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Governments call for ban on gTLD auctions

Kevin Murphy, June 21, 2023, 15:34:23 (UTC), Domain Policy

Governments are calling for a ban on new gTLD contention sets being settled via private auctions, a practice that allowed many tens of millions of dollars to change hands in the last application round.

ICANN’s Governmental Advisory Committee said in its ICANN 77 communique that it formally advises ICANN: “To ban or strongly disincentivize private monetary means of resolution of contention sets, including private auctions.”

Private auctions typically see the losers split the winner’s winning bid among themselves. The GAC endorsed the At-Large Advisory Committee’s recommendation that applicants should be forced to ICANN-run “last resort” auctions, where ICANN gets all the money, instead.

The concern is that companies with no intention of actually operating a gTLD will file applications purely in order to have a tradeable asset that can be sold to competing applicants for a huge profit.

In the 2012 round, 224 contention sets were settled in private, often via auctions. ICANN not only allowed but encouraged the practice.

For example, publicly listed portfolio registry Minds + Machines disclosed tens of millions of income from losing private auctions, some of which was reinvested into winning auctions for gTLDs that it did intend to run.

Another applicant, Nu Do Co, did not win a single auction it was involved in, with the exception of the ICANN-run “last resort” auction for .web, where its winning $135 million bid was secretly funded by Verisign.

In the case of .web, rival bidders urged NDC to go to private auction until almost the last moment, eager to get a piece of the winning bid. It remains the subject of legal disputes to this day.

The current GNSO “SubPro” policy recommendations do not include a ban on private settlements, instead saying that applicants should affirm that they have a “bona fide” intent to operate the TLD, under penalty of unspecified sanctions if they lie.

The recommendations include a set of suggested red flags that ICANN should look out for when trying to determine whether an applicant is game the system, such as the number of applications filed versus contention sets won.

It’s pretty vague — the kind of thing that would have to be ironed out during implementation — and the ICANN board of directors has yet to formally approve these specific recommendations.

The GAC’s latest advice also has concerns about the “last resort” auctions that ICANN conducts, which see ICANN place the winning bid in a special fund, particular with regards non-commercial applicants.

The GAC advised ICANN: “To take steps to avoid the use of auctions of last resort in contentions between commercial and non-commercial applications; alternative means for the resolution of such contention sets, such as drawing lots, may be explored.”

Some previous ways to mitigate contention gaming include Vickrey auctions, where every applicant submits a high bid at the time of application and the applicant with the highest bid pays ICANN the amount of the second-highest bid.

Bidding before one even knows whether the gTLD string will be subject to contention is seen as a way to dissuade applicants from applying for strings they don’t really want.

ICANN directors said repeatedly at ICANN 77 last week that the Org will be hiring an auctions expert to investigate the best way to handle auctions and reduce gaming.

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Comments (6)

  1. John Berryhill says:
    June 21, 2023 at 3:41 pm

    ” the Org will be hiring an auctions expert to investigate the best way to handle auctions and reduce gaming.”

    The “ICANN Org” is sounding more like Scientology as time goes on.

    They have also acquired an anteater to investigate the best way to avoid harming ants.

    Reply
  2. Volker Greimann says:
    June 22, 2023 at 5:31 am

    “ alternative means for the resolution of such contention sets, such as drawing lots, may be explored.”

    Digital Archery, anyone?

    Reply
  3. Matthias Pfeifer says:
    June 24, 2023 at 8:23 pm

    So private auctions will happen more private..

    Reply
    • Rubens Kuhl says:
      June 27, 2023 at 2:42 am

      Which is why a no-collusion clause like the one used in spectrum auctions was discussed in the PDP, but in the end was not favored by the WG. Mainly because it would also prohibit other means of contention settling like joint-ventures.

      If not putting a bid in the ICANN auction would lead to a non-bona-fide finding, applicants would simply bid a small amount just to lose it. Arbitrating the value an applicant would see in an asset is not feasible.

      I’m no fan of profiting just by applying to a TLD, but at some point one needs to pick their poison: no collusion or the possibility of amicable resolution with risk of some tampering.

      Reply

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