Round two: knockout time?


As TLDs are delegated into the domain name system each month, Nathalie Dreyfus of Dreyfus & Associates law firm considers the possibility of new applications

Without any doubt, new TLDs are a success. With more than 1930 applications received by the Internet Corporation for Assigned Names and Numbers (ICANN) and some 200 delegated so far, with many to come, enthusiasm for the programme is increasing. TLDs such as .events and .club, which have been accepted by ICANN, should enjoy great success among the general public. Surprisingly, the .guru string had more than 20,000 registered domain names only three days after it became generally available.

On 7 February 2012, the ICANN board committed to opening a second window of applications for the new gTLD programme with a view to expanding the new horizons and creating great opportunities. These TLDs will undeniably change the face of the internet within the next few years. But even if the root zone of the domain name system is stable enough to bear the weight of hundreds of TLDs delegated each month, legally there are many challenges associated with a second application window.

Why should a company apply for a new TLD in the second round?

Trademark owners that did not apply during the first window now face the decision of whether to apply to operate their own TLD. As much as this choice brings opportunities, it raises many questions.

Firstly, having a delegated TLD means managing it exclusively. If the TLD applied for is a .brand, it gives the company full control of the internet presence. As such, impairing the reputation of a trademark by cybersquatting is rendered impossible, at least in that TLD, because domain name registrations will be the company’s sole prerogative. It also provides trademark holders with a way of improving their search engine optimisation in one foul swoop.

New TLDs are unknown to most people and a .brand TLD will definitely catch the public’s eye. Although the element of surprise may only be effective for a few months or years, it may also attract customers and bring business to companies.

Generic TLDs such as .home or .app must be approached differently insofar as the companies holding them are most likely to open up these TLDs for registration. Thousands of clients registering and renewing their domain names each year mean continuous business and cash flow.

However, technical and legal challenges may deter companies from applying. By owning a new TLD, companies indeed become registrars. Not only will those companies have to implement technical structures to operate and bear the domain names they manage, but the biggest obstacle they face is legal. Companies will have to comply with ICANN’s Registrar Accreditation Agreement (RAA), the latest being the RAA 2013. Non-compliance with these rules would mean exposing themselves to liability.

To make matters worse, some courts now go beyond what is in the RAA to impose certain liability on registrars in the event that they do not take the necessary steps to remove a website or cancel a domain name promptly. With a portfolio of hundreds of thousands of domain names, the imposition of such liability may seem unjustified.

The challenges faced can also be financial. The ICANN fees in the first application period were $185,000. On top of that initial outlay, it costs $25,000 per year to manage the TLD. Despite these high costs, two business models will emerge that will make them worth paying: where registration is open, the fees mentioned above will easily be absorbed; and where registration is closed and companies have to pay the price, they will earn the opportunity to launch a remarkably innovative internet strategy. Of course, the two business models will eventually compete.

In any case, applying for a new TLD during the second application window will have a lasting impact on competition. Whether companies choose an open or closed model for their TLDs, managing a TLD will put them two steps ahead of their competitors. The entire image that the company projects is bound to change. The city of Paris recently introduced the first 100 domain names bearing the .paris TLD. Paris City Hall intends to acquire a strong digital identity and to turn the French capital into a digital territory conducive to innovation.

Are ICANN’s IP protection mechanisms enough?

ICANN has implemented intellectual property protection mechanisms at every step of the process; from the initial application to a TLD to the post-delegation period.

The utmost attention is required to make sure new TLDs are not infringing immaterial rights of third parties. During the examination of applications for the first round of new TLDs, only a few objections were upheld, the most famous being the Del Monte case. Del Monte filed a legal rights objection (LRO) against a licensee that had applied to obtain the .delmonte string. The World IP Organization experts upheld Del Monte’s arguments, finding that the delegation of .delmonte to the licensee would have infringed Del Monte’s trademark rights and caused an insurmountable likelihood of confusion among internet users.

The Trademark Clearinghouse (TMCH) now plays a completely different role since its focus is no longer on the new TLDs themselves but on infringement of trademark rights by the pre-registration of domain names. In fact, trademark holders only have to subscribe to the TMCH to be notified each time a domain name bearing a sign identical or similar to their trademarks is pre-registered.

However, as straightforward as the TMCH may be, the mechanism itself is not flawless; it is a cure rather than prevention. While registrants should be barred from pre-registering a domain name that reproduces a trademark, the current TMCH procedure allows this. It thus becomes the responsibility of trademark holders to react or not, depending on their interests.

In order to take any action, trademark holders must use the URS (Uniform Rapid Suspension) or the UDRP (Uniform Domain-name Dispute-Resolution Policy) procedures. These procedures allow a trademark holder to petition to have the domain name transferred, suspended or cancelled.

However, if a lack of legal rights can be proven by the registration of the domain name, it will be inefficient until the TLD is delegated and the domain name made available. These procedures only apply to the registration or use of domain names. They were not made to prohibit all trademark infringements in new TLDs; only cybersquatting.

Other procedures such as the post-delegation dispute resolution procedures (PDDRP) are not any more efficient insofar as they are only used when registry misconduct causes harm to the trademark holder. ICANN has limited the procedure to active harm caused to the trademark owner and excluded passive behaviour by the registry.

It seems that ICANN should amend its rules for the second round of new TLDs and grant a barring prerogative to the TMCH. This is the only way trademark rights will efficiently protected.

How can companies capitalise on their IP rights protection investments?

Although the TMCH is not as effective as it should be, it is clear that companies should register to ensure the effective protection of their trademarks within the new TLDs.

While the mechanism only used to warn trademark holders for 90 days after registration, there is no longer a time limit. It appears that trademarks holders that registered in the TMCH for the first round of TLDs will still be protected during the second round, but this still need to be confirmed.

There are more issues to consider for those that will apply for a TLD in the second round of applications. Building a strong protection strategy is a prerequisite to exclude loopholes since it is likely that a Del Monte scenario will arise again during the second round. As in the first round, trademark holders will have to opt between either a proactive or a defensive strategy.

A proactive strategy can be very expensive since it requires that a trademark holder registers its trademarks in all TLDs relevant to its activity. On the other hand a defensive strategy could leave trademarks out in the open, unprotected from cybersquatting and all that it has the potential to entail.

New TLDs require a completely different approach from trademark owners, which may come across a few surprises. Some of the new TLDs, such as .sucks, are fundamentally problematic to trademark owners that could face less traditional problems than counterfeiting.

It is indisputable that a brand.sucks domain name will push a trademark holder to take action, but the damage may have already been caused by the time they take any action. The real question is how. Companies are—and should be—afraid of negative attention rather than whether to take action or not. Trademark protection is one thing, but trademark reputation is another.

Although ICANN has committed to opening a new window of applications for TLDs in the future, this has yet to be officially launched. While the first round is still ongoing and new TLDs are being delegated on a weekly basis, the various aspects of the mechanism fit together step by step.

Limitations are being pointed out by applicants and trademark owners now in the hope that mistakes will not be repeated in the second round. It is clear that the second round will at least be as revolutionary and exciting as the first one.

The internet is bound to change, and this is only the beginning. It is of paramount importance that companies are prepared to transition peacefully into this new era.
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