Domain buyers saw a big chunk of their revenue fade when Google declared an end to permitting its AdSense product to be placed on domains that had not been open for six days. A five-day add grace period (AGP) permitted domain buyers to hold the domain for five days, see if it could draw enough traffic to be profitable, and dump it for a full refund if it did not.

Other domainers “kite” their domains, dumping and re-registering the same ones over and over. Even without Google, plenty of ad opportunities exist to make the business profitable at volume.

Such volume may be the weak point that can be broken with a suitable application of force. In the case of Network Solutions, the big registrar hopes to persuade the Internet Corporation for Assigned Names and Numbers (ICANN) board of directors to keep a provision in its fiscal year 2009 budget to thwart domain tasting.

“This budget includes a provision to make the non-refundable 20 cent per-transaction ICANN fee applicable to domain names deleted during the AGP once the level of deletions exceeds 10 percent of a registrar

Network Solutions Logo
(Photo Credit: Network Solutions)

UPDATE: We spoke with Brian Kabateck, who’s response is detailed at the bottom of this article.

Los Angeles-based plaintiff-only lawfirm Kabateck Brown Kellner accuses Network Solutions of forcing "millions of people to buy Internet domain names from them instead of cheaper competitors through a scheme that’s netted the firm millions of dollars."

The "scheme" the firm is referring to involves a controversial practice recently instituted by Network Solutions. When a person queries a domain through Network Solutions’ website, Network Solutions automatically registers the domain and holds it for four days, just shy of ICANN’s five-day return grace period. Interested parties can purchase the domain within the four-day timeframe for $34.99, or about $25 more than what the domain costs normally.

Though many were outraged by the practice and ICANN questioned Network Solutions about it, Network Solutions stood by its new policy as a method for protecting customers from domain front-running. At an ICANN hearing on the issue, a Network Solutions representative cited customer complaints that after checking a domain’s availability, the customers would receive phone calls offering the domain at a highly inflated price. The representative couldn’t provide evidence of front-running, however, because of client confidentiality agreements.

Kabateck Brown Kellner equates Network Solutions’ new service with monopolistic practices. "Imagine if you asked a car dealer if they had a black convertible and were then forced to buy the car from them. Would you get a good deal? Each time someone asks Network Solutions about a domain name, the firm creates a monopoly for itself, forcing consumers to pay the price they demand," said Brian Kabateck, lead counsel in the class action and Kabateck Brown Kellner’s Managing Partner, in a statement.

It wouldn’t take the brightest defense attorney to argue against that logic. Network Solutions does release the domain after four days, so no one is "forced" to buy anything. Network Solutions said at the ICANN hearing also that if customers called them they would delete the domain upon request.

They may be "forced" to wait, or be inconvenienced, though, and the ethics of Network Solutions’ practice is still in question.

ICANN is named in the suit because it "is aware that Network Solutions is abusing this policy and yet continues to facilitate its actions."
 

Again, a highly debatable point considering ICANN was closing an investigation on front-running when the Network Solutions situation presented itself. The official answer from ICANN seems to be that it is still looking into the matter and awaiting further evidence. Nonetheless, the regulatory body does seem concerned about the situation.

Susan Wade, spokesperson for Network Solutions, said the company was aware of the suit but had not yet received a copy and therefore couldn’t comment on it specifically. "We’re confident that our protection measures meet all the legal requirements and benefits our customers," she said.

The damages sought in the lawsuit was not disclosed and Brian Kabateck was unavailable for further comment. Request for comment made to ICANN were not returned at the time of publication.

UPDATE:

Kabateck said it was unclear how many plaintiffs would ultimately particapate in the lawsuit and therefore damages sought at this point are unknown. He estimates, though, that the number of plaintiffs is potentially in the thousands, and that the suit will seek a refund of about $25 per plaintiff, or the amount they allegedly were overcharged.

"In our mind, this is a very subtle form of price-fixing," he said. "People don’t know how long the domain is going to be held up for, and people are going to be scared into paying a higher price now. They should have notified the customer. People should know they have other options." 

As to why ICANN was brought into the suit and how much he felt ICANN was liable for, Kabateck said the suit was not seeking monetary damages from ICANN. "It’s not so much that they have monetary liability. We simply want a declaration that they can’t set the rules for how long you can or can’t lock up domain names." 

When asked who should set the rules for that, Kabateck said that should be the government’s responsibility. 

Though ICANN is a quasi-independent nonprofit organization, it was established by the US Dept. of Commerce to act on behalf of the government. Though the United Nations has pressured its cause that ICANN be placed under UN control, the contract between ICANN and the US was extended until 2011. Nevertheless, some argue ICANN lacks the authority to decide domain policy.

Kabateck says ICANN lacks such authority and also denies that ICANN is a government body.

It’s not like enacting policies against ghosts, exactly. You don’t need proof of the existence of frontrunning to enact a policy against it. But in this case, proof might have helped Network Solutions not look so bad.

Last month, NetSol came under fire for automatically registering domains that customers had searched for on their site and then jacking up the price of the domains for a four-day period. NetSol defended the practice as protection against frontrunning, which is the practice of registering a domain someone is searching for and then jacking up the price.

At least NetSol’s protection fee was a set price, $34.99 for four days worth of protection, just until they could return the domain within ICANN’s grace period.

News of the Network Solutions controversy came to light just as ICANN’s Security and Stability Advisory Committee (SSAC) was closing a study on frontrunning. Instead of helping NetSol’s case, the findings of the study hurt it a bit. SSAC found no evidence of frontrunning in the 120 complaints submitted.

SSAC explained that in most cases people only thought they were original. But in a world of 6 billion people, originality is officially an illusion. Just because somebody steals your domain name, it doesn’t mean you’re all that clever.

Steve Crocker,
chairman of SSAC

"25% we judged to be highly sought-after names," said Steve Crocker, chairman of SSAC, "and so while somebody thought that just because they asked for it, somebody must have jumped in front of them, it was the kind of name that one could predict from regular traffic that it would be caught up very rapidly….And we encountered zero cases that were clear cases of front running."

In fact, three-quarters of the cases they looked at appeared to be "tasting and secondary market activities." "It does not look like there is an active front-running activity."

A fifth of the plaintiffs didn’t supply enough information to investigate, and a tenth simply had let their registration lapse. Crocker did acknowledge a lack of trust in the domain marketplace due to the idea of front running and a host of other unsavory practices like domain tasting.

That’s not to say frontrunning doesn’t happen, only that SSAC could find no evidence that it did. This puts NetSol in a rather awkward position, considering the registrar based its whole frontrunning protection service on the existence of frontrunning.

Network Solutions’ Jon Nevett spoke at the meeting, saying that frontrunning certainly did exist, and they had evidence that it did. But when asked to provide that evidence, Nevett refused based on confidentiality agreements with clients. 

"We have enough customer information that we researched," said Nevett, "and we have had conversations that were done under confidentiality agreements that I can’t specifically talk about.  But yes, we were comfortable enough that the front running existed and comfortable enough to take this action."

He also disagreed with the notion that there was no originality in domain searches. "So we did a study of all the names that were reserved and then purchased during that four-day period, and over 90% of the searched names were purchased by the same customer."

Jay Daley,
CTO of Nominet

Jay Daley, CTO of Nominet, remained skeptical and didn’t hide it. "But if you don’t share the data, nobody’s going to believe you. I mean, if you have that data there of provable front-running, if you have a video, CCTV, a man sitting there, that man is front-running, great. We need to see it. Because we have done extensive searches through our registry, through every single complaint, and there is not a single case of front-running we can prove.

"My view on it is that the world is just much smaller than people believe that the world is and that the same stimuli affect all of us, and there are so many people looking for good names, there’s just too many coincidences."

At this point it’s like listening to a person who believes in ghosts argue with a person who doesn’t. Nevett didn’t let up, either, asking Daley to explain how customers would be approached after searching for a domain and offered the domain at an inflated price.

Daley, a good scientist, asked for Nevitt to give him the information necessary for him to find out, which, obviously, wasn’t going to happen.

What everybody did seem to agree on without evidence: If frontrunning is going on, information necessary for it to happen is somehow leaking from registrars or ISPs. 

Front running happens when someone observes domain searches being made by another person, and registers that domain out from under the searcher. It’s a long-rumored practice that infuriates legitimate domain searchers.

In addressing their regular practice of front running domains, Network Solutions told CircleID they are trying to thwart the domain tasters who try to take advantage of the five-day test period for domains.

"We are trying to take an arrow out of the quiver of the tasters," Jonathon Nevett, Vice President of Policy at Network Solutions, said at CircleID. "Due to no fault of registrars, Front Runners purchase search data from Internet Service Providers and/or registries and then taste those names."

If one searches for a domain at Network Solutions, but doesn’t purchase it immediately, Network Solutions puts it on reserve. During the next four days, it can only be purchased from Network Solutions before being released back to the registry.

Network Solutions charges $34.99 for a standard registration. Over a decade ago, that was the going rate. Today, numerous registrars offer far more competitive pricing.

This has caused much of the criticism about the Network Solutions policy. People who search for the domain on Network Solutions and go elsewhere to buy it find they cannot.

Waiting for it to expire at Network Solutions could allow someone else who is willing to pay the going rate to grab it first. People who are waiting for ICANN to resolve the situation probably won’t get satisfaction from that group.

Domain Name News noted a study by ICANN found the practice isn’t expressly prohibited by the terms of ICANN’s registrar agreements.

"Some folks may not agree with our approach, but we are trying to prevent this malicious activity from impacting our customers," Nevett said.

That may be the case, but it’s Network Solutions benefiting handsomely from the arrangement.