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gTLD Contention Auction in May: Request for Comments

Many gTLD applicants with strings in contention have already heard about the Applicant Auction, a voluntary private auction for resolving string contention that my colleagues and I are organizing. In this post we'd like to share some updates on our progress.

Most importantly, we realized that more than just an escrow agent is needed for the success of a private auction of this scale, and we have partnered with Morrison & Foerster, LLP, a global law firm, who will be acting as the neutral party for our auctions.

We had the opportunity to talk to many applicants in Beijing last week, and we received some great feedback and suggestions. We have distilled these conversations into a more detailed proposal, covering the schedule, policies on which information is published and which is kept confidential, the procedure for handling withdrawals, the handling of bid deposits, and more.

Although many applicants have been asking us to hold an auction as soon as possible and several have already committed to participate in the first auction, we would like to give all applicants a chance to review the proposal and submit final comments, until Thursday this week (11pm UTC).

Based on the applicants' input, the final schedule and rules for the first auction will then be published by Tuesday, April 30, and applicants interested in participating can then sign up their TLDs in an online enrollment system.

We have summarized some of the suggested changes below, and we encourage participants to take a look at the full RFC and send us comments:

Schedule:

We propose beginning Thursday, May 2, with publication of the auction rules and other legal documents, and we plan to hold the auction on Thursday, May 23. Interested parties will need to commit online by May 8. Dates are subject to change with input from participating applicants.

Information policy:

As presented in the workshops, all bidders participating in a given auction can see the number of bidders still bidding for a domain in each round, for all domains being auctioned. However, the winning price is not disclosed to all bidders; only bidders for a particular domain can see the price at which the domain was sold. Amounts of bids and deposits will be kept strictly confidential.

Withdrawal procedure:

Several applicants asked: What if I don't win in the auction, and, as required, I withdraw my application, but some of my fellow non-winning competitors don't? We took this concern very seriously and propose the following solution:

Before the auction, bidders irrevocably authorize the neutral party to request a withdrawal with ICANN on their behalf. In addition, bidders that do not win are required to withdraw their applications via ICANN's online system and send a screenshot to the neutral party, along with a withdrawal statement signed by bidder and two witnesses confirming that the seller performed the withdrawal. A bidder who does not submit proof of withdrawal will forfeit their deposit, and Morrison & Foerster LLP will take legal steps, if necessary, to execute the withdrawal. For bidders who do submit proof, the deposit is held until the neutral party has ensured that the withdrawal took place. ICANN has assured us that withdrawals will be made public within 48 hours, and the neutral party will not release any payments or deposits until withdrawals have been confirmed by ICANN.

Deposit:

Each applicant must make a deposit of at least 20% of the maximum amount the applicant would like to be able to bid, as noted previously. The deposit must be at least $80,000. The purpose of the minimum deposit is to help ensure that bidders who didn't win in the auction withdraw their application. To level the playing field for single-domain applicants who had requested this, we also made an important change from the previously proposed policy: the effective deposit does not increase if participant becomes a seller for a TLD, and payments received from one TLD cannot be used to pay for another TLD within that auction. Applicants who are participating in the auction with more than one TLD must make the minimum deposit for each TLD.

We hope that the procedure we proposed adequately captures the feedback we received from applicants. Overall, there were surprisingly few topics on which we had to come up with a compromise; in most cases, applicant's preferences were in agreement. Where we did have to find a balance between different perspectives, we hope we have found solutions that will satisfy all applicant's concerns.

We look forward to receiving comments to the Request For Comments posted on the applicant auction website.

By Sheel Mohnot, Project Director, Applicant Auction

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Comments

The Good, The Bad and The Indifferent By Michael D. Palage  –  Apr 23, 2013 2:25 am PDT

Hello Sheel,

Having meet with the Applicant Auction staff in Beijing and reviewing both the original documentation as well as the most recent RFP here are my open and transparent comments.

The Good - I think for this first round limiting the ability for a withdrawing applicant to have funds from that auction debited to their account to use in other concurrent auctions is a good thing. Applicant Auction may wish to consider changing that aspect in future rounds as the value of the TLDs are likely to increase. However, for this first round I believe it is prudent to address concerns of applicants engaged in one or two auctions as oppose to the portfolio applicants.

The Indifferent - I personally liked the previous ability to increase the deposit on account during the bidding process, as opposed to the current system where you are "locked in" based upon your initial deposit. While there was always a risk that an applicant would not be able to have a wire transfer reconciled in time, this did provide an applicant a heightened sense of confidence on several fronts.  First, notwithstanding representations that deposits would be held in confidence, the ICANN "glitch" is still a sore spot for many in the community. Second, in light of all the bid rigging "noise" it allowed an applicant to hold in confidence what it was eventually willing to spend. In the current system for a single applicant bidder their maximum bid is locked in based upon their initial/final deposit. This should not be an issue as long as the deposit amount is held in confidence, see point #1 about the glitch. Third, there was a concern following my meeting in Beijing that the software might look to the value of the deposit on account and ratchet up the bidding increments accordingly.  However, considering all the data points currently available to me I am probably indifferent to this proposed change. The fact that Applicant Auction has now stated how the bid price will be increased per round is probably the biggest confidence booster, and there is no reason to suspect that there should be another glitch with the Applicant Auction system having tested it out several times.

The Bad - I am a BIG believe in openness and transparency as evidenced by this response. Therefore I believe the original representations made by Applicant Auction that the system would show all bidders the exit bid per round and all final bids for all TLDs during the auction, and making this information publicly available after the auction was a very prudent course of action. Not only did it provide openness and transparency but it put all bidders on equal footing as opposed to Portfolio Applicants which inherently because of their multiple auctions would information NOT AVAILABLE to other bidders. So here are my questions to the experts at Applicant Auction.

1) What is the percentage of auctions that it has held in the past in which the winning bid was not publicly disclosed and only disclosed to the bidder?
2) Does this not potentially benefit portfolio applicants which will have better data sets in advance of the subsequent auctions as to the price the marketplace is willing to spend?
3) What is the "logic" behind this proposed change since the original approach appeared to be in sync with ICANN proposed auction of last resort?
4) Who requested this change?

To be fair, I do NOT expect an answer to Question #4.  However, I suspect that this might be a question that our friends at a competition authority might be asking.  If there is one thing that the whole Jeffrey Stoler never ending saga has proven is that some people will leave no stone unturned.

Therefore I personally believe that this change which on its face appears to be more closed and opaque is NOT a positive development, and would welcome Applicant Auction to explain (either legally or academically) while this is a positive change and consistent with best practices in the auction space.

In closing, while I was originally not a big champion/believer of the private auction solution, I have gained confidence over time in the processes and protocols which Applicant Auction has put in place and I look forward to any response which you can provide to this post.

Explanations By Sheel Mohnot  –  Apr 23, 2013 5:43 am PDT

Michael,

Thanks for your detailed comments. Looks like we could have done a better job explaining the following:

As before, we propose that ALL auction participants can see, after each round, the demand for ALL TLDs in the auction - not just for the ones they are bidding on. So we did not change this in favor of portfolio applicants. (Although some had openly requested this in Santa Monica).

We did make one small change - we no longer disclose the exact price that each winner pays for each domain. Instead, we publish the sum of these prices, publicly. We felt that this was a good compromise to protect information about individual applicants' business and budget situation, while still informing the public about the general price level for the TLDs.

We do think that for this first auction, this is a positive change. Especially when it can affect bidding behavior in future auctions, It's good practice to protect sensitive business information of bidders in an auction, which was the goal of this small change.

To answer your questions:

1) For the 120 auctions I have been involved in, 90% had the same policy as we propose: Do not disclose the amount of the winning bids. Among Second Price auctions, it's 100%. In fact, this is a key reason for choosing the ascending clock auction format both ICANN and the Applicant Auction use: In most cases, nobody, not even the auctioneer, knows how much a bidder was willing to pay.

The price that the winner pays is indeed usually disclosed, and it's likely that we will do so in future auctions. But participants in the first auction are still contributing price information to the public, and I think they deserve some protection of their private budget and financial information.

2) All participants are treated the same - they know how much they pay or receive for TLDs they were involved in, and they have per-round demand information for ALL TLDs, not just the ones they bid for.
The only change since Santa Monica is that we protect all of the bidder's budget and business information by not disclosing the exact winning price.

3) We are doing almost everything exactly the same way as ICANN - except that we are protecting private budget information for applicants who are participating in the first applicant auction.
In the final Applicant Auction, I would favor disclosing the winning prices as well, publicly.

4) Actually, nobody requested the particular approach we put in the proposal. It's a compromise that we came up with after looking through our notes with the comments from Beijing.

On the deposit, you make some excellent points. We acknowledge that this information is extremely sensitive and we will keep it confidential via encryption, which is what we have done for over $30B worth of auctions without any security breaches. That said, if there is still concern, we are open to suggestions.

I hope this helps and answers your questions - please do follow up if there is anything else we can explain better or should change.

The Good and the Mostly Indifferent By Michael D. Palage  –  Apr 23, 2013 6:13 am PDT

Hello Sheel,

Thanks for your timely, open and transparent response.

With regard to my first question, thank you for clarifying between the winning bid and the winning price. I see how my choice of wording may have created an issue. I agree the winning price is the more critical factor. While I think knowing the exact finial winning price would be the more optimal outcome for all stakeholders, I understand that in trying to balance competing interests/concerns compromises needs to be made.  I think disclosing the pricing per round and the knowing the final range is a reasonable compromise for those applicants participating in this first round.

With regard to my second question, I believe your clarification in connection with Question 1 is important. Currently I have only one applicant which has expressed an interest in the use of a private auction. I believe based on the clarification you have provided and re-reading the RFP, non-portfolio applicants would be provided equal footing in this round in connection portfolio applicants. So in light of my previous rating I would change my "bad" to an "indifferent."

I appreciate your response to my third and fourth questions.  Having addressed my primary concern of what data will be available to participants and when, I think my primary concerns of portfolio applicants having a competitive advantage in the current/future round has been largely addressed/mitigated. I appreciate that the service you are trying to provide is one in which one must balance many competing interests. 

I have been impressed by the professionalism of the Applicant Auction team and I look forward to participating in your upcoming auction.

Wasn't MoFo representing Name.Space in the lawsuit By George Kirikos  –  Apr 23, 2013 2:18 pm PDT

Wasn't MoFo representing Name.Space in the lawsuit against ICANN over new gTLDs? (and which has apparently gone to the court of appeal) I'd find it odd that they'd be helping the new gTLD process along, if they're still representing Name.Space (which wasn't clear from the appeal documents that were posted on DNW.com last week).

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