Canada: Domain Name Solicitation Fraud – Brand Owners Beware

Last Updated: August 4 2016
Article by Daniel Anthony

Overview

It is a modern reality that with brand ownership comes the risk of trademark and domain name fraud. In this area, there has recently been a rise in email scams targeting brand owners by falsely claiming that domain name rights are in jeopardy. As these scams become more common, all trademark owners should be aware of how to recognize and avoid them.

Background

Most brand owners will already be aware of certain important brand risks, including the following:

Cybersquatting – registering confusing domain names to profit from the brand goodwill

Trademark pirating – applying for and registering well-known trademarks to profit from the brand goodwill

Counterfeiting – selling falsely branded products to trade off the goodwill in the authentic brand

In view of the above risks, many companies rightfully takes steps to proactively register key trademarks and domain names in numerous jurisdictions, and also to monitor their brands globally.

The perpetrators of domain name solicitation fraud prey upon brand owners by falsely claiming that important domain names are in jeopardy of being registered by cybersquatters or competitors. The fraudulent e-mails are targeted directly to brand owners, who may be fooled by the fraud in an effort to protect their brands.

In most cases, fraudsters purport to be an official government agency or a certified domain name registrar, usually a fictitious one from China, overseeing the registration of domain names in their country. The emails alert the brand owner of an identified threat to their brand as a result of a third party's request to register a domain name that is identical to the brand owner's trademark. The fraudster will then ask for instructions on how to handle the threat. An actual example of such an e-mail is provided below:

"Dear Sir or Madam,

We are an agency for registering domain names authorized by Chinese government. Today, our center received an application from [COMPANY XYZ] applying to register ["YOURMARK"] as their brand name and some top-level domain names (.cn .hk, etc). After our careful investigation, we found the main body of domain names is same as yours. As a professional registrar, we are obligated to inform you of this situation.

We are handling the application and we need to confirm whether or not you authorize them to register them. Let me know your answer ASAP so as to resolve this promptly."

Fraudsters can use public trademark, WHOIS and Internet records to identify brands and brand owners. Using this information, fraudsters can often tailor emails to individual registered owners and include details of the mark in question, thereby making the scam more convincing.

Like any fraud, domain name solicitation scams create a sense of urgency to respond to the email by suggesting there is only a limited opportunity to protect the mark from possible cybersquatting or infringement. This can be very effective since brand owners are dedicated to protecting their brands from threats. Strategically, the emails are sometimes sent to the marketing team of a company hoping to bait an overzealous or unsuspecting employee into acting without consulting with supervisors or legal counsel.

Risks

These fraudulent emails serve as bait to identify brand owners who are determined to protect their brand from potential threats. There are several tactics that a fraudster may use to ultimately extract money from a brand owner who has been baited.

In the best case scenario, the fraudster may only request a fee to deny the fictional third party's request for registration, which never existed at all. Alternatively, the fraudster may request payment to buy the domain name for the brand owner. Often, even after paying the fee, the domain name is not even registered. Such fees are a waste of money, but they will not have a negative impact on the brand.

In the worst case scenario, the fraudsters will engage in cybersquatting or trademark piracy. For example, if the brand owner responds to the "bait" e-mail, the fraudster will ask what domains it is interested in protecting. The fraudster will then register those domain names in bad faith with the intention of selling them back to the brand owner at inflated prices. In some cases, the fraudster may ask about the brand owner's future trademark plans, and then apply for the same trademark in countries to which the brand owner is considering expanding. China is a typical country featured in scams, where there is a first-to-file system and local Chinese citizens are permitted to obtain trademark registrations without any prior use. When this happens, it can potentially block the brand owner from using its mark in China unless it pays the trademark pirate to recover the registration or pursues court proceedings to have the registration cancelled.

Solutions

Educate all relevant employees to not reply to suspicious e-mails concerning domain names and trademarks. There is no incentive for a domain name registrar to warn a brand owner of a pending request to register a similar domain name. As such, these types of emails should always be considered fraudulent. If there are doubts about the legitimacy of these emails, they should be verified by legal counsel before responding.

It is important to keep in mind that these fraudulent emails are intended to identify companies that are likely willing to pay fees to prevent third parties from registering their domain names or trademarks. Responding to these e-mails will only serve to identify the brand owner as a target to be exploited, effectively turning a potential threat into a real one.

If the domain names set out in the scam e-mail are actually of interest to the brand owner, it should simply register them using its normal domain name registrar. If the scam e-mail raises concerns over the scope of the brand owner's trademark registrations, it may be a good time to review its trademark portfolio and registration strategy for the mark.

In the event that the brand owner does respond to a scam e-mail, it should work with legal counsel to verify whether the fraudster has registered any bad faith domain names or applied for any confusing trademarks. If so, the brand owner should discuss with legal counsel options to recover the domain names or oppose the trademark applications.

For more information on this topic, or other domain name and internet law issues, please contact a member of our firm's Domain Names & Internet Law group.

The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.

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