ICANN Proposes Disputed Domain Auction

The proposal, entitled "Economic Case for Auctions in New gTLDs," was released after discussions at the recent ICANN meeting in Paris, France, and describes "the economic case for auctions as a tiebreaking mechanism for resolving contention among identical or confusingly similar applications for new gTLDs."

The move follows ICANN's opening of the domain name system to nearly any desired keyword, such as ".xbiz" — a move that it hopes will increase diversity and availability of domain names beyond the "dot com" arena.

Operators in the online adult sector are quite familiar with domain name disputes, such as the much publicized Sex.com saga as well as other high-profile cases.

The paper was prepared by ICANN's auction design consultant, PowerAuctions LLC, along with support from the ICANN staff and notes that "there are two lines of argument for auctions as the tie-breaking mechanism for resolving contention among competing applicants for new generic TLD strings. First, auctions accomplish the goal of allocative efficiency: putting scarce resources into the hands of those who value them the most."

Outlined as examples of gTLD bidders that would "value them the most" are:

• Applicants whose true intentions or abilities are to serve many users would be able to justify higher bids than applicants who will serve few users;
  
• Applicants capable of providing high-quality service at low cost would be able to justify higher bids than low-quality, high-cost applicants; and
  
• Applicants who intend to develop the gTLD immediately would be able to justify higher bids than applicants whose purpose is to hold the gTLD, unused, for speculative purposes.

While the ICANN report acknowledges that "auctions are not perfectly aligned" with its objectives, it notes that "alternative allocation mechanisms such as comparative evaluations and lotteries inherently have much more severe limitations and defects, as evidenced by the historical record and by the abandonment of these alternatives in other communications areas."

According to ICANN, auctions will be used as a tie-breaking mechanism, not the primary means of allocation, for the resolution of "string contention" among competing applicants "for identical or similar strings." Auction would be the final means of settling any contention cases that have not been resolved at any of the previous stages in the process.

The paper does not address specific details on how an auction process to "resolve string contention" may be conducted, but that information is expected to follow as part of the larger gTLD implementation plan that will be presented in the near future.

As for the "Economic Case" outlined in the proposal, Americans and others will take a financial hit and be at a competitive disadvantage; as the plan calls for "various devices [to] be considered for favoring disadvantaged bidders in an auction."

As an example, ICANN would provide a 25 percent bidding credit to those bidders "whose community is located primarily in least-developed countries." This means that a $300,000 bid from such a bidder "would be viewed as equivalent to a $400,000 bid from a wealthy country."

Public feedback on this phase of the open gTLD implementation plan is being solicited through an online forum at forum.

Comments may be submitted via email to auction-consultation@icann.org until Sep. 7, 2008.