New gTLDs Progressed in Draft Applicant Guidebook, Version Four

Read our analysis of what is new and how the changes will impact rights owners

It is just over three years since ICANN interpreted its mission of fostering diversity and competition by proposing that the top level of the domain name system should be opened up to new registry operators. Clearly the ICANN leadership believes that the end is in sight and soon the current crop of 21 gTLDs and 255 ccTLDs will be complemented by maybe another 100, 200 or perhaps 500 registries owned by brands, by cities, by communities and of course by speculators. But just how soon is soon? The ICANN Board resolved in Brussels to use a retreat planned for 24 & 25 September 2010, “For the consideration of all the outstanding issues related to the implementation of the new gTLD program”.
Does this mean that ICANN will announce the final timeline in September? Maybe. It is possible that they will publish the Final Applicant Guidebook shortly before ICANN’s next Open Meeting, scheduled for Cartagena, Colombia from 5 – 10 December 2010 and that applications will open three or four months later in Spring 2011.
The Preamble to Draft Applicant Guidebook (DAG4), Version 4, published on 31 May 2010 states that “ICANN’s work is now focussed on implementation: creating an application and evaluation process for new gTLDs that is aligned with the policy recommendations and provides a clear road map for applicants to reach delegation, including Board approval”.
The assumption is that contentious issues have been resolved and clear blue water lies ahead. Here’s our analysis of what’s new in DAG4 and issues that we think are far from settled, broken down to cover the four Over-Arching issues that ICANN identified a year ago (Trademark protections, Malicious Conduct, Security & Stability & Economic Impact) as well as two other topics, Geographical Terms and Vertical Integration.

Trademark Protections
Trademark Clearinghouse
ICANN will shortly be posting an RFP for organisations who wish to run its Clearinghouse, which it describes as, “a central repository for information to be authenticated, stored and disseminated pertaining to the rights of trademark holders”. The Clearinghouse will hold a database of verified registered rights. Registry owners must implement either a Sunrise or an IP Claims system. They can pull from the Clearinghouse or have pushed to them lists of identical verified marks (no plurals or hyphens) thus saving the cost of having the same records validated time and again. As proposed by the IRT, the Clearinghouse should include trademarks registered at any national or multi-national registry without discrimination. However, ICANN formed a Special Trademarks Initiative (STI) team, the majority of whom were not practising trade mark attorneys, and asked them to review this proposal. Fearing gaming by speculators who obtained expedited marks in order to participate in earlier RPMs, the STI recommended that the Clearinghouse should exclude trademarks from countries that do not conduct substantive review. Neither the STI nor ICANN defined substantive review. Following a rearguard campaign by many IP organisations, ICANN finessed this debate by proposing that registries must recognise all marks from either “a jurisdiction that conducts substantive examination prior to registration” or that have been “Court or Trademark Clearinghouse validated”. Whilst this may be a practical solution, it does mean that the Clearinghouse will become “the arbiter of the validity of trademarks legitimately obtained”, as WIPO’s Erik Wilbers has said in a letter to ICANN.

URS
The Uniform Rapid Suspension Scheme was designed to tackle what the IRT describes as, “Slam-Dunk cases of cybersquatting”. By the time it emerged from the STI’s scrutiny and the free-speech advocates had their say on “the chilling effect” on a registrant of receiving a notice requiring them to defend their infringing registration, the URS was emasculated. It is now not fit for purpose. Although it can now be used by complainants with trade mark registrations from jurisdictions that conduct substantive examination (again undefined) and those with Clearinghouse validated marks, many issues remain: the burden of proof is higher than the UDRP; it is “Not for any proceeding where there is an open question of fact”; the loser does not pay; the cost has crept up from a recommended $100 to $300; there is no fast-track for defaults; the name is locked until renewal date with the possibility of a one year extension – there is no transfer of property; complaints can be up to 5,000 words long; panellists must be rotated; there is the possibility of an appeal stretching for two years after a decision; worst of all, with the possibility of the respondent applying for an extension to the Response Date, the URS could now take 45 days. This compares poorly with the eUDRP process: the first eUDRP managed through WIPO, Nokia Corporation vs. Jameela Seif took just 35 days between December 2009 and 2010.

The PDRP
The Post Delegation Dispute Resolution Procedure (PDDRP) was designed by the IRT to combat registry owners who act in bad faith, with intent to profit from the systemic registration of infringing domain names or who otherwise use a gTLD for an improper purpose. With the number of gTLD registry owners to increase by a factor of at least 10 and more likely 20 in the first round alone, it is possible that some owners will behave as some bad actor registrars have done (remember Lead Networks?), warehousing domains, using aliases to disguise transactions between networks of associated companies, declining to implement UDRP decisions or to maintain accurate whois data. Although the PDDRP as set out in DAG4 allows a trademark owner to instigate a complaint on the basis of infringement on a trade mark, the prospect of monetary damages has been removed. Once again, it is WIPO that is leading the charge to amend the PDDRP: “The scope of the current PDDRP – as limited to affirmative conduct – undermines the intended effect of encouraging responsible TLD management and domain name system credibility”. In a letter to Rod Beckstrom and Peter Dengate Thrush dated 16 June 2010, WIPO calls for “the very real possibility of wilful blindness occurring in the course of the management of the new domains...it is unconstructive to expect trade mark owners to perpetually turn to second-level enforcement in a multi-jurisdictional context. A pro-active approach would be to focus on the design of Safe Harbours – which would not include a sweeping policing duty for registration authorities”.

Start-up RPM
ICANN now mandates that all applicants must implement at a minimum either a Sunrise or a Trademark Claims service during the Transition to Delegation of a character string. There is an encouraging additional comment that, “Registry operators may introduce additional rights protection measures relevant to the particular gTLD”.

Malicious Conduct
The main improvement in DAG4 is to strengthen the background checks on all applicants “to protect the public interest in the allocation of critical internet resources”. Applicants will now have to make “specific declarations” about their involvement in the domain industry including “intellectual property violations”. The checks will be performed by a third party firm “that can execute these checks based on public information”. The example is given of an applying entity failing because “it has been found liable in a series of cybersquatting proceedings”.
What is not there is any requirement on registry operators to validate information provided by registrants in whois, to use CAPTCHA to prevent domains being registered by BOTS, to maintain a list of fraudulent IP addresses or to regulate privacy curtains. In Brussels, several law enforcement agencies called for such measures to be applied across all TLDs and received the endorsement of the GAC provided they can be implemented with respect to “applicable local law”. Paul Hoare of the UK Serious Organised Crime Agency said: "We believe that the industry needs mandatory minimum standards, because otherwise the good practices that some registries and registrars have only displace criminals to those with less strict regimes and less strict audits."
FBI spokesperson Robert Flaim called for the contracts between ICANN and both registry operators and registrars to be tightened. "Certain individuals very much need privacy, and we respect that. But ... law enforcement with due process should be able to trace the proxies" a suggestion that is unpopular with such operators based outside the USA. Thick whois (where all records are held by the registry operator and not spread across registrars) has been mandated for all new gTLDs but, as the law enforcement specialists stated, the data needs to be accurate, up to date and freely available. ICANN also now promises to “perform regular audits” of applicants as part of its contractual compliance function.

Security & Stability
What ICANN does well is to maintain the stability of the domain name system in the face of an ever-increasing volume of registrations (now 195 million and counting) and attempts to compromise stability. DAG4 tells us that applied-for character strings will be reviewed by a DNS Stability Panel “to determine whether the string creates a condition that adversely affects the throughput, response time, consistency or coherence of responses to internet servers” and that all applicants must describe in detail “additional registry services that are unique to their TLD”. With customary registry services being defined as “Receipt of data from registrars...provision of status information on zone servers...dissemination of TLD zone files...dissemination of information concerning domain name registrations and DNSSEC” this implies that ICANN really is expecting some applicants to deliver the innovation they have heralded. The pre-delegation testing of registries will also now cover DNS infrastructure as well as registry operations whilst ICANN ‘s modelling has shown that it can add 924 character strings to the root zone annually without fear of instability (see the Root Zone Scaling Report of March 2010 at http://www.icann.org/en/topics/new-gtlds/anticipated-delegation-rate-model-25feb10-en.pdf). ICANN is pressing ahead with its concept of a voluntary High Security Zone for registry operators that “demonstrate and uphold enhanced security-minded practices and policies, though it states that, “its development and operation are beyond the scope of the guidebook”. All applicants must implement DNSSEC and publish a DNSSEC Policy Statement as well as making Zone files available through a standardised process to “credentialed users” (whoever these might be).

Economic Impact
ICANN undertook to assess the economic impact of its plan to accept applications for an unlimited number of gTLDs two years ago. With earlier reports criticised for being US-centric and compiled in indecent haste, a new study was released on 16 June 2010 compiled by Greg Rosston from Stanford University and Michael Katz from the University of California Berkeley. This new study covers three topics. It surveys published studies that describe the potential impacts of new gTLD introduction; it examines theoretical cost/benefit arguments; and it proposes new empirical studies that could help assess costs and benefits which ICANN has confirmed will be undertaken over the next six months, probably in the form of case studies. Rosston and Katz demonstrate a clear understanding of the needs and concerns of IP owners stating, “the biggest likely costs are consumer confusion and trademark protection”. (We supplied data on the costs of managing both trademark and domain name portfolios to Rosston & Katz which we obtained from some of our clients). If there is a criticism of the report it is that major conclusions are deferred until the completion of the second study which might include a research project described as follows: “A potentially significant external cost of new gTLDs stems from the need to protect trademarks or brands through the use of defensive registrations. This project would involve estimating the share of organizations or brand names that engage in defensive registrations, as well as the costs incurred by organizations in monitoring domain name registrations and engaging in legal proceedings to protect their brand names and trademarks. The project would evaluate these costs over time, paying particular attention to how those costs have changed with the introduction and changes in the popularity of new domain names, including country codes.” See http://www.icann.org/en/topics/new-gtlds/economic-analysis-of-new-gtlds-16jun10-en.pdf

Country & Geographic Names
The Government Advisory Committee has done well in DAG4. Perhaps because they were alarmed at the ability of the GAC to slow the process down but more likely because they recognise the importance of avoiding consumer confusion, the ICANN staff have greatly strengthened measures to protect geographical terms. At the Top Level, any term on the ISO 3166-1 list of country names in both their long and short form (e.g. Afghanistan and “AF”) are excluded from registration in any script whilst the short form (two letter code) is also excluded at the second level. Applicants for terms that match the name of any city where the intention of the applicant is to use the domain in association with the city or a sub-national place name such as a state or province must “enlist the support or obtain the non-objection” of a get a Letter of Endorsement from a government authority. In the case of an application which matches a capital city name, national government endorsement must be obtained. A Geographic Names Panel will determine if a character string is a Geographic Name. If a Government withdraws support after a gTLD has been delegated, a Registry Restrictions Dispute Resolution Procedure will be available. If a registry that matches a Geographic Term is subject to a change of control, prior Government approval will be required.

Vertical Integration
Should there be cross-ownership between registries and registrars? DAG4 states that applications will not be considered from ICANN Accredited Registrars or their affiliates or entities controlling 2% or more of any class of security in such a registrar. Acknowledging in a foot note that, “The draft proposed strict limitations represent a default position and GNSO stakeholder-based policy development is encouraged”, ICANN is seeking a solution to enable it to combat bad actor registry operators who allocate valuable domains to associated registrars. Better compliance might be the obvious answer but as ICANN is not yet offering this, the Community in Brussels were offered a number of alternatives. There was a practical proposal from the so-called JN2 Consortia which suggests that cross-ownership should be restricted to a 15% shareholding except in three cases: Single Registrant TLDs (which most Private Brand Registries will be), Community TLDs that do not anticipate getting more than 30,000 registrations and Orphan TLDs that cannot attract a registrar to sell domains because their appeal is so limited. In contrast the RACK proposal put forward by a group including Afilias (the registry operator of .info which is owned by a consortium of registrars) proposed a flat limit of 15% on cross ownership with no exceptions which might have merits but felt like incumbent providers setting the terms of entry for new players. Most worrying of all was the Competition Authority Model suggested by some consultants who really should know better. Their solution involves referring applications for TLDs were there is cross-ownership of more than 15% to national competition authorities. Can ICANN find a solution to this conundrum that does not upset the registry operators and registrars who pay them so much of their revenues? Why does this matter to IP owners? After all even the 2% limit on cross-ownership proposed as the default position by ICANN could lead to problems if two other parties have 49% each? It matters because brand owners seeking to apply must be allowed to place names in their own registries for use by their own staff without going through an expensive third-party registrar (or worse still) several registrars.

Objections & Public Comments
The module in DAG4 focussed on Dispute Resolution contains no material changes other than the fact that the Objection period will now be open for 51/2 months and Independent Objector and Expert Panels will now have access to comments submitted during a 45 day Public Comment period which opens the day applications are posted (possibly longer). If these comments are relevant to the application criteria, they may have been considered by the evaluators already: “Evaluators will perform due diligence on the comments (i.e. determine their relevance to the evaluation, verify the accuracy of claims, analyze meaningfulness of references cited)”. In regard to objections based on Morality and Public Order grounds, which will be handled by the International Centre for Expertise of the International Chamber of Commerce, a “Quick Look” procedure will be developed to enable the dismissal of unfounded objections.

IDN Applications
Anticipating that there will be applications for IDN gTLDs in character strings other than Ascii such as Cyrillic or Arabic, DAG4 contains new requirements for applicants to develop IDN tables that list characters eligible for registration and identifies “variant characters” (a single conceptual character with two or more graphic representations which may or may not be visually similar”). To avoid user confusion, Variant TLDs, based on such character strings, will not be delegated until ICANN has found a method for managing them.

Fees
The $185,000 application fee will now be payable in two instalments: a $5,000 deposit when applicants register to use the TAS (Top Level Domain Application System) that ICANN has developed, (the on-line interface through which applications must be submitted); and $180,000 when the application is submitted. There is no change to the refunds available if an application is withdrawn: you can get $130,000 back if you withdraw an application before the posting of Initial Evaluation results, $65,000 after posting and 20% if Dispute Resolution, Extended Evaluation or String Contention is completed. Could this lead to brand owners filing blocking applications which are withdrawn if there are no competing applications in the first round, at a cost $55,000 (plus the fees for creating the application)? All applicants must supply an irrevocable Letter of Credit the equivalent to the operating costs of the registry for three years now (it was five years in DAG3).

ICANN’s task list & responsibilities
DAG4 is likely to be the last draft before the Final Guidebook is published and its drafting is getting sharper in direct proportion to its attempts to limit its liability – Module 6 now requires applicants “to irrevocably waive any right to sue” ICANN and to “forego any recovery of any application fees” . The Revised Draft New gTLD Registry Operators Agreement is so changed from the original published in DAG1, that the red-line version is hard to read. However, ICANN retains the right to enforce a re-delegation of a character string or to terminate a registry in certain circumstances such as the bankruptcy of the applicant or a change of control. These provisions, whilst welcome in terms of tackling bad actor registries, may give pause to potential brand applicants, as may the requirement to adhere to consensus policies that the ICANN community may develop in the future that will impact on registry operation. If you just want to change the name of your registry, you will have to pay for a re-evaluation of the fitness of the new operator too and ICANN may impose an Emergency Operator for a wide number of issues including the consistent failure of your whois server or a delay in paying fees to ICANN. Coming soon will be a tender process to appoint the Emergency Operator, the Independent Objector and the Clearinghouse operator. The results of the appointment process for the Technical and Financial Evaluators, Geographic Names Evaluators, String Similarity Examiners and members of the Comparative Evaluation Panel are expected soon.

How much? How many?
ICANN published a New gTLD Budget on 1 June 2010, available at www.icann.org/en/topics/new-gtlds/new-gtld-budget-28may10-en.pdf. This is a fascinating document revealing that ICANN expects there to be 500 applications of which 90% will proceed with 5% failing Initial Evaluation and 5% being withdrawn. ICANN has earmarked $6.7 million to implement policy recommendations in the Applicant Guidebook, $2.6 million for the global communications campaign (recently revised downwards) and the “on-boarding of evaluation panels”. Application Processing Costs have yet to be calculated but will be reflected in a future budget. What can we deduce anything about the rigour of the evaluation process if ICANN expects 90% of applications to pass? What will be the impact on these figures of duplicate applications?
How is ICANN dividing the $185,000 application fee? Three ways: 1) New gTLD Program Development Costs = US$ 26,000 2) Fixed and variable application evaluation costs c. $100,000 3) Risk/Contingency = $60,000.

An inclusive program
ICANN has formed a Working Group to explore the idea of providing support for “ethnic and linguistic groups” and perhaps to NGOs and civil society organisations in submitting applications. This could involve reduced or staggered fees, support with document translation, consulting, creation of shared back-end registry solutions. This is no doubt a noble aim but should any organisation that can’t find the application fee really be prioritised in the first round? What level of service will they supply to end registrants? See http://www.icann.org/en/topics/new-gtlds/jas-wg-snapshot-16jun10-en.pdf

Last chance to comment on IP Protections
There is a Public Comment Period open on DAG4 until 21 July 2010. This could be the last chance for the IP community to comment on matters such as RPM or registry and registrar accountability. ICANN analyses all comments. It has been criticised in the past for attaching equal weighting to a submission from an international IP membership organisation representing hundreds of brand owners and to a response from a single domainer: “We had one comment in favour and one against” they may say. It is very important that you make your views known. Whether you work in private practice or a law firm, all you have to do is to email your views to This e-mail address is being protected from spam bots, you need JavaScript enabled to view it You can view a summary of DAG4 and all relevant documents at http://www.icann.org/en/topics/new-gtlds/comments-4-en.htm. Alternatively, if you don’t have time to go through all of those documents, you might paraphrase the statement below:
“We are concerned that the introduction of an unlimited number of new gTLDs will lead to a rise in bad faith registration which will impact negatively on intellectual property owners and the consumers around the world who depend on trademarks in the domain name system as signs of authenticity. ICANN’s proposed Rights Protection Measures must be tightened. In particular we recommend that the URS is reviewed again: internet users need a mechanism to take down infringing sites within 14 days. We also urge ICANN to invest in contract compliance to ensure that registry owners and registrars maintain accurate whois and do not warehouse domains. We support WIPO’s call for the PDDRP to be re-engineered”.

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5 July 2010