Closing of cybersquatting loophole is 'excellent news' for brand owners

The Internet Corporation for Assigned Names and Numbers (ICANN) will put an end to the five-day grace period after which registered names could be handed back at no cost.

So-called 'domain tasters' have been registering names in their thousands at a time to see which received enough traffic to make advertising profitable. Any that would not cover the $6 a year fee were handed back at no cost.

ICANN will now keep its 20 cents portion of that fee even if a domain is returned after five days. Returned domains will still avoid the rest of the $6 charge. The plan must be approved by the ICANN board at a meeting in June.

"Domain tasting has been an issue for the internet community and ICANN is offering this proposal as a way to stop tasting," said Dr Paul Twomey, chief executive of ICANN. "Charging the ICANN fee as soon as a domain name is registered would close the loophole used by tasters to test a domain name’s profitability for free."

"This is excellent news for brand owners," said John Mackenzie, a brand protection specialist at Pinsent Masons, the law firm behind OUT-LAW.COM. "This has been the cybersquatters' market research vehicle – for pretty much zero cost they have been able to find out which domains will make them money and which won't."

The five-day return period was designed to help buyers of domain names who had second thoughts or who mistyped a domain to return it at no cost. The result of it, though, was a boom in cybersquatting as squatters were able to road test domains at no cost.

Cybersquatters and typosquatters make millions of pounds a year from advertising on pages that people do not mean to visit. By registering names that are slightly different to established brands they get error traffic to sites.

If adverts on the sites are clicked, the operator makes money. The five day return period allows squatters to test domain names for free to see which ones are profitable.

The problem has grown to massive proportions and has been industrialised. ICANN said that 95% of returned domains came from just 10 users. It said that 45.5 million addresses were returned by these 10 organisations in one month, January 2007.

OUT-LAW.COM recently revealed that every single one of the world's 500 biggest companies were victims of typosquatting. Every Fortune Global 500 company is affected.

Mackenzie said that the grievance procedures under ICANN also encourage the trade. "Because a squatter is not liable for costs in the dispute resolution process there is effectively zero risk if you capitalise on someone else's brand and they catch up with you," he said. "Plus, your market research is free, so it was a fantastic enterprise."

ICANN has long been encouraged to keep a small charge for returned domains. It believes that the 20 cents charge is small enough to be of no consequence to consumers, but will stop the registration and return of tens of millions of domains per month because it would cost those people millions of dollars a month.

"This idea came from the ICANN community and we think it is a viable solution the Internet community has been seeking," Dr Twomey added.

Mackenzie went further, though, and said that the grace period is a solution to a tiny problem that in turn causes huge problems of its own.

"I think ICANN should abolish the grace period altogether," he said. "There must be a negligible number of people who return domains because of a typographical error or a change of mind."