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DoJ says new gTLD private auctions might be illegal

Kevin Murphy, March 19, 2013, 19:36:24 (UTC), Domain Registries

Companies hoping to resolve their new gTLD contention sets via private auction are about to get a rude awakening: according to the US Department of Justice, they might be illegal.
Portfolio applicant Uniregistry, the company founded by domainer Frank Schilling, said today that the DoJ has told it that:

arrangements by which private parties agree to resolve gTLD string contentions solely to avoid a public auction present antitrust issues.

The company contacted the department last October to get a “business review” decision, basically asking the DoJ for an assurance that it would not be prosecuted if it participated in a private auction.
The DoJ refused to give that assurance.
Uniregistry counsel Bret Fausett told DI that private auctions might be seen as “bid rigging”, an illegal practice in which competitors fix the awarding of contracts.
Schilling said that Uniregistry asked the DoJ for its advice because “we don’t want to go to jail”.
According to the company:

On March 18, 2013, Uniregistry was informed that the Department of Justice has declined to issue a business review of various private gTLD contention resolution mechanisms. In making its decision, the Department emphasized that no private party, including ICANN, has the authority to grant to any other party exemptions to, or immunity from, the antitrust laws. The decision means that the Department of Justice reserves its right to prosecute and/or seek civil penalties from persons or companies that participate in anti-competitive schemes in violation of applicable antitrust laws.

New gTLD applicants are now being advised to consult their own lawyers before participating in a private auction.
The news will come as a huge blow to companies such as Right Of The Dot and Cramton Associates, which have been at the forefront of pushing the private auction concept to applicants.
It’s also going to be a massive blow to any company that had banked on getting a pay-off to withdraw their applications following a private auction.
The benefit of private auctions — over the ICANN-managed auctions of last resort — is that the losing applicants get a share of the winning applicant’s winning bid.
In an ICANN auction, all the money goes to ICANN, which has promised to use to money to fund worthy causes.
Uniregistry has issued a press release on its talks with the DoJ here (pdf).

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Comments (24)

  1. Such a shame if folks who were counting on getting paid out by others in contention sets end up empty-handed instead……..NOT!
    This “bid rigging” situation also crops up when folks conspire on other domain auctions (e.g. SnapNames or NameJet), saying “I won’t bid against you for, and you don’t bid against me for, and we’ll both end up paying less……”

  2. Donuts Inc. says:

    Publishing the actual letter from the DOJ would be responsible and helpful to the full community, vs relying on one company’s interpretation or spin.

    • Donuts Inc. says:

      To be clear, we mean the letter recipient should make it available to the community. Not implying DI had withheld it.

    • John Berryhill says:

      The business review letter process has two terminal states – (1) the DoJ issues a written communication stating whether or not they would be inclined to prosecute, or (2) they state that they will not issue one. In this instance, the DoJ informed Uniregistry telephonically that they will not be issuing a written communication in response to Uniregistry’s request for a review under 28 CFR § 50.6.

  3. Kevin
    A few points.
    First of all this is not the letter from the DOJ its a PR put out by one of the applicants with their interpretation of a letter or a conversation which is quite different.
    Second if you take the verbiage attributed to the DOJ literally then its not just private auctions at issue but any dealings between competing applicants which puts the DOJ at odds with the ICANN Guidebook
    The ICANN Guidebook says:
    4.1.3 Self-Resolution of String Contention
    Applicants that are identified as being in contention are encouraged to reach a settlement or agreement among themselves that resolves the contention. This may occur at any stage of the process, once ICANN publicly posts the applications received and the preliminary contention sets on its website.
    Applicants may resolve string contention in a manner whereby one or more applicants withdraw their applications. An applicant may not resolve string contention by selecting a new string or by replacing itself with a joint venture. It is understood that applicants may seek to establish joint ventures in their efforts to resolve string contention. However, material changes in applications (for example, combinations of applicants to resolve contention) will require re-evaluation. This might require additional fees or evaluation in a subsequent application round. Applicants are encouraged to resolve contention by combining in a way that does not materially affect the remaining application. Accordingly, new joint ventures must take place in a manner that does not materially change the application, to avoid being subject to re-evaluation.”
    The PR put out by Uniregistry says:
    The Department of Justice further advised that arrangements by which private parties agree to resolve gTLD string contentions solely to avoid a public auction present antitrust issues
    So its not just private auctions that are effected but any arraignments, sales, deals , trading mergers, any activity between parties that would “present” antitrust issues.
    So what ICANN labelled the ICANN auction as the method of last resort according to the PR would be the only method and since ICANN is the one that suggested otherwise, they are the first ones to be in violation of federal law since they are the promoters of an alternative method of resolution

  4. Well Uniregistry asked for an opinion letter, and I was told very recently a letter was coming.
    Logic and sense would dictate if one asks the government for a opinion letter and the government responds that it is refusing to issue an opinion letter then that is the answer that gets broadcast to the community.
    To put out a press release which purports to summarize someone’s phone conversation with someone at Justice is irresponsible and can only be seen for what it is an attempt by one applicant to scare all other applicants off from doing anything other than going to an ICANN auction, which goes against ICANN own guidebook and I think places the whole program legality in jeopardy

    • Frank Schilling says:

      The “program” is going to be just fine Mike. Private auctions, not so much. Whether ICANN encourages non-specific “private resolution” in the Guidebook, does not change how such schemes might be considered under the law. ICANN will not be the judge, and cannot grant immunity. If the ICANN Guidebook stated that ICANN didn’t care if people robbed banks, it would not have the effect of legalizing bank robbery. The discussions Uniregistry has had with the DoJ and the contention resolution mechanisms pencilled in the NEW gTLD DAG seem to be fundamentally at odds with one another. There is no intended spin here. If the answer were as clear as you believe, then the DoJ would not have a problem issuing an opinion to that effect. We sought this review for our own reasons. You are free (and encouraged) to seek your own.

      • Irrespective of the merits (and on a first skim, I think Frank’s comments and their position appear both reasonable and objective) this issue highlights a fundamental misunderstanding by some in the ICANN process of the place of multistakeholder model.
        I’ve been involved in ICANN since before it existed (I was a participant in the IFWP, which by a tortuous route led to ICANN’s creates). I’ve observed a view that seems to consider ICANN Policy formation as being equivalent to legisation.
        Strangely, not only are legally qualified people not exempt from it, but some of the worst offenders are lawyers .. who seem to think ICANN policy can (for example) override binding EU law, or fundamental Consitutional or Convention rights.
        There are occasional examples of this prior to the newGTLD programme, but the real lesson of this, is that the programme is so large that it is causing these issues to pop up with alarming, but predictable regularity.

  5. Is the DOJ confused as to what is actually taking place? ICANN is offering a private auction amongst those in contention which is being made public so all can see the results vs. an open auction where anyone can bid. This is a private matter that needs to be resolved privately or using the ICANN mechanism.

  6. Frank
    As I told you from the beginning before the letter was even drafted, that you would not get a written opinion letter from the DOJ on this issue.
    At the end of the day, I was right you did not get an opinion letter back.
    So you went to the next level and sent out a Press Release (although it should be noted I didn’t receive one at of your councils interpretation of a phone call with someone in Justice.
    i think its very irresponsible regardless of the motivation to release such a statement.
    Having released it however I don’t think you can pick and chose and decide everything is OK except no private auctions again the PR says justice says any “arrangements by which private parties agree to resolve gTLD string contentions solely to avoid a public auction present antitrust issues”
    That goes completely against the guidebook.
    And yes if ICANN told people to rob banks they would have liability if people went ahead and robbed banks because ICANN told them they had to as part of the process

    • Frank Schilling says:

      We got plenty Mike.. we took names and we took notes. I think the responsible thing to do was go public with this. So we did. I do think other forms of contention resolution, such as round robins, cash buyouts etc are also off the table. If ICANN told you to jump off a bridge, and you did, would they have liability? I’m not so sure. But if the police are going to arrest you for the stunt. I think sharing this info is a good thing. Everybody judge as you please.

    • Mike: What ICANN says is irrelevant. It can’t rewrite anti-trust laws, or indemnify those participating in a scheme that’s illegal. Saying “you sort it out amongst yourselves” in the guidebook was naive and simply idiotic, as that doesn’t give violators a “get out of jail card” when the feds show up at their door.
      If ICANN believes their scheme is legal, have them provide some form of indemnity……I expect they won’t.
      The irony is that the DOJ *did* provide proper guidance on how new gTLDs should have been handled, in the 2008 letter from Deborah Garza. It stated plainly “that ICANN evaluate bids from the perspective of the benefits they provide consumers, not merely the amount bidders are willing to pay to ICANN for the right to operate the gTLD. ICANN’s request for bids should expressly call for bids to specify an initial maximum price that would be charged by the operator for domain registrations, as well as limitations on price increases over time.”
      In other words, a competitive tender. And they also wanted competitive bidding for RENEWALS, rather than having perpetual presumptive renewal by the registry operator.
      Of course, ICANN ignored the advice of the DOJ. ICANN wants the money for itself, they don’t want to maximize benefits for consumers.
      If those in contention were bidding competitively to see who would run the registry at lowest cost to the consumer, there wouldn’t be a need to “sort it out amongst each other” — they’d simply bid the lowest they could against one another, and not have to fork over any cash to ICANN.

  7. If the DOJ felt strongly about it, securely about it and thought it important enough they would have issued an opinion, they did not and I think this opinion is worth only the paper its written on.

  8. Rubens Kuhl says:

    DoJ just didn’t what Uniregistry hoped, which was issuing a clear statement either that private auctions are allowed or that they are not allowed. Their position doesn’t add much.
    And considering what has been asked to DoJ, it was very unlikely that it would answer at all. So the question is whether Uniregistry is doing a fail-safe and not engaging in private auctions because of this, or if Uniregistry prefers not to engage in private auctions as a business strategy but felt the industry wouldn’t like this position. In this case, DoJ is the scapegoat to that strategy.
    Two options, pick one to fuel up your risk assessment when choosing whether or not to engage in private auctions.

  9. I wonder if any applicants who are in contention sets will “blow the whistle” on other applicants who’ve approached them with anti-competitive proposals…’d be a way to knock out that applicant, letting the DOJ do the dirty work.

    • Rubens Kuhl says:

      DoJ won’t probably be fast enough to kill a contender before ICANN staff recommends a gTLD to delegation, so it probably could only make that string vacant for a future round.

  10. Rolf Larsen says:

    Let the best application win, and avoid the ICANN auction or private deals 🙂
    No seriously, this issue is a PR stunt and is not worth the attention given here.

    • NotCom Tom says:

      The GAC may already be picking winners in many contention sets. Their list of potentially objectionable applications is a month overdue.
      If you are the recipient of GAC advice, auction venue doesn’t matter.
      If you did not submit PIC’s , this debate may be moot.

  11. gtld Observer says:

    Give it up, Frank. Face it, the gtld concept was stupid from the getgo, a losing proposition from day 1. Cut your losses now before they get exponentially worse. Take whatever refunds you can salvage of your Uniregistry investment and buy a good, short, generic .com with it. Otherwise, if you insist on plowing forward, you will be wasting time, effort and money arranging the right to sell worthless product that no one will ever want or use.

    • Frank Schilling says:

      gtld Observer: You are the owner of an AM radio station in an FM and Satellite World. New TLDs are absolutely the future of naming. .COM is still going to be strong. (Uniregistry uses a .com). No one new GTLD will supplant .com, but new names will be the majority of all domains registered within 10 years. You don’t see it now because nothing has happened yet. When all these 500 new generics are live in the root, there will thousands of new applications for round 2. The Web is changing and you need to take your head out of the sand or you are going to miss the opportunity of your lifetime. I made a similar statement about domains in general 10 years ago and I was right. I am right about this one too.

  12. I’m just curious about Mr. Berryhill’s contention that he (or Mr. Faucett) received a phone call from the DOJ. This is contrary to the procedure laid out in the governing statute.
    According to 28 CFR Sec. 50.6(10):
    Simultaneously upon notifying the requesting party of and Division action described in paragraph 8, THE BUSINESS REVIEW REQUEST, AND THE DIVISION’S LETTER IN RESPONSE shall be indexed and placed in a file available to the public upon request. (Emphasis added.)
    So, why not show the public your request for business review? It’s going to be made public soon anywhere and according to the statute there MUST have been a written response.
    I could not find any procedural mechanism in this statute that discusses telephone calls being an acceptable form of communication in declining to conduct a business review.
    According to the statute, any request for a business review and the DOJ response will be publicly available 30 days after the DOJ responds either “yes” or “no.”

  13. It should be noted that Lexology a legal publication published a story yesterday on this subject and that story headline was accurate and captured the only story from this:
    “DOJ Antitrust Division refuses to issue review letter on legality of private auctions to resolve string contention sets”
    Yes that’s the story the rest is just spin

    • Kevin Murphy says:

      Interestingly enough, that story is actually an op-ed by counsel for the Association of National Advertisers.
      The ANA has already threatened to sue ICANN over the new gTLD program on at least one occasion.
      If anyone is going to test this antitrust uncertainty out in court, I’d put these guys on the short-list.
      Oh, and the book chapter referenced in the op-ed states:

      Guidance provided by ICANN, for example, encourages private discussions between or among those entities that have applied for the same or very similar TLDs. However, there is every reason to believe that the antitrust laws will apply to any such discussions, so companies should exercise extreme caution before sitting down to talk, with actual or potential competitors about, for instance, jointly developing a bidding strategy for any auction that might follow (or to avoid such an auction) or agreeing to any market allocation or to a venture to operate jointly a particular TLD. Such discussions could be fine under certain circumstances and potentially extremely problematic in others.

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