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How new gTLD auctions could kill gaming for good

Kevin Murphy, January 11, 2019, Domain Policy

Ever heard of a Vickrey auction? Me neither, but there’s a good possibility that it could become the way most new gTLD fights get resolved in future.

It’s one of several methods being proposed to help eliminate gaming in the next new gTLD application round that have received some support in a recently closed round of public comments.

ICANN’s New gTLD Subsequent Procedures working group (SubPro) is the volunteer effort currently writing the high-level rules governing future new gTLD applications.

Two months ago, it published a preliminary report exploring possible ways that contention sets could be resolved.

The current system, from the 2012 round, actively encourages applicants to privately resolve their sets. Usually, this entails a private auction in which the winning bid is shared evenly between the losing applicants.

This has been happening for the last five years, and a lot of money has been made.

Losing auctions can be a big money-spinner. Publicly traded portfolio registry MMX, for example, has so far made a profit of over $50 million losing private auctions, judging by its annual reports. It spent $13.5 million on application fees in 2012.

MMX is actually in the registry business, of course. But there’s a concern that its numbers will encourage gaming in future.

Companies could submit applications for scores of gTLDs they have no intention of actually operating, banking on making many multiples of their investment by losing private auctions.

Pointing no fingers, it’s very probably already happened. But what to do about it?

Who’s this Vickrey chap?

One suggestion that seems to be getting some love from diverse sections of the community is a variation of the “Vickrey auction”.

Named after the Canadian Nobel Prize-winning economist William Vickrey, it’s also called a “second price sealed bid auction”.

Basically, each applicant would secretly submit the maximum price they’d be willing to pay for the contested gTLD, and the applicant with the highest bid would pay the amount of the second-highest bid.

This method has, I believe, been used more than once in private contention resolution during the 2012 round.

But under the system suggested by SubPro, each applicant would make their single, sealed, high bid at time of application, before they know who else is gunning for the same string.

That way, contention sets could be mostly eliminated right at the start of the process, leading to time and cost efficiencies.

There’d be no need for every application in a contention set to go through full evaluation. Only the high bidder would be evaluated. If it failed evaluation, the second-highest bidder would go into evaluation, etc, until a successful applicant was found.

For losing applicants, a possible benefit of this is that they’d get much more of their application fees refunded, because they’d be skipping much of the process.

Neither would they have to bear the ambient running costs of sitting on their hands for potentially years while the ICANN process plays itself out.

It could also substantially speed up the next round. If the round has five, 10, 20 or more times as many applications as the 1,930 received in 2012, resolving contention sets at the very outset could cut literally years off processing times.

The SubPro concept also envisages that the winning bid (which is to say, the second-highest bid) would go directly into ICANN’s coffers, eliminating the incentive to game the system by losing auctions.

I must admit, there’s a lot to love about it. But it has drawbacks, and critics.

Why Vickrey may suck

SubPro itself notes that the Vickrey model it outlines would have to take into account other aspects of the new gTLD program, such as community applications, applicants seeking financial support from ICANN, and objections.

It also highlights concerns that bids submitted at the time of application constitute private business-plan information that applicants may not necessarily want ICANN staff seeing (with the revolving door, this info could quite easily end up at a competitor).

Companies and constituencies responding to the recent public comment period also have concerns.

There’s hesitance among some potential applicants about being asked to submit blind bids. There are clearly cases where an applicant would be prepared to pay more to keep a gTLD out of the hands of a competitor.

One could imagine, for example, that Coca-Cola would be ready to spend a lot more money on .cola if it knew Pepsi was also bidding, and possibly less if it were only up against Wolf Cola.

The Intellectual Property Constituency raised this concern. It said that it was open to the idea of Vickrey auctions, but that it preferred that bids should be submitted after all the applications in the contention set have been revealed, rather than at time of application:

Although there is a potential downside to this in that the parties have not put a “value” on the string in advance, the reality is that many factors come into play in assessing that “value”, certainly for a brand owner applicant and possibly for all applicants, including who the other parties are and how they have indicated they intend to use the TLD.

The Brand Registry Group and Neustar were both also against the Vickrey model outlined by SubPro, but neither explained their thinking.

The Business Constituency, which is often of a mind with the IPC, in this case differed. The BC said it agreed that bids should be submitted alongside applications, only to be unsealed in the event that there is contention. The BC said:

This Vickrey auction would also resolve contention sets very early in the application evaluation process. That saves contending applicants from spending years and significant sums during the contention resolution process, which was very difficult for small applicants.

It’s hard to gauge where current registries, which are of course also likely applicants, stand on Vickrey. The Registries Stakeholder Group is a pretty diverse bunch nowadays and it submitted a set of comments that, unhelpfully, flatly contradict each other.

“Some” RySG members believe that the current evaluation and contention process should stay in place, though they’re open to a Vickrey-style auction replacing the current ascending-clock model at the last-resort stage after all evaluations are complete.

“Other” RySG members, contrarily, wholeheartedly support the idea that bids should be submitted at the time of application and the auction processed, Vickrey-style, before evaluation.

“An application process which requires a thorough evaluation of an applicant who will not later be operating the gTLD is not an efficient process,” these “other” RySG members wrote. They added:

if contention sets are resolved after the evaluation process and not at the beginning of it, like the Vickery model suggestion, it would enable applicants who applied for multiple strings to increase the size of their future bids each time they lost an auction. Each TLD needs to be treated on its own merits with no contingencies allowed for applicants with numerous applications.

It’s not at all clear which registries fall into the “some” category and which into “other”, nor is it clear the respective size of each group.

Given the lack of substantive objections to pre-evaluation Vickrey auctions from the “some” camp, I rather suspect they’re the registries hoping to make money from private settlements in the next round.

Other ideas

Other anti-gaming ideas put forward by SubPro, which did not attract a lot of support, included:

  • A lottery. Contention sets would be settled by pulling an applicant’s name out of a hat.
  • An RFP process. This would mean comparative, merit-based evaluation, which has never been a popular idea in ICANN circles.
  • Graduated fees. Basically, applicants would pay more in application fees for each subsequent application they filed. This would disadvantage portfolio applicants, but could give smaller applicants a better shot at getting the string they want.

All of the comments filed on SubPro’s work has been fed back into the working group, where discussions about the next new gTLD round will soon enter their fourth year…

How one guy games new gTLD sunrise periods

Kevin Murphy, April 17, 2014, Domain Registries

Wanna buy a SOCIAL brand pen for a dollar? No? How about social.web or cloud.guru or direct.flowers?

pensOne intellectual property lawyer closely associated with a number of new gTLD registries has been using a flimsy online pen-selling business in order to obtain potentially valuable domains during sunrise periods.

Thomas Brackey of Beverley Hills law firm Freund & Brackey has acquired dozens of premium domain names during sunrise periods. He was good enough to share some of the details with DI.

Brackey owns three trademarks on the terms “DIRECT”, “SOCIAL” and “CLOUD”. All three were registered in Switzerland in late 2012, having been applied for in July that year.

All three cover the category “stylos”, or pens.

If you want to buy a CLOUD brand pen, you can do so at pentm.ch, a web site Brackey seems to have thrown up rather quickly using Shopify.

All three marks appear to have been registered via Marcaria.com, which charges $960 for a Swiss trademark registration.

Brackey obtained Trademark Clearinghouse registrations for his three trademarks, which would have cost him at least $150 per mark.

He seems to have used the pentm.ch web site to fulfill the TMCH’s “proof of use” requirement.

With TMCH registrations, he’s able to participate in new gTLD sunrise periods, giving him the first opportunity to register social.tld, cloud.tld and direct.tld for the usual inflated sunrise prices.

The pens themselves, Brackey assures us, are real.

But he makes no attempt to pretend that the pen-selling business was in thriving need of brand protection under the new gTLD program’s brand protection mechanisms.

Brackey told DI:

In the course of preparing new gTLD applications, I came to be pretty familiar with the various policy developments surrounding the creation and implementation of the TMCH.

For the first time mark holders of all stripes, and from every country would be given a pre-emptive right to acquire domain names that had nothing to do with the substance of their brands.

Musing on that, I identified what I believed to be a legitimate opportunity to acquire some domain names in the newTLD landscape. More curious than anything, I decided to put my theory to the test and resolved to try buying some domain names.

I’m not sure what I’m going to do with the domains I’ve purchased. I’ve never been a domain investor before, and not confident I qualify as one now. It’s all a bit of an experiment at this point and is certainly fascinating territory from an IP perspective.

There will no doubt be a number of important international legal developments that arise from the gTLD process — new rules, new policies and new opportunities.

At least two of Brackey’s new gTLD clients — What Box? and Plan Bee, which use Brackey’s law firm as their mailing address — have also registered large numbers of sunrise names using this same method.

He’s even selling Plan Bee’s “CONSTRUCTION” and “BUILD” pens on his web site.

Brackey acknowledged that some people take a “pretty dim view” of what he’s doing.

I’d have to say I’m one of them.

In my view, while Brackey may not be strictly breaking the rules of the new gTLD program, he’s certainly not acting within their spirit.

Members of Intellectual Property Constituency and others fought hard for rights protection mechanisms that would help them protect their or their clients’ pre-existing brands from cybersquatters.

The RPMs were not designed to provide a way for investors to avoid landrush auctions or a mad scramble for nice names on the first days of general availability.

The “proof of use” requirement was added to the rules in order prevent the kind of debacle we saw with the European Union’s .eu launch, where bogus trademarks were used to game EurID’s sunrise period.

But the barrier is tissue-thin, requiring merely a screenshot of a web site to overcome.

Gaming new gTLD sunrise periods may not be cheap — it may not even be profitable — but I have to wonder what kind of reputational impact it will have on new gTLD registries that choose to participate.

If you’re a brand owner, would you be more likely or less likely to trust a new gTLD registry that chooses to participate in sunrise gaming?

TMCH sends out 17,500 Trademark Claims notices in a month

Kevin Murphy, March 3, 2014, Domain Services

Wow.

Just four weeks after the first new gTLDs went into general availability, the Trademark Clearinghouse has already sent out over 17,500 Trademark Claims notices to trademark owners.

A Claims notice is a warning that is generated whenever somebody registers a domain name that exactly matches a trademark listed in the TMCH’s database.

The 17,500 number refers to post-registration notices sent to trademark owners, not pre-registration warnings delivered to would-be registrants.

Considering that there are somewhere in the region of 180,000 domain names in new gTLDs today, 17,500 represents a surprisingly high percentage of the market (high single figures).

Of course, not all of these will be due to cybersquatting attempts.

There are plenty of marks in the TMCH that are acronyms or dictionary words, either because they match a genuine brand or because somebody obtained trademarks on generic terms in order to game sunrise periods.

I’d count those as false positives, personally, but it’s impossible to know without access to TMCH data how many of the 17,500 alerts delivered to date can be accounted for in that way.

There are 26,802 marks in the TMCH, according to the company.

Uniregistry plans “dot-spanning” Sunrise periods and anti-gaming protection

Kevin Murphy, December 27, 2013, Domain Registries

Uniregistry is to offer a second Sunrise period in its new gTLDs, going over and above what is required by ICANN, aimed at companies with trademarks that “span the dot”.

Say you run a tattoo parlor and have a trademark on “Joe’s Tattoo”. The ICANN-mandated Sunrise would only allow you to register joestattoo.tattoo, but Uniregistry will allow you to buy joes.tattoo as well.

It would also allow “plurals and conjugations”, so a company with a trademark on “Joe’s Tattoos” would presumably also be eligible for joes.tattoo, even though they’re not an exact match.

This Sunrise B plan appears to apply to all of Uniregistry’s forthcoming gTLDs and was approved by ICANN recently (pdf).

The additional service would be invitation-only, restricted to companies that have participated in the regular Sunrise period, which Uniregistry is calling Sunrise A.

For Sunrise A, Uniregistry plans to allow mark owners to register regular resolving domain names or purchase “blocking” registrations, where the domain resolves to a non-monetized Uniregistry placeholder.

Sunrise B participants would not be able to purchase blocking registrations; for “dot-spanning” trademarks the name must resolve.

Uniregistry also plans to implement an “anti-hijack” measure to help prevent — or at least add friction to — .eu-style gaming by domain speculators during its launch periods.

If you participate in either Sunrise period, you won’t be able to later transfer your name to a third party without providing the registry with proof that you’ve also transferred the corresponding trademark registration.

Court throws out Russian gaming scandal claims

Kevin Murphy, November 2, 2011, Domain Registrars

Russian registrar RU-Center has won its appeal against a $7.5 million government fine, following claims that it gamed the launch of .РФ, registering tens of thousands of names to itself.

The Moscow Arbitration Court yesterday reversed the decision of the Federal Antimonoply Service, according to a statement from RU-Center, the .РФ registry and local media reports.

The dispute centers on the launch of the Cyrillic-script ccTLD last November, which saw over 200,000 registrations in the first six hours and half a million domains registered in the first few weeks.

RU-Center was quickly hit by claims that it had used its access to the registry, ccTLD Coordination Center, to register over 65,000 premium names to itself in order to auction them to users.

It later emerged that some of the Coordination Center’s launch policy-setters had ownership interests in RU-Center either directly or through family members.

In challenging the FAS ruling, RU-Center said that it only registered domains in its own name, via other registrars, because it had taken over 120,000 pre-orders from customers but was limited to filing 4,800 registrations per hour by the registry.

It also said that the domains remained in its own name because registry rules prohibited transfers during the first year of registration. The transfers will be effective November 11, it said.

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