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How 2009 Will Spur The Rebirth Of Cyber Squatting

Call it the end of the dot-com world. Next year ICANN, the non-profit that oversees domain name and IP address registration, will start taking applications for new domain name suffixes, creating the potential for billions of new addresses ending with extensions like ".nyc" or ".law." But with the potential for new names comes an almost-certain rebirth of cyber squatting.

Cyber squatting is a grift: unscrupulous Web trollers buy up domain names that are sometimes outright infringements on trademarks — say, "" — hoping that a given company will buy or lease the domain name rather than spend the money suing for it. And many times, the scheme works.

An acquaintance of mine returned from service in Iraq in 2003 to convalesce from severe wounds. During his recovery, he got a hold of a laptop and an Internet connection and started buying up domain names, which usually cost only about $10 each. He started flipping them on online marketplaces, reinvesting the money in new domains, and leasing the best ones. Last year he made over $200,000 off his squatting, much of it garnered from long-term leases he holds with a few major companies. I'll leave him anonymous because of the NDAs he's signed with those companies, but as of this fall he has about 20,000 domain names in his possession, waiting to be bought or leased, sometimes for thousands per month.

At present, cyber squatting is an aftermarket game; so many .com names have been bought up already that most of the meaningful ones — names that aren't just random combinations of letters and numbers — are already owned by someone. Domain registrar VeriSign [VRSN] said in a 2007 report that its domain registration grows by about 31% year-over-year, and that it registered about 120 million addresses in 2006 alone. It's that kind of volume that has prompted ICANN to open up acceptance of new suffixes — the Web is running out of memorable domain names.

According to the AFP, ICANN is still working out the specifics of the application process for new suffixes. In the process, they've enlisted the advice of several other regulatory agencies, at least one of which has taken issue with the new-suffix problem. In a letter to ICANN last week, a top official from the Department of Commerce said ICANN should reconsider "whether the potential consumer benefits [of new suffixes] outweigh the potential costs."

Indeed, the potential costs are high. Many companies already buy up domains by the hundreds in the hope of outsmarting squatters, stonewalling their competitors, or protecting their own image. According to a recent edition of the Harper's Index in that magazine, 26% of Fortune 500 companies own a domain with their company name followed by "" Add that to the heap of costs that get passed on to consumers.

And domains aren't just an overhead expense, but a legal expense, too. Verizon [VZ] won a case this week in California against a domain registrar called OnlineNIC, which owned some 663 domain names that infringed on Verizon trademarks. Verizon claimed that many of the domain names were close enough to legitimate Verizon sites that it could confuse customers and open up opportunities for phishing schemes, in which customers are mistakenly directed to scam sites that look similar to real ones (for example, being directed to a facade site called "" instead of the real "," and being asked for your credit card number.) Sure, Verizon won over $33 million in the case — the largest settlement ever in a cybersquatting suit — but companies can spend huge quantities of time and money building cases, with no assurance of winning.

All of these scenarios are poised to proliferate when one considers the vast number of new domains that may be made available next year. Not only will each major company need to buy up its name with a ".com" or ".net" suffix, but they'll have to keep up with each new approved suffix, and buy company names mated to those, too. Cyber squatters will suddenly have billions of new domain names to purchase for only a few dollars — no longer will they have to rely on buying domains more expensively secondhand. Trademark infringement suits will balloon from tens or hundreds of domains to thousands and tens of thousands.

To top it off, domain names are already something of a recession-proof business, making squatting an even more attractive prospect, according to Forbes. And when we discuss buying and selling domains, we're only talking the first tier of monetization; many squatters make their bread off of people who navigate directly to a domain expecting to find a company or service, only to be hit with a squatter's ads. The ROI on ads like these can be terrific, but with a huge influx of new domains flooding the market, returns will only be worthwhile for big organizations working on a long-tail model. That will cut out small-time squatters and lead to bigger, shadier registrars and squatters. And that will mean that the next landmark cyber squatting suit will pit a Fortune 500 company against an even bigger, richer opponent.

There's a chance that ICANN will listen to the cautionary advice it's been given, and craft strict regulations on the kind and number of new suffixes that will be allowable. If they don't, the Internet is about to become incomprehensibly more vast — and expensive — realm.