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Verisign v XYZ judge confirms both companies suck

Kevin Murphy, November 21, 2015, Domain Registries

Verisign and XYZ.com have both come out of a US lawsuit looking like scumbags.

Explaining his dismissal of Verisign’s false advertising lawsuit against .xyz registry XYZ.com, Virginia judge Claude Hilton today said that XYZ.com’s statements about its registration numbers were “verifiably true”.

At the same time, he confirmed that they came about as a result of a bullshit deal with Network Solutions to bolster .xyz’s launch numbers.

The judge’s ruling confirms for the first time the financial details of the deal between XYZ and Web.com (Network Solutions) that saw .xyz’s registration volume rocket in its first few weeks of general availability. He wrote:

Web.com purchased 375,000 domain names for a price of $8 each totaling $3 million dollars. In exchange, XYZ purchased advertising from Web.com in the form of 1,000 impressions for $10 each, at a total cost of $3 million dollars. Instead of cash exchanging hands, advertising credit was given to XYZ and the .xyz domain names were given to Web.com, who subsequently gave them away as free trials to their subscribers.

In other words, XYZ bought $10,000 of advertising for $3 million and paid for it with $3 million of free .xyz domains — 375,000 of them.

That bogus deal enabled XYZ to report big reg volume numbers without actually, legally, lying,

“The statements regarding Defendants’ revenue and number of registrations are statements of fact that are verifiably true,” the judge wrote.

When the Defendants [XYZ.com] stated they were a market leader in new TLD’s and that they had the most new registrations than any other TLD, they were basing that information off of an accurate zone file. Further, the zone file confirms that there are over 120 million .com registrations and one {1) million .xyz registrations. These statements are also true.

The judge said he was dismissing the suit not just because XYZ wasn’t lying, but also because Verisign couldn’t show that it had been harmed.

The number of .com registrations has actually been going up, he noted.

Much of Verisign’s complaint centered on this ad:

Verisign said the ad lied about the availability of .com domains, which XYZ denied.

The judge said:

The video posted to YouTube is puffery and opinion. It displays no actual domain names, and communicates a subjective measure of value and superiority, not capable of being proven false.

“Puffery” is a term with legal weight in false advertising cases under US law. It basically means that advertisers are allowed to exaggerate. XYZ had in fact used the “puffery” defense.

The judge seems to have relied heavily on zone file analysis to reach his conclusions. He wrote.

according to Plaintiff’s [Verisign’s] own data, .com names are largely unavailable. In a given month, Plaintiff reports that it receives about two (2) billion requests to register <.com> domain names, yet fewer than three (3) million are actually registered.

I believe that “two billion” number refers to how many “attempted adds” Verisign gets every month for .com domains, as reported in its monthly reports with ICANN.

That number would include every automated attempt to register a dropping domain by every registrar.

It’s not a reflection of how many actual human beings attempt and fail to register .com domains and, in my view, it’s worrying that the judge took it to mean that.

In summary, the lawsuit managed to unearth the dirty reality behind XYZ’s launch “success”, whilst also making Verisign look like a petty, petulant, child.

Everybody loses.

Except the lawyers, obviously, who have been paid millions.

Verisign’s silly .xyz lawsuit thrown out

Kevin Murphy, October 28, 2015, Domain Registries

Verisign has had its false advertising lawsuit against the .xyz gTLD registry thrown out of court.

XYZ.com this week won a summary judgement, ahead of a trial that was due to start next Monday.

“By granting XYZ a victory on summary judgement, the court found that XYZ won the case as a matter of law because there were no triable issues for a jury,” the company said in a statement.

The judge’s ruling does not go into details about the court’s rationale. XYZ’s motion to dismiss has also not been published.

So it’s difficult to know for sure exactly why the case has been thrown out.

Verisign sued in December, claiming XYZ and CEO Daniel Negari had lied in advertising and media interviews by saying there are no good .com domain names left.

Many of its claims centered on this video:

XYZ said its ads were merely hyperbolic “puffery” rather than lies.

Verisign also claimed that XYZ had massively inflated its purported registration numbers by making a shady $3 million reciprocal domains-for-advertising deal with Network Solutions.

XYZ general counsel Grant Carpenter said in a statement: “These tactics appear to be part of a coordinated anti-competitive scheme by Verisign to stunt competition and maintain its competitive advantage in the industry.”

While Verisign has lost the case, it could be seen to have succeeded in some respects.

XYZ had to pay legal fees in “the seven-figure range”, as well as disclose hundreds of internal company documents — including emails between Negari and me — during the discovery phase.

Through discovery, Verisign has obtained unprecedented insight into how its newest large competitor conducts its business.

While I’ve always thought the lawsuit was silly, I’m now a little disappointed that more details about the XYZ-NetSol deal are now unlikely to emerge in court.

Did XYZ.com pay NetSol $3m to bloat .xyz?

Kevin Murphy, August 25, 2015, Domain Registries

Evidence of a possibly dodgy deal between XYZ.com and Network Solutions has emerged.

Court documents filed last week by Verisign suggest that the .xyz registry may have purchased $3 million in advertising in exchange for $3 million of .xyz domain names.

Verisign, which is suing .xyz and CEO Daniel Negari over its allegedly “false” advertising, submitted to the court a list of hundreds of exhibits (pdf) that it proposes to use at trial.

Among them are these two:

  • Email from Negari to Andrew Gorrin re EPP Feed and billing directly for $3,000,000 in domains
  • Credit Memo to Andrew from Negari “We have elected to pay for our $3MM Q2 advertising insertion order, which was dated May 20th with a credit…….” (5/31/14)

Gorrin is Web.com’s senior VP of marketing and Negari is Daniel Negari, XYZ.com’s CEO.

The documents these headings refer to are not public information, and are not likely to be any time soon, but they appear to refer to on the one hand XYZ billing NetSol for $3 million in domain names and on the other NetSol billing XYZ for $3 million in advertising.

Only one of the two document headings is dated, so we don’t know how closely they coincided.

Other headings, among the 446 documents Verisign wants to use at trial, suggest that they happened at pretty much the same time:

  • Email from Andrew Gorrin to Ashley Henning (web.com) re Bulk Purchase of .xyz domains (5/29/14)
  • Email from Andrew Gorrin to Negari re XYZ.Com Advertising IO and Marketing Agreement attaching signed agreements (5/20/14)
  • Email string Ashley Henning to Christine Nagey, Andrew Gorrin, Edward Angstadt re Bulk Purchase of .XYZ Domains (5/30/14)

The emails Verisign cites were dated May 2014, shortly before .xyz went into general availability June 2.

What we seem to be looking at here — and I’m getting into speculative territory here — are references to two more or less simultaneous transactions, both valued at exactly $3 million, between the two parties.

Both companies have consistently refused to address the nature of their deal, citing NDAs.

As you recall, the vast majority of .xyz’s early registrations were provided by NetSol, which pushed hundreds of thousands of free .xyz domains into its customers’ accounts without their explicit consent.

The number of freebies is believed to be about 350,000, based on comments Negari recently made to The Telegraph, in which he stated that .xyz, which had about 850,000 domains in its zone at the time, would have 500,000 registrations if the freebies were excluded.

With a registry fee roughly equivalent to .com’s (.xyz’s is believed to be a little lower), 350,000 names would work out to roughly $3 million.

Negari has stated previously that every .xyz registration was revenue-generating, even the freebies.

Is it possible that NetSol paid XYZ’s registry fees using money XYZ paid it for advertising? Is it possible no money changed hands at all?

I’m not saying either company has done anything illegal, and it’s completely possible I’m completely misunderstanding the situation, but it does rather put me in mind of the old “round-trip” deals that tech firms used to dishonestly prop up their tumbling revenue at the turn of the century.

Back in 2000, the dot-com bubble was on the verge of popping, taking the US economy with it, and companies facing the decline of their businesses came up with “creative” ways to show investors that they were still growing.

AOL Time Warner, for example, “effectively funded its own online advertising revenue by giving the counterparties the means to pay for advertising that they would not otherwise have purchased”.

Regulators exercised their legal options in these cases only where there appeared to be dishonest accounting, and I’ve seen no evidence to suggest that XYZ or Web.com unit NetSol have failed to adhere to anything but the highest accounting standards.

Again, I’m not saying we’re looking at a “round-trip” deal here, and there’s not a great deal of evidence to go on, but it sure smells familiar.

Certainly, questions have been raised that Verisign did not raise in its initial complaint.

Anyway.

On a personal note, I’d like to disclose that among the documents Verisign demanded from XYZ are dozens of pages of previously confidential emails exchanged between myself and Negari.

I’ve read them, and they’re mostly heated arguments about a) his refusal to give details about the NetSol deal and b) my purported lack of journalistic integrity whenever I published a post about .xyz with an even slightly negative angle.

XYZ had no choice but to supply these emails. I can’t blame it for complying with its legal requirements.

I wasn’t the only affected blogger. Mike Berkens, Konstantinos Zournas, Rick Schwartz and Morgan Linton also had their private correspondence compromised by Verisign.

I don’t know how they feel about this violation, but in my view this shows Verisign’s contempt for the media and its disregard for the sanctity of off-the-record conversations between reporters and their sources.

And that’s what I have to say about that.

.xyz dismisses own ads as “puffery”

Kevin Murphy, April 30, 2015, Domain Registries

XYZ.com has dismissed its own claim that .xyz is the “next .com” as “mere opinion or puffery”, in an attempt to resolve a false advertising lawsuit filed by Verisign.

Attempting to get the lawsuit resolved without going to the expense of a full trial, the registry has filed with the court a lengthy, rather self-deprecating deconstruction of its own marketing.

It says among other things that the blog posts and videos at issue are “not statements of fact but rather mere puffery, hyperbole, predictive, or assertions of opinion”.

Verisign sued XYZ and its CEO, Daniel Negari, in December, claiming that the video embedded below reflects “a strategy to create a deceptive message to the public that companies and individuals cannot get the .COM domain names they want from Verisign, and that XYZ is quickly becoming the preferred alternative.”

Last week XYZ filed a motion asking the court to rule on the pleadings only, meaning it would not go to trial. It appears to be an effort by the smaller company to avoid any more unnecessary legal fees.

“Verisign is attempting to litigate XYZ out of business complaining about a vanity video, website blog posts, and opinions stated to a reporter,” the motion says.

The document goes to great lengths to argue that the video, blog posts and interviews given by Negari are not “statements of fact”, but rather mere “hyperbole”.

It even goes to the extent of arguing that its ads make Verisign look good:

XYZ’s claim to be “the next .com” could not plausibly harm Verisign’s commercial interest because the claim reinforces that Verisign’s .COM is the most-popular, most-successful domain. Perhaps consumers think that since .XYZ is the next .COM, they should not buy other new domains. Perhaps consumers buy more .COM domains because XYZ has promoted Verisign as the market leader. But Verisign suffering any injury as a result of XYZ’s statements is implausible.

Some might view the old Honda in the video with the “COM” license plate as trusty and reliable, and the Audi sports car with “XYZ” as high maintenance, impracticable, and too trendy.

Verisign may or may not win the lawsuit, but it does seem to have succeeded in getting XYZ to cut the balls off of its own marketing.

Verisign has not yet filed a response to XYZ’s motion, which will be heard in court May 8.

You can download the PDF of the motion here.

Verisign sues .xyz and Negari for “false advertising”

Kevin Murphy, February 24, 2015, Domain Registries

Handbags at dawn!

Verisign, the $7.5 billion .com domain gorilla, has sued upstart XYZ.com and CEO Daniel Negari for disparaging .com and allegedly misrepresenting how well .xyz is doing.

It’s the biggest legacy gTLD versus the biggest (allegedly) new gTLD.

The lawsuit focuses on some registrars’ habit of giving .xyz names to registrants of .com and other domains without their consent, enabling XYZ.com and Negari to use inflated numbers as a marketing tool.

The Lanham Act false advertising lawsuit was filed in Virginia last December, but I don’t believe it’s been reported before now.

Verisign’s beef is first with this video, which is published on the front page of xyz.com:

Verisign said that the claim that it’s “impossible” to find a .com domain (which isn’t quite what the ad says) is false.

The complaint goes on to say that interviews Negari did with NPR and VentureBeat last year have been twisted to characterize .xyz as “the next .com”, whereas neither outlet made such an endorsement. It states:

XYZ’s promotional statements, when viewed together and in context, reflect a strategy to create a deceptive message to the public that companies and individuals cannot get the .COM domain names they want from Verisign, and that XYZ is quickly becoming the preferred alternative.

As regular readers will be aware, .xyz’s zone file, which had almost 785,000 names in it yesterday, has been massively inflated by a campaign last year by Network Solutions to push free .xyz domains into customers’ accounts without their consent.

It turns out Verisign became the unwilling recipient of gtld-servers.xyz, due to it owning the equivalent .com.

According to Verisign, Negari has used these inflated numbers to falsely make it look like .xyz is a viable and thriving alternative to .com. The company claims:

Verisign is being injured as a result of XYZ and Negari’s false and/or misleading statements of fact including because XYZ and Negari’s statements undermine the equity and good will Verisign has developed in the .COM registry.

XYZ and Negari should be ordered to disgorge their profits and other ill-gotten gains received as a result of this deception on the consuming public.

The complaint makes reference to typosquatting lawsuits Negari’s old company, Cyber2Media, settled with Facebook and Goodwill Industries a few years ago, presumably just in order to frame Negari as a bad guy.

Verisign wants not only for XYZ to pay up, but also for the court to force the company to disclose its robo-registration numbers whenever it makes a claim about how successful .xyz is.

XYZ denies everything. Answering Verisign’s complaint in January, it also makes nine affirmative defenses citing among other things its first amendment rights and Verisign’s “unclean hands”.

While many of Verisign’s allegations appear to be factually true, I of course cannot comment on whether its legal case holds water.

But I do think the lawsuit makes the company looks rather petty — a former monopolist running to the courts on trivial grounds as soon as it sees a little competition.

I also wonder how the company is going to demonstrate harm, given that by its own admission .com continues to sell millions of new domains every quarter.

But the lesson here is for all new gTLD registries — if you’re going to compare yourselves to .com, you might want to get your facts straight first if you want to keep your legal fees down.

And perhaps that’s the point.

Read the complaint here and the answer here, both in PDF format.