We all make mistakes when typing website addresses but a new breed of online fraudsters – known as "cybersquatters" – are generating huge profits from illegal businesses set up to exploit our errors. By using online advertising companies, cybersquatters are able to launch pay-per-click advertising links associated with the misspelt brand name. A careless typist looking for a big brand's website can unwittingly end up on a website filled with advertisements. If that visitor then clicks on an advertisement, the cybersquatter is paid a bounty.

Cybersquatting is big business. Today, Microsoft announced its settlement with UK-based The Dyslexic Domain Name Company Limited. This organisation registered more than 6,000 domain names, including some targeting Microsoft. When faced with the prospect of court action, the organisation agreed to hand over the domain names and pay damages to Microsoft. But this is just one of many similar cases that Microsoft is bringing against cybersquatters. The software group has reclaimed more than 1,100 infringing domain names worldwide in the past six months and has secured judgments against cybersquatters for over £1.5 million so far. We expect that big brand owners will follow Microsoft in attempting to curtail this kind of damaging but lucrative online infringement.

Cybersquatters do not happen upon misspelt domain names. They focus on trademarked and well-known brands, or misspelled variations of these names such as “winnowslivemessenger.com” and “micr0soft.co.uk”. They usually use software specially designed to throw up the most common typographical errors in a domain name. One of the cybersquatters Olswang is pursuing on behalf of a client has registered over 19,000 domain names including variations on the names of many of the world’s top brands. Each domain name can be purchased for as little as £3. It is then "parked" with companies that publish paid advertisements under the names. One such company boasts that it is “parking” many millions of domain names. Cybersquatters simply sit back and watch pennies turn into pounds in their online accounts as tricked users click on advertising hyperlinks.

Trademark legislation around the world and, in particular, the UK’s Trade Marks Act (1994) makes clear that these registrations are an infringement. Each of the registered domain names is identical - or as near as makes no legal difference - to the registered trademark. The domain name – or “sign” - is then used in the course of trade to sell advertisements. This is flagrant trademark infringement.

Despite strong laws favouring brand owners, the practice is widespread. This is because of four factors. First, cybersquatters have kept as quiet as possible to avoid the attention of lawyers and few brand owners are alive to the practice and have not yet focused their litigators' minds on it. Second, pay-per-click advertising made available under infringing domain names provides very high profits for cybersquatters, so there are many of them. Third, cybersquatters register so many brand names, they bank on being able to surrender any complaining brand owner's domain names but be left freely to infringe the remaining brands in their portfolio. Finally, brand owners need their own sophisticated software tools to find infringing domain names.

As it stands, the economics of this infringing activity are clearly tipped in favour of cybersquatters. Until the pay-per-click advertising industry takes a more responsible attitude towards cybersquatters, we fear this practice will continue. In the meantime, brand owners should act to prevent online fraudsters profiting from their good name.

Clive Gringras is a partner at Olswang and is representing Microsoft in its UK cybersquatting cases

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