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Why the Lawsuit Against .XXX Maybe the Best Sales Tool Ever For New gTLD Applicants

Michael Berkens

"There is a serious danger that ICM will establish and monopolize such a distinct market. As consumers seeking adult content become more aware of the .XXX TLD, registering and displaying websites in other generic TLDs may not easily be substituted for registration in the .XXX TLD."

No that statement is not from the ICM Registry's sales material.

That statement was contained in the lawsuits filed yesterday by Manwin and DigitalPlayground.com against ICM and ICANN alleging anti-trust violations involving the award of the .XXX TLD.

After reading through the 44 page lawsuit my first reaction was: I want to buy more .XXX domain names.

I think the case servers as cautionary tale to every major company in any industry to either apply to control the generic vertical of the new gTLD space or risk losing control of it to a competitor.

The Plaintiff's have seemed to realize what those in the domain community already know.

The new gTLD program will allow someone to own exclusively the entire vertical of an industry, profession or business and they don't have to share it.

The winning applicant of a .law, .health, .insurance or .music will control the entire space.

Yes a legal monopoly.

With the right to do what they want with the extension, including keeping it closed for their own use and benefit, or to sell domain name and price them in any manner they see fit, to reserve and sell premium domains in the extension for what the market will bear.

While some have pointed to the application fee of $185,000 as a bar to entry, it's clear with the filing of the federal lawsuit yesterday as well as the request for administrative hearing, what Manwin and DigitalPlayground will spend to try to stop .XXX — costing many times more in legal fees than it would have cost to apply for a new TLD.

The independent Judicial Review that ICM won against ICANN reportedly cost each side Millions of dollars in legal fees and the out of pocket cost of the review was over $750,000.

More of the plaintiff's allegation in the complaint recognize the unique position any new gTLD operator will enjoy:

  • "The ICM/ICANN contract leaves ICM with broad discretion to fashion and limit in a non-competitive, unreasonable manner the nature, quality and scope of .XXX registry services it offers registrars and registrants."
  • "ICM has a complete monopoly in the market for the sale of .XXX TLD blocking or defensive registration services through registrars. No other company or entity can or does provide such services."
  • "ICM currently has a complete monopoly in TLDs that have a name connoting adult content. There are currently no other TLDs beside .XXX with names that connote adult content."
  • "No other company or entity besides ICM currently can or does provide, through registrars, affirmative registrations in TLDs that connote adult content."

Is it legal?

Well Verisign has a Monopoly to operate the .com and .net registry.

Neustar has a monopoly over the .biz registry and Afflias has a monopoly over .Info and now ICM has the worldwide and exclusive right to operate .XXX.

What the plaintiffs call a monopoly are actually exclusive contracts entered into by ICANN which was granted its authority to manage the domain name system by the US government.

So the next time your chatting with a potential gTLD applicant the question you should ask them is does the company want to control the space to the right of the dot, in the entire vertical that best represents their industry, business, profession or product or are they fine with letting their competitor run it?

If you looking for a great sales tool for any potential new gTLD operator look no further than the lawsuit filed by Manwin.

By Michael Berkens, President of Worldwide Media, Inc.. Michael H. Berkens is a member of the Florida Bar, President of Worldwide Media, Inc. which owns over 75,000 domain name, a Director in RightoftheDot.com and writes a blog at TheDomains.com.

Related topics: DNS, Domain Names, Registry Services, ICANN, Internet Governance, Policy & Regulation, Top-Level Domains

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Comments

the meaning of monopoly Milton Mueller  –  Nov 17, 2011 5:51 PM PST

I haven't read the pleadings but this socalled antitrust case sstrikes me as frivolous. Exclusivity over a string in the top level is not even close to a "monopoly" over a market. Especially now that ICANN is opening the door to hundreds of new TLD. Tthere is unrefutable.proof that there is cross elasticity of demand across different tld strings - if u can't get a ,com you will take a .net or a .info or a .bizz, for example. So a .sex or. Porn could easily compete with. Xxx. Some companies have more money and more lawyers than they have sense.

the meaning of monopoly Alex Tajirian  –  Nov 18, 2011 11:26 PM PST

Milton,
The cross elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good.  How does your example demonstrate the effect of price changes on demand? In fact, one can argue that the elastisity is zero, as even when the price of .com increases from $6 to $600,000 companies prefer to pay for the price increase instead of registering .net or .org or …

The Herfindahl index is the measure typically used to determine monopoly power in antitrust cases.  Nevertheless, the definition of a market is also a source of contention in such cases.

What if we end up with only one new TLD that signals New York City, say .NYC? Wouldn’t that be a monopoly of the New York signal market? Nevertheless, a TLD monopoly can be a result of network effects.

What cross-elasticity, elasticity and HHI mean Milton Mueller  –  Nov 19, 2011 7:43 AM PST

I can tell that your familiarity with these concepts is limited, so here are some explanation.

Cross-elasticity is a measure of the degree to which one good is a substitute for another. So if the price of .com rises and the price of .biz remains the same, then a cross elasticity measure would tell you the extent to which demand for .biz increases when the price of .com rises. They are not perfect substitutes, obviously, but it's clear that they are substitutes to some degree. Let's not lose sight of what this debate is about: the so-called "monopoly" of .xxx. The existence of cross-elasticity simply tells you that new TLDs in the porn space could be created and that .xxx is not a monopoly. The REAL cross-elasticity of interest, however, is the not whether new porn-related TLDs can compete with .xxx, but whether .com and other domains can do so. If .xxx charges a lot more, why would you register nasty.xxx instead of nasty.com? Of course, by the logic of this silly antitrust suit, the owners of nasty.com is ALSO a "monopoly" because there is no other domain name exactly like it.

Then you go on to confuse cross-elasticity with elasticity, and to assert (absent any evidence) that it is zero for all domains at all times. Sure, there can be huge switching costs for a business but that is why you ought to be able to register a domain for an indefinite period, we can thank ICANN and the trademark lawyers for the fact that you cannot.

One TLD for NYC? Ridiculous. No, that would not be a monopoly on the "new york market". All kinds of ways to signal NYC without the TLD: nybusiness.com, .newyork, etc., etc. Amazing how such primitive philosophical nominalism has taken over the minds of so many purportedly hard-headed business people in this space.

I’ll let the readers decide on who Alex Tajirian  –  Nov 19, 2011 11:54 AM PST

I’ll let the readers decide on who has limited understanding of cross price elasticity and who is creating new definitions of cross price elasticity.

I have to agree with Milton on Constantine Roussos  –  Nov 20, 2011 10:46 AM PST

I have to agree with Milton on this one. The Herfindahl Hirschman Index (HHI) is a measurement of the size of companies that relate to the Industry and a measure of the level of competitiveness between them. If you look at .COM and the word "newyork" or"newyorkcity" you can find thousands of possible permutations of those phrases e.g newyorklawyer.com. If lawyer.newyork was launched how is that a monopoly? The whole point of new TLDs is string competition and introducing niche strings that would compete with the ones already registered and the ones not yet registered. At least the consumer will have a new set of choices as opposed to calling up the .COM owner and paying a ludicrous amount of money to buy the "scarce" .COM version of their keyword.

What is wrong with the critics of the new TLD program is their relentless pursuit of creating false assumptions based on their hidden bias. Rationalizing to a conclusion without understanding the true dynamics, background history, facts and how they relate to each other is what I call a terrible assessment. Rationalization based on a bias point of view and false, self-serving assessments is dangerous for all involved. Understanding is key but most already have made up their mind without contemplating the true issues because they are too afraid to admit the realities of certain truths. I do not think owning a string creates a monopoly because there are so many other alternatives. However I do believe a string can create a strong value proposition if set-up right to be very successful and compete directly with .COM and other strings for that matter.

Constantine Roussos
.MUSIC / MyTLD

Does Kellogg's have a monopoly on corn flakes? Antony Van Couvering  –  Nov 22, 2011 12:54 AM PST

Does Kellogg's have a monopoly on corn flakes?  No, it has a monopoly on Kellogg's Corn Flakes.

Does Coca-Cola have a monopoly on cola?  No, it has a monopoly on Coke.

Does .XXX have a monopoly on adult domain names?  No, it has a monopoly on .XXX domain names.

Will .NYC have a monopoly on New York City domain names?  No, it will have a monopoly on .NYC domain names.

Does the ANA and its apologists have a monopoly on self-serving FUD?  No, but they're giving other lobbyists a run for their money.

This is the same point as Milton and Constantine are making, I think.

Antony,As I was trying to be clear Alex Tajirian  –  Nov 22, 2011 2:13 AM PST

Antony,
As I was trying to be clear in my comment, “the market” of a product is not easily defined in a large number of monopoly cases. Thus, the adult industry, for example, is not well defined. Therefore, identifying a monopoly of a TLD signal in the adult market is not straight forward. Nevertheless, looking at my examples, .xxx and .nyc may not be the only adult and New York City TLD signals respectively but they can end up as monopolies due to network effects, which is one of the main reasons for the popularity of .com.

@AntonyOk, let’s take the Kellogg's exampleKellogg's can Paul Tattersfield  –  Nov 22, 2011 4:40 AM PST

@Antony

Ok, let’s take the Kellogg's example

Kellogg's can easily get TM protection for “Kellogg's” for selling corn flakes. Getting protection for “corn flakes” for selling “corn flakes” is more questionable, because it would allow Kellogg's to buy an advantage over its competitors who also sell cornflakes.

(It could of course buy the advantage of a “corn flakes” mark for protection of goods other than corn flakes say; carrying bags, jigsaws and model cars).

ICANN in its infinite wisdom has assumed this distinction doesn’t matter and is quite prepared to sell implicit DNS branding advantage to the most economically advantaged irrespective of how those new gTLDs will be used.

The problem should have been mitigated through the use of categories, and at the time I couldn’t figure out why Peter Dengate Thrush was so adamantly opposed to even any discussion on the matter.

These issues have already arisen in .jobs and as a result the ICANN board announced it would have compliance staff carefully monitor the .jobs registry’s future actions. For new gTLDs it will not be possible to correct such inequities as they will be “designed” into the actual framework.

For good reason Trademark Law doesn’t allow this advantage to be conferred nor should ICANN.

What .jobs issues, Paul? Ray Fassett  –  Nov 23, 2011 10:37 AM PST

What .jobs issues are you talking about, Paul?  Taking side swipes at .jobs does not support your position.  If anything, your insinuation in the context of this conversation has more to do with a commercially entrenched Monster.com becoming the registry operator for the generic TLD .jobs with ICANN being the one enabling Monster to use this position in some way against those they compete against.  Put simply, a competition issue, right?  What if ICANN, as the sole source provider, allows Kellogs to obtain the one-of-a-kind .cornflakes TLD, and what will this mean to the other cereal makers Kellogs competes against - that's your point correct?  If so, then fine because this is exactly what ICANN has devised to make possible in their new gTLD implementation plan.  No question about it.  So Kellogs and other cereal makers suddenly have a significant business decision to make for one (or more) unique and generic TLD terms of which, for purposes here, they are none too happy about.  With ICANN using their position as the sole source provider to make this all possible. If so then fine but taking swipes at .jobs to try to support your supposition is at best misinformed.  For anyone interested, I think this CircleID commentary provides a far more informed view by someone who has looked under the .jobs hood:

http://www.circleid.com/posts/insight_jobs_and_new_tlds_are_you_paying_attention/

.jobs is a perfect example Paul Tattersfield  –  Nov 23, 2011 2:40 PM PST

Ray,

The issue is about ICANN awarding any entity an implicit DNS branding advantage and as a result forcing others in the same market place to try and compete without that advantage.

If some of those acquiring new gTLDs already dominate their real world market places then their dominance will simply make the underlying inequity much more apparent much sooner.

This same issue applies to the allocation of .jobs – One entity, in this case yours, has acquired an implicit DNS branding advantage which others do not enjoy and they are fearful of how you might use it. No doubt if ICANN had sold the advantage to the others the contentions could be reversed.

When charter compliance coalitions are formed, lawyers instructed and requests for arbitration are filed with the International Court of Arbitrations no doubt the parties involved feel the issues are important enough to expend considerable time and resources trying to get the issues settled in their favour.

ICANN’s job is to provide an equitable framework; a level playing field if you like. It is the level playing field provided by the existing DNS which is responsible for much of the phenomenal success of the Internet.

The 2001 and 2004 rounds were very illustrative and lessons can be learned from them. It seems some don’t want to learn or even discuss, never mind work through some of those lessons.

"This same issue applies to the allocation Constantine Roussos  –  Nov 23, 2011 5:32 PM PST

"This same issue applies to the allocation of .jobs – One entity, in this case yours, has acquired an implicit DNS branding advantage which others do not enjoy and they are fearful of how you might use it. No doubt if ICANN had sold the advantage to the others the contentions could be reversed."

Paul,

The point is .jobs was allocated and 99% of the Internet population does not know it exists. What kind of branding advantage are you referring to? A technical advantage based on DNS? Unless you are .COM how does it create this "branding advantage" that translates into significant profits? The .jobs extension already exists and it has not become a household name like a .EDU has.

Just because you administrate a TLD and have a string in the DNS it does not mean you have a branding advantage. This is because people do not know you even exist. Look at the top domainers for example. They own ultra valuable one-word generic domains but the bottom line is they are not branded in the minds of users or consumers. Branding refers to how consumers perceive your brand. If they do not know who you are or that you exist there is zero branding advantage. Do not mistake branding advantage with branding potential. Branding potential is also a function of its leadership team and a strategy that is executed to create this differentiated, competitive and sustainable advantage. This is not easy stuff and technology does not create an advantage unless it is introduced into the marketplace and there is mass adoption.

You could say that a .jobs TLD is brand-friendly and so are great domains such as jobs.com (which by the way is powered by no-other than Monster.com). There is a huge difference between a brand-friendly property and a property that already has a inherent brand (such as Apple, Google or Coke).

It seems that you (and many other intelligent folks in the ICANN community for that matter) are confusing "brand advantage". What you mean is "brand potential". Does .TV hold a brand advantage for television sites? You would think so. But what does the market say? Why aren't all the TV stations using .TV across the board like U.S universities do for .EDU? They are not. Nearly all the television stations prefer .COM. So answer me this: If .TV has the brand advantage, why aren't all television stations using .TV over .COM? Sorry to give you the bad news but it is because they hold no branding advantage in the minds of consumers and companies that market their web properties.

That said the only discussions relevant is how innovative and differentiated new TLDs can create a true branding advantage in the eyes of consumers. The TLD vanity name helps but without a strong strategic execution it is just another .JOBS, .MOBI, .TRAVEL, .AERO, .MUSEUM: 99% of the population will not know they exist and will not care for that matter.

You would require 3 things to accomplish this: great marketing, a great differentiated product and Industry adoption (think .EDU). There is no major university in the U.S.A that uses a .COM for their official site. That is Industry adoption. The market always will determine your success. A vanity TLD name is just not good enough to create the kind of competitive advantage you suggest that would be truly disruptive.

That said why isn't Monster.com using Jobs.com as their official site? Simple answer: Jobs.com is harder to brand than Monster.com. Look at Overstock with O.co. They changed their marketing for the holiday season to focus on Overstock.com. Why? Because it is all about how consumers perceive you and it is confusing to market 2 different web destinations for one brand. While many in the ICANN community might say "o.co" is a better domain than "overstock.com" the bottom line is Overstock generates more revenue by being branded as Overstock.com than O.co. Why? Because they built a brand and that is how consumers remember them by. Why does a URL shortener t.co work for Twitter? Because it does not conflict with the brand and it performs a function: URL shortening. It is a redirect and not a destination. Big difference. Noone will ever talk about t.co the URL redirect shortener. But they will talk about Twitter. Huge difference.

Another example is Disney. They owned Movies.com and Movie.com. Their brand is stronger than those ultra valuable domains. However, those domains ended up actually hurting their brand than benefiting them. They sold them to Fandango. On a similar note, Fandango is still figuring out how to leverage them to complement their brand as opposed to cannibalize it or create confusion.

The business and branding of new TLDs is not as simple as you describe it. I understand the technical DNS advantage but seriously how does that translate to an advantage that leads to sustained profitability? A DNS advantage means nothing in the business world unless it translates into significant profits.

You can quote me on this: "Brands are not born, they are created."

Constantine Roussos
.MUSIC / MyTLD

Constantine, a little historical footnote for you Ray Fassett  –  Nov 23, 2011 5:51 PM PST

Constantine, a little historical footnote for you is that .com never had a headstart on .edu.  Come on in, the water's warm.

You are comparing apples with oranges. The Constantine Roussos  –  Nov 23, 2011 6:14 PM PST

You are comparing apples with oranges. The .COM TLD is a generic extension that is open globally. The .EDU TLD is a generic extension that is closed and restricted to only U.S-based accredited educational institutions.

Success is also in the eye of the beholder. .EDU is the Industry standard in the U.S for accredited educational institutions. .COM is not, even though they are the market leader in domain registration volume.

Whether .COM or .EDU had a headstart over each other is irrelevant. What is relevant is that .EDU was adopted as an Industry standard and implemented across the board at the expense of .COM in the U.S because they could not execute this feat globally.

Perhaps what we should be talking about is how to create TLDs that are Industry adopted. Problem is when you work globally the difficulty increases of Industry adoption. Remember when .EDU was launched in 1985 it was intended to serve global educational institutions not just focused in the USA. Why was this a failure? Surprise, surprise. Other countries were using other extensions, namely country-codes. So how can you create a global Industry standard and a monopoly if others are not interested in using it? You can not because you did not offer a good enough reason for them to switch since the switching costs are high since they already branded their websites using their respective country code extensions.

Which brings me back to my original point. All this talk about monopolies and branding advantages made by "owning a TLD" is incorrect.  .EDU failed globally but they were successful in the U.S. They executed on a strategy that was successful and they created their own distinct advantage focused in the U.S.A.

Bottom line: There are so many domain options to choose from. Any additional extension added will not create a sustainable branding advantage. The switching costs are high and creating a brand is not as simple as that.

Constantine Roussos
.MUSIC / MyTLD

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