Dell Takes Cybersquatters to Court
Wednesday, November 28, 2007; 4:06 PM
Personal computer giant Dell Inc. is pursuing a major "cybersquatting" lawsuit against several companies that buy and sell Web site addresses, alleging that the entities earned millions of dollars from Internet traffic intended for Dell and dozens of other Fortune 500 companies.
In a case quietly filed with the U.S. District Court for Southern Florida in October and unsealed last Wednesday, Dell took aim at a stable of registrars -- companies that are licensed to register and sell new domain names to the public -- allegding that they are responsible for registering and profiting off of nearly 1,100 domains that were "confusingly similar" to Dell's various trademarks.
At issue are Web addresses made up of slight misspellings of well-known trademarks, a form of cybersquatting called "typosquatting." Typosquatters typically register domains that surfers are likely to hit if they misspell a Web site name. Users are then taken to sites filled with advertising that generates pay-per-click commissions for the domain holders.
According to Dell's attorneys, the defendants' portfolio of some 1.8 million domain names is not limited to Dell's marks, but rather "reads like a who's who of corporate America."
The complaint names three registrars as defendants -- BelgiumDomains, CapitolDomains, and DomainDoorman -- as well as what Dell claims are nearly a dozen Caribbean shell companies that allegedly served as the entities registering the domains. The suit also names Juan Pablo "JP" Vazquez, a Miami resident who is alleged to be connected to those companies.
Dell's suit charges that the registrar companies named in its suit constructed an elaborate chain of front businesses to profit from "domain tasting" -- the practice of snatching up large numbers of Web addresses, testing their value and returning any domains that fail to drive traffic.
Domain tasting is made possible by a policy established by the Internet Corporation for Assigned Names and Numbers (ICANN) -- the nonprofit organization that oversees the global domain name system. Under the rules, registrars have up to five days to sample domains before committing to purchase them, typically at a cost of $6 apiece annually.
In effect, the ICANN policy gives prospective domain buyers the right to a free trial. In its lawsuit, Dell alleges the defendants took domain tasting to the next level, setting up a network that cycled infringing domain names from one registrar to the next in order to hold onto the domains indefinitely without ever paying for them, all the while profiting from pay-per-click ads on the sites that often served visitors with ads for Dell's competitors.
According to one example cited in Dell's lawsuit, on May 25, 2007, DomainDoorman registered "dellfinacncialservices.com." On May 30, the registrar deleted the domain from its stable of Web site names. Minutes later, that same Web site name was snatched up by BelgiumDomains, which then dropped the name on June 4. That same day, dellfinacncialservices.com was grabbed by CapitolDomains, which in turn relinquished it on June 9, the same day that site was re-registered again by DomainDoorman.
The complaint further charges that the registrars created and controlled a series of shell corporations in the Bahamas to act as the entities registering the domains, including Caribbean Online International, Domain Drop S.A., Domibot, Highlands International Investment, Keyword Marketing Inc., Maison Tropicale, Marketing Total S.A, Click Cons Ltd., Wan-Fu China Ltd. and Web Advertising Corp.
David Steele, an attorney representing Dell in the case, said the defendants tasted on average between 30 million and 60 million domains each month. In any given month, Steele said, the registrars collectively purchased between 50,000 and 200,000 of the domains they tasted.
"The only thing better than registering a domain for five days, deleting it and getting a refund is to never having to purchase it at all," Steele said.
Vazquez's lawyer, Richard Baron, described his client as little more than a "gopher" for the principals of the registrar operation, whom he said reside in Argentina. Baron, who has acted as attorney of record for the registrars named in the complaint in previous legal disputes, said he had no plans to represent them in the Dell complaint. But he said Steele and Dell's attorneys are going to find it tough to prove that the registrars and registrants were one and the same business.
"In my opinion, they have a huge hurdle to tie the names of the registrants to the registrar, and that's the linchpin of the case," Baron said. "Without evidence of that kind of collusion, they have next to nothing."
In addition to the cybersquatting claims, Dell has filed counterfeiting charges against the registrars, a novel legal claim in a domain registration dispute, said Michael Froomkin, a law professor at the University of Miami who has written widely on the Internet's domain system.
"I am not aware of a single case which argues as this one does that typosquatting is effectively a counterfeit" of the trademark holder's product, Froomkin said. "I suspect they're pushing the law here, maybe because counterfeit claims allow far greater statutory damages."
Under federal cybersquatting laws, the minimum a court could award Dell would be $1,000 per infringed domain name, up to a maximum of $100,000 per domain. Froomkin said that those same domains, if considered a violation of federal counterfeiting law, could bring damages up to one million dollars per violation.
It's not yet clear whether the court will buy Dell's counterfeiting claims. But those claims were apparently heady enough to convince a federal judge to seal the case records while federal marshals seized hard drives and other computer equipment from Vazquez's home in Miami last month. The judge also issued a temporary restraining order that bars the defendants from domain tasting, making money off of or deleting any domains that may infringe upon Dell's trademarks.
"We'll do whatever it takes to protect the trust that customer put in our brand and our Web site," said Colleen Ryan, Dell's spokesperson. "We're encouraged that others in our industry, the courts and policymakers also are taking steps to defeat these bad actors and showing no tolerance for their maneuvering."
Warren Adelman, president and chief operating officer for registrar GoDaddy.com, a company whose principals have been highly critical of the domain tasting business, said the practice confuses consumers.
"We've heard from so many consumers who found a name they were looking for was available only to come back a few hours later to buy it and find it was registered by some company with a weird name in a weird location," Adelman said.
Adelman said 55 million domains were registered in October by registrars involved in tasting, and all but roughly 2 million of them were dropped after the five-day grace period.