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VeriSign faces second marketing suit

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A Los Angeles law firm has filed suit seeking class action status against Internet domain name provider VeriSign over allegedly deceptive "expiration" notices the company sent to the customers of rivals, a lawyer said Tuesday.
The lawsuit, filed last week in Los Angeles Superior Court came about a week after a Maryland judge ordered VeriSign to stop sending letters to customers of privately held BulkRegister.

BulkRegister sued VeriSign alleging that the letters sent to thousands of its customers were misleading them into believing their domain names were expiring and that they would lose them unless they paid $29.

By paying the fee, the customer was actually authorizing VeriSign to take control of the account, according to the form itself.

Zev Zysman, an attorney at Los Angeles-based Weiss & Yourman, declined to comment further on the suit his firm filed.

A VeriSign spokesman said the company's policy is not to comment on pending litigation, but said VeriSign was complying with the Baltimore court's injunction.

VeriSign has been forthcoming about its strategy to combat reduced pricing by competitors and a drop-off in domain name sales. Executives touted their aggressive marketing campaign at VeriSign analyst day on May 9 in Redwood City, Calif.

"We're becoming the attacker and not the prey," said John Donoghue, senior vice president of the mass markets division at Mountain View, Calif.-based VeriSign. "We're aggressively going after competitors' customers at the time of renewal."

Class action lawsuits filed on behalf of investors often follow bad news from corporations, such as losses, layoffs and stock drops, all of which VeriSign has had in recent months.

Critics complain that the law firms are attempting to benefit from inevitable business downturns and that lawyers are soliciting plaintiffs rather than acting on behalf of investors filing the claims.

At least five lawsuits seeking class-action status were filed in May against VeriSign. They accuse the company of artificially inflating the price of its stock and and creating the false perception that revenue was grown from its core operations.

Instead, about 10 percent of the company's revenue in 2001 was derived from sales to companies in which VeriSign has invested and from so-called reciprocal transactions, or deals in which VeriSign buys products or services from its customers--a practice that can be used to mask falling revenues--the lawsuits note.

VeriSign and some analysts have dismissed the concerns, citing VeriSign's diversification into telecommunications and other markets and leadership in its core business.

The company's stock has dropped more than 70 percent since the beginning of the year. It closed Tuesday at $10.02, down 6 cents on the day.

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