New gTLD applicants ponder private auctions


Applicants for contested new generic top-level domains (gTLDs) are considering using private auctions to determine who wins the rights to a disputed string.

In June the Internet Corporation for Assigned Names and Numbers (ICANN) received almost 2,000 applications, 751 of which covered 230 duplicated names. Google and Amazon are among several applicants for strings such as .cloud and .app, while two companies want the .merck domain.

ICANN is encouraging parties to work together to resolve conflicts—which may involve private auctions—but said it will hold its own auctions as a last resort. The organisation plans to retain all of an auction’s funds, with its Applicant Guidebook stating: “Any proceeds from auctions will be reserved and earmarked until the uses of funds are determined.”

But applicants are worried about giving ICANN more money, after already paying $185,000 to register a bid, said Ben Anderson, head of new gTLD products at consultant NetNames. “Some people are deeply distrustful of ICANN and resent giving more money to it,” he said.

“This is partly because it is unclear how ICANN would decide to spend the money and some people have raised concerns over conflicts of interests during the process,” said Kristina Rosette, an attorney at Covington & Burling, who is advising gTLD applicants.

There are at least three companies—Sedo, Cramton Associates and Right of the Dot— offering private auctions, all of which would allow losing applicants to recoup some of their investment. All providers state that winners would pay the amount of the second-highest bid. Depending on the provider, the money would be split either equally or proportionately (ratio to winning bid) between the losers.

Right of the Dot is offering three models: ‘ascending clock’, ‘sealed bid’ and ‘live auction’. The company’s founders, Michael Berkens and Monte Cahn, said the sealed bid mechanism is the least likely to be "gamed".

The sealed bid requires applicants to send money in a secure package via courier. An attorney would place the packages in a safe until the auction takes place. All sealed bids would be opened at the same session.

But “probably the best” model would be the ‘ascending clock’, said Rosette. Under this mechanism, offered by all three providers, the auctioneer increases the price and the bidders can either agree to it or drop out. The last remaining applicant pays whatever the secondhighest bidder was willing to pay.

One of the most pressing questions for applicants if they decide to participate in private auctions is when to enter. If applicants withdraw their applications before ICANN posts initial evaluation (IE) results, expected to be between March and June 2013, ICANN will refund 70 per cent of the $185,000 application fee. But if they wait after until the IE stage closes, applicants will receive only 35 per cent back.

This means that resolving auctions before March will be an attractive option for companies wishing to reclaim much of their investment. However, a situation could arise where one company wins an auction but fails ICANN’s initial evaluation (IE) stage. This may lead to more problems over resolving the ownership of the gTLD.

“We are urging people not to go to auction before IE closes,” said Berkens and Cahn. “The vast majority of interested parties want to wait until after IE; we have only spoken to one applicant who wants to do it before.”

While ICANN believes that “most” contentions will be resolved before an auction is needed, Anderson said some private auctions were likely. “I have been involved in some negotiations— some are going well, others are at an impasse. We are close to a few agreements. But the private auctions make perfect sense.”

An ICANN spokesman told WIPR that the organisation does not oppose private auctions.

This article was first published on 01 December 2012 in World IP Review

gTLD applicants, ICANN, auction

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