Closed gTLD debate threatens Google and Amazon

Howls of criticism about Google, Amazon and others’ plans to grab huge swathes of new gTLD real estate and keep it to themselves seem to have spurred ICANN into action.
A public comment period opened this week seeks community feedback (indirectly) on applications such as Amazon’s .music, L’Oreal’s .beauty and Google’s .blog, among many others.
These gTLDs have all been proposed with “single-registrant” business models, in which the registry controls all second-level domains and regular registrars cannot sell them to anyone else.
It’s the “dot-brand” model, but applied to generic dictionary words for which the applicants have no trademark rights.
Scores of such applications have been made, notably by Google and Amazon, but they have drawn criticism from many in the ICANN community, such as a small group of registrars and others led by Blacknight Solutions.
Members of the Governmental Advisory Committee, most vocally Australia, have also expressed serious concerns about the model, saying it could be anti-competitive.
ICANN’s board of directors is currently mulling over these complaints, and has thrown the issue open to public comment to aid in its deliberations.
What it wants from you is:

proposed objective criteria for:

• classifying certain applications as “closed generic” TLDs, i.e., how to determine whether a string is generic, and
• determining the circumstances under which a particular TLD operator should be permitted to adopt “open” or “closed” registration policies.

The way the public comment request is phrased should be quite worrying to applicants for closed generic gTLDs.
It seem to assume that ICANN should be classifying gTLDs, something it has steadfastly refused to do for all of the years these kinds of debates have been raging.
What is a “closed generic” anyway?
The DI PRO New gTLD Application Tracker classifies gTLD applications into three buckets: Open, Restricted and Single-Registrant.
We made no attempt to segregate dot-brands from other Single Registrant bids, precisely because there’s currently no such thing as a dot-brand under ICANN’s rules.
There doesn’t seem to be much community concern about the apps we have classified as “Restricted” — applications for .lawyer that propose to vet registrants for their lawyerly credentials, for example.
The concern is all directed at Single Registrant bids. We have 912 of these in our database.
Many of these are dot-brands, where the applied-for string is an exact match with a famous trademark, but many are for dictionary words for which the applicant has no preexisting rights.
In order to sanely operate a dot-brand, applicants must request an exemption to the ICANN rules that oblige them to offer their gTLDs via accredited registrars on a non-discriminatory basis.
This Code of Conduct is a part of the base Registry Agreement for new gTLDs, but it contains a carve-out for single-registrant applicants:

Registry Operator may request an exemption to this Code of Conduct, and such exemption may be granted by ICANN in ICANN’s reasonable discretion, if Registry Operator demonstrates to ICANN’s reasonable satisfaction that (i) all domain name registrations in the TLD are registered to, and maintained by, Registry Operator for its own exclusive use, (ii) Registry Operator does not sell, distribute or transfer control or use of any registrations in the TLD to any third party that is not an Affiliate of Registry Operator, and (iii) application of this Code of Conduct to the TLD is not necessary to protect the public interest.

This provision was added specifically in order to enable “dot-brands” to exist.
It would be pretty weird if, for example, L’Oreal was forced to make .loreal domains available via hundreds of registrars. By requesting an exception, L’Oreal has the chance to keep .loreal in-house.
However, because ICANN deliberately has made no distinction between commonly used words and brands (.amazon could be both), L’Oreal was also able to apply for .beauty as a single-registrant gTLD.
It’s not really a loophole — the possibility of companies applying for closed generics was envisaged by ICANN and the policy-making community long before the application window even opened.
Make no mistake, this is well-trodden ground. ICANN had plenty of opportunities to address the issue before the new gTLD application window opened a year ago and it quite consciously decided not to.
The feeling over the last couple of years has been that objection mechanisms such as the Community Objection, as well as GAC Advice, would be sufficient to close down these problematic gTLDs bids.
During the year-long community discussion about registry-registrar vertical integration, the possibility of closed generics was acknowledged and heavily debated.
The GNSO’s Vertical Integration Working Group failed to reach consensus on almost everything, but most of the recommendations emerging from it included some Code of Conduct exemptions for dot-brands.
Some in the WG suggested that the exemptions should only apply to true dot-brands (ie, those back up by a trademark) but ICANN decided against referring to trademarks when it wrote the Code of Conduct due to the very real possibility that it would encourage gaming by speculators.
That problem has not disappeared. While there’s no such gaming in the current batch of applications, there will be second and third and fourth application rounds that the rules being hastily debated at the last minute right now will also (presumably) apply to.
What do closed generic applicants want?
Some ICANN community members assumed that it would be the big domainer-backed companies (later emerging as Donuts, Uniregistry et al) that would attempt these kinds of land-grabs.
But that (so far) hasn’t turned out to be the case. The domainers have generally proposed registration policies that are super, super liberal in comparison to Google, Amazon and other closed-generic applicants.
I believe it’s partly because it’s these massively powerful e-commerce companies that are the ones making the land-grabs, and the scale of the grabs, that the issue of closed generics has reemerged now.
There are two broad use cases of concern here.
First, the .beauty scenario: L’Oreal keeps all the second-level .beauty domains to itself, essentially converting the word “beauty” into a brand name as far as the DNS is concerned.
Second, the .blog scenario: Google implements a policy that all .blog domains must use its Blogger service, potentially to the detriment of competitors such as WordPress or Tumblr.
In both scenarios, the bids could be rejected in their entirety as a result of formal objections, ICANN board action or Governmental Advisory Committee advice.
If the applications were approved, ICANN could also subjectively apply the ill-defined “public interest” test outlined above to force compliance with the Code of Conduct.
But that would merely lead to the bizarre scenario where 1,700 accredited registrars all qualify to sell .music domain names, but the only potential customer is Amazon.com’s intellectual property management department (which wants to run .music as a single-registrant gTLD).
As ICANN points out in its public comments request, the Code of Conduct regulates who can sell domain names in new gTLDs, not who they can sell them to.
The .blog scenario is a little different.
This is what Google, which has applied via its Charleston Road Registry subsidiary, has proposed (with my emphasis):

Should ICANN grant Charleston Road Registry’s exemption to the Code of Conduct, and the proposed gTLD operate with Google as the sole registrar and registrant, members of the public will not be able to directly register domain names in this new gTLD. Users will, however, be given the opportunity to make use of a vanity second-level domain as a memorable identifier linked to content in Blogger.

In other words, Google will “own” all the second-level .blog domains, but will allow Blogger customers to “use” them.
It looks like what it is: a transparently bogus attempted workaround of the Code of Conduct, designed to let Google exclude rival blogging services and independent, self-managed bloggers from .blog.
(Disclosure: DI is an independent, self-managed blog.)
However, I can’t see how what Google has proposed could possibly qualify for an exemption, which is only supposed to be granted provided the registry does not “transfer control or use of any registrations in the TLD to any third party”.
If sanity prevails, Google probably won’t qualify for an exemption.
But that won’t stop it tying .blog to Blogger.
The Code of Conduct, remember, is only concerned with equal, non-discriminatory access for accredited registrars. It does not speak to registry services or registry policies.
Google could possibly still have a registry policy stating that all .blog domains must point to Blogger.
In addition, Google could make the registration fee $0, making it unattractive for most registrars to carry (though I guess registrars could use it as a loss-leader, they wouldn’t be able to up-sell hosting and other services if all .blog domains have to use Blogger).
In conclusion
Applicants for closed generics paid millions of dollars to apply, using the rules set down in the Applicant Guidebook at the time, and I can’t see them being too happy about this eleventh hour surprise.
However, there can be little doubt that ICANN, if its role is to protect the public interest and consumer trust, has to seriously tackle the issue of closed generics.
But it has to address it in 2011.