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Tiered (Variable) Pricing Compromise?

Michael D. Palage

PROBLEM: The new and proposed ICANN registry contracts contain no definite price terms, and thus permit potential tiered pricing on a per domain name basis. This has raised concern within the community that a registry operator might abuse its sole source position to engage in pricing practices detrimental to registrants.

SOLUTION: Preserve reasonable expectation interests by including in the existing, proposed and future registry contracts a restriction that tiered pricing not be imposed on active domain name registrations. Specifically, that variable pricing models only apply to initial or subsequent reallocation of domain names, i.e. land rush in connection with a new registry launch, allocation of previous reserved domain names (e.g. single letter domain names), or deleted domain names following their redemption grace period.

BACKGROUND: Notwithstanding the possibility of tiered pricing on a per domain name basis in connection with the recently executed sponsored registry contracts (.MOBI, .JOBS, .TRAVEL, .CAT, and .TEL), there have been numerous comments submitted in connection with this possibility in connection with the proposed contracts for the .BIZ, .INFO and .ORG registry contracts. There were four messages that motivate me to write this article.

The first was George Kirikos who helped raised public awareness about this provision, and the potential for a registry operator to harm existing marketplace interests. George should be commended for raising the public awareness of this issue and bringing it to the attention of the ICANN. It is important for the ICANN Board to have different perspectives of an issue prior to making a decision.

The second message was one submitted by Rick Schwartz to the public forum that challenged the ICANN Board to reject the proposed .BIZ, .INFO, and .ORG proposed registry contracts based upon the overwhelming public opposition.

The third posting was a submission by the Intellectual Property Constituency (IPC) which expressed concerns that trademark owners which had invested substantial resources developing a website could potentially be negatively impacted by a registry operator's decision to imposed tiered or variable pricing on a per domain name basis.

The fourth message was a personal email from Dr. John Berryhill stating that he and IPC agreeing on the proposed .BIZ, .INFO and .ORG contracts was a sign of the apocalypse. Although this light-hearted note brought a smile to my face in the midst of hurricane preparations, it hit home on a personal level the breathy of community concern about the potential impact of tiered or variable pricing.

ARGUMENTS AGAINST TIERED PRICING: The arguments against tiered pricing are rather straightforward. A registry operator given its sole source position within the marketplace would be able to unilaterally impose per domain name pricing to the detriment of registrants that had invested substantial resources building an identity in connection with a domain name. In a worst case scenario, a registrant of a popular/valuable domain name could see their registration fees increase from around $6 per year to some substantial exponential multiplier.

There are three arguments that have been provided against this potential abuse. The first is the ability of a registrant to lock-in at current prices for up to ten years prior to the imposition of any new fee structure. The second, is that any tiered pricing structure would constitute a new registry service that would have go through the funnel and potentially be referred to a national competition authority. The third is that any type of abusive action by the registry would be detrimental to their long-term business interests.

Registrants have been quick to point out that they are taking a much longer term view of the marketplace, and the ten year price lock in is not substantial enough protection for their business interests. The community is also skeptical of the funnel process given its lack of a track record, and there is a general lack of trust evident in many of the comments received for the registry not to abuse its sole source position given the proposed preferential renewal terms.

ARGUMENTS IN FAVOR OF TIERED PRICING: There are two primary arguments in favor of tiered pricing. The first is that tiered pricing provides the registry with the ability to allocate names in an equitable, non-discriminatory fashion, to ensure that the domain names are being put to the best use. Unfortunately as evidenced by the recent .EU launch, professional registrants sought to game the registry rules and a substantial number of highly sought after domain names were registered by a select group of professional registrants.

Some believe it is critical during the launch of a new registry that domain names that are likely to be intuitively keyed in by users have useful content, and not merely parked pages with for sale signs. Consistent with this approach, mTLD in connection with the launch of .MOBI has employed a multi-tiered pricing approach in their initial allocation of domain names (sunrise, land rush, steady state). Consistent with their registry agreement, they have also created a list of "Premium Names" that will be allocated in an otherwise than traditional first-come-first-serve manner. This type of approach is exactly the type of flexibility that ICANN should permit a registry to explore in connection with a growing a dynamic marketplace.

Tiered pricing also has potential uses in connection with existing registry operators in connection with the allocation of previously reserved names (i.e. single character domain names) as well as in connection with deleted names. The use of tiered pricing provides a registry the ability to allocate these domain names in an equitable, non-discriminatory fashion that does not threaten the stability or security of registry operations.

Another argument in favor of tiered-pricing is that ICANN should not be making determinations in connection with pricing, that the marketplace as well as national competition authorities are better suited for this type of oversight.

PROPOSED COMPROMISE: The ICANN Board should consider incorporating the following language along the following lines into the proposed/future registry agreements:

Registry Operator shall not impose any tiered (variable) pricing model on any actively registered domain name. This restriction shall not apply to any uniformly applied fee increases imposed on all registrants, such as a fixed percentage annual increase.

This language achieves the following. It provides current and future registrants (business and individuals) security that they will not be subject to any discriminatory per-domain pricing models. The only fee increases that they would be subject to would be a universal service fee increase that would apply to all registrants.

The reason I included Rick Schwartz's email as a motivational factor in writing this email was because there is a general misconception in the community that the ICANN Board must do the popular thing. In fact, the ICANN Board is under a fiduciary duty to act on behalf of the best interest of the corporation. Although many may argue what is in the best interest of ICANN, the fact remains this proposed compromise allows ICANN to move forward in a consistent path with new standard registry contracts while addressing the valid concerns of the community in connection with the potential abuse of tiered-pricing.

This paper is not intended to advocate or criticize the path by which ICANN has arrived at this new standard registry contract terms, nor enter into the broader debate about the removal of price controls from the registry contracts. What it is intended to do is address the valid concerns of the community regarding the potential abuse of tiered pricing in a limited set of circumstances.

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Disclaimer: This paper is written in a personal capacity and does not represent the views or positions of any past, current or prospective clients. In the interest of full disclose, the author currently works as a consultant to Afilias. However, the subject of the article was not discussed in advance with Afilias management.

By Michael D. Palage, Intellectual Property Attorney and IT Consultant
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Re: Tiered (Variable) Pricing Compromise? Thomas Kühne  –  Aug 31, 2006 12:06 AM PDT

I fear that variable pricing is going to be use as a loop hole around ICANN's 5th articles of incorporation:
5. c. The Corporation shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office.

Setting prices for domains of political/economic opponents is a very tempting and powerful tool…

ccTLDs have at least a clear legal framework for handling those cases, .BIZ, .INFO and .ORG however don't.

Re: Tiered (Variable) Pricing Compromise? Thomas Kühne  –  Aug 31, 2006 12:27 AM PDT

The reason I included Rick Schwartz’s email as a motivational factor in writing this email was because there is a general misconception in the community that the ICANN Board must do the popular thing. In fact, the ICANN Board is under a fiduciary duty to act on behalf of the best interest of the corporation.

ICANN’s 4th articles of incorporation:
4. The Corporation shall operate for the benefit of the Internet community as a whole [...].

Re: Tiered (Variable) Pricing Compromise? Paul Jones  –  Aug 31, 2006 2:41 AM PDT

Nice try Mr.Lapage. We are to look to you for direction, wisdom, and solutions to the problems you and your company (Afilias) create in the first place?  You are the last person to be trusted.  It doesn't look like your tiered pricing is going to pass so you are now doing your damage control.  I guess you figure you can still auction off all those one and two letter .info's for big money.

The truth of the matter is your company does not deserve to keep the .info registry and it should be put up for open bidding.  Why did you allow your own registrars to steal some of the top .info's?  Why are some of the best .info's still locked after more than 5 years (some of which were have valid trademarks and were won in your WIPO administered Challenge process)?  Where is the regular contributor here, Ram Mohan of Afilas, and why does he not speak on variable pricing and the locked .info's?  Forget variable pricing, let us talk about Afilias saying goodbye to .info in 2007.

Re: Tiered (Variable) Pricing Compromise? George Kirikos  –  Aug 31, 2006 3:27 AM PDT

Keep dreaming — no compromises on this issue. The registries keep asking for "more, more, more", and the public has kept saying "no, no, no." Indeed, if there's an incentive for a registry to earn more money from a domain if it deletes, you'll start to see more "accidental" deletions, so it can then resell that domain for a higher price.

The real "problem" is that registry operators signed contracts to do one thing, and now want to totally rewrite their contracts in an attempt at a money grab. Registrants can clearly see this, and overwhelmingly reject it. The bigger question is why ICANN Staff and the Board do not apparently see this obvious attempt at a money grab. It demonstrates that the Staff negotiating these contracts should be replaced and/or terminated.

Registry operators should be preparing to bid again for the operation of their respective TLDs when the term of their contracts end, and concentrating on operating their TLD in the interim within the contractual terms they signed.

Re: Tiered (Variable) Pricing Compromise? Sotiris Sotiropoulos  –  Aug 31, 2006 7:54 AM PDT

There can be no compromise on this issue.  Michael's idea that "tiered pricing provides the registry with the ability to allocate names in an equitable, non-discriminatory fashion, to ensure that the domain names are being put to the best use" is inherently discriminatory as it begs the question: who defines what "best use" is for any given domain name?

Re: Tiered (Variable) Pricing Compromise? George Kirikos  –  Aug 31, 2006 8:56 AM PDT

Suppose you have a consulting contract with a registry, for $300/hr that ends in 3 years. You come to them in 2006, before the term of the contract is over, that you want $750/hr, and that you want to perpetually renew the contract at your whim. The shareholders of the registry say "No, we have a contract...a deal is a deal."

Is it a "compromise" to then say to them "ok, let's make it $500/hr"?

The above demonstrates that calling something a "compromise" is simply a weak attempt to frame the issue, when there isn't anything that one is supposed to compromise or negotiate about. There is a contract in place. The registries simply want to rewrite the contract, to get "more". If they don't get $30 million in benefits, they'll take $10 million instead, as it is "more" than zero.

What happens if ICANN does nothing, and tells them to go take a hike? Nothing happens....a contract is already in place, it gets re-bid at the end of the term, and life goes on as normal.

It's pretty simple. Instead of discussing this issue, ICANN's Board should spend the time in its next Board meeting discussing which staff members need to be fired for wasting resources renegotiating contracts that don't need to be renegotiated, and showing poor judgement in thinking that the terms they negotiated benefit the public in any way.

Re: Tiered (Variable) Pricing Compromise? John Berryhill  –  Aug 31, 2006 9:14 AM PDT

who defines what “best use” is for any given domain name?

Why, Sotiris, I'm surprised you don't follow the logic here.

You see, under a fixed price system, what happens is that speculators register all of the good names, and then sell them to the highest bidder.  That's an abusive practice.

Under "tiered pricing", the registry allocates the good domain names to the highest bidders.  That's equitable and non-discriminatory.

"Best use" for things like, say, real estate, is normally defined as the use having the highest economic value.  The rational measure of highest economic value is the highest market price.  Having speculators sell domain names to the highest bidders distorts that process by preventing the registries from selling domain names to the highest bidders.

Re: Tiered (Variable) Pricing Compromise? Sotiris Sotiropoulos  –  Aug 31, 2006 9:46 AM PDT

“Best use” for things like, say, real estate, is normally defined as the use having the highest economic value.  The rational measure of highest economic value is the highest market price.  Having speculators sell domain names to the highest bidders distorts that process by preventing the registries from selling domain names to the highest bidders.

LOL!

John,

Following that logic, who is to say that the registry will get more for a given "tiered price" domain than a speculator would?  ;-)

In any case, it is certainly a case of a double standard (as you rightly point out).  If a speculator sells a domain name it is abuse, if a registry wants to implement "tiered pricing" it is ROI for their investors and therefore permissible… Sigh.

Re: Tiered (Variable) Pricing Compromise? Frank Schilling  –  Aug 31, 2006 11:55 AM PDT

George K. makes a good point.  These contracts were already negotiated with the respective registry operators. While it is understandable that advance negotiations begin ahead of contract renewals — In this case those negotiations should coincide with a tendering process to other parties interested in operating the registry, in order to provide a competitive bidding process. 

It just does not make any sense to open existing agreements to early re-negotiation to a single entity; just because the existing Registry operator feels like they forgot to capitalize on a profit opportunity.

I think it’s generally unhealthy when regulatory bodies managing monopolies get into business competition with those that they are meant to serve. Why is the ICANN board so interested in effecting these changes now??  Could some ICANN board members have something to gain if they are able to affect these changes take place prior to their term ending?

How would the real estate investors and condo flippers of the world feel if the guy at the land titles office applied a tax on transfer because they were jealous of the amount of money being made in the market?

Lastly where is the regulatory watchdog and government on this? It’s high time for an industry group to educate lawmakers about the goings-on in this space.

Re: Tiered (Variable) Pricing Compromise? Adam Strong  –  Aug 31, 2006 2:52 PM PDT

Regarding your "arguements in favor of tiered pricing"

As I understand it the tiered/variable pricing creates a loophole which allows for an even greater amount of latitude in discriminating. For example a registry under the current proposal is allowed to charge higher fees for any number of arbitrary reasons such as : Businesses pay more for domains, Non-US companies pay more for domains, Domains that start with the letter Z pay more.  If this is the case, any number of rules can be applied to pricing if there is no uniform pricing system . To say it would be non-discriminatory would be far from the reality.

Again as I understand it the rules set forth in the .EU landrush provided an equal ground for any number of individuals and businesses to participate. "Professional registrants" start at the same point as any other potential registrant. Also, at what point do we determine who is a professional and who is not?  I thought we were being non-discriminant here?

If you tier pricing, the playing field is not level. If there is a tiny company called United Plumbing and a big one called United Airlines and any number of registrants who want the name United.whatever , who is more likely to be able to pay for that domain?  In fact tiered pricing more likely tilts the playing field toward the advantage of the businesses and "professionals" rather than an individual or small business.

These arguements in favor seem to be weak at best, if not a smoke screen. Isn't it a bit odd that the registries or individuals associated with registries are the only ones that have been vocally in favor ? It is quite obvious that the real reason behind the support of this model is that the registries benefit from a LARGE windfall of increases in pricing that would be unbridled. No rules on pricing = anything goes on pricing. That is a control that should not be granted to an exclusive CONTRACTOR with a presumptively renewing contract.

To reiterate what was previously said.
There should be ABSOLUTELY NO COMPROMISE on this issue.

Re: Tiered (Variable) Pricing Compromise? The Famous Brett Watson  –  Aug 31, 2006 8:32 PM PDT

One of the concerns raised here is the question of long-term stability. As has been said, ten years seems like a long time in Internet terms, but I'm sure that I'm not the only one here with a domain name that has been active for more than eight. It's my intention to keep "Nutters.org" going indefinitely, but so long as I have to keep re-registering it, there is a degree of uncertainty. Even if this current ludicrous proposal is smacked down as it should be, I feel sure it will raise its ugly head again and again until something is done to settle the issue once and for all.

My first impression on this "ultimate solution" (there is no truly ultimate solution, so please excuse the hyperbole) is that we need to shift away from the domain rental model to an ownership model. I want to be the recognised owner-in-perpetuity of Nutters.org, which has been exclusively mine for over eight years now. I don't see why it shouldn't be possible to purchase the perpetual right to a name from the outset, but I'm pretty sure that perpetual ownership should be at least possible by the time a registrant has held the domain for ten years.

Perpetual right of title would not (necessarily) exempt me from paying further costs: it just means that those costs are limited to the listing of my NS records in the appropriate zone. So long as this listing service can be provided competitively, the competition itself should be sufficient to ensure a fair price. The registry need not be involved in the listing process. Once I hold title to my domain name, the registry need only be involved again if I update my contact details or other details held by the registry. The job of a registry is thus limited to recognising the authorised administrators of a domain (which could be achieved with little effort if the WHOIS records contained the administrators' public key).

The rationale here is that registries are by nature monopolistic, and monopolies are, by their nature, a nuisance. Therefore we should take the approach of limiting their duties as severely as possible, to limit the potential scope of nuisance; to get their fingers out of as many pies as possible. Selling title (rather than leasing it) is a powerful method with which to meet this end.

This idea was brought up earlier in my article, What's in a Name?

Re: Tiered (Variable) Pricing Compromise? Paul Jones  –  Sep 05, 2006 1:46 AM PDT

Thanks for bringing this issue up in the first place George and for your excellent points.

***NOTICE: Rest of this comment removed by site administration as per CircleID Codes of Conduct.***

Re: Tiered (Variable) Pricing Compromise? John Berryhill  –  Sep 05, 2006 4:17 AM PDT

Paul, whatever one's view of this matter, calling out an individual in that manner is thoroughly inappropriate.  Simply because an individual may choose to provide useful commentary on a variety of topics does not make that person your personal punching bag if they choose not to comment, or may not be permitted to comment.  Each of the registries consists of more than a single person.

It is apparent that the various .info names in perpetual limbo would fall into the class of "previously reserved" names mentioned in the proposal, and you don't need someone to point that out.

Re: Tiered (Variable) Pricing Compromise? Paul Jones  –  Sep 08, 2006 2:28 AM PDT

John you are right that its probably not fair to "call someone out".  I don't think you understand the .info sunrise locked domains fully.  I was not referring to the "previously reserved" names such as web.info, info.info, one and two letter .info's, etc..  Although Afilias would like to auction them off too.  No, I was simply referring to the locked .info sunrise and sunrise challenged names.  Afilias is just waiting to get their registry renewal and then they will either steal them for themselves or (if they get their variable pricing) auction them off also.

Re: Tiered (Variable) Pricing Compromise? John Berryhill  –  Sep 08, 2006 8:01 AM PDT

Afilias is just waiting to get their registry renewal and then they will either steal them for themselves or (if they get their variable pricing) auction them off also.

Yes, I am aware of various categories of .info names in limbo.  Their original sunrise process was broken, and one of their advisors specifically rejected numerous pre-launch suggestions on how to make it less flawed than it was.  This has given me "I told you so" rights which I have enjoyed for several years.

The persistence of belief that there is a "right" way to run a Sunrise Period will probably continue, because many people with policy input do not measure the practical output.  An enormous chuckle in various reports out of the .eu start-up is the shock that, yes, domain registrants have figured out how to file trademark applications.  So having PwC "verify" that, yes, even ordinary people can pay fees and file papers in government offices was cute, in a brain-damaged sort of way.  I particularly liked the Wired article that mentioned companies that were only established "on paper" - as if any corporation is established on something else… parchment or granite, one might suppose.  As a legal entity, corporations only exist on paper, so I'm mystified by the point there.

You want to have some fun?  Mike mentions "single letter domains" among the class of "previously-reserved domains" which, as you note, misdirects attention from the membership in that class of the very domains you mention.  Now, go to the USPTO trademark application, and take a look at "a.com", "b.com", "c.com", and so forth.  Or, take a look at morons filing trademark applications corresponding to domain names in proposed or non-existent TLD's, such as .xxx.  Unknown to the folks who are legitimately concerned with brand protection, the shotgun marriage of clever-by-half trademark policy and domain allocation procedures has produced some ugly children.

Constructing these policies is a game of "who gets the money?" But in order to play along, you aren't allowed to actually ask that question.  So, get with the program.

Re: Tiered (Variable) Pricing Compromise? The Famous Brett Watson  –  Sep 08, 2006 10:49 AM PDT

I particularly liked the Wired article that mentioned companies that were only established “on paper” - as if any corporation is established on something else… parchment or granite, one might suppose.  As a legal entity, corporations only exist on paper, so I’m mystified by the point there.

Companies can also be established in other senses: in the sense of having market share or significant revenues (i.e. incumbency; an established position), in the sense of having an operational history (established operations), in the sense of being past the start-up phase (as opposed to "establishing", present tense), and in the sense of having substantial assets (being an establishment). A company that is established only "on paper" has nothing but legal status as a company: no revenues, active operations, customers, inventories, and so on. It is established legally, but not operationally.

Now please tell me: did you really need that explanation, or were you being sardonically obtuse?

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