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Are there any known issues for the domain owner to allow others to use a subdomain? The best example would be blogspot.com, which allows users to create something.blogspot.com.

Can the content on a subdomain be a liability for the domain owner? I'm thinking the DMCA or something similar is applicable.

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    I would doubt the domain owner would be held liable for simply having an A record or CNAME record in their name server for a subdomain. The domain owner is not necessarily hosting the actual content since subdomain.example.com could point to any computer on the Internet. All the subdomain is is a record that says "You want subdomain.example.com, go to the IP address 1.2.3.4" Apr 7 '15 at 20:26
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I'm not an attorney.

However, DMCA has certain safe harbor provisions. You must provide a means for copyright owners or others who allege a user has uploaded illegal material to contact you regarding the material. Generally, this means a mailing address.

You are not liable if you did not know about the material (you aren't required to "police" your site), or if you remove the material within 7 (or 10, I forget...again not an attorney) days from receiving an authentic complaint. Safe harbor does NOT apply if you actively conspire to profit from illegal material.

I would include a terms of use on the site that a user must accept in order to create said subdomain that does the following:

A) Prohibits illegal material including certain obscenities, copyright infringement, brand dilution, advocating violence, etc.

B) Promises account suspension if they violate the terms of use.

C) Explicitly state that the terms of use constitute a contractual agreement between your company and the user.

[EDIT: There's nothing particularly unique about allowing a subdomain vs. allowing any user generated content. The exception here is cybersquatting laws. You should include a statement in the terms that prohibit cybersquatting and trying to acquire subdomains in bad faith (i.e. google.example.com and then trying to sell the address to Google).]

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