Verisign, .xyz and the ABCs of a cutthroat domain-name industry

A lawsuit against upstart internet registry .xyz has been dismissed just a few days before it was due to go to trial.

The case was brought by industry giant and .com registry operator Verisign and alleged .xyz had infringed Verisign's trademark and committed false advertising.

However, the lawsuit was widely seen by the domain name industry as an attempt to intimidate new competitors and scoop up market intelligence on its rivals through discovery.

After 10 months of legal battling, which .xyz claims has cost it $1 million, the case was thrown out in its entirety by Judge Claude Hilton of the eastern district court of Virginia, just days before the November 2 trial start date.

During that time, however, the case had sucked in a number of other companies as well as industry bloggers. When Verisign published its exhibits list for the upcoming trial, it was clear that the company had gone through almost every email sent and received by .xyz CEO David Negari over the internet extension.

Negari was not pleased about tactics seemingly designed to undermine and embarrass him. A significant number of documents in the case have also been placed under seal, suggesting that they contain significant amounts of commercially valuable material.

The case did manage to shed some light on the tactics used in the increasingly competitive domain name market. The .xyz registry shot to fame when it managed to register nearly 500,000 domains in its first two months of launch, at a time when its competitors were barely managing 10,000.

It soon became clear that the vast majority of those registrations were through an agreement struck by .xyz and domain registrar Network Solutions that saw Network Solutions' customers given the .xyz equivalent of their existing domains automatically and for free. Customers had to actively click on a link and decline to be given the name.

Negari then used the resulting high registration figures to promote the .xyz registry as a competitor to .com domains while being less-than-completely-truthful about the arrangement he had reached. While he claimed not to have direct hand in the decision to provide free domains, the Verisign lawsuit subsequently revealed a $3 million advertising agreement between the two companies. Negari is thought to have reached similar deals with a number of other registrars.

Success

Incredibly, however, that tactic seems to have worked. The .xyz registry remains the largest of the "new" internet extensions that have launched in the past year and it now boasts 1.2 million registrations, the majority of which are paid for.

The company has also made, or raised, sufficient funds to buy the rights to more new extensions, including .security, .theatre, and .protection – something that in turn prompted a second lawsuit from Verisign after it was dropped as the back-end operator and replaced with competitor CentralNic.

And .xyz will shortly launch a number of car-themed internet extensions (car, cars, and auto) whose pricing will start at the eye-watering figure of $45,000 each, going down rapidly to $2,000: a figure that is still more than 200 times higher than the average .com domain.

Few thought that the Verisign lawsuit had much merit. It was, after all, built around a YouTube ad that depicted .com domains as a beaten-up Honda Accord and .xyz domains as an Audi R8 Spyder. Even after all the interest in the case, more than a year later, it has only managed just over 50,000 views. But the registry giant was clearly prepared to lawyer the lawsuit to death, and cost the young upstart as much money as it possibly could to defend itself.

Youtube Video

Although 1.2 million domains is an impressive achievement, it still pales in comparison with Verisign's 120 million .com domains. Many industry commentators are suggesting that the company should never have let the lawsuit get this far. Verisign has almost certainly shrugged its shoulders at the news, amazed that it got as far as it did. ®