to a server-hosted website, the computer server that implements the name-server protocol called the name-server is still under the control of the registrar which therefore, potentially at least, has the use of your domain name.

Ethical registrars either do nothing with domain names intended for future use or create a placeholder page that comes up when the URL is typed into a browser, "Coming Soon" on a movie marquee graphic or the familiar hardhat with the words, "Under Construction."

Unprincipled registrars, however, have been known to create webpages that are triggered by your URL on which they sell advertising at a profit. This business model has proven so successful that some registrars now offer it as an actual service to domain owners with whom registrars offer to split some of the advertising fees.

The underlying legal issue here is whether a domain name is actually a property right. In the 2003 case of Zurakov v. Register.com, the New York trail court that originally heard the case decided that it wasn't, only to be overturned by an appellate court, which decided that it was.

The plaintiff in Zurakov v. Register.com discovered that the domain name he had registered with the defendant was being used to direct websurfers to a "Coming Soon" page splattered with banner advertising for Register.com and its associates.

The plaintiff brought suit, claiming a breach of good faith and fair practices on the grounds that the contract he'd entered into with Register.com entitled him to exclusive control of his domain name.

The defendant -- countering that the domain name had been registered under the terms of the contract in which the word "control" never appeared, and moreover, that a disclaimer regarding the "Coming Soon" page appeared on its website - moved for a case dismissal on the grounds that the plaintiff had failed to state a cause of action.

The trial court agreed with the defendant. The word "control," the verdict noted, appeared nowhere in the contract, nor was the word "register" ever expressly defined. Furthermore, the contract contained a clause that allowed Register.com to cancel, suspend, modify or transfer that contract whenever the company wished.

Thankfully for the future of ecommerce, the verdict was overturned on appeal. The appellate court held that good faith demanded that the word "register," when used in the context of the Internet, go beyond the dictionary definition to accord with prevailing use and custom within that context. Additionally, while the contract may not have explicitly granted Mr. Zurakov exclusive control, there would be no real benefit to a contract that merely granted him the right to have the domain name joined with his own in some official document. The appellate court rendered no opinion as to whether a reasonable consumer would either look for of discover the "Coming Soon" disclosures on Register.com's website however.

If you are considering setting up an Internet ecommerce site, even with something seemingly as simple as domain registration, your best recourse is to consult with an experienced Internet attorney who will be happy to review any contracts requiring your signature to keep you from falling prey to domain parking or other unscrupulous practices.
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Tags: domain names, domain name, registration fee, business model, widgets, future development, plaintiff, computer server