Domain Name Registrars Settle FTC Charges

A Canadian company and its principal have agreed to pay $375,000 in consumer redress to settle Federal Trade Commission charges that their domain name sales scheme violated federal laws. The settlement will bar the defendants from making false or misleading statements in the sale of goods or services related to domain names, e-mail or Web-hosting services; bar them from using unsolicited faxes for marketing; and bar them from violations of the Telemarketing Sales Rule (TSR).

In February 2001, the FTC alleged that the defendants duped consumers into needlessly registering variations of their existing domain names by deceptively contending that third parties were about to claim them. At the agency's request, a U.S. District Court issued a temporary restraining order, froze the defendants' assets, and shut down their Web sites, pending trial. The FTC asked the court to bar the scheme permanently and order consumer redress. The settlement announced today ends the court action.

According to the FTC, consumer - many of them operating small businesses on the Internet - received unsolicited fax solicitations stating, "URGENT NOTICE OF IDENTICAL DOMAIN NAME APPLICATION BY A THIRD PARTY." The solicitation warned that an application for a domain name almost identical to the recipient's has been "submitted to the National Domain Name Registry (NDNR) for registration" by an unidentified third party. For example, the FTC alleged the defendants told the owner of a site "www.sobi-sky.org" that an application had been submitted to obtain the domain name "www.sobi-sky.net." The solicitation continued, "Consequently, it is our opinion that this application may have been submitted in bad faith ..." The solicitation listed four reasons someone might want a copy-cat domain name, including "disrupting the business of a competitor," or intentionally attempting to lure the customers of another business by creating a confusingly similar Web address. The fax solicitation offered to block the application by obtaining the copy-cat domain name for the fax recipient for a fee of $70. It warned that, if the consumer fails to act, "NDNR WILL NOT BE LIABLE FOR THE LOSS OF DOMAIN NAME LICENSE, IDENTICAL OR CONFUSINGLY SIMILAR USE OF YOUR COMPANY'S NAME; OR INTERRUPTION OF BUSINESS ACTIVITY OR BUSINESS LOSSES."

According to the FTC, no third party had applied for the domain names, and the information in the fax solicitations was false, in violation of the FTC Act.

The settlement will bar the defendants from making false or misleading statements during the sale of goods or services related to domain names, e-mail, or Web-hosting. It will bar the defendants from using unsolicited faxes to market any goods or services and bar them from violating the TSR. It also will require the defendants to provide domain-name registrations for the full terms originally purchased by consumers. In addition, the settlement will require that the defendants tape record all outbound telemarketing sales calls made in the United States. Under the terms of the settlement, the defendants will pay $350,000 in consumer redress to U.S. and Canadian consumers and $25,000 toward costs to administer the redress fund. Finally, the settlement contains record-keeping requirements to allow the FTC to monitor the defendants' compliance with the order.

The defendants named in the FTC suit are Darren J. Morgenstern, 1268957 Ontario, Inc., and 1371772 Ontario Inc., doing business as National Domain Name Registry, Electronic Domain Name Monitoring, and Corporate Domain Name Monitoring. The companies are based in Toronto, Canada.

The Commission vote to accept the stipulated final judgment and order was 4-0, with Commissioner Sheila Anthony not participating.

A stipulated final judgment and order was approved by the court on March 29.

NOTE: Stipulated final judgments and orders are for settlement purposes only and do not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.

Copies of the complaint and stipulated final judgment are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov.

(FTC File No. X010025)