Home / Blogs

Domain Name Registry-Registrar Vertical Separation: The Economic, Anti-Trust Red Herring

ICANN has operated on the fundamental principle that there should be separation within the domain name marketplace between registries (wholesale) and registrars (retail). This fundamental principle has been a pillar upon which ICANN has provided registrants (consumers) with increased choice, innovation, and price savings. Therefore it was with great surprise when ICANN staff unilaterally undertook this initial vertical separation analysis through exclusive consultation with ICANN contracting parties (registrars and registries), while totally excluding non-contracting parties (individual, business and non-commercial registrants). ICANN staff proposal to remove these important vertical separation safeguards in the most recent Draft Applicant Guidebook under the auspices of anti-trust concerns totally ignores the important and legally justifiable safeguards that vertical separation has provided registrants.

The Anti-Trust Red Herring

ICANN has expended several hundreds of thousands of dollars undertaking an economic and anti-trust analysis of registry-registrar vertical separation in the marketplace, including the high priced panel of experts that it flew half way around the world in connection with its most recent regional meeting in Sydney, Australia. While this panel discussed hypothetical analysis of how competition could be enhanced through the removal of vertical separation safeguards, they have totally ignored the harms in the current marketplace and how those harms would be heightened if vertical separation safeguards were improperly removed.

The eight hundred pound gorilla in the room that no one really wants to talk about is the tens or potentially hundreds of millions of dollars that ICANN accredited registrars and registries will make as a result of ICANN's new gTLD process. Greed, which has never been a stranger to the ICANN domain name eco-system, is a driving factor in how these ICANN accredited registrations authorities (registries and registrars) figure out how to keep as much of this multi-million dollar economic pie to itself.

To date this debate has evolved with established registry infrastructure providers such as Afilias, Neustar and PIR advocating on behalf of retaining vertical separation and closing loopholes in the existing contracts. On the other side of the debate we have ICANN accredited registrars such as eNom (Demand Media) and Network Solutions seeking to enter the new gTLD marketplace with vertical offerings where they and their affiliates are intending to provide integrated registry-registrar offerings. Given the competing allegations being made within ICANN's contract party house, it is not understandable why ICANN staff began chasing this anti-trust red herring. However, as the following examples describe, vertical separation can provide an important check and balance safeguard within the domain name marketplace to mitigate harms against registrants.

Domain Name Front Running

The term "Domain Name Front Running" was first used in the domain name industry to describe allegations that ICANN-accredited registrars were using insider and/or proprietary information to register domain names in advance of the general public with the intent of reselling them at a higher profit or placing pay-per-click (PPC) ads on those pages. This issue gained such a high profile that ICANN's Security and Stability Advisory Committee (SSAC) issued two reports on the matter in 2007 and 2008.

In the SSAC's first report (SAC 022) the practice of domain name front running was described as the:

[O]pportunity for a party with some form of insider information to track an Internet user's preference for registering a domain name and preemptively register that name. SSAC likens this activity to front running in stock and commodities markets and calls this behavior domain name front running. In the domain name industry, insider information would be information gathered from the monitoring of one or more attempts by an Internet user to check the availability of a domain name.

This practice resulted in multiple lawsuits being filed in 2008 against Network Solution, with at least one of the litigations initially naming ICANN as a defendant as well. These multiple litigations where combined in which the "plaintiffs alleg[ing] on behalf of a putative class comprised of certain users of Network Solutions' domain name services that Network Solutions, through its Customer Protection Measure, committed unfair business practices prohibited by California Business and Professions Code §§ 17200 et seq,, fraud, deceit and negligence and benefited from unjust enrichment during the Class Period, December 14, 2007 through March 15, 2008." Network Solutions recently settled this litigation, with a payment of upwards of one million dollars.

Registrar Forum Shopping

There have emerged allegations from multiple credible sources, including the World Intellectual Property Organization (WIPO), in which one registrar has held itself out as venue to frustrate both the letter and spirit of the Uniform Domain Name Resolution Policy (UDRP). In a letter dated 9 April 2009 WIPO details Lead Networks, an ICANN accredited registrar, knowingly providing "UDRP evasion services." These services include "the provision of misleading WhoIs data followed by orchestrating the filing of what are stated to be sham appeals intended to avoid implementation of WIPO UDRP Panel Decisions."

One of the more succinct summaries of this practice was documented in the International Trademark Association Bulletin citing the following transcript from ICANN's regional meeting in Lisbon.

[W]e have a very inventive registrar out of India that's offering a service to domainers at the last traffic conference that says, look, I'm a registrar in India. I will incorporate you a registrant in India, and I will put all your domains in that registrant with our registrar, so that if anyone ever [files a] UDRP, even if they're successful the only court you can turn to or go to is the Indian court. And, by the way, I'll even start the action for the claim, and I guarantee you it'll take at least ten years to get through any Indian court. So you can continue to own and operate that domain for ten years, even if you lose a UDRP.

On a positive note, in the process of finalizing this article for submission, ICANN announced on 17 July 2009, that it had revoked the accreditation of the registrar accused of these suspect business practices.

Registrar Cybersquatting

One of the inherent risks of being an ICANN accredited registrar is subjecting itself to potential trademark infringement lawsuits. However, there have been an alarming number of litigations over the past several years involving large multinational corporations that have filed complaints alleging massive and systematic cybersquatting in which the registrar knowingly participated. A representative sampling of these lawsuits include: Verizon v. OnlineNic; Louis Vuitton Malletier v. Oversee.net; and Neiman Marcus Group v. Dotster Inc.

eNom's "Free" Domain Name Registrations

In 2004 as part of an Afilias .INFO promotional campaign in which the registry provided "free" registrations to registrars, there was uproar in the registrant community involving allegations that Sipence, an affiliate of eNom, had registered upwards of a million .INFO domain names allegedly on behalf of registrants that corresponded with existing second level .COM domain names. The allegations of Paul Vernon detailed in his email below document the surprise and frustration that some domain name registrants experienced upon learning of eNom's promotion:

Just a heads up if you aren't aware…

We have been the victim of identity theft by eNom as they have registered a domain using our details without our permission. We did not request it and we do not have any access to it as eNom are not releasing the domain even though we are allegedly the registrant…

http://news.netcraft.com/archives/2004/10/08/sipence_grabs_1_million_info_domains_sparking_controversy.html

http://tinyurl.com/4r7df

To cut a long story short, we own koziura.com and the details from that domain have been taken and used to register koziura.info without our knowledge or permission.

We've written to ICANN about this and posted a complaint on the InterNIC site....

You may want to check out your domains that you own and if you register domains for other people, you may want to see if those domains have fallen victim to this fraud too....

eNom and sipence share the same address… Sipence seems like a shell company to help perpetuate the fraud… DROA is a 'reseller' of eNom's that has had several slaps on the wrist before about underhand practices when misrepresenting domain transfers as domain renewals. This identity theft looks like the next step they are taking to increase their share price, bottom line and ranking as a 'top' domain registrar....

If this helps even one person today I've done my job well :)

Domain Name Pre-Registrations in Non-Existent New TLDs

Pool.com and Quintaris recently announced a marketing initiative where by prospective registrants could pre-reserve second-level domain names in potential new top-level domain names. Pool.com and Quintaris are part of the Rob Hall Momentous family of internet companies which includes one or more ICANN accredited registrars. Similar attempts in the past to preregister domain names in non-ICANN sanctioned TLDs have run into legal problems. However, for those Internet users with the ability to read the legalize fine print, the likely business objective of these Momentous family of Internet companies potentially becomes a little clearer.

Quintaris is a company offering consulting services to new gTLD applicants, whereas Pool.com provides a "domain acquisition service for these new gTLDs." The Pool.com acquisition service was recently used by the .ASIA registry during their launch to auction off multiple requests for the same domain name. So while Pool.com and Quintaris promise "first mover advantage" it is highly probably that Pool.com and Quintaris are looking for multiple applicants to come forward and self indentify so that this information can then be marketed to prospective TLD applicants. Couple this data with Pool.com's existing auction/allocation services, and it seems more likely that instead of providing prospective registrants with "first mover advantage," it is more about finding more multiple registrants seeking the same domain name to drive up the potential auction revenue. Such data which is again extremely profitable to prospective TLD looking to maximize revenue after potentially having to pay out substantial sums of moneys in ICANN's own auction process.

Redemption Grace Period Abuse

While respecting the ability of ICANN accredited registrars to pursue innovative business models, perhaps one of the more blatant examples of select registrars placing their own financial self-interest over the interests of domain name registrants is highlighted in the Redemption Grace Period Abuse saga. Back in 2002 ICANN implemented an expedited policy process entitled the Redemption Grace Period (RGP) to provide registrants protection in the case of non-intentional deletion /renewal of domain names. Prior to the implementation of this policy, domain name registrants where finding their domain names associated with gaming and pornographic web site when for any number of reasons the domain names was deleted and then promptly re-registered by a third party that quickly put up the offensive content.

In an attempt to provide registrants with an "unintended deletion safety net" the Redemption Grace Period was a process by which domain names that were about to be deleted would be removed from the zone file to provide constructive notice to the registrant that there was a problem with the domain names. In additional, registrants were provided with a period of time in which they could recover the deleted domain name. It is important to note, however, that this expedited policy never went through the formal ICANN consensus policy process and is therefore not legally binding upon ICANN accredited registrars and registries, it is merely voluntarily policy.

Now the original Redemption Grace Period implementation proposal called for a two phase implementation approach. Phase I limited a registrant's ability to "recover" the domain name with the original registrar of record. However, Phase II was designed to provide registrant's choice in which registrar they wished to recover their domain name. However, as outlined in recent Request for Issues Report on Post-expiration Domain Recovery by the ICANN At Large Committee the following problems were cited:

Over the years, ICANN has implemented several measures aimed at ensuring that a domain that had recently expired could be recovered by its original registrant. These measures have proven to be ineffective. Registrars have developed means of circumventing them to make both the possibility of recovery, and the price of such recovery, quite unpredictable.

A short summary of the issues related to domain expiration and recovery is included in Attachment 1.
If a registrant does not renew its domain name before the registration's expiration date, the registrant may first become aware of the non-renewal when its website is not accessible or its e-mail does not work. Typically a web URL will now resolved to a parked page which may or may not give an indication that the domain name has expired and could be recovered, or the process for such recovery. Most likely the page will have pay-per-click links, with the subject matter somehow related to the domain name or the content of the original site. It is also possible that the web/e-mail could continue to work during this period, providing no indication at all that the domain has expired.

When a registrant tries to recover a domain following the expiration and before deletion, some combination of the following may occur:

• The domain may be recoverable, but the price may be set based on the registrar's perceived market value of the domain, and/or the amount of time that has elapsed since expiration.
• The domain may have already been transferred, sold or auctioned and is no longer available.
• The domain name has been deleted and the Registrar does not offer redemption under the RGP, or the RGP is offered, but at an excessive price.
(Emphasis added)

Fortunately the ICANN GNSO Council on 24 June 2009 voted to initiate a Task Force to undertake a Policy Development Process (PDP) with regard to Post-Expiration Domain Name Recovery (PEDNR). I believe this is an important PDP to provide registrants with a uniform degree of predictability in connection with their ability to recover expired domain names, and one of the reasons that I have volunteered to serve on this Task Force.

Interest/Position Statement

Authoring this article not only guarantees that I will not be receiving holiday cards from Demand Media, Network Solutions and Momentous but that multiple articles will be written shortly vehemently rebutting this piece and questioning my financial motivation in writing it. In an effort to focus those rebuttal pieces on the facts let me put the following cards on the table for those that do not already know the many hats that I wear within the ICANN process. In addition to being a member in the business and intellectual property constituency, I also participate within the registry constituency on behalf of the sponsored TLD .COOP.

I also provide management consulting services to domain name registrars, registries (gTLD and ccTLDs) and prospective registry applicants. Included among these clients is Afilias, who as previously noted is on record publicly as being staunching opposed to relaxing the vertical separation requirements between registrars and registries.

However, this article is written in a personal capacity and not on behalf of any former, current or future clients. For those inquiring minds that would like to know why I have decided to jump into the deep end of the pool on this issue, the reason is as follows. Back in 2007 the Universal Postal Union (UPU) had retained my services to help in concluding their negotiations with ICANN in connection with the .POST top-level domain (TLD). There were a number of issues including among them the request by the UPU as sponsor to directly register a small number of .POST domain names to each member state on behalf of their Designated National operator, not unlike what MuseDoma had been permitted in connection with the .MUSUEM TLD.

To say that the registrar community vehemently objected would be an understatement, even after the UPU tried to explain the limited nature of its request as a specialized agency of the United Nations on behalf of its member countries. The only compromise they were initially willing to offer was the suggestion that the UPU become an ICANN accredited registrar to register these approximately three hundred domain name registrations. Of course this solution conveniently foreshadowed the very proposal that some registrars are advocating today. This point also highlights another bit of irony in the argument advanced by certain registrars. Specifically, the current policy requires all ICANN accredited registries to use registrars, thus while certain registrars want to have one's cake (the ability to own registries and provide vertically integrated services) and eat it too (maintain registrar's monopoly in the distribution marketplace by prohibiting registries ability to go direct.)

While some registrars that argued about the "religion" of registrar-registry separation have had a recent change of heart, in large part likely because of financial motivation/greed, my position has remained largely the same for much of the last five years and which can be summarized as follows:
Registry/Registrar separation was a founding principle of ICANN and has provided registrants with great choice, innovation, cost savings and certain inherent consumer protection safeguards. There should continue to remain a strong but rebuttable presumption in favor of this distribution model. However, ICANN should remain open to limited exceptions to this model where it can be demonstrated by the applicant that the interests of registrants will be promoted and protected such as in the case of .MUSEUM or in the case of single registrant/corporate TLDs as identified in the CRA report.

I personally welcome those registrars that want to enter into the registry infrastructure marketplace. In large part because these additional choices in the marketplace for potential applicants will actual increase the need for my company's consulting services to help the applicants identify the right provider in a sea of growing infrastructure providers. However, the strong presumption in favor of registry-registrar separation must remain for the reasons set forth above. ICANN must merely ensure that those entities and their affiliates that will be providing registry infrastructure services for a specific TLD, NOT provide registrar services in that TLD along the lines of the recommendation set forth in the original CRA report.

Friendly Advice to the ICANN Board

When the ICANN Board tackles the issue of registry registrar separation it needs to filter out the economic/anti-trust "noise" that has sucked out all the air out of this debate to date and ask itself this simple question: will removing the vertical separation safeguards either INCREASE or DECREASE the likelihood of the above described type of action within the domain name marketplace. Now if the ICANN Board finds merits in the concerns highlighted in this article, it does not need to turn to high price consumer advocates to prepare expert reports. The ICANN Board merely needs to turn the At-Large Advisory Committee, the Business, Intellectual Property, ISP and non-commercial constituencies that were never consulted at the outset and ask their input. It is that SIMPLE.

By Michael D. Palage, Intellectual Property Attorney and IT Consultant

CircleID Newsletter The Weekly Wrap

More and more professionals are choosing to publish critical posts on CircleID from all corners of the Internet industry. If you find it hard to keep up daily, consider subscribing to our weekly digest. We will provide you a convenient summary report once a week sent directly to your inbox. It's a quick and easy read.

I make a point of reading CircleID. There is no getting around the utility of knowing what thoughtful people are thinking and saying about our industry.

VINTON CERF
Co-designer of the TCP/IP Protocols & the Architecture of the Internet

Comments

The Pot Calling the Kettle Black? By Tim Ruiz  –  Jul 29, 2009 8:36 am PDT

Mike,

You accuse registrars of wanting to have one's cake and eat it too. Yet you seem to be advocating that very same thing for registries. They want to maintain vertical separation yet be able to directly register some limited number of domain names without use of an accredited registrar. Seems like the pot calling the kettle black to me.

However this issue plays out, it should not favor one over the other. If separation is maintained as it is today, I concede that there may be a few *very limited* cases where allowing a registry to directly register a *small number* of domain names *may* be acceptable. But exceptions should be done on a case by case basis with the opportunity for public community comment.

I am not much of a black and white type of guy, but more of an infinite shade of greys By Michael D. Palage  –  Jul 30, 2009 8:10 am PDT

Tim,

I think we find ourselves more in agreement than disagreement. I fully agree that there needs to be equality in the domain name eco-system, and that no party should be given a competitive advantage over another.

The reason I am trying to have this discussion is not to alienate registrars, but to focus the larger discussion on potential benefits of vertical separation to protect consumer/registrant interests. To better elaborate on my viewpoint consider the following hypotheticals.

The Indy Racing League from whom GoDaddy spokesperson Danica Patrick races with decides that they want a .IRL. They approach GoDaddy and ask for an integrated registry solution where GoDaddy provides an infrastructure platform where IRL is able to register/maintain direct registrations on behalf of the IRL drivers and sponsors. I have no problem with this integrated/direct business model, because the interests of the .IRL registrants are more appropriately safeguarded by IRL as oppose to ICANN.

Now I reach this same outcome if IRL had decided to go VeriSign and ask for the same integrated/direct business model. There is no different outcome if either VeriSign or GoDaddy is providing a integrated/direct business solution to IRL. Similarly situated registration authorities should be treated similarly.

And just to demonstrate the continuity of my logic, this was the same approach I advocated in connection with .POST. The permission for the UPU to go direct was only in connection with its member states through which it has an international treaty governing their interaction. Any commercial entities such as a UPS, PitneyBowes, FedEx would have had to use ICANN accredited registrars. When it comes to protecting the interests of registrants in any sub-domains such as .CN.POST, the UPU and the Chinese government is in a much better positioned to protect the interest of those registrants - not ICANN.

We all need to remember that ICANN serves primarily as a technical coordinating body of the Internet's unique identifiers. It is not a global micro regulator of all Internet commerce.

Now lets assume your boss Bob Parsons, a long time and prolific blogger decides he wants to submit an application for a .BLOG. I have no objection with GoDaddy seeking to become a registry operator of a .BLOG, in fact I would welcome it. However, what I would object to would be GoDaddy serving as both the registry and a registrar within the .BLOG TLD. Unlike .IRL where the registry operator has control over who can be an IRL or which sponsors it accepts, Bob, while a powerful personality, does not have authority to decide who is and is not a blogger.

Because of the broader registrant base, I submit that there needs to be vertical separation safeguards to protect the interests of registrants as well as other registrars that may wish to register domain names within the .BLOG TLD. This outcome would be the same whether DemandMedia or VeriSign applied for a .BLOG TLD.

Look forward to a continued constructive dialog on this very important topic.

I do agree that the vertical separation will be a good thing By Suresh Ramasubramanian  –  Jul 30, 2009 7:53 pm PDT

And as for Tim's comment -

If separation is maintained as it is today, I concede that there may be a few *very limited* cases where allowing a registry to directly register a *small number* of domain names *may* be acceptable. But exceptions should be done on a case by case basis with the opportunity for public community comment.

Conficker for example.  Allowing the respective registries to taste domains rather than letting individual researchers register them one at a time - often at retail prices - would have been interesting.

However, there's the "what's sauce for the goose" that'd occur - that favorite old "slippery slope" argument.  Case by case by case by case by case .. pretty soon its all exceptions.

Another interesting lawsuit By Suresh Ramasubramanian  –  Jul 29, 2009 8:47 am PDT

Transamerica vs Moniker + Oversee + multiple John Does (plus one John Berryhill cited in the lawsuit among a long list of fictitious persons, possibly on the falsum in uno, falsum in omnibus theory) -

http://domainnamewire.com/2009/07/08/transamerica-sues-moniker-over-trademarked-domain-names/

A more comprehensive list of ACPA actions involving registrars By Michael D. Palage  –  Jul 29, 2009 11:43 am PDT

Suresh,

As I noted being a domain name registration authority comes with an inherent risk in getting named in lawsuits, even if that registration authority did nothing wrong. However, some of the accounts/complaints that I have heard/read appear to involve ICANN accredited registrars and/or their affiliates doing a little more than merely serving as a portal to a registry to register names. Listed below is a more comprehensive (yet not complete) list of trademark actions which have involved registrars. I am trying to add to this list and then review the cases individually.

The point again in me raising this issue is to ask the question, will removing vertical separation as currently proposed by ICANN staff make this type of activity "more" or "less" likely, and will those effects "harm" or "protect" registrants/consumers.  Unlike ICANN's high paid economist, that deal in hypotheticals I am just pointing to real situations that have arisen within the domain name eco-system.

Case State Year Status Injunction

Transamerica v. Moniker FL 2009 Pending
The First America Corp. v. eNom, Lead Networks, and Pluto WA 2009 Pending
Ubid v. Go Daddy.com Inc.  IL 2009 Pending
Verizon v. Lead Networks CA 2009 Pending No
Dell v. BelgiumDomains FL 2008 Stipulation to stay proceedings No
Verizon v. OnlineNic CA 2008 Default Judgement No
Microsoft v. OnlineNic CA 2008 Dismissed - Settled No
Dominion Enterprises v. Network Solutions VA 2008 Dismissed - Voluntarily No
Kaplan v. Maltuzi CA 2008 Dismissed - Settled No
Omega Eng, Inc. v. Moniker CT 2008 Dismissed - Voluntarily No
Microsoft v. Maltuzi CA 2007 Dismissed - Voluntarily No
Neiman Marcus Group v. Name.com CO 2007 Dismissed - Settled No
Wynn Resorts Holdings v. Moniker NV 2007 Priliminary Injunction Yes
Verizon v. Internet Reit TX 2007 Permanent Injunction - further enjoined from using Verizon marks Yes
Royal Sonesta v. eNom WA 2007 Dismissed - Voluntarily No
William Sanoma v. Online Marketing Services CA 2006 Default Judgement No
Bellagio v. Moniker NV 2006 Dismissed - Settled No
Louis Vuitton Malletier v. Oversee.net CA 2006 Dismissed - Settled No
Louis Vuitton Malletier v. Dotster Inc.  CA 2006 Dismissed - Settled No
Neiman Marcus Group v. Dotster Inc.  WA 2006 Stipulated Injunction - further enjoined from using Neiman Marcus marks Yes

Ah. Thanks for that much more comprehensive list By Suresh Ramasubramanian  –  Jul 30, 2009 8:07 pm PDT

The registrar constituency, by itself, might want to self regulate and restrain some registrars from continuing with some practices.

And these are by no means restricted to accusations such as in the above cases - tasting copyrighted domains under shell companies and aliases etc. 

When you see about a week's worth of spam domains (mostly botnet and fastflux, or "snowshoe" throwaway domains) registered on about four or five registrars .. or keep seeing a series of registrars with issues all using a "single hosted "registrar in a box" application ...

The other alternative is to to continue to let various registrars get sued (in some cases, sued out of existence), or extensively written about in the press and in cybersecurity reports, then getting deaccredited by ICANN (again with a blaze of publicity) ..

The resulting attention will potentially (i'll even go out onto a rather shaky limb and say "ïnevitably") lead to regulation that's targeted at suppressing less than acceptable registrar practices, and that'd be onerous and handicapping for legitimate registrars to comply with.

Given self regulation (within the registry community, within ICANN, watchdog roles played by the general public / stakeholder groups ..) - which is currently on a very ad hoc footing if at all, and extremely self-limited too, I'd say .. the "wall of separation" can certainly be lessened for a variety of reasons, including economies of scale. 

There are of course massive conflict of interest issues.

And there are registrars who span the spectrum from being profit oriented (nothing wrong in that), all the way to unethical and possibly criminal, at the lower end of the spectrum.

If this wall is ever brought down, someone had better make damned sure that this cannot be abused, and massively abused.

Add Your Comments

 To post your comments, please login or create an account.

Related

Topics

DNS Security

Sponsored byAfilias

Cybercrime

Sponsored byThreat Intelligence Platform

Domain Names

Sponsored byVerisign

Brand Protection

Sponsored byAppdetex

New TLDs

Sponsored byAfilias

Cybersecurity

Sponsored byVerisign

Whois

Sponsored byWhoisXML API