The Czech domain game

May 19th, 2003
By Igor Muller

For small-time speculators, buying Czech domain names can be a cheap means to a sometimes lucrative end. For companies that need the names, speculators can add up to an expensive annoyance

Last month the most famous tug-of-war over a Czech Internet domain name was settled when mobile phone operator Cesky Mobil, owner of the Oskar brand name, finally acquired the rights to oskar.cz for a price rumored to be Kc 1 million ($35,700).

Ceske Drahy got off comparatively cheaply, even though it paid a record-high price of Kc 175,000 for the rights to cd.cz at a March 2002 auction of two-letter domain names by Cz.NIC, the sole Czech registration authority. Fear that such domain names would be snapped up by speculators, or "domain squatters," prompted the registration authority to delay holding the auction: demand is high as there are so few variations of two-letter domain names available. According to the Internet server Lupa.cz, the revenue from the auction of the two-letter domains reached Kc 1.7 million.

Registration of a .cz domain costs only Kc 1,600 ($57) with an extra yearly service fee of Kc 800, making domain name speculation and trading a potentially lucrative sideline in the Czech Republic. Adding to the allure of the game are the

flawed rules governing ownership of domain names, which industry experts say encourage squatting and stealthy takeovers of expired domains.

Cesky Mobil's fight for oskar.cz with computer retailer Comfor lasted three years. It began when the company pounced on the domain name in 2000, arousing media speculation that the company had acted on a leak from Cesky Mobil's advertising partner Young & Rubicam, which allegedly tipped Comfor off that Oskar would be chosen as the brand name for the country's third mobile phone company.

Up until last month, Comfor was using oskar.cz for its own Oskar, the company's now-defunct computer training subsidiary. Some years ago, Comfor reportedly asked for Kc 10 million from Cesky Mobil for the site, but the mobile operator refused to pay and decided to use the oskarmobil.cz domain instead.

Igor Prerovsky, Cesky Mobil's advertising and communication director, said his company had tried to negotiate a deal but Comfor refused to respect the conditions of an agreement about the domain's transfer. Cesky Mobil eventually turned to the courts and filed a breach-of-contract suit against Comfor. However, he said that path was also leading nowhere as Comfor then filed its own countersuit against Cesky Mobil. Prerovsky described the court case as "extremely complicated," but declined to give full details.

Prerovsky also refused to divulge the monetary value of the final out-of-court settlement, saying it was confidential. He did point out that Oskar clients had quickly found the operator's old site, which drew more than 500,000 visitors last year.

But clearly there's something in a name. Until Ceske Drahy bought www.cd.cz, it was forced to use the more cumbersome domain of www.cdrail.cz instead.

The importance of choosing the perfect domain for any company's Internet presentation grows as the number of those who use the Internet to access commercial information grows, said Lubor Zoufal, account manager from Internet solutions company FG Forrest. "Firstly, it is important to own the domain that corresponds with the name of the company, as many search engines generate results based on domain names," he said. "But also registration of domains that carry related names of the companyas abbreviations, possible incorrect spellings or names of the products that the company makes[also] bring more people to the site," Zoufal said. In other words, a company that acquires the domain carrying permutations of names for its products will have greater success attracting customers on the Internet.

Flawed rules

One major flaw in the Czech rules governing domain names is that someone may possess one for 39 days without paying for it and in that way block out all other potential interested parties, said Jakub Ditrich, CEO of Internet-based services provider Globe Internet.

In addition, there is no limit to the number of times that holders can re-register names. This means it is possible to secure a domain name for an unlimited period and without payment. Ditrich estimates that about 5,000 Czech domains are currently reserved but unpaid.

Czech rules differ from those for so-called global domains like .com, .net, .biz or .info. For these, possession is allowed only if the domain is paid for immediately, in order to avoid any speculation. Ditrich suggested a similar model could be fruitfully adopted in the Czech Republic as well. "This would definitely reduce the number of speculators because they would have to actually pay for any reserved domain in order to be able to have it for further speculating purposes," he said.

Ditrich added that interest from another party in a squatted domain name often "miraculously" prompts payment a day before the latest deadline for the registration expires. "This leads us to the conclusion that there could be a possible leak of information from the main [domain registration authority] registrar [cz.NIC] whenever someone else is applying for the domain," he said.

Representatives of cz.NICa joint venture of telecoms, IT and Internet companies for which telecoms companies KPNQwest and GTS were selected as the technical service providers in 1999denied the possibility of any leaks. Any person or company who wants an already registered domain can apply and pay the registration fee in advance, a cz.NIC representative told PBJ. If the current "occupant" of the domain fails to pay in the designated period, then the domain automatically transfers to the new applicant, she added.

Jumping in

Speculators also make money from monitoring the expiration dates of already registered domains and snapping up an expired name before its holder realizes his ownership has lapsed. Special software can be purchased that monitors expiration dates of all Czech domains based on data that is publicly accessible at Cz.NIC. The software tips off speculators that the domain is vacant.

After acquisition, the domain can be sold back for a profit to the negligent former ownerand sometimes is. "In this case, companies have no other option other than to pay for the domain as they often need it for their business," Ditrich said. However, he added that the number of such cases was dropping as companies opt to pay in installments for their domains or use an external web administrator company to look after the payments.

Ditrich said the registration situation could change after the domain market opens up in September when other registration authorities will be allowed to compete with Cz.NIC.

The change was initiated at the general meeting of the Cz.NIC consortium in April this year by members who want to decentralize the domain registrar. Ditrich said more competition should remove some of the flaws in the current Czech domain name allocation system.

However, a legal gray area is likely to continue, he said, over whether those buying domain names with the aim of later selling them onto a targeted firm are breaking the law by infringing on brand or other intellectual property rights.

Not one court ruling in the Czech Republic has created a legal precedent giving a brand nameas part of the registered trademarkthe same legal protection as a trademark, Ditrich said.

Better than working

Regardless of the registration changes and gray areas, there are still people betting their future on the potential of domain names to make them some fast money.

Ondrej Pastirik, who hails from Eastern Slovakia, started his own small domain business back home a few years ago, when he created the portal tatry.net. The website provides information about the High Tatras national park in Slovakia with links to hotel reservations and other information aimed at tourists. "The site started to make money," Pastirik said. "I liked the idea and looked into purchasing other tourism-related domains." He said he would soon leave his IT consultant job to focus his full time on the business.

Trading in domains is much the same as dealing in real estate, Pastirik said. Basically, the property must either be developed or sold on. But he said there's large growth potential for the business in the long run as Internet use and e-commerce take off in the Czech Republic. "The investment is definitely long term, and with shrinking numbers of free domains the value of the attractive ones increases," he said.

Pastirik is, however, for the moment keeping his ambitions local. He has no intention of buying up and speculating over any company domains. The effort it is not worth it as the domain watchdog in the sector, the World Intellectual Property Organization (WIPO), has the right to take a domain from a speculator if a company can prove that its trademark or brand name was abused.

Pastirik sticks largely to buying, selling or operating .info and .biz domains, mostly connected with tourism. Lately Pastirik acquired amsterdam.info on which he provides hotel bookings and town information. He earns commissions from hotel and other bookings resulting from visits to the site and from advertising.

His longer-term plan is to wait until the number of site visitors increases and then sell off the domain. "I will work on the site over the next year and then see whether it is worth selling," he said.

Such a strategy is not without risks. After Pastirik registered the muenchen.biz domain, the Munich city council filed a complaint to WIPO claiming that the town's name was protected under German law. Pastirik, however, proved he had registered the domain with the aim to promote tourism, and WIPO ruled that the town had no right to reserve the domain for itself. He said he planned to build a tourism website on the domain similar to his Amsterdam site.

Pastirik also has hit on generic domains that have turned out to be money spinners. He aquired the domain vacuumcleaner.info and later sold it to a company that sells vacuum cleaners. Some Czech companies already understand the trends. Czech beer producer Staropramen made sure it wouldn't find itself in a similar situation to Cesky Mobil and Ceske Drahy by buying pivo.cz, the Czech-language equivalent of "beer.cz."