Web name loophole exploited for profit

NEW YORK -- It's not often you can compare Internet addresses with clothing, but a growing practice comes close, contributing to a global shortage in good names.

Entrepreneurs have been taking advantage of a five-day grace period to sample millions of domain names, keeping the relative few that might generate advertising revenues and dropping the rest before paying. It's akin to buying new clothes on a charge card only to return them for a full refund after wearing them to a party.

The grace period was originally designed to rectify legitimate mistakes, such as registrants mistyping the domain name they are about to buy. But with computer automation and a burgeoning online advertising market, entrepreneurs have turned the return policy into a loophole for generating big bucks.

Experts believe spammers and scam artists are also starting to use the grace period as a source of free, disposable Web addresses.

"The system really doesn't work to the advantage of people who have legitimate reasons for wanting names," Frederick Felman, chief marketing officer with MarkMonitor, a brand-protection firm. "It allows people with criminal or speculative intent to dominate."

Cybersquatting has been around for more than a decade, and scores of entrepreneurs have made thousands and even millions of dollars reselling names they had bought for as little as $6 each. With tasting, entrepreneurs generally aren't grabbing names to resell but to generate traffic and share in online advertising revenues.

The practice has spiked, with an average tasting of 1.2 million names each day in December, compared with 7,200 two years earlier, according to data from Name Intelligence Inc., which analyzes domain name patterns. Legitimate registrations made up 2 percent of the registrations at the end of 2006, down from about half in 2004.

In an e-mail statement, one company that engages in so-called domain name tasting, Wang Lee Domains, said the practice is perfectly legal and brings "customers to the companies that advertise."

Moniker Online Services LLC, which lets customers try out domains for a small service charge it keeps, said companies can identify the right names to buy and not overspend for ones that don't matter. Monte Cahn, Moniker's founder and chief executive, said many leading brands do it, although he would not name them.

The loophole works this way:

Speculators write software to automatically register hundreds or thousands of names. Some are variants of trademarks or generic keywords that Internet users are likely to type -- or mistype. Others are names grabbed after their original owners fail to renew.

During the grace period, the entrepreneur puts up a Web page featuring keyword search ads and receives a commission on each ad clicked.

Addresses likely to generate more than the $6 annual cost of domain name are kept. The rest are thrown back into the pool on the fourth or fifth day, only to be grabbed by another group of domain name tasters.

And because the process is automated -- the names are grabbed as soon as they are let go -- legitimate registrants barely have a chance .

Neiman Marcus Group Inc. filed a federal lawsuit last year accusing the registration company Dotster Inc. of tasting hundreds of names meant to lure Internet users who mistype Web addresses. At one point, the lawsuit said, the misspelled NeimuMarcus.com featured ads for Target, Nordstrom, and other rivals.

The two parties recently agreed to settle, though Steele said details won't be disclosed until at least this week.