Right Of The Dot gets legal opinion: new gTLD auctions not illegal

Right Of The Dot, one of the companies hoping to offer contention set resolution services to new gTLD applicants, has published a legal opinion arguing that auctions are not inherently illegal.
The document was issued in response to Uniregistry’s claim that the US Department of Justice has refused to give auctions a green light under antitrust law.
ROTD hired the law firm Lewis Brisbois Bisgaard & Smith, including a partner with DoJ experience, to draft the statement.
It’s aimed at lawyers, primarily, but the gist of it is that simply participating in an auction is not illegal in and of itself — participants would have to collude in some other way too.
It states:

The finding of an antitrust violation necessarily would depend on a showing that the private auction unreasonably restrained interstate trade or commerce.
The question comes down to the conduct of the parties to an auction, be it a private auction or an ICANN Last Resort Auction.
If the parties to an auction, engage in collusion such as price fixing and/or bid rigging, it constitute per se violations of Section 1 of the Sherman Act.
It’s not the auction provider that creates a violation it’s the action of the parties to an auction and those actions can take place in an ICANN Last Resort auction.

In other words, there’s no difference between an ICANN-run auction, in which ICANN gets paid, and a private auction in which the participants and the auctioneer get paid, according to these lawyers.
Uniregistry’s argument as I understand it, on the other hand, is that simply participating in an action that could constitute illegal collusion, because ICANN ends up out of pocket.
Who’s right? Who’s wrong?
I think the only person who could answer that, in light of the DoJ’s refusal to intervene, would be a judge. We’re unlikely to get an answer unless somebody sues somebody.

NameJet and Afternic sign another gTLD launch

NameJet and Afternic will provide launch auctions and premium name distribution for the .build gTLD, should it be approved, the two companies have announced.
The deal was inked with applicant Plan Bee LLC, which is affiliated with Minardos Group, a construction company.
The two companies will handle auctions under the sunrise and landrush phases, according to a press release.
It’s the second such deal to be announced by the Afternic/Namejet partnership to date, after WhatBox’s .menu. The companies are also working with Directi’s .pw registry.
Plan Bee has also applied for .expert and .construction, but these are both contested so there’s less certainty that they’ll end up approved.
The applicant reckons it will be able to bring .build to market in the fourth quarter of this year.
With a prioritization number of 1,049 in ICANN’s queue, this may prove optimistic, depending on how the remaining portions of the program — such as predelegation testing and contracting — pan out.

DoJ says new gTLD private auctions might be illegal

Companies hoping to resolve their new gTLD contention sets via private auction are about to get a rude awakening: according to the US Department of Justice, they might be illegal.
Portfolio applicant Uniregistry, the company founded by domainer Frank Schilling, said today that the DoJ has told it that:

arrangements by which private parties agree to resolve gTLD string contentions solely to avoid a public auction present antitrust issues.

The company contacted the department last October to get a “business review” decision, basically asking the DoJ for an assurance that it would not be prosecuted if it participated in a private auction.
The DoJ refused to give that assurance.
Uniregistry counsel Bret Fausett told DI that private auctions might be seen as “bid rigging”, an illegal practice in which competitors fix the awarding of contracts.
Schilling said that Uniregistry asked the DoJ for its advice because “we don’t want to go to jail”.
According to the company:

On March 18, 2013, Uniregistry was informed that the Department of Justice has declined to issue a business review of various private gTLD contention resolution mechanisms. In making its decision, 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.

New gTLD applicants are now being advised to consult their own lawyers before participating in a private auction.
The news will come as a huge blow to companies such as Right Of The Dot and Cramton Associates, which have been at the forefront of pushing the private auction concept to applicants.
It’s also going to be a massive blow to any company that had banked on getting a pay-off to withdraw their applications following a private auction.
The benefit of private auctions — over the ICANN-managed auctions of last resort — is that the losing applicants get a share of the winning applicant’s winning bid.
In an ICANN auction, all the money goes to ICANN, which has promised to use to money to fund worthy causes.
Uniregistry has issued a press release on its talks with the DoJ here (pdf).

Here’s how Donuts wants to resolve its 158 new gTLD contention fights

Donuts is backing a private auction model designed and managed by Cramton Associates as its preferred solution for resolving its 158 new gTLD contention sets.
The proposals, spelled out by auction design expert Peter Cramton during private sessions with new gTLD applicants, caused a bit of a buzz — not all of it positive — at the ICANN meeting in Toronto last week.
But Donuts co-founder Jon Nevett told DI today that Cramton has addressed rivals’ concerns and that Donuts wants to handle as many of its contention sets as possible via private auction.
The idea is that private auctions will be faster and cheaper for applicants than the process set out by ICANN as the “last resort” method for resolving contention sets.
In the ICANN model, all of the proceeds of the auction would go to ICANN, to be distributed to worthy causes at a later date. But with a private auction, the winning bidder pays the losers.
This makes it more attractive to applicants, according to Donuts.
“The cost of losing an ICANN auction is greater than the cost of losing a private auction,” Nevett said. “If you lose an ICANN auction you get nothing, zero, you lose your asset.”
But with private auctions, “it doesn’t hurt as much to lose, so the theory is the second-place guys won’t stretch as much,” he said.
Cramton is a professor of economics at the University of Maryland. A long-time auction specialist, he’s been involved in designing processes for selling off wireless spectrum around the world.
For new gTLDs, Cramton proposes an “ascending clock” auction. At each stage, the price is increased by the auctioneer and the bidders/sellers can either commit to pay that amount or drop out.
The last man standing wins the gTLD, paying the amount that the second-highest bidder was willing to pay.
The money would be divided equally between all the losing applicants. According to Cramton, the advantage over proportional distribution is that it does not encourage applicants to over-bid, keeping costs down.
Cramton’s original plan, which left some applicants scratching their heads last week, was to run the auctions in the first quarter of 2013, before ICANN announces the results of Initial Evaluation.
That would mean that losing bidders would get a 70% refund of their ICANN application fee, which may be an attractive percentage in the case of low-value strings.
But it also means that an applicant could win an auction and later discover its application has been rejected. The other applicants would have withdrawn, so the gTLD would just disappear into the ether.
Judging by a series of videos shot last week and published on Cramton’s YouTube account, many applicants are in favor of running the auctions after IE results have been announced.
Another complaint expressed by Donuts’ competitors last week is Cramton’s “all or nothing” approach, in which Donuts’ rivals would have to commit to use the auctions for their entire portfolio of applications.
According to Nevett, that idea is no longer on the table.
“In the beginning he was discussing that it would have to be all your TLDs or none, and I think a lot of applicants told him that was unacceptable, so he changed his view,” he said.
The idea now is that the auctions would proceed on a TLD-by-TLD basis.
Given that winning bidders are giving money to their competitors, another concern is the ordering of the auctions. You don’t necessarily want to give your rivals a big wedge of cash they can use to out-bid you on the next lot.
The preferred solution here appears to be a simultaneous auction, with all the participating contention sets being resolved at the same time.
There was also a deal of suspicion in Toronto about whether Cramton would be biased towards Donuts, given that Donuts is responsible for finding Peter Cramton and introducing him to the gTLD program.
But Nevett said that Donuts has not contracted with Cramton. Peter Cramton showed up in Toronto on his own dime and has not required an up-front payment from Donuts, Nevett said.
“Every applicant has a veto on whether to participate, and it won’t happen unless every applicant wants to do it,” Nevett said. “Our incentive is to have an auction provider who is attractive to every applicant.”
“Our goal is to get as many applicants to participate in a private auction, so we need the auction to be designed in a way that is simple, fair and inclusive,” he said.
But there’s no denying that Donuts has a greater incentive than most to have a consolidated auction. By its own admission, it’s an eight-person operation without the manpower to negotiate 158 contention sets.
Cramton’s materials from last week’s Toronto sessions can be found at applicantauction.com or here.

.xxx sunrise auctions delayed after 80k applications

ICM Registry has apparently delayed the results of its just-closed .xxx sunrise period until December to give it a chance to clear its backlog of unverified applications.
Corporation Services Company, a major brand-protection registrar, is reporting tonight that ICM and its validation firm, IProta, does not expect to finish validating trademark claims until November 28.
That’s a week later than ICM had planned to kick off the auction phase of the sunrise period, during which contested domains will be awarded to the highest bidder.
“The results of the applications that were submitted during the Sunrise phase will therefore not be available until the first week of December,” CSC said on its blog.
ICM announced yesterday that it has received almost 80,000 sunrise applications from trademark owners and porn companies seeking .xxx domains to match their .coms.
Almost half of those applications were filed during the last week of sunrise. Each trademark claim needs to be individually validated against government databases by IProta.
The plan, according to ICM’s web site, was to start auctioning contested sunrise domains November 21 and to take .xxx into general availability December 6.
Landrush kicks off next Tuesday, running for 17 days. Landrush auctions are scheduled to commence December 12, according to ICM’s web site.

If you pre-register a domain, you are the product

“If you’re not paying for it, you are the product.”
That’s a maxim that has been doing the rounds on the internet for the last few years to describe services such as Facebook, which gets users in for free and then monetizes them to third parties.
It struck me today that this saying also applies to services that allow you to pre-register domain names in non-existent top-level domains.
If you’ve recently registered your interest in a domain in a new gTLD – example.web, say – you’ve gained nothing and potentially lost a lot.
Pre-registering creates two main benefits as I see it, and neither accrues to the registrant.
First, you’re now on the company’s mailing list. When your selected new gTLD(s) go live, the company you pre-registered with is going to try to convert you into a paying customer.
Second, you’ve just freely contributed information to an extremely valuable database, possibly to your own detriment.
When new gTLDs launch, many registries are going to reserve thousands of premium domains to either sell or auction at a later date, to periodically drum up interest in their extensions.
How will these companies decide which domains to add to their premium lists? A database of hundreds of thousands of pre-registrations would be a great place to start looking.
If you pre-register, what you may be doing is voting for your desired domain to be reserved by the registry, for possibly years, and then sold at a large premium.
Something to think about.

One-letter .uk domains coming December 1

Nominet will start taking applications for one and two-letter .co.uk domains next month, starting with a sunrise period for trademark holders.
The registry said 2,831 previously reserved names are being released under its phased process, which also extends to the .org.uk, .net.uk and .me.uk domains.
Nominet’s decision to hold a sunrise – actually it’s planning two – is quite unusual. Other TLDs that have released super-short domains usually carry out an RFP process first.
The first sunrise, for companies with “registered rights” ends January 17. The second sunrise, for those with “unregistered rights” will start at some point after that.
Domains will be auctioned in the event of competing successful applications, with the profits going to the Nominet Trust.
There’s still no firm date on the open-doors landrush phase, in which registrants without trademarks will be able to bid on the domains.

SnapNames settles shill-bidder class action

Domain name auctioneer SnapNames said that it has settled the class action lawsuit filed against it by disgruntled domainers after one of its employees was found to be a shill bidder.
It seems to have had a bit of a result, too. Class members will receive exactly the same amount they would have had they accepted its rebate offer, according to a statement released by the company today.
The case was filed almost a year ago, after it emerged that Nelson Brady, a SnapNames employee, had been posing as a bidder in domain name auctions in order to bump up the final sale price.
Posing as “Hank Alvarez” or “halverez”, Brady stood to gain bonuses based on performance targets as a result of SnapNames’ acquisition by Oversee.net, its current owner.
After the abuse was discovered, SnapNames offered affected customers a rebate equivalent to the money they would have saved on a winning bid had “halvarez” not outbid them.
SnapNames said today:

Class members (which are United States residents who were extended the rebate offer but have not yet accepted) have been or shortly will be notified of the settlement terms and amounts (which are identical to the amounts affected bidders were offered in the rebate offer we extended last November).

This seems to mean that anybody who was holding out for a bigger settlement is out of luck.
The deadline for accepting the rebate expires November 4, but the deadline to become part of the class action is not until December 17.
SnapNames will have paid out $2 million to customers in total.
(I wonder how much the class action attorneys are to receive).
More info can be found at snapsettlement.com.
SnapNames has also settled its lawsuit against Brady for an undisclosed amount. The company sued him for $33 million in May.
Oversee said it “believes the financial penalty is appropriate considering the seriousness of the improper activity”.

NameJet to auction three-letter .pro domains

NameJet has inked a deal with RegistryPro to auction off eleven “premium” three-letter .pro domain names next month.
The domains themselves have not yet been revealed, but the auction is scheduled to kick off November 19, according to a press release today.
RegistryPro, a subsidiary of HostWay, received the the right to start selling previously-restricted one-, two- and three-character .pro domains from ICANN in May 2009.
This June, it allocated nine such domains, including top.pro and 411.pro, via an RFP process.
After it has finished auctioning off its selected short domains, the company plans to put the remainder back into the pool for first-come, first-served registrations.

Now .mobi wants to auction ultra-short domains

Afilias-owned dotMobi has applied to ICANN to auction off one and two-letter .mobi domain names, following in the footsteps on other top-level domain registries.
The company had a plan to selectively allocate some such domains based on a Request For Proposals approved by ICANN almost two years ago, now it wants to be able to auction off whatever domains remain.
dotMobi said (pdf):

Once the previously approved RFP round has concluded, dotMobi will conduct an auction of any remaining domains according to a schedule determined by dotMobi. For any domains not allocated during either the RFP or auction rounds, dotMobi will announce a release date and will invite open, first-come-first-served registrations.

Requests to allocate one and two-character domains have previously been submitted and approved by Neustar (.biz), Afilias (.info), puntCAT (.cat), Tralliance (.travel) and RegistryPro (.pro).
Telnic (.tel) has a similar proposal still under board review.
Such auctions offer a one-time windfall for the registry operator. NeuStar’s .biz auction raised a reported $360,000 last year.
As DomainNameWire reported yesterday VeriSign has withdrawn its application for one-letter auctions in .net. Its proposal would have seen expired one-character domains returned to registry control, allowing them to be re-auctioned.