Online brawl

L. Donald Prutzman and Amy S. Beard explore the implications of ICANN’s controversial decision to allow the vast expansion of generic top-level domains

Following more than six years of planning, deliberation and consideration of comments from various groups, on 20 June 2011 the board of directors of the Internet Corporation for Assigned Names and Numbers (ICANN) announced its approval of a programme to open the field of generic top-level domains (gTLDs) to virtually any word in any language.

The decision by the non-profit regulator of the use of internet domain names is controversial and has sparked particularly strong opposition. Calls for reconsideration have been made by brand owners and trademark rights organisations, who contend that the expansion is unnecessary and will impose significant costs and risks of cybersquatting and other evils on companies and consumers.

ICANN, however, is undaunted and seems prepared to launch the new programme on schedule in January 2012.

Currently, there are only 22 gTLDs. These include such familiar domains as.com, .org, and .info, more obscure gTLDs such as .aero (reserved for the global aviation community), .pro (restricted to licensed professionals) and .cat (reserved for the Catalan linguistic and cultural community), and the soon-to-be-unleashed .xxx (reserved for online adult entertainment).

There are also some 240 country code top-level domains (ccGLDs) assigned to various countries, such as .uk, .fr and .de.

Under ICANN’s new programme, applicants can seek gTLDs comprising virtually any word or set of symbols – brand names such as .harrods, .pespi, or .rbs, industry terms such as .bank, .sport, .food or .book, or interest/affinity groups such as .doglovers, .lefthanders or .gardeners. The number of gTLDs would be unlimited. However, ICANN is only preparing to process up to 1,000 applications per year and will defer or reject any excess.

 

Concerns and objections

At remarks to the opening session of the Newdomains.org conference in Munich, Germany, on 26 September 2011, ICANN’s senior vice president Kurt Pritz said that the new gTLD programme aims at increasing choice and competition. However, the programme has met with mixed reactions in the marketplace.

The Association of National Advertisers (ANA), a United States trade association with more than 400 companies on its member roster, has been extremely vocal in its criticism, arguing that the programme increases the likelihood of consumer confusion and cybersquatting.

Other trade associations – including the Interactive Advertising Bureau, the American Association of Advertising Agencies, the UK Direct Marketing Association and the Brussels-based World Advertising Federation – have echoed the ANA’s concerns.

In a 4 August 2011 letter to ICANN’s president, the ANA’s president Robert Liodice protested the implementation of the programme and seemingly threatened litigation if ICANN did not pull the plan.

ICANN’s programme “violates simple common sense” and has “no material or obvious benefits”, according to Liodice, and instead may cause several kinds of economic harm. These could include defensive registrations, dilution of the value of existing domain names, harm to consumers from phishing and counterfeiting caused by malicious users cybersquatting on brand-name gTLDs, and litigation expenses associated with cybersquatting and trademark tarnishment.

Some of the ANA’s concerns may be overblown. ICANN’s application procedures attempt to address the unauthorised use of trademarks. According to the latest version of ICANN’s Application Guidebook, released on 19 September 2011, an objection period will open, following initial administrative review of the gTLD applications.

One of the four enumerated grounds for objection is that the applied-for gTLD infringes the objector’s existing legal rights, including trademark rights. This objection period gives trademark owners and licensees the opportunity to derail any gTLD applications that use the objector’s trademark without authorisation.

Objections on the grounds of infringement of legal rights will trigger dispute resolution proceedings before the arbitration and mediation centre of the World Intellectual Property Organization.

However, ICANN’s procedures may not sufficiently address the objections of the ANA and likeminded groups. They contend that trademark owners have little incentive from a marketing perspective to seek ‘.trademark’ gTLD registrations affirmatively because they have already invested thousands or even millions into marketing their ‘trademark.com’ and ‘trademark.org’ domains.

 

Defensive registration

Trademark owners have argued that the principal reason to register their brands as gTLDs would be defensive. If they instead rely on ICANN’s proffered protections, the objection and dispute resolution procedures push the costs of monitoring and objecting to gTLD applications onto trademark owners who would have no offsetting or corresponding benefit from obtaining ‘.trademark’ gTLDs themselves.

The ANA claims that corporate America is not enthusiastic about ‘.trademark’ gTLDs. In comments to webzine The Register, Liodice said: “If American industry is not supporting the recommendation to do this, then who is? What is the benefit if brand owners are saying they’re horrified?”

According to the ANA, ICANN’s programme and application guidelines force Hobson’s choice on trademark owners. They can either: 

• spend potentially millions in registering dozens of ‘.trademark’ gTLDs in an effort to protect themselves from cybersquatters; or

• divert equally large amounts of legal, technical and marketing resources to monitoring gTLD applications for unauthorised trademark use, objecting to infringing applications and pursuing their claims through litigation.

Further, they may see a need to register their brands as second-level domain names (such as ‘trademark.newgtld’) in an unlimited number of new gTLDs. For example, Nike might find it necessary to register not just .nike, but also nike.sport, nike.golf, nike.tennis and nike.running if someone else registered these gTLDs.

Even if companies do not do this, they will need some way to monitor whether others are trying to register their brands as second-level domain names in new gTLDs. Indeed, this may be the greater cybersquatting threat, since the cost will doubtless be far less than creating a new gTLD.

The ANA’s worries about defensive registration and cybersquatting have some basis in history. However, there is also evidence undercutting the ANA’s concerns and suggesting that many companies will not assume the economic burden of defensive registration.

A 2002 study by Ben Edelman, an affiliate of Harvard Law School’s Berkman Center for Internet and Society, examining open country-code top-level domains (ccTLDs) in the Cocos Islands, Tulavu, and Western Samoa, found what Edelman called “substantial” defensive registrations and cybersquatting.

Approximately a third of ‘famous name’ domain names in the Cocos Islands (.cc) and Tulavu (.tv) were held by the same entities that held the corresponding .com domains, suggesting defensive registration. Additionally, many .cc and .tv registrations were held by entities other than those holding the corresponding .com domain, which suggests cybersquatting, Edelman claims.

While some such entities may have had legitimate rights to the .cc or .tv domains, large numbers of famous-name registrations by single registrants and famous-name domains holding ‘for sale’ or similar text indicated at least some bad-faith registrations.

Applied to the current controversy, the Edelman study suggests that many companies will choose to engage in ‘.trademark’ gTLD defensive registration, incurring significant costs, and that companies that do not do so may face cybersquatting risks.

ICANN insists that such concerns are misplaced. In a letter responding to the ANA’s complaints, ICANN’s president and CEO, Rod Beckstrom, disputed the ANA’s claim that the programme will force companies to assume huge financial burdens, including defensive ‘.trademark’ gTLD registrations.

ICANN stated that its objection and dispute resolution processes ensure that where an objector can establish infringement of trademark rights, the challenged application will not be approved, thus eliminating the need for defensive ‘.trademark’ gTLD applications and associated expenses.

Beckstrom also pointed out that ICANN’s decision to go forward with the programme “followed six years of inclusive policy development and implementation planning”, and ICANN conducted at least 45 public comment periods and reviewed all of the comments submitted, including those submitted by the ANA.

 

Storm in a teacup?

Studies that are both contemporaneous with and more recent than the Edelman report undercut both that report and the ANA’s concerns about defensive registration.

Economist Dr Milton Mueller of Syracuse University has challenged the methodology and conclusions of the Edelman report. Mueller’s analysis suggests that the ANA’s concerns about massive economic burdens may be needless.

Writing for ICANNWatch in 2002, Mueller pointed out that Edelman’s conclusions that “substantial” defensive registration and cybersquatting existed in open ccTLDs were not scientific and that the same data could be used to support the opposite conclusion.

The Edelman study showed that, of the 1,271 famous trademarks examined, 30 per cent were registered defensively in the open ccTLDs. Edelman referred to this as “substantial” defensive registrations.

However, as Mueller pointed out, one could conclude that, based on the same data, 70 per cent of the famous trademarks examined were not defensively registered, a percentage that looks far more “substantial”. (One might ask, though, what portion of the 70 per cent not defensively registered were registered to potential cybersquatters who hoped to capitalise on those registrations.) Moreover, the brands choosing not to defensively register apparently suffered no serious adverse consequences to their brands.

A 2009 study by Paul Stahura, a domain name registrar, substantiated Mueller’s conclusion that most trademark owners were not defensively registering their trademarks across existing top-level domains (TLDs).

Stahura found that, as of 19 January 2009, there were 194,325 second-level names registered across the most popular seven TLDs (.com, .net, .org, .info, .biz, .us and .mobi). Each of these TLDs had more than one million domain names, but only 194,325 names – most of which were not US-registered trademarks – were registered across all seven TLDs and, of those, only three per cent (about 6,000) were registered to the same registrant.

This demonstrates that most trademark owners have not been defensively registering their trademarks across all available TLDs. If the same pattern holds true for the new gTLDs under the ICANN plan, then it is likely that most trademark owners will not engage in defensive registration once the gTLD application period opens.

This is consistent with anecdotal evidence of recently-observed client behaviour. Ten years ago (coincidently the time of the Edelman study), clients seemed anxious to register their trademarks as domain names in each new gTLD as it became available.

Today, however, the increasing number of gTLDs and ccTLDs and the concomitant cost of registering in each have apparently dampened their ardour. Even the recent advent of the ‘sunrise period’, during which clients can act to block their trademarks from registration in the new .xxx gTLD, is generating little interest.

The sheer cost of applying for the new gTLDs should also minimise cybersquatting concerns. The application fee alone is US$185,000, with another US$400,000 to US$500,000 cost to develop and support the necessary registry. Few cybersquatters would be able or willing to risk their capital on this scale.

 

Benefits to brands

Some have speculated that ICANN’s gTLD programme may actually benefit brands. Writing for Adverting Age, Alexa Raad suggested that companies could establish marketable names and websites using gTLDs.

For example, eBay could offer ‘.trademark’ second-level domain names in a new .ebay gTLD to its top sellers, giving them a more marketable, less cumbersome URL on eBay. So, Brookstone on eBay, currently at the domain Stores.ebay.com/brookstoneco, could become simply Brookstone.eBay.

Or, suggests Raad, the American Medical Association could register .doctor and provide all doctors with an ‘@ama.doctor’ email address, harnessing all AMA members onto one powerful, marketable email list. The Law Society could do the same with a .solicitor gTLD.

Companies leaning against applying for a gTLD registration need to consider the potential costs associated with losing their ‘.trademark’ gTLD to another registrant with a legitimate claim to the mark.

For example, ‘apple’ is a trademark for a computer and electronics company, a publishing group specialising in health and wellness, and a record label. If Apple Publishing does not register .apple, it risks losing the gTLD to one of the others. However, if all three apply, ICANN will conduct an auction to determine which one gets it, which could drive up the cost significantly.

 

Legal advice needed

Despite the opposition, ICANN is determined to move forward and has launched a series of events in European cities to “promote awareness” of the new gTLD programme.

Unless stopped or delayed by the ANA’s threatened litigation, the period for initial applications opens on 12 January 2012 and will run through to 12 April 2012.

Applicants, as well as those opposing or affected by applications, can be expected to need advice and assistance from their lawyers, so firms need to be ready. The application is lengthy and complex and requires significant supporting documentation. The final version of the applicant guidelines runs to 352 pages.

The procedures for opposing an application are complex as well. A party opposing the application will need to establish that it has standing to object under the principles articulated in the guidelines and that it can demonstrate a valid objection under one of the four enumerated grounds for objection.

Thus, whether or not ICANN’s new, expanded gTLD programme will ultimately benefit brand owners, internet users, consumers or society at large, it is sure to generate some work for lawyers.

prutzman@thsh.com; beard@thsh.com