Fittest loser
Article posted: 11/10/2012 7:42 AM

Grab for domain names raises concerns of web scams

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By Bloomberg News

TORONTO -- As the Internet adds valuable new domain names that are luring the likes of Google and Amazon.com, a little-known company called Donuts Inc. is making a grab that opponents say could fuel cybersquatting, the practice of stealing website identities.

Donuts, backed by more than $100 million in venture capital, is spending $56 million to bid for 307 of the 1,400 new so-called generic top-level domain names, or TLDs, that will shape how the Web will soon evolve. Instead of .com, the new names include suffixes such as .book, .app and .law.

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A lawyer who represents TLD holders is seeking to thwart Donuts' efforts and is asking the Internet Corporation for Assigned Names and Numbers, which authorizes domain name suffixes and is known as Icann, to investigate Donuts' links to Demand Media. That company's clients have used domain names to masquerade as other businesses, the lawyer contends. The chief executive officer of Donuts used to run Demand Media, and Donuts has an arrangement to sell Demand Media 107 of its TLDs if it chooses to release them.

"Donuts and its key executives are, by Icann's established eligibility guidelines, unsuited and ineligible to participate," Jeffrey Stoler, a lawyer with McCarter & English LLP, wrote in a July letter to Icann, which manages the architecture of the Web. "Icann can and should reject the applications from Donuts and its subsidiaries, Demand Media and its subsidiaries, and their respective affiliated companies."

Donuts, based in Bellevue, Wash., and Demand Media are distinct companies with no equity relationship, and Donuts is "100 percent qualified" to be a TLD registry, said Brian Jacobs, founder and general partner of San Mateo, Calif.- based Emergence Capital Partners, a Donuts backer.

The company is bidding for so many TLDs because domain-name expansion is long overdue, said Jonathon Nevett, one of Donuts' four founders.

"When you do something bold and large, sometimes you put a target on your back," he said. "We're going to run a clean, safe registry."

Icann is reviewing 1,930 applications for new TLDs in its first major expansion of Internet naming since 2004. It's an effort to eliminate the constraints companies face when trying to create a unique online name as Web browsing proliferates on smartphones and electronic tablets like Apple's iPad.

Donuts wants to build a "shopping mall" of domain names that offer breadth and depth to consumers, Nevett said.

"This has been the most constrained space you can think of," with only 22 suffixes currently available, Nevett said in an Oct. 15 interview in Toronto at an Icann conference. "If you think of it in the real-estate market, it would be like not creating homes for years and years and years."

Nevett had previously run a domain-name consulting business, been an adviser to Icann, and has been working on the current bid since about 2005. Donuts remains small, with just eight employees. The company name is meant to evoke variety of choice and the idea that everyone likes doughnuts, he said.

Though dwarfed by Google, which is seeking to own and operate the .buy and .ads TLDs among others, Donuts' 307 bids outnumber the search-engine giant's 99 bids. Amazon.com is aiming for 76, based on a search of applicants' email addresses in Icann's registry of applicants published in June. Each application costs $185,000.

Amazon spokeswoman Mary Osako declined to comment. Google spokeswoman Katelin Todhunter-Gerberg confirmed its 99 bids and declined to comment on Donuts' bids.

Nevett says about 140 Donuts bids are uncontested. So while Donuts will have to fight Amazon and seven others for control of .book, it faces no challengers to its ownership of .dentist or .mortgage. Icann's deadline for bids closed in May and the application process will continue into next year.

While Icann can't comment on individual applicants, the Los Angeles-based organization oversees a rigorous screening process, said Brad White, a spokesman for Icann.

Stoler, the McCarter & English lawyer, said in his July letter to Icann that Donuts has clear links to Demand Media and its subsidiaries, which have received more than two dozen "bad- faith" rulings from Icann-recognized dispute panels. Stoler declined to comment to Bloomberg News and wouldn't say if any of his clients are competing with Donuts to own new TLDs.

Internet registries like Donuts operate the top-level domains which are the base upon which registrants can rent or buy addresses, leaving the registries open to risk of abuse from those who seek to fool consumers with misleading websites.

Examples of bad-faith actions include buying a domain name to block a rival that might have previously used the name as a trademark or using a domain to deliberately mislead consumers into thinking they're on a different site. While cybersquatting is illegal under U.S. trademark law, courts often defer to Icann tribunals because many cases involve foreign parties.

"The allegations have been made fairly publicly by a wide range of organizations," said David Weslow, a partner with Wiley Rein LLP specializing in Internet intellectual property. "If the allegations are true, the concern would be the prior actions of those other companies would be indicative of how the Donuts group may operate," he said.

Weslow said he represents businesses bidding for TLDs, though none in direct contention with Donuts.

Donuts CEO Paul Stahura, one of its co-founders, was formerly president and chief operating officer of Demand Media. The Santa Monica, Calif.-based company is applying for 26 TLDs in the auction, in addition to the 107 it may get to acquire from Donuts.

Nevett said it's unfair to criticize Donuts when the company has done nothing wrong.

"It's kind of like being called a slumlord before you have an apartment to run," he said. "If Demand thought it had a problem and wanted to create a new company to apply on its behalf, they wouldn't apply for 26 on their own."

Demand Media Executive Vice President Dave Panos also disputed Stoler's complaint, calling it "rife with false statements and misinformation" in a letter to Icann in September. Panos, reached by email, declined to comment on the specific decisions that went against his company.

Donuts won't allow site operators that use its domain names to practice cybersquatting or phishing, where sites try to steal Web users' information, Nevett said.

"If there's cybersquatting or phishing, we'll certainly take them down," he said.

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