Over three years ago ICANN boldly announced that the top level of the domain name system would be opened up to new registry operators. As we now approach a likely spring 2011 launch, a number of key issues remain unresolved including how trademarks will be protected.

Companies and brand owners will be able to choose between a .company name registration(s) and/or .brand name(s) for the $185,000 application fee. While ICANN is predicting only five hundred registrations in the first round, that number may be significantly higher.

There are many advantages to owning a new generic Top-Level Domain (gTLD), including more control over your domains and company identity on the internet, higher search engine ranking, as well as the possible reduction in the expense of purchasing keyword advertising. The stakes are high and no corporation wants to fall behind only to see their competitors gain an advantage on the Internet with a new gTLD registration of their brand, or with the purchase of an industry keyword such as .beverage, .banking, .oil or .lawyer.

While the $185,000 application fee may seem high, there is the possibility that legitimate owners of the same trademark may submit an application for the same gTLD. If no entity rescinds their claim by the end of the contention period, the gTLD will come up for bidding. Companies should budget for this as it could become quite expensive. For example, many Fortune 500 companies have legitimate trademarks under the same name and coexist peacefully because they are in different industries. When it comes to gTLDs, however, they can not coexist.

Whichever company is better funded will win both the bidding and the gTLD. This may prove detrimental for those corporations that have invested heavily in building brand equity that lose their bid. Bidding may reach into the millions of dollars, creating unnecessary costs that companies will have to shoulder in order to retain their brand or company gTLD. Although this bidding process may not appear to be fair, it is what ICANN has proposed, so brand owners and companies that find themselves in such a position need to be prepared for a protracted and expensive bidding process and will need to set aside money to ensure victory.

For brand owners there is not only the risk that a competitor will purchase an industry keyword, but also the risk that someone may register their brand as a new gTLD. ICAAN will provide a clearinghouse to prevent infringement and will soon be posting an RFP for organizations that are so inclined. ICANN describes the clearinghouse as “a central repository for information to be authenticated, stored and disseminated pertaining to the rights of trademark holders.”

Registry owners must implement either a Sunrise or an IP Claims system. These owners can have lists of identical verified trademarks (no plurals or hyphens) forwarded to them, thus saving the cost of having the same records validated time and time again. The clearinghouse will include trademarks registered in any national or multi-national registry without discrimination.

At present, ICANN’s proposed rules suggest that only marks that have been registered in a country that has a substantive examination procedure, or marks that have been recognized as valid and enforceable by a court action, would be included. Unfortunately, a definition of “substantive examination” has not been formulated so questions remain as to whether particular marks can be protected under ICANN’s proposal. This current design also appears to neither include consideration for U.S. common law trademarks or state trademarks. In addition, the focus on national registration and solely on exact marks would miss many infringing proposed domain names.

Some companies and brand holders may opt to take a wait-and-see approach and may not participate in the first round of the application process. However, waiting another year or two to see how the gTLDs catch on may cause them to lose a significant competitive advantage in the marketplace. Would a major beverage company want to allow their top competitor to earn an early adopter advantage by purchasing .beverage? Would any company want to sit on the side line?

It will take careful consideration and research to determine the best course of action. The new gTLD opportunity will allow corporations and brand owners to become domain registries and have much more control over the brand on the Internet. Companies can therefore register their company as a new gTLD and then register all of their brands under their .company domain name. This is a fundamental shift in managing brands on the Internet. Most companies and brand owners will give serious consideration to the new gTLD opportunity; some will embrace it and make the investment, while others may fall behind. There are still many open issues that need to be resolved by ICANN before the spring 2011 launch, but brand owners will want to formulate their strategy soon or be left behind.