You might be confusing the highjacking of domain names with passing off and imitation.
If I set up a company named, say, Microsuft, and if that company sold PC software, and if I used similar branding to Microsoft's, I could be sued for passing off. Microsoft could justifiably claim that I was confusing the public by trying to imitate a well-established company.
But, if I set up a company named, say, the Lotus Blossom Tea Shoppe, it's highly unlikely that the Lotus car company would be able to take action against me, even if my domain name contained the word Lotus. Even though they have registered the name Lotus in connection with their cars, that doesn't give them a monopoly on that name.
I don't know the situation with your father's friend, but it's possible that his case was similar to my Microsuft example rather than my Lotus example.
You're right that there is a measure of regulation to prevent high-jacking of domain names, but it doesn't go very far.