February 19, 2009

Hundreds of New gTLDs? How Should Companies and Associations with Important Names and Brands Respond to Plans to Introduce Unlimited New Generic Top-Level Domains?

Background

There are currently 21 gTLDs (generic top-level domains, such as .com and .org) and about 250 country code top-level domains (ccTLDs). The board of the Internet Corporation for Assigned Names and Numbers (ICANN) approved the concept of introducing new gTLDs in unlimited number last summer.  On February 18, 2009, ICANN published Version 2 of a voluminous Draft Applicant Guidebook and related papers (DAG).¹ The DAG is actually an RFP, which provides application guidelines to potential operators of new gTLD registries, as well as important information (such as proposed IP rights protection mechanisms) of interest to major brand owners and others.

ICANN received more than 1,000 comments to the first version of the DAG, which was published in October, 2008. On February 18, 2008, ICANN released a lengthy (154-page) analysis of the comments, together with ICANN’s “proposed positions” in response to the comments.² The comment period for Version 2 of the DAG opened on February 19, and will extend, for now, until April 13 (for comments in English).  After at least one more draft version of the Applicant Guidebook and additional comment periods, a final Applicant Guidebook will be published, and interested parties will then be invited to submit applications to operate new gTLDs. In view of a number of major issues which ICANN acknowledges remain to be resolved, it is unlikely that the initial application round will open prior to December 2009.  Under this scenario, while it is possible that new gTLDs could begin to go live in the first quarter of 2010, it seems likely that the launch will slip to the second quarter or later.

The IP community, in particular, has expressed grave concern about the potential for an exponential increase in brand abuse, cybersquatting, typosquatting, fraud, and the high cost of such problems to major brand owners. The proposed IP rights protections contained in the DAG, which are addressed to both top-level and second-level domains, are disturbingly inadequate. Other quarters have also criticized various aspects of the DAG, and some oppose the introduction of any new gTLDs until ICANN can demonstrate the need, and that the initiative’s expected benefits outweigh potential problems.

What is Driving the Push Toward New gTLDs?

Some of the pressure to open up new gTLDs originates from groups interested in providing internationalized domain names (IDNs), i.e., domain names utilizing scripts other than ASCII (e.g., Chinese or Cyrillic), which are in the process of being approved by ICANN on a parallel but “fast” track. However, it is unclear why IDNs cannot reside within a limited number of expanded gTLDs. Moreover, there seems to be no reason why IDNs could not reside in country code TLDs (ccTLDs), such as .cn (China), or in a regional TLD such as .asia.

It is clear that some of the operators of registries for existing gTLDs, and many of the hundreds of registrars (many of whom are also registry operators), are the strongest voices in favor of a large number of unrestricted gTLDs. These entities stand to profit greatly from the anticipated rush of defensive registrations by brand owners and “domainers” (domain name entrepreneurs). Indeed, domainers themselves have been active and vocal in their approval of the initiative.

There are those who claim that the potential rewards to registry operators and registrars from sales of new gTLDs and second-level domains to brand owners as defensive purchases of their own names are, in and of themselves, sufficient to create a profitable business model. That, combined with registrations by cybersquatters and other “entrepreneurs,” could perhaps generate sufficient profit to attract applicant registry operators.  Trademark owners fear that this could come at a high cost to them, and at the cost of increased harmful scams such as phishing and counterfeiting, to the detriment of the public at large, while contributing very little to the economy or to public discourse on the Internet.

The US Government Role

ICANN manages the domain name system (DNS) under a “Joint Partnership Agreement” (JPA) with the US Government. The JPA is administered by the National Telecommunications and Information Administration (NTIA) of the Department of Commerce. The JPA, which is the latest of several agreements that began with ICANN’s founding, will expire in September, 2009, and ICANN’s leadership is pushing for virtually total independence from the US Government. Last year, NTIA signaled strong opposition to those efforts (as did the IP community and many others), stating that ICANN had not met key goals which were set when the JPA was ratified.

In a December 18, 2008 letter to ICANN, NTIA strongly criticized key aspects of the DAG, and questioned the overarching premise that new gTLDs should be introduced at this time. Among the critical comments: “…it is unclear that the threshold question of whether the potential consumer benefits outweigh the potential costs has been adequately addressed and determined.” NTIA also cited the failure of ICANN to complete a promised economic study on consumer behavior and the market effects of new gTLDs prior to moving forward.³ In response, ICANN says that it will release the results of such an economic study shortly.

Major Concerns

At a recent meeting with concerned IP owners and industry representatives, ICANN representatives framed the overarching concerns expressed through the comments they have received as follows:

1.  Can ICANN adequately address the legitimate concerns of brand owners regarding the expense of defensive second-level registrations at registry start-up (e.g., “sunrise” registrations) and during operation of the new gTLDs?

2.  How can ICANN ensure that new gTLDs don’t simply amplify malicious behavior (of all kinds) on the Internet?

3.  What is the demonstrated demand for new gTLDs?

4.  What is the anticipated market impact of new gTLDs?

5.  What will be the impact on the technical systems of the Internet (DNS stability)?⁴

Unfortunately, the February 18 edition (Version 2) of the DAG fails to incorporate any changes to address these core issues. Instead, ICANN has indicated that it intends to continue to study these matters and that it will engage in a series of discussions with and receive input from “all relevant parties,” after which it hopes to address these concerns.

Other concerns exist, particularly for IP owners. Among those concerns are:

1.  ICANN’s poor track record in enforcing Whois data accuracy requirements.

2.  ICANN’s failure to address the impact of the current global economic crisis on the initiative.

3.  At the gTLD level, the reliance on an adversary “Legal Rights Objection”(LRO) as the sole means by which trademark owners will be able to seek to prevent the establishment of new gTLDs that infringe or otherwise adversely impact their trademarks. This places the entire burden of protecting consumers and trademark owners from abusive practices on the trademark owners. Also, there are numerous problems and a lack of critical details concerning the LRO ground rules.

4.  Lack of any detail or uniform requirements concerning the robust pre-launch IP rights protection mechanisms that ICANN seems to want to require of new gTLD registry operators.

5.  Continuation of existing inadequate IP protections at the second (domain) level. For example, while operators and registrars for the new gTLDs will be required to include UDRP⁵ provisions in their contracts, only very limited registrant identification data will be publicly available via Whois, and enforcement problems similar to what currently exists regarding inaccurate Whois data can be readily anticipated.

6.  Lack of clarification of differentiating criteria for “open” versus “community-based” gTLDs (somewhat improved in Version 2), and lack of provisions for closed corporate gTLDs.⁶

Issues Companies and Associations with Important Names and Brands May Face

1.  The introduction of numerous new gTLDs may adversely impact brand owners on the first level, and will almost certainly result in increased trademark infringements at the second level.

2.  Brand owners will need to consider whether to register any major brands as gTLDs.  As a defensive strategy, it would reserve the most valuable brands as gTLDs for their owners. A second benefit to obtaining a gTLD such as .[company name] would be its potential use as a flexible and expandable worldwide company Internet address for Web sites and e-mail communications. A third benefit to registering major brands as gTLDs is the potential for brand extension through the gTLD vehicle.

Counterweighing these three potential benefits are the significant expense and expenditure of resources required to apply for, secure, and then operate a new gTLD. The application fee alone is currently $185,000, and it is estimated that an additional investment of at least another $100,000 would be required to set up and begin to operate a gTLD registry in partnership with an existing registry operator.

3.  Brand owners should probably calculate the extent to which they must expand their internet monitoring and policing of trademark and copyright infringement to encompass the new domains, and devote an appropriate budget to those expanded efforts.

4.  Food, pharmaceutical and other consumer product companies might wish to consider and seek to quantify the detrimental impact that would result if new gTLDs lead to increased instances of bogus and potentially unsafe branded product.

Conclusion

It appears likely that, at some point, and in some form, possibly by early 2010, companies and associations will need to deal with new gTLDs. Arent Fox will continue to monitor ICANN’s new gTLD initiative. For more information, please contact:

Sheldon H. Klein
klein.sheldon@arentfox.com
202.857.6404

Joe Keeley
keeley.joe@arentfox.com
202.857.6280       

¹ See http://www.icann.org/en/topics/new-gtlds/comments-2-en.htm

² See http://www.icann.org/en/announcements/announcement-3-18feb09-en.htm

³ The NTIA comments were accompanied by a strongly worded memo from the Antitrust Division of the Department of Justice fleshing out consumer protection and anticompetitive concerns.  

⁴ The meeting took place on February 6, 2009, at the offices of the US Chamber of Commerce in Washington, DC.  In its February 18 release, ICANN framed the overarching issues as: “trademark protection; “security and stability; malicious conduct; and demand and economic analysis.” 

⁵ Uniform Domain Name Dispute Resolution Policy, the arbitration procedure to which current domain name registrants in existing gTLDs are required to submit.

⁶ While the DAG is unclear on this point, ICANN officials have clarified that they do not intend for corporate gTLDs (e.g., .mcdonalds) to qualify as the more limited and controlled “community” gTLDs.

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