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Five interesting nuggets from the first batch of gTLD evaluations

Kevin Murphy, March 25, 2013, Domain Registries

ICANN gave many in the industry cause for celebration on Friday when it released its first batch of 27 new gTLD applications that have passed Initial Evaluation.

The plan is to release 30 per week, ramping up to 100 at some point in future, but three applications in the first 30 still have change requests or clarifying questions being processed.

Here are some interesting bits of information we’ve gleaned from the first batch.

Donuts has passed its background checks

Donuts has had the first of its new gTLD applications approved. This means that the evaluation team doing background screening found no reason to be fail the company due to its executives’ track records.

During the public comment period last year, Donuts’ opponents said the company should be barred from getting any new gTLDs because of its close ties to Demand Media, a company with a record of adverse UDRP decisions.

It was also claimed that a Donuts director was involved in cybersquatting the Olympic and Disney brands, but it turned out the director in question had left the company in late 2011.

But ICANN’s evaluation team appears to have given Donuts the all clear.

The Donuts application that has passed Initial Evaluation, for .商店 (shop/store), is one of 199 applications, each filed by unique corporate shells, that share a parent, Dozen Donuts LLC.

The balance of Donuts’ applying companies are owned by Covered TLD LLC, believed to be its joint venture with Demand Media. All 307 are signed up to use Demand Media’s registry back-end.

Seven IDN scripts passed IE

New gTLDs in seven internationalized domain name scripts — Chinese, Arabic, Japanese, Hindi, Korean, German, Cyrillic — have passed through Initial Evaluation.

Transliterations of .com/.net are apparently fine

Some of Verisign’s applications for transliterations of .com and .net in scripts such as Chinese and Hindi have passed IE, meaning the evaluators weren’t worried about possible clashes with their legacy equivalents.

There’s been some concern from some parts of the world that because the applied-for strings are meaningless in the relevant languages, but sound like “com” and “net” when spoken, that it could cause confusion.

New back-end providers have cause for celebration

While there was little doubt that back-end providers Verisign, Neustar, Afilias and CORE would receive passing grades by ICANN — they all run gTLDs already — new market entrants did not have reasons for the same confidence.

However, ARI Registry Services, Demand Media, CentralNIC, KISA, KSRegistry and KNET are all named back-ends for passing applications in the first batch.

This should come as a cause for celebration for these companies, and a relief for their clients.

Because many applications used the same boilerplate back-end text, there’s good reason to believe that other bids using these registry providers are likely to pass the technical portion of Initial Evaluation too.

Afilias doesn’t have any passes yet

Top-three player Afilias, so far, does not have any passing apps.

One of its clients is at position #7 in the priority queue, but it’s one of the three applications in the top 30 to be still chasing follow-up questions or change requests with ICANN.

Probably nothing to worry about here.

First 27 new gTLDs pass evaluation

Kevin Murphy, March 22, 2013, Domain Registries

ICANN has started reporting the results of Initial Evaluation in its new gTLD program as promised, delivering a passing grade to 27 applications today.

So far, no bids appear to have explicitly flunked IE, judging by ICANN’s web site.

However, some of the applications in the top 27 in the prioritization queue are still flagged as being in IE — the Japanese Chinese-script dot-brand .淡马锡 and Samsung’s .삼성.

ICANN said:

For some applications Initial Evaluation results were not yet available for one or more possible reasons such as: pending change requests, clarifying questions, or follow-up with applicants regarding missing information. The results for these applications will be published as soon as the relevant processes are completed.

Due to the way the queue was rigged, all 27 passes are for internationalized domain names, such as Verisign’s .net transliteration .大拿 and Amazon’s Japanese .fashion (.ファッション).

Those that have passed IE and have no objections and no contention can now pass in to predelegation testing and contract negotiations with ICANN.

All IE results are expected to be released by August.

Did Uniregistry over-sell the auction antitrust risk?

Kevin Murphy, March 20, 2013, Domain Registries

Uniregistry’s revelation that it believes private auctions to resolve new gTLD contention sets may be illegal — based on its talks with the US Department of Justice — has caused widespread angst.

Following yesterday’s news, some commentators — some interested — questioned the company’s motive for revealing that Justice had declined to give private auctions a clean bill of health under antitrust law.

Others wondered whether Justice had been given the full facts, whether it had understood the new gTLD program, and whether Uniregistry had accurately reported Justice’s advice.

Given that yesterday’s piece was straight news, I figured it might be good to delve a little deeper into the situation and, yes, indulge in some quite shameless speculation.

What is it that Uniregistry is saying?

Here’s the argument, as I understand it.

“Bid-rigging” is illegal in many countries, including ICANN’s native US, where the Department of Justice prosecutes it fairly often, securing billions of dollars in damages and sometimes criminal sentences.

More often than not, it seems, the prosecutions are related to government contracts, where agencies are looking for a company to carry out a job of work for the lowest possible price.

Bid-rigging emerges when contractors decide among themselves who is going to win the contract. If two contracts are up for grabs, two companies may agree to submit separate high-ball bids so that they can guarantee getting one contract each.

This, of course, inflates the price the government agency pays for the work. There’s no true competition, so prices are artificially high, harming the tax-payer. That’s why it’s illegal.

The ICANN new gTLD program is a bit different, of course.

First, ICANN isn’t a government agency. While it has quasi-governmental powers, it’s a private corporation. Second, it’s looking for high bids, not low bids. Third, it doesn’t care if it doesn’t see any money.

There can be little doubt that private auctions technically harm ICANN, because the winning bidder’s money would be divided up between applicants rather than flowing into ICANN’s coffers.

Uniregistry seems to believe that a new gTLD applicant signing a private auction agreement — basically, competitors agreeing to pay or be paid to decide who wins a contract — that takes money out of ICANN’s pocket could be considered illegal collusion.

But ICANN has stated regularly that it prefers applicants to work out their contention sets privately, explicitly endorsing private auctions and/or applicant buy-outs.

ICANN, it seems, doesn’t care if it is harmed.

According to Uniregistry, however, that doesn’t matter. Its view, following its conversations with Justice, is that what ICANN says is completely irrelevant: the law’s the law.

As the company said yesterday:

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.

In other words, just because it’s very unlikely that ICANN would start filing antitrust suits against new gTLD applicants, the DoJ could feasibly decide to do so anyway.

Why would it do so? Well, consider that the thing ICANN is auctioning is a spot in the DNS root server, and the root server is ultimately controlled by the US Department of Commerce…

ICANN may not care about the money, but the thing it is selling off “belongs” to the United States government.

That’s the argument as I understand it, anyway.

Isn’t this all a bit self-serving?

Uniregistry’s press release and DI’s blog post yesterday were met with disappointment (to put it mildly) among some new gTLD applicants, auction providers and others.

They noted that Uniregistry had no documentary evidence to back up information it attributed to Justice. Some accused DI of reporting Uniregistry’s statement without sufficient skepticism.

It seems to be true that the company has not been a big fan of private auctions since the concept was first floated.

Uniregistry has applied for 54 new gTLDs, the majority of which are contested. Its main competitors are Donuts, with 37 contention sets, and Top Level Domain Holdings, with 21.

Who wins these contention sets depends on who has the most money and how much they’re prepared to pay.

Unlike Donuts, Uniregistry hasn’t gone to deep-pocketed venture capital firms. It’s reportedly funded to the tune of $60 million out of CEO Frank Schilling’s own pocket.

And unlike TLDH, which is listed on London’s Alternative Investment Market, Uniregistry doesn’t have access to the public markets to raise money. It seems to be better-funded, however.

Donuts raised $100 million to fund its new gTLD ambitions. It’s more than Schilling claims to have put into Uniregistry, but Donuts has spent much more on application fees.

Donuts is involved in 307 applications, many more than Uniregistry’s 54.

The money remaining for auctions is also spread much thinner with Donuts. It’s also in 158 contention sets, more than three times as many as than Uniregistry’s 45.

Private auctions arguably benefit Donuts because, depending on the auction model, it could reinvest the money it raises by losing an auction into a future auction. Its VC money would last longer.

The same logic applies to all applicants, but it becomes more of a pressing issue if you’re on a tight budget or have a large number of applications.

Uniregistry may have calculated that it stands a better chance of winning more contention sets against Donuts and TLDH if its competitors don’t get the chance to stuff their war chests.

Of course, Uniregistry could have simply refused to participate in private auctions in order to force an ICANN auction in its own contention sets. All new gTLD applicants have that power.

But by publicizing its antitrust concerns too, it may have also torpedoed private auctions for some contention sets that it’s not involved in.

That could limit the amount of money flowing from losing auctions to its competitors.

Another theory that has been put forwards is that Uniregistry went public with its Justice conversations — over-selling the risk, perhaps — in order to give its competitors’ investors jitters.

That might potentially reduce the capital available to them at auction, keeping auction prices down.

So did Uniregistry stand to benefit from playing up the risk of antitrust actions against new gTLD applicants? Probably.

Does it mean that its interpretation of its Department of Justice conversations is not completely accurate? Ask a lawyer.

DoJ says new gTLD private auctions might be illegal

Kevin Murphy, March 19, 2013, 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).

Del Monte v Del Monte is the first new gTLD trademark objection

Kevin Murphy, March 15, 2013, Domain Registries

Two companies trading under the name Del Monte are involved in the first-to-be-revealed Legal Rights Objection, over the .delmonte gTLD, under the new gTLD program.

The World Intellectual Property Organization revealed the LRO — expected to be the first of many — this evening.

The applicant for .delmonte is a subsidiary of Fresh Del Monte Produce, Inc. The objector is Del Monte Corp.

Both companies are primarily known for canning fruit. According to Wikipedia, Fresh Del Monte was spun off from Del Monte in 1989 and continues to have a licensing arrangement to use the brand.

The deal apparently doesn’t extend to playing nicely over gTLDs, however.

Del Monte does business at delmonte.com, while Fresh Del Monte lives at freshdelmonte.com.

Legal Rights Objections allow trademark owners to challenge gTLD applications that look too much like their marks. It looks like Del Monte has a pretty good case, on the face of it.