Patent troll hits registrars with $60m shakedown

A patent troll that claims it invented email reminders has launched a shakedown campaign against registrars that could be worth as much as $62 million.
WhitServe LLC, which beat Go Daddy in a patent lawsuit last year, is now demanding licenses from registrars that could add as much as $0.50 to the cost of a domain name.
According to registrar sources, registrars on both sides of the Atlantic have this month been hit by demands for hundreds of thousands or millions of dollars in patent licensing fees.
The legal nastygrams present thinly veiled threats of litigation if the recipients decline to negotiate a license.
WhitServe is a Connecticut-based IP licensing firm with connections to NetDocket, which provides software for tracking patent license annuities.
It owns US patents 5,895,468 and 6,182,078, both of which date back to the late 1990s and cover “automating delivery of professional services”.
Basically, the company reckons it invented email reminders, such as those registrars send to registrants in the weeks leading up to their domain registration expiring.
Three years ago, GoDaddy, defending itself against WhitServe’s 2011 patent infringement lawsuit, compared the “inventions” to the concept putting “Don’t forget to pick up milk” notes on the fridge: utterly obvious and non-patentable.
In December 2012, GoDaddy implied WhitServe used its patent expertise and exploited a naive 1990s USPTO to obtain “over-broad” patents.
It was trying “to monopolize the entire concept of automatic Internet reminders across all industries, including domain name registrars”, according to a GoDaddy legal filing.
But the market-leading registrar somehow managed to lose the case, opting to settle last August after its last defense fell apart, for an undisclosed sum.
Now, WhitServe is using that victory to shake loose change out of the pockets of the rest of the market.
It’s told registrars that GoDaddy and Endurance International (owner of Domain.com, BigRock and others) are both currently licensing its patents.
The deal it is offering would see registrars pay $0.50 for every domain they have under management, a number that seems to be based on .com registry numbers reported by Verisign.
The fee would be reduced to $0.30 per name for each name over one million, and $0.20 for each name over five million, I gather. That’s still more than registrars pay in ICANN fees.
If WhitServe were to target every .com registrar (which I do not believe it has, yet) its demands could amount to as much as $62 million industry-wide, given that .com is approaching 125 million names right now.
It’s not clear whether these fees are expected to be one-time payments or recurring annual fees.
It’s a trickier predicament for registrars than the usual patent shakedown, because registrars are legally obliged under their contracts with ICANN to send email reminders in a variety of circumstances.
The Expired Registration Recovery Policy requires them to email renewal reminders to customers at least twice before their registrations expire.
There’s also the Whois Data Reminder Policy, which obliges registrars to have their customers check the accuracy of their Whois once a year.
These are not services registrars are simply able to turn off to avoid these patent litigation threats.
Whether registrars will take this lying down or attempt to fight it remains to be seen.

Afilias $10 million court win slashed by judge

A US judge has dramatically reduced a $10 million ruling Afilias won against Architelos in a trade secrets case.
Architelos, which a jury decided had misappropriated trade secrets from Afilias in order to build its patented NameSentry domain security service, may even be thrown a lifeline enabling it to continue business.
A little over a week ago, the judge ordered (pdf) that the $10 million judgment originally imposed by the jury should be reduced to $2 million.
That won’t be finalized, however, until she’s ruled on an outstanding injunction demanded by Afilias.
The judge said in court that the original jury award had been based on inflated Architelos revenue projections.
The company has made only around $300,000 from NameSentry subscriptions since launch, and its sales pipeline dried up following the jury’s verdict in August.
The service enables TLD registries to track and remediate domain abuse. It was built in part by former Afilias employees.
Afilias has a similar in-house system, not available on the open market, used by clients of its registry back-end business.
Even a reduced $2 million judgment is a bit too rich for Architelos, which is desperately trying to avoid bankruptcy, according to court documents.
But the judge seems to be considering an injunction that would enable Architelos to continue to exist.
It may even be permitted to sell NameSentry, as long as it gives almost a third of the product’s revenue to Afilias for up to five years or until the $2 million is paid off.
The injunction might also grant joint ownership of the disputed patents to the two companies, allowing them to jointly profit from the technology.
This has all yet to be finalized, however, and Afilias can always appeal whatever injunction the judge comes up with.
It emerged in court earlier this month that Architelos offered to give full ownership of its patent, along with NameSentry itself, to Afilias in order to settle the suit, but that Afilias refused.
Afilias is also suing Architelos over the same matters in Canada, but that case is progressing much more slowly.

Afilias seeks to freeze Architelos patent after $10m lawsuit win

Afilias seems bent on burying domain security software maker Architelos, after winning a $10 million lawsuit against it.
The registry on Friday filed a court motion to freeze the patent at the heart of the lawsuit, which Afilias says — and a jury agreed — was based on trade secrets misappropriated by former Afilias employees.
Afilias said it wants to make sure Architelos does not attempt to sell the so-called ‘801 patent, which covers domain abuse-monitoring software.
Its motion asks for a court order “prohibiting Architelos from taking any action that would dilute… or diminish Architelos’ rights or ownership interests” in the patent.
It notes that Architelos has stated that it does not have the means to pay the $10 million damages awarded by a jury in August, which might give it a reason to try to sell the patent.
Afilias said Architelos had “raised the prospect of bankruptcy” during post-trial negotiations.
The motion seems to have been filed now because the judge in the case is taking an unusually long time to render her final judgment.
Despite the case being heard on a so-called “rocket docket” in Virginia, the two companies haven’t heard a peep out of the court since late October.
According to Afilias’ motion, the judge has indicated that Afilias will wind up at least partially owning the ‘801 patent, but that the jury’s $10 million verdict may be “tweaked”.
Judging by a transcript of the August jury trial, the judge herself was not particularly impressed with Afilias’ case and did not expect the jury to crucify Architelos so badly.
Out of the jury’s earshot, she encouraged Afilias to attempt to settle the case and said “if the jury verdict comes in against what I think is the clear weight of the evidence, I will most likely adjust it.”
She also said: “I would have trouble believing that any reasonable jury would find even if they were to award damages to the plaintiff that there’s any significant amount here.”
She clearly misread the jury, which a few days later handed Afilias every penny of the $10 million it had asked for.
That’s much more money than Architelos is believed to have made in revenue since it launched four years ago.
Afilias’ latest motion is set to be heard in court in early January.

Afilias wins $10m judgment in Architelos “trade secrets” case

Afilias has won a $10 million verdict against domain security startup Architelos, over claims its flagship NameSentry abuse monitoring service was created using stolen trade secrets.
A jury in Virginia today handed Afilias $5 million for “misappropriation of trade secrets”, $2.5 million for “conversion” and another $2.5 million for “civil conspiracy”.
The jury found (pdf) in favor of Architelos on claims of business conspiracy and tortious interference with contractual relations, however.
Ten million dollars is a hell of a lot of cash for Architelos, which reportedly said in court that it has only made $300,000 from NameSentry.
If that’s true, I seriously doubt the four-year-old, three-person company has even made $10 million in revenue to date, never mind having enough cash in the bank to cover the judgment.
“We’re disappointed in the jury’s verdict and we plan to address it in some post-trial motions,” CEO Alexa Raad told DI.
The lawsuit was filed in January, but it has not been widely reported on and I only found out about its existence today.
The original complaint (pdf) alleged that three Architelos employees/contractors, including CTO Michael Young, were previously employees or contractors of Afilias and worked on the company’s own abuse tools.
It claimed that these employees took trade secrets with them when they joined Architelos, and used them to build NameSentry, which enables TLD registries to monitor and remediate abuse in their zones.
Architelos denied the claims, saying in its March answer (pdf) that Afilias was simply trying to disrupt its business by casting doubt over the ownership of its IP.
That doubt has certainly been cast, though the jury verdict says nothing about transferring Architelos’ patents to Afilias.
The $5 million portion of the verdict deals with Afilias’ claim that Architelos misappropriated trade secrets — ie that Young and others took work they did for Afilias and used it to build a product that could compete with something Afilias had been building.
The other two counts that went against Architelos basically cover the same actions by Architelos employees.
The company may be able to get the amount of the judgment lowered in post-trial, or even get the jury verdict overturned, so it’s not necessarily curtains yet. But Architelos certainly has a mountain to climb.

Winners and losers in the new .com pricing regime

Today’s shock news that Verisign will be subject to a .com price freeze for the next six years will have broad implications.
The US Department of Commerce has told the company it will have to continue to sell .coms at $7.85 wholesale until 2018, barring exceptional circumstances.
Here’s my initial take on the winners and losers of this new arrangement.
Domain investors
Volume .com registrants are of course the big winners here. A couple of dollars a year for a single .com is pretty insignificant, but when you own tens or hundreds of thousands of names…
Mike Berkens of Most Wanted Domains calculated that he’s saved $170,000 $400,000 over the lifetime of the new .com deal, and he reckons fellow domainer Mike Mann will have saved closer to $800,000 $2 million.
Brand owners
The other big constituency of volume registrants are the brand owners who spend tens or hundreds of thousands of dollars a year maintaining defensive registrations — mostly in .com — that they don’t need.
Microsoft, for example, owns over 91,000 domain names, according to DomainTools. I’d hazard a guess that most of those are defensive and that most are in .com.
Registries
There’s potentially trouble on the horizon for new gTLD applicants and existing registry operators. Verisign is looking for new ways to grow, and it’s identified its patent portfolio as an under-exploited revenue stream.
The company says it has over 200 patents either granted or pending, so its pool of potential licensees could be quite large.
Its US portfolio includes patents such as 7,774,432, “Registering and using multilingual domain names”, which appear to be quite broad.
Verisign also owns a bunch of patents related to its security business, so companies in that field may also be targeted.
Registrars
Verisign’s registrars will no longer have to pass their cost increases on to consumers every year.
While this may help with renewal rates, it also means registrars won’t be able to sneak in their own margin increases whenever Verisign ups its annual fees.
IDN buyers
Another area Verisign plans to grow is in internationalized domain names, where it’s applied to ICANN for about a dozen non-Latin variants of .com and .net.
Those registry deals, assuming they’re approved by ICANN, will not be governed by the .com pricing restrictions. Now that Verisign’s growth is getting squeezed, we might expect higher prices for IDN .com variants.
ICANN
ICANN may have suffered a small reputational hit today, with Commerce demonstrating it has the balls to do what ICANN failed to do six years ago, but money-wise it’s doing okay.
The new .com contract changes the way Verisign pays ICANN fees, and Commerce does not appear to have made any changes to that structure. ICANN still stands to get about $8 million a year more from the deal.
The Department of Commerce
Unless you’re a Verisign shareholder, Commerce comes out of this deal looking pretty good. It played hard-ball and seems to have won a lot of credibility points as a result.

Go Daddy files for business community patents

Go Daddy has applied for three US patents covering an “Online Business Community” that looks a bit like a social network for small businesses.
The patents describe a web site that enables companies and potential customers to interact through forums, community groups and ratings systems, as well as advertising, buying and selling.
In the applications, Go Daddy says it had noticed that:

presently-existing methods of conducting online business, however, do not permit businesses and potential customers alike to interact in one place to share business-related resources; advertise, buy, and sell goods and services; interact; hold discussions; and network.

The patents, if granted, would cover such a service.
While most or all of the features outlined in the applications can be found individually in other Go Daddy products, I don’t think the company currently has a service that combines them all in the way described by the patents. Go Daddy Marketplace probably comes closest.
The applications appear to cover the creation of ad hoc business communities, for example, as well as the formation of “partnerships” between members such as suppliers and customers.
They also appear to account for communication between members using technologies such as instant messaging or voice over IP, and for members to rate each other for trustworthiness.
The three applications, 20100262686, 20100262629 and 20100262502, were filed in June and published today.

Go Daddy files for patent on available domain ads

Go Daddy has applied for a US patent on a system that automatically inserts available domain names into banner ads based on the dynamic content of a web page.
The application “Generating online advertisements based upon available dynamic content relevant domain names” was filed in February 2009 and published today.
The patent would cover a way to analyze the content of a web page, perhaps using image identification technology, then generate keywords and check for available domain names to put in the ad.
Instead of a standard Go Daddy banner, visitors to a web page would be shown a custom ad offering an available or aftermarket domains relevant to the content of the page.
The application also seems to cover an API whereby an advertising network, such as Google, would also be able to offer available domains via Adsense.

Hostway wants non-existent domain patent

Hostway, the large web hosting company, has applied for a US patent on a system of intercepting and redirecting requests for non-existent domains names.
The application describes “A system and method for controlling internet traffic controls internet traffic directed to a non-existing domain in a centralized manner.”
It appears to cover a service that could be offered to local ISPs, enabling them to show their users monetized search pages rather than domain-not-found error messages.
Under the system, ISPs would intercept NXDOMAIN responses to their users’ DNS lookups.
Instead of passing the error on to the browser, the ISP would consult a centralized controller for the IP address of a context-appropriate landing page to redirect the user to.
It’s not at all clear to me whether Hostway is using the technology or has plans to do so. The application was filed in October 2008.
ISPs using NXDOMAIN substitution to monetize error traffic is widespread but controversial.
ICANN president Rod Beckstrom strongly complained about the practice, which also has security implications, during a rant at the Nairobi meeting last month.
VeriSign’s Site Finder, and later Cameroon’s .cm, both controversially did similar things when they “wildcarded” non-existent domains at the TLD registry level.
Other interesting US patent applications published today include:
20100106650 – covering Go Daddy’s auction services.
20100106793 and 20100106794 – covering email forwarding under Go Daddy’s private registration services.
20100106731 – assigned to VeriSign, covering a method of offering alternative domain names for registration when a buyer’s first choice is unavailable.

NeuStar files for patent on DNSSEC hack

NeuStar has applied for a US patent on a stop-gap technology for authenticating DNS queries without the need for DNSSEC.
The application, published today, describes a system of securing the DNS connection between authoritative name servers and recursive servers belonging to ISPs.
It appears to cover the technology underlying Cache Defender, a service it started offering via its UltraDNS brand last July.
It was created to prevent the kind of man-in-the-middle attacks permitted by the 2008 Kaminsky exploit, which let attackers poison recursive caches, redirecting users to phoney web sites.
The DNSSEC standard calls for DNS traffic to be digitally signed and was designed to significantly mitigate this kind of attack, but it has yet to be widely deployed.
Some ccTLDs are already signed, but gTLD users will have to wait until at least this summer. The .org zone will be signed in June and ICANN will sign the root in July but .com will not be signed until next year.
While Kaminsky’s vulnerability has been broadly patched, brute-force attacks are still possible, according an ISP’s experience cited in the patent filing.
“The patch that experts previously believed would provide enough time to get DNSSEC deployed literally provided the industry just a few extra weeks,” it reads.