Pay-Per-Click Ad Model Becomes Thieves' Cash Cow

Cybersquatters and typosquatters have stepped up efforts to get rich quick, and businesses and consumers are paying the price.

While Cybersquatting and typosquatting, the practices of registering domain names that violate a company's trademark, aren't new, experts said Wednesday they're fast becoming a cash cow for thieves who want to turn a quick profit through pay-per-click advertising made profitable by Google Inc. and others.

Microsoft this week launched an enforcement campaign, along with several lawsuits, targeting cybersquatters and typosquatters who illegally profit from online ads through the misuse of intellectual property and Internet domain names.

"We're not certain of how much they're making and who they are working with, but we believe that many owners of these sites work through well-known established online ad networks," said Aaron Kornblum, Microsoft's Internet safety enforcement attorney. "Most times these networks work with them unknowingly."

Kornblum said Google Inc. and Yahoo Inc. operate similar types of advertising networks, and Microsoft is working with them to "address the problem."

Greenberg Traurig LLC intellectual property attorney Ian Ballon said cybersquatters spoof legitimate Web sites and register them with Google's ad service.

"I've heard of trademark infringements on misspelled domain names for the purpose of diverting traffic to another site," Ballon said. "The people who own the misspelled domain name register the site in Google's ad program to profit."

The consumer types in a domain name. If it's a common misspelling, they'll typically end up on a page full of contextual ads and click through links contracted through search engines or ad placement services.

Before Microsoft publicly announced Zune last month there were less than 400 domain names registered that include the word "Zune," for example. Now there are between 4,000 and 5,000 domain names that include "Zune," and the majority Microsoft doesn't own, said Rod Rasmussen, director of operations at Internet Identity, Tacoma, Wash., which will help the Redmond, Wash. software company track ad traffic to infringing sites. Microsoft isn't alone. Most major brands have thousands of these sites using their trademarks. Take, for example, www.boeing747.com. It's not owned by Boeing and has pay-per-click ads. "Just pick a brand," challenged Rasmussen during the interview. While there's between one million and two million domain names registered daily, Rasmussen estimates. "Cybersquatting has become easy to monetize through legitimate services," Rasmussen said. "Of the domains registered in a day, at least one third are related to cybersquatting."

Often the domain names are kept for a few days to measure the traffic, and then sold off on eBay Inc., or marketplaces to buy and sell domain names like Dotster Inc., GoDaddy.com Inc., and Sedo.com LLC, if they don't produce lucrative advertising revenue.

If the domain names don't turn a quick profit they're resold on sites like Sedo. Tim Schumacher, CEO and cofounder of Sedo which buys and sells domain names, says the company launched a "Rights Protection Program" about one year ago as a way to reclaim the names that possibly infringe on their trademark.

Since the program launched, Sedo has received "a couple of dozen inquires that we managed to address in days," Schumacher said. "We have more than 5 million domain names for sale on the site at any given time, about two to three times more than our closest competitor and really no way to monitor the list."

Alan Dalinka, partner at DLA Piper Rudnick Gray Cary US LLP 's Chicago office, advices trademark owners to purchase similar spellings and park the domain name, so Cybersquatters and typosquatters intending to make a profit can't buy them.

Companies also hire employees to watch for infringers. "It's a new line of work for the trademark investigator, and now even the old traditional gumshoe detectives are doing electronic research," Dalinka said.