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Contention questions remain as ICANN reveals “last-resort” auction rules

Kevin Murphy, November 2, 2013, 12:00:41 (UTC), Domain Policy

ICANN has published a first draft of the rules for its “last resort” new gTLD auctions, but they do not yet address the contention created by controversial objection rulings.

The organization has hired Power Auctions to write the rules and manage the auctions.

They’ve agreed upon an “ascending clock” style, where the auctioneer sets upper and lower limits for each round of bidding. Applicants must bid within that range or withdraw — they cannot skip rounds.

A bid at the top of the round’s range is a “continue bid” that sees the applicant through to the next round. Lower, and it’s an “exit bid” that will count as a withdrawal if anyone else submits a higher bid.

When all but one applicants have withdrawn, the remaining applicant gets the gTLD, paying ICANN an amount equal to the highest exit bid submitted by a competitor in that round.

Unlike the private auctions that have been taking place for the last few months, losing applicants walk away empty-handed apart from a small application fee refund from ICANN.

Applicants’ bidding limits will be determined by their deposits. If your deposit is under $2 million, your bid ceiling is 10x your deposit, but if you put down $2 million deposit or more, there would be no upper limit.

It all seems fairly straightforward for direct, single-string contention sets.

Where it starts to get fuzzy is when you start thinking about “indirect” contention and multiple, connected auctions running simultaneously.

It’s a little tricky to explain indirect contention without diagrams, but let’s try an example, using .shop, instead.

There are nine applicants for .shop. These are all in direct contention with each other.

But one .shop applicant, Commercial Connect, won objections against applicants for “similar” strings — Amazon’s .通販 and Donuts’ .shopping.

Assuming ICANN upholds these objection findings, which seems increasingly likely given recent statements from generic domains president Akram Atallah, both .shopping and .通販 will be in direct contention with Commercial Connect’s .shop and in indirect contention with all the other .shop applications.

Complicating matters, while Amazon’s .通販 is uncontested, Donuts’ .shopping is also in direct contention with Uniregistry, which applied for the same string but did not lose an objection.

It will be quite possible for .shop, .shopping and .通販 to all be delegated, but only if Commercial Connect loses the auction for .shop or otherwise withdraws from the race.

The auction materials published by ICANN today are a bit fuzzy on what happens when indirect contention is in play. On the one hand it suggests that multiple applications can win an auction:

When a sufficient number of applications have exited the auction process, so that the remaining application(s) are no longer in contention with one another, and all the relevant string(s) can be delegated as gTLDs, the auction will be deemed concluded.

But the rules also say:

the rules set forth within this document will assume that there is direct contention only, a condition that holds for the substantial majority of Auctions. In the event that an Auction will include a Contention Set that does not satisfy this condition, ICANN or the Auction Manager may issue an Addendum to the Auction Rules to address indirect contention.

While it seems that the auctions for .shop, .shopping and .通販 would have to take place simultaneously due to the indirect contention, some weird edge cases have me confused.

ICANN’s list of indirect contention sets is currently empty.

It’s not at all clear to me yet whether, for example, Donuts’ .shopping application would be placed in the .shop auction or whether two separate auctions would be conducted.

That could be important because deposits — and therefore bidding limits — are specific to each auction.

Would Donuts have to stump up $4 million in deposits, rather than $2 million, just in order to win one string? Would Commercial Connect have to put down $6 million for three auctions for one string?

If the two .shopping applicants are placed in the .shop auction, and Commercial Connect withdraws first, would Donuts have to carry on bidding against the other eight .shop applicants, just to win .shopping?

I’m guessing not, but the rules don’t seem to envisage this scenario yet.

What about Uniregistry, which has an application for .shopping? Will ICANN force it into the .shop auction even though it’s not in direct contention with any .shop applicant?

If .shop and .shopping are two separate auctions, what happens if Commercial Connect withdraws from the .shop auction but not the .shopping auction? It would have little to gain — not being a .shopping applicant — but could it artificially bid up the .shopping set?

And could how these auctions play out have an impact on companies’ objection strategies in future rounds?

If Uniregistry, say, finds itself at a disadvantage because its .shopping competitor Donuts was objected to by Commercial Connect, maybe it would make sense for an entire direct contention set to cooperate to fight off an objection from an applicant for a similar string.

And if Commercial Connect finds itself financially hobbled by having to participate in three auctions rather than one, maybe that will discourage applicants from filing massive amounts of objections in future.

And another thing…

If you’re as confused as I am, ICANN is running a webinar November 7 at 2200 UTC in order to answer (hopefully) these kinds of questions.

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