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INTA Bulletin


November 1, 2010 Vol. 65 No. 19 Back to Bulletin Main Page

To TLD or Not to TLD, That Is the Question


ICANN (the Internet Corporation for Assigned Names and Numbers) is moving forward with its planned expansion of generic top level domains (gTLDs) and recently announced that its staff is further revising the Draft Applicant Guidebook (DAG), which will define requirements in the application process for the new gTLDs. ICANN may move toward finalizing the DAG at its December 2010 meeting in Cartagena, Colombia, and the first round of applications could open as soon as the second quarter of 2011. The applications will be granted on a first-come/first-serve basis.

Trademark owners face two largely independent decisions:

  1. whether to apply to operate their own top-level domain (whether reflecting their brand, or some other term related to their business); and
  2. how to protect their brands defensively, both against top-level domains that might infringe their marks or allow a competitor to corner the Internet marketplace for an industry-related word.
One Possibility–Operating a TLD
Given the current estimated timeline, the anticipated costs involved and the complexity of the application process, it is critical that trademark owners evaluate the issues surrounding applying for and owning a new gTLD and determine if filing an application is in the organization’s best interest.

Fees and costs
The gTLD evaluation fee is US $185,000, payable in the form of a $5,000 deposit, with the remaining $180,000 submitted with the completed application. The evaluation fee does not cover the costs involved with dealing with any third party objections to one’s application, extended evaluations (if needed), or auctions that may occur if there are multiple applicants applying to operate the same registry. In addition, applicants may need to outsource many services based on the myriad legal and technical issues involved with owning and operating a registry.

If an application is successful, the TLD owner must pay ICANN $6,250 per calendar quarter, as well as a $0.25 Registry-Level Transaction Fee per domain name registered per year after a threshold of 50,000 domain names have been registered. These obligations, and others outlined below, will last for a period of ten years.

Overall, most experts estimate that the total fees and costs associated with the application and evaluation process, together with operational costs and legal fees, could run as high as US $2 million over a one- to two-year period.

Multifunctional team review
Unlike brand owners’ past experience of obtaining defensive domain name registrations, owning an entire gTLD registry solely for defensive purposes is not feasible, partly because of the cost, and partly because of the requirement that the applicant actually operate a functioning registry, once delegated. Brand owners should therefore form multifunctional teams to develop a registration strategy now, before the application period opens. Such strategy should include technical and legal support, and most importantly, a business and financial plan. If a brand owner decides to apply for a gTLD, it should be ready to produce the following with its application:

  • Documentation of the applicant’s establishment as a specific type of entity in accordance with the applicable laws of its jurisdiction.
  • Audited financial statements for the most recently completed fiscal year.
Before the Initial Evaluation reviews are conducted, background checks on the applying entity and the individuals named in the application must be successfully completed.

Brand Owner as Registry: Rules, Policies & Compliance
Brand owner registries are responsible for running their TLDs in a stable and secure manner, including:

  • complying with ICANN’s consensus and temporary policies;
  • implementing start-up post-launch rights protection mechanisms;
  • providing protection for country and territory names;
  • depositing data into escrow;
  • delivering monthly reports to ICANN;
  • hosting Whois services;
  • maintaining relationships with ICANN-accredited Registrars;
  • maintaining an abuse point of contact;
  • cooperating with contractual compliance audits;
  • making TLD zone files available; and
  • enabling Domain Name System Security Extensions (DNSSE)
Community-based TLDs will have additional policy obligations, such as setting the parameters for registration by members of the TLD’s community.

Financial plan
All applicants must prepare at least a three-year financial and business plan, providing evidence that funds required for performing registry functions will be available and guaranteed to fund such operations for at least three years. Applicants can demonstrate this capability with either an escrow account for the total amount required to fund the operations for at least three years, or an irrevocable standby letter of credit issued by a reputable financial institution.

Applicants must also provide financial projections, describing and explaining costs and capital expenditures. Additionally, they must explain the funding for setting up and operating the proposed registry.

Contingency planning must also identify any projected barriers (including legal/policy barriers) to implementing the business approach described in the application and how they affect cost, funding or timeline.

Technical/operational plan
Applicants must obtain ICANN’s assessment of their technical compliance to ensure that the Registry functions protect registrants and maintain ICANN’s mission of ensuring the stability and security of the DNS. The technical plan must be adequately resourced, with appropriate expertise and allocation of costs.

The DAG suggests that there will be robust hardware and technical requirements, including data backup policies and procedures. Registry service providers are also required to participate in periodically depositing their registry data in registry data escrow accounts. For example, registries need to escrow specific information from their Whois database with a neutral, third-party escrow agent.

Applicants may need very sophisticated back-end registry management, which may translate to significant budget commitments and business strategy implications.

Trademark owners should also be aware of special considerations concerning applications for registries that correspond to their trademarks—so-called .brand registries. In particular, ICANN’s proposed registry agreement allows ICANN to “redelegate” a registry to another operator.

hile this may be a laudable way to ensure continued operations of registries based on generic terms in the event of the registry operator’s default, the possibility of having a .brand registry wrested away poses significant concerns for trademark owners.

In short, applying for and running a gTLD, whether run internally or outsourced, is orders of magnitude more expensive and involved than defensive “second level” registrations (the portion of the domain name to the left of the “dot”) and should not be entered into without a full evaluation of purpose, scope and long term plan.

A Second Possibility—Defensive Strategies at the Top-Level
Companies that cannot make a business justification for the expense of owning and operating their own gTLDs can take alternative steps to protect their brands and trademark rights. At the top-level (i.e., the portion following the last “dot”), rights holders can adopt a strategy best described as “watchful waiting.” This strategy rests on two facts about the gTLD registration process: first, the basic information about all gTLD applications will be publicly available on ICANN’s web site (www.icann.org), and second, there will be an opportunity for trademark owners to file a formal objection to any top-level domain that infringes their rights. As a result, trademark owners can simply monitor the set of applications, and file an objection to any infringing ones. All such timely objections will be resolved before ICANN approves any given gTLD.

The key to employing a watchful waiting strategy will be knowing when to check ICANN’s website for potentially infringing top level domain applications. Unfortunately, ICANN has not finalized the exact calendar dates for this process or set the date for the first application period to begin. However, the current draft of the DAG sets out a relative timeline, and it is unlikely that this timeline will change much in the final version of the DAG. As currently conceived, the application period will last for 60 days. ICANN will publish the relevant information from all valid applications approximately four weeks after the close of the application period, and an objection period will run for five and a half months following that publication. It is important to note, however, that ICANN’s Initial Evaluation will run concurrently for the first five months of this period, so trademark owners may wish to lay the groundwork for a potential objection, while watching to see whether the application passes the Initial Evaluation before filing the objection.

Although ICANN has not determined when the application period will begin, current estimates are that it will begin no earlier than April 2011. If, for example, the application period runs from April 1 to May 31, 2011, ICANN will likely publish the applications around July 1, 2011. The objection period would then run from July 1 until around December 15, 2011. This timeline is only an example, and brand owners will need to check with ICANN in the next few months to make sure the relative dates remain the same and to find out when the application period will actually begin. Still, it is most likely that the window to file an objection will be in the second half of 2011.

ICANN has established four separate grounds for formal objections to gTLD applications:
  • String Confusion Objection: The applied-for gTLD string is confusingly similar to an existing TLD or to another applied- for gTLD string in the same round of applications.
  • Legal Rights Objection: The applied-for gTLD string infringes the existing legal rights of the objector.
  • Morality and Public Order Objection: The applied-for gTLD string is contrary to generally accepted legal norms of morality and public order that are recognized under international principles of law.
  • Community Objection: There is substantial opposition to the gTLD application from a significant portion of the community to which the gTLD string may be explicitly or implicitly targeted.
The Legal Rights Objection is most directly relevant to brand owners. Although labeled as covering generic “legal rights,” ICANN’s definition of the grounds for this objection makes clear that protecting trademark rights is the central concern. The third-party panel evaluating such objections will determine if the applied-for gTLD takes advantage of the objector’s reputation or mark, impairs the distinctive character of the objector’s mark, or otherwise creates a likelihood of confusion with the objector’s mark. The objection can be based on either registered or common law trademark rights, and ICANN has defined eight factors which will be very familiar to trademark practitioners for evaluating whether a likelihood of confusion exists. If the objector prevails before the third-party panel, the gTLD application will be rejected.

It appears likely that the Arbitration and Mediation Center of the World Intellectual Property Organization (WIPO) will be serving as the Dispute Resolution Service Provider for Legal Rights Objections. The formal objection will be similar in structure and scope to the complaints filed under the current Uniform Dispute Resolution Process for existing domain names, insofar as the objection document will need to contain all of the objector’s information and arguments—no discovery or subsequent briefing is contemplated. Objections will be filed electronically with the Dispute Resolution Service Provider, will need to be in English, and must be the shorter of 5000 words or 20 pages. Neither the objection filing fee nor the panel costs are yet known. However, the best estimates are that such costs and fees will total several thousand dollars.
In light of the numerous business and legal considerations, high costs and the extensive documentation, planning, and processes involved in the gTLD program, many trademark owners may chose to forgo applying for a gTLD and focus on their policing efforts at the second-level (e.g., sony.music).

Conclusion
Although the full impact of the introduction of new gTLDs is not completely known at this stage, trademark owners are likely to face many issues and will have to be prepared to safeguard their rights, whether they choose to apply for a gTLD or employ a “watchful waiting” strategy. For now, brand owners should know that the general availability of second-level registrations in the new gTLDs will likely not come online until 2012. Consequently, brand owners should 1) focus on—and attempt to budget in 2011 for—potential objections to gTLDs applications that may infringe their rights, and 2) expect that for 2012 they are likely to engage in defensive registrations and/or dispute resolution actions at the second level within newly approved gTLDs.

Watch future issues of the Bulletin for information on the rights protection mechanisms available to trademark owners to protect against what could be a profound increase in the quantity of infringing or cybersquatting registrations of second-level domain names.