Behind Cybersquatting

Issue 25 By Liu Rong China IP,[Internet & Domain]


Recently, the CNNIC (China Internet Network Information Center) has been busy. Since the Global Upgrading Action of Chinese Domain Names was instituted in mid-July 2008, the CNNIC’s work related to the special protection of Olympic Games related domain names have increased. Meanwhile, along with the large-scale commercial use of 3G technology, the promotion of wireless websites is sure to follow. Moreover, many “corn bugs” (cybersquatters) actively participate in these activities, which have further increased the CNNIC’s workload.

 

The CNNIC, established in 1997, is an official domain name management organization. In the past ten years, the CNNIC has taken charge of all domain name related work, including registration, derivational consultation, issuing related reports, rules’ formulation, management implementation, commercial promotion, training, and so on. The CNNIC is the rules-maker in the domain name field, as well as its administrator, its researcher, and its merchant. It is an administrative subordinate to the Chinese Academy of Social Sciences (CASS) with a responsibility described as “Internet information management,” and it is not an independent corporate organization. However, it submits to China’s Ministry of Industry and Information Technology (formerly the Ministry of Information Industry) and has certain substantive rights to comment on Internet domain name rules. In addition to this, the CNNIC always displays in commercial field positively. Both its “neither official nor commercial” status and its “official and commercial” actions have been questioned unceasingly.

 

The risks of the CN domain name

 

A famous case occurred in 2003. Shenzhen Tencent Inc. (“Tencent”) requested arbitration for a dispute involving the domain name “qq.com.cn.” Tencent argued that it had the legitimate right to the name “QQ” and advocated the transfer of the disputed domain name to itself. However, arbitration court rejected the request and determined that the original registrant, Yang Feixue, who registered the “qq.com.cn” domain name in 1999 and continually used it, had legitimate rights to that domain name. Although the arbitration court ruled in favor of Yang Feixue, at the beginning of 2004, Yang found the domain name had been transferred to Tencent. The transferring operator was a registration agent, “Zhong Ke San Fang,” and the reason given for the transfer was because “the original registrant was dissolved..”

 

In order to understand this case, it is important to know that in China individuals may not apply to register for “.CN” domain names. In 2002, the CNNIC issued the Implementing Rules of Domain Name Registration, Article 4 of which provided that “An applicant for registration of a domain name (hereafter the applicant) shall be an entity which is registered according to the relevant laws and capable of independently assuming civil responsibility.”  Pursuant to the domain name registration procedures, the applicant must submit both his name and his organization’s name. Usually, people only consider that the registration applicant’s name represents the domain name’s ownership. However, the officially approved domain name’s ownership actually belongs to the “organization” instead. In 1999, when Yang Feixue registered the domain name, the applicant organization was registered as “Beijing Dingyang Technology Co. Ltd.” However, the business license of this company was invalidated in 2001 and the business under “qq.com.cn” was transferred to Hangzhou Yuke Information Technology Co. Ltd. Although the domain name itself had been used and the registrant’s legal rights had received approval from the arbitration court, the domain name was transferred because the company’s license had been invalidated.

 

The CNNIC cited the Administration of China Internet Domain Names Procedures and considered that Zhong Ke San Fang had the right to the disputed domain name. However, the registration agent’s “bold” action, without the registrant’s approval, and the transfer of the domain name to Tencent without any other procedures, eventually caused the public to question this issue and some details that were overlooked by the authorities.

 

Detail one: the registrant, “Zhong Ke San Fang,” was invested in and established by the Computer Network Information Center (CNIC) and was the official agent authorized by the CNNIC. But the CNNIC is a subordinate to the CNIC. Detail two: during the arbitration dispute over the domain name “QQ,” the CNNIC allied with other Internet companies, including Tencent, to form new rules for searching domain names. Their cooperation was about general domain name business.
 

In this case, the public almost totally supported Yang Feixue and Yuke Co. Ltd., and they questioned and criticized the CNNIC, Zhong Ke San Fang, and Tencent for their potentially unfair business practices. Some of the criticism was aimed at the authority of the CNNIC, such as a commercial report by NetEase that said that the CNNIC did not have the right to decide the ownership of “qq.com.cn.”

 

However, when the transfer of the “qq.com.cn” became a reality, Yang feixue did not complain in public or otherwise voice her opinion, and the public stopped questioning the transfer. Nevertheless, some professionals had already lost confidence in China’s domestic domain names. One of the most famous bloggers and IP commentators, Hong Bo (keso), said: “The biggest risk of .CN domain names is that your efforts may vanish into thin air in one night. Your domain name may be taken away by others either because someone likes it, or because you have offended someone who has a close relationship with the CNNIC or its registration company.”

 

Others have also questioned the CNNIC. The former President of the 3721 Company, Zhou Hongyi, once publicly stated that the CNNIC was only a “subordinate research office” to the CASS and did not have any independent administrative power. Recently, in light of the increased prevalence of Olympics-related cybersquatting, and the need to protect Olympic Games’ IPR, the CNNIC was forced to delete some individuals’ registration of Olympic Games’ related domain names. This has led the public to raise further questions about these actions, such as whether the CNNIC was authorized to compel the deletion of domain names and eliminate the registrant’s defense rights.

 

When it comes to the complex role of the CNNIC, the relationship between the CNNIC and “corn bugs” deserves special focus.
 

Happiness and worries “corn bugs’”

 

Almost every “corn bug” in China is familiar with the famous Google domain name case. In 2002, Google filed an arbitration dispute against the Beijing National Net Information Corporation. Google had not been able to recapture the domain names “www.google.cn” and “www.google.com.cn,” and finally decided to purchase them. The purchase price was said to be over 1 million USD. In that year, this price was an astronomical figure in China’s Internet world and stimulated many to invest directly or indirectly in domain names. “Google’s $1 million purchase” was regarded as a milestone in domain name investment in China. During this period, the number of .CN domain name registrations also increased significantly. The CNNIC once set a goal, “the number of .CN domain name registrations should reach 1 million by 2005;” and it reached 1.097 million by that time.

 

“Corn bugs” studied the dispute between the Beijing National Net Information Corporation and Google with enthusiasm and competed for domain names with commercial value. This so-called commercial value is mainly characterized as domain names that are short, simple, and easy to remember. Domain names with these characteristics are easier for potential customers to recognize. Other domain names which are similar to existing commercial symbols and existing company names also have obvious commercial value, i.e., the Google case. No matter what kind of domain names are involved, they are all potential targets of “corn bugs.”

 

However, the “corn bugs” efforts to target the latter kind of domain names often encounter additional legal problems. Because of conflicts with the existing ownership of those names by trademark owners, these kinds of domain names are extremely easy to be arbitrated and are easily transferred to the trademark owners. Since 2000, the National Arbitration Court of America and WIPO (World Intellectual Property Organization) have arbitrated more than 120 Sino-related domain name dispute cases, of which 113 cases resulted in the transfer of the domain name to other owners, which amounts to 93% of all such cases. Although domestic domain name arbitrations have not involved as many total cases, the domain name rights assertors still hold a superior position over registrants. For example, the number of cases arbitrated by CIETAC (China International Economic and Trade Arbitration Commission Domain Name Dispute Resolution Center) from January to August, 2008: out of a total of 125 cases, 18 cases were totally rejected or led to the cancellation of the domain names; 2 cases were partly rejected; and 105 cases resulted in the transfer of the domain names to rights assertors, the last of which accounted for 84% of all cases.

 

In light of all of these domain name transfer cases, Google is a rare one. Although the profit margin is high for cybersquatters, such fortune’s favorites are doomed to be in the minority.

 

Other “corn bugs” have encountered another problem. They have found that better domain names have already been registered and are no longer available. A “ .CN Domain Names with 3, 4, 5 Letters’ Extinction Timetable” demonstrated that 3 letters’ .CN domain names had all been registered by April, 2005.  The 3 letters’ .COM.CN domain names had all been registered by June of the same year, and the .CN names with 3 letters were all registered by December of that year. If you also consider .NET.CN and .ORG.CN domain names, then the date for the total extinction of .CN related domain names may be postponed until after 2007, but the commercial values of these domain names are not as high.

 

Who snatched these better domain names so early? Tracking down these early registrants using the “whois” domain name inquiry system, the “corn bugs” found that the registrants were the Beijing National Net Information Corporation (“National Net”) and a mysterious person named Sun Jie.

 

Searching the CNNIC website using the key words “Beijing National Net Information Corporation” and “Sun Jie” led to some interesting discoveries. For instance, domain names using the English name for all seven days of the week (i.e., Monday, Tuesday, etc,) all belong to Sun Jie and National Net. A similar search using the key English words for seasons, months, animal names, and various English phrases found that their corresponding domain names also probably belong to Sun Jie. In addition, “3.cn,” “5.cn,” and “7.cn” also belong to Sun Jie, with their congener already been transferred. In 2005, China Business News conducted a similar search and discovered that in addition to “1.cn,” the corresponding domain names for all 1-9 figures likewise belong to Sun Jie.

 

In the “corn bugs” community, there are rumors about Sun Jie and National Net. It is said that the real person behind “Sun Jie” is actually Zhao Huichuan, the founder of National Net, who lives in Canada. National Net registered on March 15, 1996. At that time, the development of the Internet in China was still in the early stages of education and scientific research. When National Net was established, it expanded quickly in the domain name field and had almost no opponents. When domain names were further opened to the public, National Net often became a defendant in disputes before CIETAC and various courts, facing various plaintiffs. In fact, nearly all famous brands and companies have filed domain name lawsuits against National Net at some time.

 

In recent years, and in most domain name arbitrations, National Net has lost and its disputed domain names were transferred to other parties. After all, only a few of the domain names owned by National Net conflicted with famous trademarks or enterprises. China Business News once estimated that Sun Jie owned 10,000 .CN domain names, and had invested at least 1.8 million Yuan each year; most of these domain names have never been used. During the early development of the Internet, many people were far from realizing the potential commercial value of domain names. By contrast, National Net invested a great deal in domain names and its comparative foresight was astonishing.

 

A careful person might notice that nearly all the domain names owned by Sun Jie were registered at 12:20, PM, on March 17, 2003. That was the exact time that the CNNIC first opened the registration of .CN domain names to the public.

 

The secret trade of personal domain names

 

In the second half of 2007, the CNNIC canceled the restriction on online domain name transformation to several authenticated domain name registration agents.

 

Although domain name trades have not been forbidden by China’s laws, many trades are done in secret. Because the personal registration of .CN domain names is not allowed, even if individuals own .CN domain names through trade, this kind of ownership cannot be protected. When the CNNIC receives a dispute involving such domain names, the CNNIC may momentarily take back the personally-owned .CN domain names. Therefore, the legitimacy of .CN domain name trades can only be carried out among limited entities. However, personal trades involving domain names are assumed illegal, so the scale of those trades has been restricted.

 

These kinds of restrictions also influence the CNNIC’s promotion of .CN domain names. If the biggest market, individuals, cannot be developed, the quantity of .CN domain name registrations will be limited to a certain range. Therefore, the CNNIC tacitly consents to personal domain name trades. Personal domain name traders seldom encounter the competent authorities’ pressure or opposition. On the contrary, the CNNIC has been extending an olive branch to them: in 2003, the CNNIC conducted a special investigation into netizens, and concluded that “93% of netizens hoped to open personal domain name registrations; In 2005, when Mao Wei, the Director of the CNNIC, was interviewed by Sina.com, he said that personal domain name registration would hopefully be opened ‘in the near future.’” In 2007, the CNNIC promoted the activity of “CN Domain Name 1Yuan Experiencing Action” and took the “Promoting the Public’s Application for CN Domain Name” as their slogan.

 

Under the situation that all these activities could not make the Ministry of Information Industry open the individual domain name trade, the CNNIC simply opened the online transformation limitation directly. Before then, a domain name trade required a complex transformation procedure. Moreover, the registrant had to try every effort: fabricating a false “organization” to be used in registration; establishing a personal domain name below the existing third-level domain name; or attaching to an organization, such as a domain name registration agent. Many domain name registration agents provided these kinds of services directly, or through their subordinate agents. Regardless of the ways individuals chose to register domain names, when they encountered lawsuits, individuals had difficulty protecting the ownership of their domain names. There have even been cases where, by taking advantage of the individual’s legal weakness, the domain name registration agent compelled the transfer of the traded domain name.

 

Once online transformation is permitted to individuals, through these simple procedures, the personal information of the domain name registrant may possibly be independently registered. Some registration agents even permit the transformation of online domain name passwords, which allows the registrant to exercise their rights. Although the CNNIC cannot change the legal provisions directly, if it does not interfere with the personal ownership of domain names, then the “personal registration of domain names” will remain in a grey area outside the law, but will become more of a reality.

 

This grey area simultaneously belongs to “corn bugs.” With the growth of cybersquatting, companies such as National Net will no longer enjoy unique privileges. Ordinary people will also have opportunities to experiment with these new investment methods. In addition to domain names that are protected by trademark law, as well as domain names with high commercial value that are already registered, there is a blank area waiting to be explored. Of course, there are innumerable, unknown possibilities in this area and “corn bugs” are simply ordinary people like you and me.

 

What will be the future of these “corn bugs?” Under the impetus given by the CNNIC, what will the future be like for domain names? We can only wait and see.

                                                                                                 (Translated by Li Wei)

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