Domain registrars historically made money by registering domain names to third parties, but that has changed as it has become easier to get into the domain name game. Now many registrars have begun to amass portfolios of domains themselves, or even temporarily registering domains and then dropping them before they are required to pay any fees, a practice called "domain tasting," said Karl Kronenberger, a partner with Kronenberger Burgoyne LLP, a law firm specializing in Internet disputes.
Some companies have even set up several domain name registrars and they pass their domain names from one to the other without ever having to pay fees. This is possible, because domains can be held for three days before any fees are due, Kronenberger said.
Registrars must be accredited by the Internet Corporation for Assigned Names and Numbers (ICANN), the group that oversees the Internet's domain name system, but once that has happened they can get better access to the database of domain names. Companies like Microsoft and Google have become accredited registrars for this reason.
There are presently more than 1,000 registrars worldwide, according to Kronenberger. "It costs US$8,000 per year to maintain your existence as a registrar," he said. "once you pay that, you can register domains very cheaply."
Some registrars have amassed valuable portfolios without running afoul of trademark law, but Microsoft's Red Register lawsuit is not unprecedented. In October, Yahoo filed a similar lawsuit against Belgium Domains. One month later another lawsuit was filed against Belgium Domains, this time by Dell.
Kronenberger said the Microsoft lawsuit "seems to be a pretty straightforward case of a registrar registering large batches of domains containing trademarks."
Microsoft has filed at least five other similar lawsuits in recent years. In March it announced that reached a $2 million settlement against Jason Cox of New Mexico and Newtonarch. It also announced a $1 million settlement in a similar suit against Partner IV Holdings.
Microsoft and Red Register did not immediately return e-mail seeking comment for this story.