Last week, Washington, DC, hosted the ICANN 77 forum. In the communique adopted following the event, ICANN’s Governmental Advisory Committee (GAC) advised ICANN to ban private auctions at the next stage of the new gTLD program. This tool was actively used during the first stage of the program when several companies or organizations claimed to manage the same new generic top-level domain. As a result of such auctions, the bidder who offered the largest amount gained the right to manage, and this bid was split among the losing participants.
According to GAC, a lot of companies simply used private auctions to earn money: they filed applications with no intention of actually operating a gTLD, only to lose the auction and get part of the winner’s bid. This idea has quite solid grounds: for example, it is known that Minds + Machines disclosed in its financial statements (it is a joint-stock company required to file reports with the US Securities and Exchange Commission) that it received several tens of millions of dollars from participation in auctions. According to Domain Incite, at the first stage of the new gTLD program, there were 224 cases where several companies and organizations claimed the same domain. And in many cases, the fate of the domain was settled at private auctions, and therefore their use for profit looks like a fairly realistic possibility.
Today, the draft recommendations for the policy of the new gTLD program’s second stage, developed by a working group of the Generic Names Supporting Organization (GNSO) have no ban on private auctions. However, they say that applicants should affirm that they have a “bona fide” intent to operate the TLD. This looks rather vague, and it is not entirely clear what can be considered sufficient evidence of a “bona fide” intent.
ICANN auctions seem to be a more reliable tool: at the first stage, they were held when applicants could not settle the bid between themselves and for some reason refused to hold a private auction. Such auctions were held in compliance with the usual rules for such events, and the proceeds from them went to a special ICANN fund. However, the GAC also has complaints about these auctions: government representatives consider them unacceptable when a commercial company and a non-profit organization claim the same domain.
GAC ICANN suggests that, for example, a draw could be used as possible alternative to the auctions. However, the prospect of relying on chance will hardly seem tempting to everyone. Another possible option is to hold Vickrey auctions, where applicants place their bids without knowing others’ bids. In this case, the bidder making the highest bid is the winner, but then they do not pay that amount, but instead, the sum of the second highest bid. The advantage of this method is that it is proposed to make bids at the same time as applying for a domain. This means that the applicant will not know if their application is the only one. Accordingly, applicants will be dissuaded to apply for those domains that they don’t really need.
ICANN will have to work hard to resolve this problem. Representatives of its Board of Directors have already said they are going to hire auction business experts to analyze the situation and develop the best possible strategy.
