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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…

Donuts loses to ICANN in $135 million .web auction appeal

Kevin Murphy, October 16, 2018, Domain Registries

Donuts has lost a legal appeal against ICANN in its fight to prevent Verisign running the .web gTLD.

A California court ruled yesterday that a lower court was correct when it ruled almost two years ago that Donuts had signed away its right to sue ICANN, like all gTLD applicants.

The judges ruled that the lower District Court had “properly dismissed” Donuts’ complaint, and that the covenant not to sue in the Applicant Guidebook is not “unconscionable”.

Key in their thinking was the fact that ICANN has an Independent Review Process in place that Donuts could use to continue its fight against the .web outcome.

The lawsuit was filed by Donuts subsidiary Ruby Glen in July 2016, shortly before .web was due to go to an ICANN-managed last-resort auction.

Donuts and many others believed at the time that one applicant, Nu Dot Co, was being secretly bankrolled by a player with much deeper pockets, and it wanted the auction postponed and ICANN to reveal the identity of this backer.

Donuts lost its request for a restraining order.

The auction went ahead, and NDC won with a bid of $135 million, which subsequently was confirmed to have been covertly funded by Verisign.

Donuts then quickly amended its complaint to include claims of negligence, breach of contract and other violations, as it sought $22.5 million from ICANN.

That’s roughly how much it would have received as a losing bidder had the .web contention set been settled privately and NDC still submitted a $135 million bid.

As it stands, ICANN has the $135 million.

That complaint was also rejected, with the District Court disagreeing with earlier precedent in the .africa case and saying that the covenant not to sue is enforceable.

The Appeals Court has now agreed, so unless Donuts has other legal appeals open to it, the .web fight will be settled using ICANN mechanisms.

The ruling does not mean ICANN can go ahead and delegate .web to Verisign.

The .web contention set is currently “on-hold” because Afilias, the second-place bidder in the auction, has since June been in a so-called Cooperative Engagement Process with ICANN.

CEP is a semi-formal negotiation-phase precursor to a full-blown IRP filing, which now seems much more likely to go ahead following the court’s ruling.

The appeals court ruling has not yet been published by ICANN, but it can be viewed here (pdf).

The court heard arguments from Donuts and ICANN lawyers on October 9, the same day that DI revealed that ICANN Global Domains Division president Akram Atallah had been hired by Donuts as its new CEO.

A recording of the 32-minute hearing can be viewed on YouTube here or embedded below.

Chutzpah alert! DotKids wants ICANN handout to fight gTLD auction

Kevin Murphy, September 24, 2018, Domain Policy

New gTLD applicant DotKids Foundation has asked ICANN for money to help it fight for .kids in an auction against Amazon and Google.

The not-for-profit was the only new gTLD applicant back in 2012 to meet the criteria for ICANN’s Applicant Support Program, meaning its application fee was reduced by $138,000 to just $47,000.

Now, DotKids reckons ICANN has a duty to carry on financially supporting it through the “later stages of the process” — namely, an auction with two of the world’s top three most-valuable companies.

The organization even suggests that ICANN dip into its original $2 million allocation to support the program to help fund its bids.

Because .kids is slated for a “last resort” auction, an ICANN-funded winning bid would be immediately returned to ICANN, minus auction provider fees.

It’s a ludicrously, hilariously ballsy move by the applicant, which is headed by DotAsia CEO Edmon Chung.

It’s difficult to see it as anything other than a delaying tactic.

DotKids is currently scheduled to go to auction against Google’s .kid and Amazon’s .kids application on October 10.

But after ICANN denied its request for funding last month, DotKids last week filed a Request for Reconsideration (pdf), which may wind up delaying the auction yet again.

According to DotKids, the original intent of the Applicant Support Program was to provide support for worthy applicants not just in terms of application fees, but throughout the application process.

It points to the recommendations of the Joint Applicant Support working group of the GNSO, which came up with the rules for the support program, as evidence of this intent.

It says ICANN needs to address the JAS recommendations it ignored in 2012 — something that could time quite some time — and put the .kids auction on hold until then.

How ICANN could spend its $240 million war chest

Kevin Murphy, January 2, 2018, Domain Policy

Schools, pHD students and standards groups could be among the beneficiaries of ICANN’s nearly quarter-billion-dollar new gTLD auction war chest.

But new gTLD registries hoping for to dip into the fund for marketing support are probably shit out of luck.

Those are among the preliminary conclusions of a volunteer working group that has been looking at how ICANN should spend its new gTLD program windfall.

Over 17 new gTLD auctions carried out by ICANN under its “last resort” contention resolution system, the total amount raised to date is $240,590,128.

This number could increase substantially, should still-contested strings such as .music and .gay go to last-resort auction rather than being settled privately.

Prices ranged from $1 for .webs to $135 million for .web.

ICANN has always said that the money would be held separate to its regular funding and eventually given to special projects and worthy causes.

Now, the Cross-Community Working Group on New gTLD Auction Proceeds has published its current, close-to-final preliminary thinking about which such causes should be eligible for the money, and which should not.

In a letter to ICANN (pdf), the CCWG lists 18 (currently hypothetical, yet oddly specific) example proposals for the use of auction funds, 17 of which it considers “consistent” with ICANN’s mission.

A 19th example, which would see money used to promote TLD diversity and “smells too much like marketing” according to some CCWG members, is still open for debate.

While the list of projects that could be approved for funding under the proposed regime is too long to republish here, it would for example include giving scholarships to pHD students researching internet infrastructure, funding internet security education in developing-world primary schools and internet-related disaster-recovery efforts in risk-prone regions.

The only area the CCWG appears to be reluctant to endorse funding is the case of commercial enterprises run by women and under-represented communities.

The full list can be downloaded here (pdf).

The CCWG hopes to publish its initial report for public comment not too long after ICANN 61 in March. Comment would then need to be incorporated into a final report and then ICANN would have to approve its recommendations and implement a process for actually distributing the funds.

Don’t expect any money to change hands in 2018, in other words.

.kids auction is off

Kevin Murphy, December 12, 2017, Domain Registries

ICANN has postponed the planned auction of the .kid(s) gTLDs after an appeal from one of the applicants.

The last-resort auction had been penciled in for January 25, and there was a December 8 deadline for the three participants to submit their info to the auctioneer.

But DotKids Foundation, the shallowest-pocketed of the three, filed a Request for Reconsideration last Wednesday, asking ICANN to put the contention set back on hold.

The cancellation of the January auction appears to be to give ICANN’s board of directors time to consider the RfR under its usual process — it has not yet ruled on it.

DotKids and Amazon have applied for .kids and Google has applied for .kid. A String Confusion Objection won by Google put the two strings in the same contention set, meaning only one will eventually go live.

DotKids comprehensively lost a Community Priority Evaluation, which would negate an auction altogether, but it thinks the CPE got it wrong and wants to be treated the same way as other gTLD applicants whose CPE results are currently under review.

Reconsideration requests take between 30 and 90 days to process, and they rarely go the way of the requester, so the delay to the auction will likely not be too long.