FTC Halts Domain Name Scam

The Federal Trade Commission has asked a U.S. District Court Judge to halt an Internet domain name scheme that dupes consumers into needlessly registering variations of their existing domain names by deceptively contending that a third party, acting in bad faith, is about to claim it. The agency estimates that, at a minimum, 27,000 consumers may have been victims of the scam. At the agency's request, the court has issued a Temporary Restraining Order, frozen the defendants' assets, and shut down their Web sites, pending trial. The FTC has asked the court to bar the scheme permanently and order consumer redress.

According to the FTC, consumers - many of them operating small businesses on the 'Net - received unsolicited fax solicitations stating, "URGENT NOTICE OF IDENTICAL DOMAIN NAME APPLICATION BY A THIRD PARTY." The letterhead identifies the sender as either Electronic Domain Name Monitoring or Corporate Domain Name Monitoring. The solicitation warns 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 owner of a site "www.sobi-sky.org" was told that an application had been submitted to obtain the domain name "www.sobi-sky.net" The solicitation says, "Consequently, it is our opinion that this application may have been submitted in bad faith. . .." The solicitation lists four reasons someone might want a copy-cat domain name, including "disrupting the business of a competitor," or intentionally attempting to lure someone else's customers by creating a confusingly similar Web address. The fax solicitation offers to block the application by obtaining the copy-cat domain name for the fax recipient for a fee of $70. It warns 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 has applied for the name, and the information in the fax solicitations is false, in violation of the FTC Act. An FTC memorandum to the court states, "Defendants representation that a third party has applied for a domain name by submitting a registration request to NDNR or any other entity is not only false, but also nonsensical. As explained in the declaration submitted by Internet Corporation for Assigned Names and Numbers, 'the purchase of domain names is practically instantaneous,' meaning there is no period during which an application [for a domain name] is pending and could be challenged."

The FTC has asked the court to issue preliminary and permanent injunctions to bar the deceptive marketing practices, to freeze the defendants' assets to preserve them for consumer redress, and to shut down Web sites used to promote the domain name scheme.

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, with an office in Atlanta, Georgia.

The Commission vote to file the complaint was 5-0. It was filed in U.S. District Court for the Northern District of Georgia, Atlanta Division, yesterday.

NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

Copies of the complaint 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). The FTC enters Internet, telemarketing and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide.

(FTC File No.002 3355)
(Civil Action No. 01-CV 0423-JEC)