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Every Domainer Is Subsidizing Tasting… Abolish Registration Grace Period

Alex Tajirian

One issue that a large number of domainers agree on is that domain tasting under the current ICANN-approved policy is bad for the industry. For one thing, a healthy portion of the practice involves trademark use that not only is illegal but also destroys value. Of course, particular segments of the domain name ecosystem can suffer value destruction because of tasting that doesn't infringe trademarks. But most criticism is directed, and rightly so, at tasting that raises trademark issues.

Litigation over the trademark issues has done little to stop the practice and destroys value for trademark holders and domainers alike. Now the big trademark owners have begun pooling their efforts and given us the Coalition Against Domain Name Abuse (CADNA). As their creature, the group offers a real possibility of abuse. Conceivably, individual domain name owners could be bullied into giving up names that face only flimsy trademark allegations.

Meanwhile, tasting will continue as long as there is an increase in the average PPC rates or in search volume, advertising for new keywords or improvements in content to better match user intent. Thus, a long-term solution needs to be implemented.

A Taste of Existing Views

One argument invoked for eliminating the five-day grace period is that the opportunity for tasters to go hog-wild puts stress on the registries. But by now a number of the registries have installed and paid for the extra capacity they require. It must be considered a sunk cost and has no place in calculating the merits of eliminating the grace period.

There have been suggestions that registries could offer only partial, not full, refunds when a registration is canceled. But this proposal would have no bite unless ICANN mandated a ceiling for refunds; otherwise competitive market forces would make reductions in the refund nominal at best. The recent announcement of the formation of CADNA to tackle trademark-related domain tasting is primarily aimed at enhancing the trademark owners' market power while reducing their monitoring and enforcement costs. The market power comes not only from the aggregation of the coalition members' trademark rights but also from their call for action to enlist disgruntled domain name owners who have lost their names to tasters. However, CADNA and the route of confrontation are value-destroying for both parties. CADNA does not present an effective solution and might be used to pressure domainers into giving up domain names that don't violate trademarks.

What is the real problem?

Under the current ICANN pricing structure, the registration fee implicitly includes an option that allows the registering entity to force a full refund. This option has value, as demonstrated by the volume of domains being tasted. But those doing the tasting, by and large, are the few domain owners willing to risk trademark infringement. Other domain owners, the vast majority, also pay the higher registration fees that make the full refunds possible, but they don't benefit from the refund option. In effect, they are subsidizing those of their competitors ready to play fast and loose with trademarks.

On the registrars' side, of course, the players with the capacity to handle the large volume of tasters' five-day transaction sprees often benefit from the current arrangement. As a result ICANN is notably reluctant to tackle problems associated with the grace period.

What needs to be done?

Any solution has to accomplish two things: (1) give ICANN an incentive to overcome the bigger registrars' resistance to action; and (2) eliminate the subsidy to tasters.

One part of the answer would be to stop funding the cost of refunds out of the same standard registration fee that all domain owners pay. Instead domain owners would be given a choice when they registered. Those looking for full refunds would pay extra by purchasing insurance policies (a put option) guaranteeing them that option. Those who weren't interested in refunds would pay only the registration fee, now lower because it would no longer carry the weight of subsidizing the tasters.

Different domainer risk classes would pay different prices for their insurance, of course. But paying would give all would-be tasters an incentive to abandon the spree approach to acquiring domain names and to start using analytical tools instead. The change would expand the field's knowledge base and thus create value.

More is needed to conquer domainers' "bad taste" problem. But going through the legal venues cannot be considered an answer. Done individually or coordinated through CADNA, lawsuits would take too long to resolve and would destroy value for both sides, domainers and trademark holders. Instead trademark holders should explore solutions based on cooperation with advertising agencies (such as Google and Yahoo) and monetizers.

Concluding Remarks

1. The proposed refund insurance policy solution stops the wrongful subsidy from domainers to tasters and satisfies ICANN.
2. To overcome "bad taste," or bad tasting, trademark owners need to follow a cooperative strategy instead of litigation.
3. A coordinated effort by domainers is needed to forestall abuse of CADNA.

By Alex Tajirian, CEO at DomainMart
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Related topics: DNS, Domain Names, ICANN
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Re: Every Domainer Is Subsidizing Tasting... Abolish Registration Grace Period Michael Collins  –  Oct 01, 2007 6:36 AM PDT

It is clear that it is a small minority of domain investors and developers who are using tasting to abuse trademark rights of others. However, this practice creates problems for all of us. Internet Commerce Association (ICA) is interested in working with CADNA and others to stop this abusive practice. However, ICA wants to make sure that legitimate domain investment and development rights are not sacrificed to stop a few bad guys.

Alex is on the right track here, but I see one problem with his suggestion.  He says, “Those who weren’t interested in refunds would pay only the registration fee, now lower because it would no longer carry the weight of subsidizing the tasters.” I am not a lawyer nor have I been advised by one. In my opinion, this would require VeriSign to voluntarily reduce registration fees for .com and .net because they have a long term contract that specifies prices and even allows price increases. VeriSign is one of the benefactors of tasting. Despite some expenses to accommodate the add/delete requests, VeriSign makes money from tasting. It seems unlikely that a company with a fiduciary duty to their shareholders will reduce prices voluntarily to help end a profitable practice.

I wonder if ICANN’s fee for each registration could be made to be non-refundable to accomplish the same goal. Any funds obtained from tasting could be used to reduce the ICANN fee for all registrations. However, I am not optimistic that there would be any significant revenue from tasting. The numbers show that this practice depends upon no-cost registrations. Tasting will not be profitable at least on the scale that we see today with even a 20 cent cost per domain. This method would not have the same contractual pitfalls as reducing registration fees to the registries and should stop large scale tasting while maintaining a way for legitimate registration errors to be reversed at low cost.

Anyone who is interested in helping us preserve the rights of domain investors and developers is encouraged to join ICA. We welcome new members and need your support.

Michael Collins
Internet Commerce Association
www.InternetCommerce.org

Re: Every Domainer Is Subsidizing Tasting... Abolish Registration Grace Period Alex Tajirian  –  Oct 03, 2007 7:03 AM PDT

Thanks Michael for taking the time to comment on the proposal.

I am unclear regarding the following:

(1) You suggest that tasting “creates problems for all of us.” It is not clear to me which “problems” you are referring to?

(2) You say that the article is on the “right track.” Are you referring to the suggested source of the problem or the offered solution?

I apologize for not being clear regarding the implied cost of registration. The article does not suggest an explicit refund, rather that the resulting registration fee would have an implicit cost saving, and thus, a benefit to each registrant.

As stated in the article, besides the recommendation to abolish the grace period, the solution provides incentives to VeriSign through premiums collected from the sale of refund insurance policies. Hence there is no issue with VeriSign’s “fiduciary duty to their shareholders.” In fact, the premiums can generate more income to the shareholders than under the current setting.

Re: Every Domainer Is Subsidizing Tasting... Abolish Registration Grace Period Michael Collins  –  Oct 03, 2007 7:43 AM PDT

Alex,

Sorry, "all of us" is a little ambiguous. Trademark owners are damaged when their names are used by cybersquatters. Domain owners are damaged by a loss of confidence in internet commerce. Consumers lose confidence when a known brand name is used to sell an inferior product. Companies lose confidence in search advertising if they believe that it is supporting cybersquatting.

I think that you are on the right track by proposing a market-driven solution to the problem.

VeriSign's profit and position on this issue is complete speculation by me. Maybe you have talked to them and know more than me. However, I think that the cost of using add/delete grace period should be high enought to stop the practice of tasting. I don't think that the cost per domain would have to be high. Add/delete grace period should still be available for the original intent, allowing mistaken registrations to be refunded (though at a small cost).

If the cost of tasting is high enough to stop the practice, then how will the insurance fees that you propose replace current profit? If the insurance produces any revenue the plan does not succeed at stoping tasting.

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