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VeriSign hit with slamming lawsuit

'False advertising'

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ComputerWire: IT Industry Intelligence

VeriSign Inc's legal team is going to have its workload increased significantly over the coming months,

Kevin Murphy writes

. The company continues to be pounded by class-action shareholder lawsuits related to its recently slashed share price, and yesterday a domain name competitor, BulkRegister.com Inc, sued it over allegedly deceptive business practices.

Since April 25, VeriSign has been sending out mailshots to customers of rival domain name registrars (scans of the letters are available at domainscams.com). The letters are headed "Domain Name Expiration Notice" and "Domain Name Renewal Form", and ask the customer to send $29 to VeriSign for "Renewal and Transfer" of their names.

BulkRegister yesterday filed suit in a Maryland court, saying VeriSign's mailshots are false advertising, and that its practices amount to tortuous interference with contractual relations and tortuous interference with economic opportunity. The company wants an injunction and is currently investigating monetary damages.

"It's deceptive... It looks like an invoice," said Tom D'Alleva, VP of marketing at BulkRegister. He argues that unknowing recipients of the mailshot are being duped into transferring their registrations to VeriSign, thinking they are renewing with their chosen registrar, often at a higher price.

The letters do spell out exactly what they are asking the customer to do, in fine print in one paragraph on the bottom of the otherwise blank reverse side. BulkRegister, and other critics, compare the practice to the outlawed "slamming", in which telephone users are tricked into changing their long distance provider by unscrupulous operators.

"Domain slamming" works like this. A domain registrar first mines the Whois databases - the publicly available master customers lists maintained by registrars - of its rivals for names and addresses. The registrar then sends out phony "renewal notices" to these registrants, hoping they will inadvertantly switch registrars. A number of companies have been fined by Federal regulators for such practices.

VeriSign does have one ace card that make its marketing practices more effective, however. As the operator of the .com, .org and .net registry, as well as being a registrar, its brand carries a lot of credibility. An unknowing registrant may assume the "renewal notice" comes from the registry, rather than the registrar, and pay the fee, D'Alleva said.

"We know for a fact that our resellers have lost customers because of this," said D'Alleva. BulkRegister operates as a wholesale domain name seller, and sells through a channel of web hosts, small businesses and ISPs. One reseller said it was losing large amounts of registrations, "ie money", because of the mailshots.

D'Alleva said the impact of the mailshots harms not only its business, but the businesses of the affected registrants. A customer may not be aware they have switched registrars until the DNS hosting service provided by their original registrant is turned off, and their web site and email facilities suddenly become unavailable.

VeriSign's campaign started around the same time as the company announced plummeting market share in the domain name business in the first quarter. The company, a former monopoly that now has less than half the market, faces great pricing pressure from deep-discounting upstarts, which are slowly taking over the low end of the market.

VeriSign spokespeople said the company does not comment on pending lawsuits, though the firm clearly disagrees with BulkRegister's position. The court will hear BulkRegister's request for a preliminary injunction this morning.

© ComputerWire. All rights reserved.

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