Lawsuit accuses registrar of hoarding potential domain sales to lock customers into a sale

A Los Angeles-based law firm representing search engine expert Chris McElroy filed suit against domain registrar Network Solutions last Monday, alleging that the company created an illegal monopoly by temporarily holding domain names that potential customers searched for on its web site.

According to the suit, as well as Network Solutions’ stated policies, customers searching for a .com domain on Network Solutions’ web site would find it held “on reserve” for a period of four days, after which it would be released back into the pool of available names. During this time, potential customers are unable to register the domain with a competing registrar – forcing them to pay Network Solutions’ higher-than-average registration fees or wait until the hold expires.

Network Solution calls its policy a “consumer protection measure,” and claims it is necessary to prevent customers from losing prospective domains to “front-runners,” who monitor domain search logs and quickly buy up searched domain names for themselves, hoping to sell them back to their original searchers.

Network Solutions’ reservation strategy, implemented early this year, makes use of an ICANN grace period that gives domain purchasers five days to seek a refund if they mistakenly register the wrong domain, like in the event of a typo. Unfortunately, the refund policy sees far more use in the hands of profiteers and domain poachers, who “taste” domains by buying them in bulk, sometimes millions at a time, gauging their ability to generate advertising revenue and then jettisoning the unprofitable ones for a refund.

Critics and industry observers were quick to blast Network Solutions’ “customer protection measure,” accusing the registrar of front-running and creating a temporary monopoly for itself. One such critic happened to no other than ICANN itself, who recently grilled Network Solutions at a meeting in New Delhi.

In a somewhat humorous twist, McElroy also named ICANN in the list of defendants for the lawsuit, which is seeking class action status. McElroy, a sharp critic of ICANN’s grace period, writes the only real solution is to eliminate the grace period and force purchasers to be mindful of what they buy. “There is no real need for the grace period. For every one legitimate person dropping a domain name because they changed their mind, I’m betting there are 100,000 domain names that were ‘tasted’ by the pros,” wrote McElroy in his blog, SEO Service Provider. “If you spend a whole $6.99 for a domain name at GoDaddy and then change your mind, you’re out a whole $6.99. Boohoo.”

Earlier this year, Network Solutions CEO Champ Mitchell defended his company’s policy, claiming that it only holds legitimate name searches to prevent them from being snatched up by profiteers. “We would be perfectly happy to end this process,” said Mitchell, “if ICANN or the registries would do something to protect small businesses or other small users.”

ICANN is currently mulling over a plan to implement a nonrefundable $0.25 fee in its registration process, in an effort to render the domain tasting process unprofitable.

"A politician stumbles over himself... Then they pick it out. They edit it. He runs the clip, and then he makes a funny face, and the whole audience has a Pavlovian response." -- Joe Scarborough on John Stewart over Jim Cramer
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