By Kevin Murphy

Demand Media has asked ICANN to reconsider an anti-cybersquatting provision in the new top-level domain Applicant Guidebook that may ban the company from running a TLD.

ICANN will do background checks on the companies applying for TLDs and their officers. If they are found to have lost three UDRP decisions in the last four years, their applications will be rejected.

Demand Media, which owns eNom, calls this “draconian”, saying that three UDRP losses can hardly be considered a “pattern” of cybersquatting when a company owns thousands of domains.

As DNW reported last month, a Demand Media subsidiary has six UDRP losses to its name just this year, although the ICANN guidebook may contain enough loopholes to let the company bid anyway.

Demand said the three-strikes rule is “an extremely broad standard that we believe will unintentionally disqualify otherwise qualified applicants”.

It went on to say that such a rule was never envisioned by the UDRP, and that some respondents may have chosen to fight complaints more fiercely had they known the full consequences.

Using UDRP decisions as an additional ex post facto punishment to disqualify an otherwise qualified applicant is an inappropriate and draconian penalty. The result is a retroactive change in the legal consequences of all UDRP decisions.

Demand Media’s position is backed up by the Internet Commerce Association, which represents big-volume domain investors.

But the rules are supported by ICANN’s intellectual property stakeholders, which have been fighting for stronger IP protections in the new TLD program for years and seem to be getting their way.

Court transfers lawsuit to Virginia.

In a move that may have been expected by some observers, John Zuccarini’s lawsuit against NameJet, Network Solutions, eNom, and VeriSign has been transferred to the Eastern District of Virginia.

The case stems from some of John Zuccarini’s domain names that were transferred to a receiver after a cybersquatting judgment against him. The receiver let some of the domain names expire and they were subsequently auctioned off on NameJet.

eNom and Network Solutions asked the court to dismiss the case based on improper jurisdiction. Zuccarini had agreed to contracts with “forum selection clauses” when he registered the domain names. The court determined that the case should not be dismissed outright as the defendants wished, but instead should be transferred to the Eastern District of Virginia (pdf).

This move was not entirely unexpected. When the case was filed, domain name attorney John Berryhill (who is not involved in the case) commented on Domain Name Wire: “Venue Fail. He is in the District of Southern Florida alleging breach of contract, when the contract specifies that disputes are to be brought in Virginia.”

Big issue on the table at ICANN retreat.

In about 24 hours the ICANN Board of Directors will kick off a retreat. It’s not an official board meeting, but it’s anticipated that the two day retreat will finalize an important issue: registry/registrar separation.

A lot is at stake in this decision. Millions of dollars for the stakeholders.

Until now a registry hasn’t been able to own a registrar and (technically) vice-versa. Afilias is owned by a number of registrars, though.

The question is if this separation should be relaxed.

In one corner are the registrars that would like to introduce new top level domain names. Ideally they would like to be unencumbered. But some of them, including eNom, are willing to go the middle road. The middle ground proposal is dubbed JN2. It basically says a registrar can be a registry but with heavy restrictions until 18 months after the TLD is released.

In the other corner are those that want no integration. They want to limit cross ownership to 2%. In Afilias’ case, it wants to increase cross ownership to 15% because of its existing registrar investors.

You can read about the various proposals and how no consensus has been reached here.

Another issue is private registrars. Should someone who owns a registrar solely to manage their own domains be restricted from releasing a new TLD? That would defeat the purpose of this restriction.

The pressure is on ICANN’s board. Like any good bureaucratic and political organization, odds are they’ll pick the middle of the road. Or punt to someone else.

HostExploit report generates more questions than answers.

I just finished reading HostExploit’s report about Demand Media and its domain name registration business (eNom). Whenever I read a report like this, I try to think about the motives of the report’s authors. In this case, it’s clear that HostExploit wanted to rush something out to piggyback on the buzz of Demand Media’s S-1 filing to go public. When I see punctuation errors in a research report, I pay closer attention.

The report basically says eNom is a bad registrar and web host, hosting a number sites with badware, malware, and illegal pharmacies. That may be true (more on that later in this post). But the report then lists some other allegations, such as saying “We received reports suggesting Demand Media / eNom utilize these techniques”, referring to cybersquatting, click fraud, splogs, and link farms. But then the report basically says it hasn’t even analyzed whether or not this is true.

And since when are link farms illegal? Show me a registrar who will shut down someone for hosting link farm sites. I don’t condone such things, but it’s not a registrar’s business to regulate. In fact, they’d probably get sued for shutting down a link farm. It’s the search engines’ business to effectively filter out link farms.

Then section 8 of the report says that eNom might be in non-compliance with its Registrar Accreditation Agreement. It then reprints and explains sections of the agreement, but fails to say why it believes eNom is out of compliance. I assume this section has to do with information in KnujOn’s report earlier this year.

Now, back to the issue at hand. Let’s assume eNom does have a lot of bad actors that use its services. What can eNom do? It’s a tough question. On the one hand, a registrar doesn’t want this stuff on its network. On the other hand, it doesn’t want any ‘false positives’ where it shuts down a legitimate web site.

The challenge is striking a fine balance. It appears eNom is getting a reputation as being a registrar of choice for bad actors, and that means more bad actors will use its services in the future. (Ironically, HostExploit’s report basically tells criminals which registrar to use.) eNom needs to quash that reputation. The last thing it wants is underground criminal forums to start promoting “hey, use eNom!” Perhaps it should work with law enforcement to (legally) shut down some of these bad sites, and then publicize its work.

And one more thing. I really hope HostExploit got permission before republishing a copyrighted article about its report from ComputerWorld.com.* That would be ironic, wouldn’t it?

*I haven’t “analyzed whether or not this is true”.

Looking up potential domains at eNom? The company uses that data in many ways.

[UPDATED] Demand Media CEO Richard Rosenblatt has referred to the data from eNom and its value to the company before, but its newly filed S-1 explains the value succinctly. It uses the data not only for its content business, but also to determine which domain names to acquire for its own portfolio:

Proprietary Data. In providing registration services for over 10 million domain names, our Registrar resolves an average of over 2 billion domain name system queries per day. Our Registrar also serviced, on average, more than 3 million domain name look-ups per day from potential customers seeking to register new websites or purchase existing domains during the first six months of 2010. These queries and look-ups provide insight into what consumers may be seeking online and represent a proprietary and valuable source of relevant information for our platform’s title generation algorithms and the algorithms we use to acquire undeveloped websites for our portfolio.

[Update: this doesn't imply at all that the company engages in "front-running", or registering a domain you lookup prior to you being able to register it. A Demand Media spokesperson confirmed to me that "Demand Media's eNom subsidiary does not engage in the practice of “front-running” domains".]

The S-1 also confirms something we already know: eNom keeps a number of its customers’ expired domains for itself:

Domain names not renewed by their prior registrants that meet certain of our criteria are acquired by us to augment our portfolio of undeveloped owned and operated websites. Our access to this stream of expiring names and visibility into the organic performance of those sites is a unique source of data and creates the potential for future growth for our Content & Media service offering.