According to Melbourne IT, around 80,000 trademarks were registered in the .xxx space to protect brands before it went live. Since brand protection was the criterion, it seems unlikely that any of those registrations were a natural fit for .xxx. Rather, organisations were simply following a policy of registering their names in every available TLD, just as they may have previously registered the same names in .com, .net, .com.au and so on.
So that's 80,000 registrations that weren't actually necessary, locking up a substantial number of names that could possibly have been legitimately used by other parties. An argument could be made that such 'defensive' registrations should be automatically cancelled if they are not actively used for purposes consistent with the purpose of the TLD.
At the time the .xxx TLD was being established, registry operator ICM Registry said it would only sell domains to those sites that are "officially in the adult-entertainment industry." But that same article reported that ICM CEO Stuart Lawley expected to make US$200 million a year from defensive registrations.
Cybersquatting is most common in the .com space. Not only is 'companyname.com' the first place you'd look for an international business's web site, anyone can register a .com domain and there are practically no restrictions on the names that can be registered. Even though .com.au's original requirement that a domain name must be closely derived from the applicant's name has been watered down with provision for a "close and substantial connection" (which allows, to give just one example, a company called Boomerang.com.au Pty Ltd to register wine.com.au for the purpose of operating a directory of wine businesses), it is still significantly more restrictive than the .com name policy.
A further complication is that trademarks are granted for activities in particular classes. So one company might trademark a word for use in conjunction with "Hand tools and implements (hand-operated); cutlery; side arms; razors" while another might trademark exactly the same word for use in conjunction with "Scientific and technological services and research and design relating thereto; industrial analysis and research services; design and development of computer hardware and software."
Yet the 'baseline policies' for .xxx include a prohibition on "strings that are obvious variants of well-known trademarks not belonging to the registrant" - which would appear to allow the holder of a "well-known trademark" (which usually means a large multinational company) to bring a case against the holder of a lesser-known but similar trademark, even if the former is not involved in the adult entertainment industry.
While there is a certain stigma attached to the adult entertainment industry that could explain a bias against it, other new TLDs could easily end up with similar rules. Why should a company that does not operate in, say, the hairdressing industry have any form of prior claim to or veto over a name that is used by someone in the industry.
Please read on for an example, and advice on brand protection.