There has been much discussion in ICANN circles concerning auctions to resolve new gTLD contention sets. This article summarizes the discussion and events to date, and suggests there should be little worry for applicants seeking to resolve their contention sets via private auction, rather than ICANN’s “last resort” auction.

The primary differences between the two types of auctions are that private auctions are faster and more flexible as to rules, and losing bidders share the amount paid by the winning bidder. ICANN auctions, on the other hand, are to be held on a rigid schedule, with no flexibility as to the rules of the auction, and the winning bid is paid to ICANN. Furthermore, ICANN has not yet even settled on the rules for its auctions, expects all auctions to take more than a year to complete (from whence they ever begin), and has no idea how it will spend the auction proceeds. Thus, at first blush, it surely seems silly to wait to participate in an ICANN auction.

ICANN Has Promoted “Self-Resolution”

ICANN’s New gTLD Applicant Guidebook says:

4.1.3 Self-Resolution of String Contention
Applicants that are identified as being in contention are encouraged to reach a settlement or agreement among themselves that resolves the contention. ... Applicants may resolve string contention in a manner whereby one or more applicants withdraw their applications.

Of course, this falls far short of encouraging private auctions. But after all, ICANN itself is a private party (a California corporation), and it has proposed to run applicant auctions and keep all proceeds for itself. (See Applicant Guidebook, Sec. 4.3.) ICANN is also an extremely conservative organization which was long involved in significant antitrust litigation concerning the renewal of the .COM contract. So presumably its lawyers, executives and directors are very comfortable with the notion of private auctions to resolve contention sets.

Uniregistry Conversation with DOJ

In March, 2013, it was reported that Frank Schilling’s Uniregistry had sought a business review letter from the U.S. Department of Justice – Antitrust Division, and that DOJ had refused to issue such a letter. The Uniregistry press release about this conversation is here. The press release included this ominous warning: “The Department of Justice further advised that arrangements by which private parties agree to resolve gTLD string contentions solely to avoid a public auction present antitrust issues.” However, this advice appears to have been transmitted only by a phone call to Uniregistry counsel. Also, ICANN’s auction mechanism is ‘private’ insofar as it is limited only to qualified applicants, rather than open for public bidding. ICANN’s auctions are to be run by a private entity for the sole benefit of that private entity, even if ICANN is mandated to operate for the public benefit.

RightoftheDot Response

Shortly after the Uniregistry press release, a private auction provider consulted with two antitrust lawyers (one a former DOJ prosecutor), and produced a reasoned response. Their memo outlined the U.S. antitrust law embodied in the Sherman Act, and analyzed potential violations in the context of private gTLD auctions. Their memo concluded:

Private auctions in and of themselves do not violate the Sherman Act.

Of course, to the extent that participants to any auction engage in illegal bid rigging or price fixing—be it through private auction by a mutually agreed-to neutral third party, or through an ICANN last resort auction, or through a public or court-authorized auction—those parties can be held liable under the Sherman Act if the parties manipulate or corrupt the bidding process. As a means of effectively and efficiently resolving contentions consistent with ICANN’s own resolution process, a private auction conducted by a neutral third party of the contending ICANN applicants avoids the hallmarks of collusive behavior that injures full and free competition.

Further note that the founders of RightoftheDot, two reputable domain industry veterans, have been involved in thousands of domain name auctions with total value of more than $350 million. There seems no reason to presume that a gTLD auction inherently could be any more of an antitrust violation than a high-value second-level .com domain name auction.

21 Private Auctions Held in 2013

Subsequently, as of December 18, 2013, it was reported that 21 applicant auctions had been conducted by one auction provider in 2013. Earlier it had been reported that the first six of those auctions were conducted in June, 2013, with some $9 million collected from the winning bidders and distributed to the losing bidders. At least one public company (TLDH) and two well-funded portfolio applicants (Donuts and Radix) have participated in these auctions, presumably after receiving satisfactory antitrust legal advice. The auctions were designed by a renowned expert, Peter Cramton, trusted and retained around the world by governments auctioning assets valued into the billions of dollars, which include deals as diverse as radio spectrum rights and airport landing slots. Presumably he is comfortable that the auctions do not run afoul of antitrust law. News of these auctions has been widespread, and almost certainly has not escaped the eye of the DOJ, which has remained silent. ICANN likewise has remained silent, but has accepted withdrawals from losing bidders, and has delegated gTLD strings to winning bidders.

Conclusion

In sum, while there has been much discussion of this topic over the past year, the DOJ has officially been silent even as 21 auctions have been held. Moreover, it does not appear that true private auctions among applicants are inherently any riskier than ICANN’s intended private auction among applicants. Nor that gTLD auctions should inherently carry any higher antitrust risk than second-level domain name auctions which have occurred for more than a decade. Given the obvious advantages of true private auctions, compared to ICANN’s unsettled but surely rigid plan, it seems likely that nearly all gTLD contention sets will be resolved prior to ICANN’s “mechanism of last resort.”