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Lawyer asks: how the hell did Demand Media pass the new gTLD cybersquatting test?

Kevin Murphy, April 18, 2013, Domain Registries

A lawyer apparently representing a rival new gTLD applicant has questioned ICANN’s background screening processes after Demand Media managed to get a pass despite its history of cybersquatting.

Jeffrey Stoler, now with the law firm Holland & Knight, last July said ICANN should ban Demand Media and its partner Donuts from applying for new gTLDs under the rules of the program.

This month, he’s written to ICANN, the GAC and the US government to express “alarm” that both companies have managed to pass their background checks. Stoler wrote:

This alarm arises from the overwhelming evidence, as referenced below, that: (a) Donuts is a “front” for Demand Media, Inc. (“Demand Media”), and (b) Demand Media’s status as precisely the kind of proven cybersquatter that ICANN’s rules were designed to weed-out of the gTLD application process.

How ICANN’s background screening panel could — in the teeth of that evidence — approve the continued participation of Donuts in the new gTLD program (the “Donuts Decision”) requires justification. This letter formally requests that ICANN, pursuant to its obligations of accountability and transparency, provide an explanation of how, and on what basis, the Donuts Decision was made.

Both Donuts and Demand Media responded with anger and disdain.

CEO Paul Stahura told ICANN that Donuts has discovered that Stoler, who has still not disclosed which client he’s representing in this matter, is actually on the payroll of a rival.

Donuts suspected his client was a competing applicant seeking to gain commercial advantage, and we have since confirmed this in fact is the case.

Not only do the letters intentionally misrepresent facts, they are a preposterous, extra-­procedural tactic that is a regrettable waste of time and community resources.

David Panos, director of Demand’s applying subsidiary, United TLD Holdco, was similarly dismissive:

Clearly, Mr. Stoler’s client has a substantial commercial interest in the new gTLD program and is seeking to eliminate its competition by mischaracterizing the relationships of other competing applicants and by restating factually inaccurate statements

What’s notable from both the Stahura and Panos letters is that neither company actually addresses Stoler’s allegations directly, resorting instead to mainly fudging and ad hominem arguments.

Stoler probably is seeking a competitive advantage for his mystery client, and his claims about Donuts being a “front” for Demand do come across as a bit of a stretch even for a lawyer, but that doesn’t mean that all of his arguments are wrong.

ICANN’s Applicant Guidebook for the new gTLD program is pretty clear: if you’ve had more than three adverse UDRP decisions, with at least one in the last four years, you’re “automatically disqualified” from the program.

Demand Media, as Stoler alleges and the public record supports, has lost about three dozen UDRP cases through subsidiaries such as Demand Domains, the most recent of which was in 2011.

So how did Demand pass its ICANN background screening?

The Guidebook does say “exceptional circumstances” are enough to get an applicant off the hook, but it’s hard to see how that would apply to Demand’s over 30 UDRP losses.

And Demand doesn’t want to talk about it.

None of its responses to ICANN that have been published to date even attempt to say why Stoler is wrong, and the company declined to comment when we asked for clarification today.

Donuts, which is using Demand as its back-end registry and has given the company the right to acquire interests in over 100 of its new gTLDs (should they be approved) didn’t want to comment either.

Which, some might say, plays right into Stoler’s hands.

If there’s a simple, straightforward explanation for why the background screening rules apparently didn’t apply to Demand Media, is it unreasonable to ask what that explanation is?

Donuts “almost doubles” $100m funding for new gTLD auctions

Somebody thinks new gTLDs will be a money-spinner.

Portfolio applicant Donuts, which is involved in 307 applications, has just announced a second funding round, greatly increasing its new gTLD contention set war-chest.

(UPDATE: This article originally stated, erroneously, that the funding was to the tune of $100 million. The exact amount has not actually been disclosed. Apologies for the error.)

It follows a $100 million funding round last year.

While the new amount was not disclosed, the deal “almost doubled” its funding, according to a press release, strongly suggesting it’s of a similar amount.

Existing investor Generation Partners and new investor Columbia Partners Private Capital were both involved in the round.

The company announced its first $100 million investment last year.

CEO Paul Stahura said the money was earmarked for new gTLD contention sets, many of which will be resolved at auction, and that “Donuts has further access to additional capital should the need arise”.

In a press release, he said:

We intended from the beginning to secure the gTLDs for which we applied. We enjoy tremendous support from our stockholders and lenders. This was an oversubscribed round that nearly doubles our capacity to compete. Our investors believe as strongly as we do that new gTLDs will bring relevance and specificity to registrants who have few usable choices today for Internet identities. This additional capital supports that belief, and we intend to deploy it to bring new gTLDs to market.

Pritz resurfaces with consulting gigs for Donuts and Architelos

Kevin Murphy, April 6, 2013, Domain Services

Former ICANN chief strategy officer and new gTLDs head honcho Kurt Pritz is doing a spot of industry work, following the expiration of his post-resignation consulting gig with ICANN.

Pritz, we understand, has developed consulting relationships with new gTLD portfolio applicant Donuts and consulting firm Architelos while he looks for a more permanent position.

As you may recall, he quit ICANN last November after disclosing a personal conflict of interest.

While there are no rules preventing ICANN staff going into the domain industry, Pritz’s is prohibited from sharing confidential information he learned while at ICANN, we’re told.

Given his background, we understand he’ll be focusing mainly on policy-related work at both companies.

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.

Defensive registrations with Donuts could be 95% cheaper than normal domains

Kevin Murphy, March 12, 2013, Domain Registries

Portfolio gTLD applicant Donuts plans to offer trademark owners defensive registrations at 5% to 10% of the cost of a normal domain name registration, co-founder Richard Tindal said today.

Speaking at the Digital Marketing & gTLD Strategy Congress here in New York, Tindal also revealed some of Donuts’ current thinking about the Domain Protected Marks List service outlined in its gTLD applications.

DPML, which was created by Donuts rather than ICANN, is a little like ICM Registry’s Sunrise B service for .xxx — trademark owners will be able to block domains related to their trademarks.

DPML domains will not resolve, and there’ll be no annual renewal fee.

But there will likely be several differences with .xxx, as Tindal explained.

How to get a block

Each DPML listing will block a string across all of Donuts’ gTLDs, which could be as many as 307 (if Donuts wins all of its contention sets), potentially reducing administrative headaches for trademark owners.

Second, while ICM only allowed strings to be blocked that exactly matched the trademark, Donuts’ standard will merely be that the blocked domain contains the trademarked string.

Trademark owners will have to buy a DPML listing for each string they want blocked, however. It’s not going to be a “wildcard” system. ING wouldn’t be able to block everything ending in “ing”.

If Microsoft wanted to block microsoft.tlds and microsoftwindows.tlds, it would have to request both of those strings separately, but the blocks would be place across every Donuts TLD.

The standard for inclusion is probably going to be that the trademark is listed in the official Trademark Clearinghouse, and that it would qualify for a Sunrise registration (ie, it’s actually being used).

Trademarks that qualify for the Trademark Claims service but not Sunrise would not, it seems, qualify for DPML.

Un-blocks

There’s also going to be a way for trademark owners to un-block domains that have been blocked by other trademark owners.

If Apple the gadget maker blocked the string “apple” across all Donuts gTLDs, for example, Apple Records would be able to unblock apple.music (if Donuts wins .music) if it had a trademark on “apple” in the TMCH.

The standard again would be that Apple Records qualified for a Sunrise, but the unblocking could actually happen long after the .music Sunrise period was over.

If Apple the gadget maker thought it might want to use apple.tld domains in future, its best best would be to register the domains during Sunrise, Tindal said.

Pricing

DPML listings would be available for either five or 10 years (Donuts hasn’t decided yet, but it’s leaning towards five) and pricing will probably be between 5% and 10% of the cost of registering the domains normally during general availability, Tindal said.

Let’s say, for example, that Donuts wins only a certain number of its contention sets and ends up launching 200 new gTLDs, each of which is priced at $10 per domain per year.

If the 5-10% price estimate holds, trademark owners would have to pay between $0.50 and $1 per string, per gTLD, per year. For a single trademark, that would be between $100 and $200 per year, or $500 to $1,000 over the five-year period of the block.

It doesn’t sound like there’s going to be an option for trademark owners to block their sensitive strings in only selected, relevant Donuts gTLDs using DPML. It’ll be all or none.

Donuts has not yet disclosed its pricing plans for any of its proposed gTLDs, so the numbers used here are of course just examples. They could be higher or lower when the domains come to market.

In addition, if the string in question is a “premium” generic word in one or more of Donuts’ gTLDs, the price of blocking it could head sharply north.

Tindal noted that the plans outlined during today’s conference session represent Donuts’ current thinking and may be subject to change.