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Moving Past .COM: ICANN Approves Online Branding Through New Custom gTLDs

Client Advisory

August 17, 2011

It’s official. After much debate and many delays, the Internet will soon move past the “.com” age and into a new expanded system of domain names with custom generic top-level domains (“gTLD”). These can be actual generic or geographical identifiers -- or brands (think: .fashion, .nyc or .americanexpress). The land rush is about to begin, as ICANN (the non-profit entity that runs the Internet’s domain name system) recently set the initial application period to run for three months, beginning on January 12, 2012. 

Why Would Anyone Want a Custom gTLD, Anyway?

As discussed in our March 2009 Advisory[1], gTLDs are the identifiers on the other side of the dot. Under the new guidelines, each new custom gTLD will operate as its own registry. Its owner will also act as registry operator, controlling, among other things, the issuance and use of all second-level domain names within that registry (secondleveldomains.brand). 

Brand owners, entrepreneurs, cultural organizations, cities, and other established corporations, organizations and institutions in good standing will want to consider these three major opportunities connected with the new gTLD: better management of consumer, audience, and employee relationships; better oversight of business partners; and money-making and promotional opportunities.   If you choose not to act, be aware that your competitors might. Certain companies, like Canon and Hitachi, have already committed to applying for a new gTLD. There are now only twenty-two gTLDs, but within the first round of applications alone, the number of new gTLDs is likely to increase to as many as 500. 

Better Management of Consumer and Employee Relationships

Businesses in many fields will be able to benefit. For example, to increase consumer loyalty, a bank can offer better access to rewards (rewards.bank); to help improve employee relationships, it can offer customized websites for employees within a closed gTLD community (employeename.bank). For clothing manufacturers and their consumers, the new gTLD can be a counterfeit-free zone for the purchase of high-end items (handbags.gucci) or a network of personalized pages for consumers with similar tastes (iheartshoes.gucci). In the medical industry, doctors offering medical services through a local hospital can promote their practices and provide easier access for patients via a doctor.hospital address. 

Better Oversight of Business Partners

To better monitor online business activities and to retain and oversee business relationships, a major company might require registration of second-level domains by its franchisees, licensees or contractors. In turn, these business partners could benefit from the added customer loyalty and greater online real estate within a well-known brand (mainstreet.generalmotors or 100broadway.dunkindonuts). 

Money-Making and Promotional Opportunities

Not only entrepreneurs, but also cities, can capitalize on new gTLDs geared towards a particular industry or geographical location. For example, through its role as registry operator, an entrepreneurial gTLD owner can sell domain names to online retail establishments in a .marketplace. Cities worldwide can promote themselves and sell second-level domains to their local business via an established .cityname like .nyc or .boston.

Drawbacks

Some may decide to take a wait-and-see approach for this first round, as it’s possible that consumers may be overwhelmed by the new gTLD alternatives and stay put, not bothering to buy new second-level domains or utilize company sites, which could result in a positive return for the traditional “.com” or “.net” domains.

Of course, a downside of waiting is that not all gTLDs may be available in later rounds, plus the bigger market share may go to those that establish themselves early. Moreover, even brand owners who try to stay clear of the fray will likely need to increase budgets to monitor and enforce their intellectual property rights as the number of future second-level domain names grows, increasing opportunities for domain name squatters, infringers and counterfeiters. 

The Costs

Total estimated initial costs for applying-for and operating a new custom gTLD are likely to be in the $500,000 range. The fee for each new custom gTLD application will be $185,000 (a deposit of $5,000 will be required at the time of the application submission). Approved gTLDs must also pay ICANN an annual fee of $25,000 plus potential transaction fees for sales of second-level domain names within the new gTLD. Only one new gTLD is permitted per application, but applicants may submit as many applications as they wish. Refunds for submitted applications are limited and at least 20% of the application fee is non-refundable. In addition to ICANN’s fees, there will also be costs to operate the registry, marketing and advertising costs, and costs and fees for legal and financial help associated with building and running the gTLD registry and objecting to or defending against objections.

Only established corporations, organizations and institutions in good standing may apply. Future legal entities and individuals are blocked from applying. It is hoped that the high costs will deter cybersquatters, but ICANN will nevertheless be screening applicants for business and criminal history, and cybersquatting activities. 

Brand owners who choose not to apply for a new gTLD will nevertheless face the costs of monitoring the new gTLD applications and future second-level domains, and enforcing their rights against infringers. 

The Application Process and Timeline

The application period will run for three months from January 12, 2012 to April 12, 2012. Once the applications are submitted, they are checked for Administrative Completeness and subject to an Initial Evaluation by ICANN. Approximately two weeks after the April 12th application deadline, applications will be published for Public Comment and Formal Objection. The next steps include possible Extended Evaluation period, Dispute Resolution of conflicting gTLDs (“strings”) or String Contention by third-parties. The final checkpoint in the process is the Transition to Delegation. ICANN estimates that it will complete review of the first applications before the end of 2012. New gTLDs are likely to launch in 2013. A brief breakdown of the eight elements is as follows:

Administrative Completeness: ICANN will look to see if all the application components are included in the submission including responses to mandatory questions, supporting documents and fees. This period will run from April 13, 2012 to approximately June 13, 2012. 

Public Comment: From approximately May 1, 2012 (two weeks after the deadline to submit applications) to July 1, 2012, ICANN will post the public portions of all complete applications for public comment on the gTLD strings submitted. Comments submitted after the comment period will be used during the Dispute Resolution phase of the process.

Initial Evaluation: Over a period of five months from approximately June 13, 2012 (the end of the Administrative Completeness Check) to December 13, 2012, ICANN will conduct string reviews and applicant reviews. ICANN will look to see whether gTLD strings submitted are similar to other existing top-level domains or reserved names. Applicants will be evaluated to see if they have the necessary technical, operational and financial capabilities to run a registry. 

Extended Evaluation: In certain circumstances, the initial evaluation period may be extended for applicants that fail certain elements of the Initial Evaluation. This period can last up to five months.

Formal Objections: Starting on May 1, 2012 (approximately two weeks after the deadline to submit the application), for a fee, parties with standing may object to any gTLD application based on four potential grounds, including the legal rights objection which determines confusing similarity to another string or an existing trademark. This period is expected to last for seven months, until November 2012. 

Dispute Resolution: During the Formal Objections filing period, independent dispute resolution providers will review and adjudicate objection proceedings. This period is expected to last approximately five months from May 1, 2012. The fee to object is set by the dispute resolution provider, but some estimates show that the Dispute Resolution Adjudication fee may run approximately $50,000 or more. If the applicant wins, the application can then move on to the next stage. If the objector wins, the application is deleted or enters a contention resolution procedure.  

String Contention: The application will enter the String Contention phase if there is more than one qualified gTLD application for the same or similar gTLD strings.  Competing applicants with identical or similar gTLD strings are pushed to settle their problems on their own. Of course, unlike in trademark matters, here co-existence is not an option. Identical or similar strings must be resolved or the gTLDs will be auctioned off to the highest bidder. String Contention resolution is estimated to take from two-and-half months to six months. 

Transition to Delegation: Successful completion of the above takes the applicant to the Transition to Delegation stage where the gTLD applicant executes a registry agreement with ICANN and certain tests are conducted to validate the information in the application. This stage is expected to take approximately two months.

Conclusion

Applying-for and running a new gTLD will be a major undertaking, but for some, the benefits within this first round of new gTLDs may outweigh the risks. For others, sitting out may be the best option, even though it is unknown when the next round will happen. Even companies that do choose to sit this round out may benefit from a team of in-house and outside professionals dedicated to assessing the new landscape and developing strategies for the new online marketplace. Talking points include budget, education, search engine optimization, online advertising and promotion, anti-piracy, anti-counterfeiting, and enforcing brand right infringement.

Whether or not a company or organization chooses to apply, it will be up to the brand owner to monitor the new gTLD applications and resulting second-level domain names for infringing matter and to enforce their intellectual property rights according to their goals and budget.


Carter Ledyard & Milburn LLP’s team of lawyers and third-party consultants is available to advise on all aspects of this important new gTLD rollout from the application process to protecting your brand in this new gTLD landscape. This is the second article in a series of articles on this topic. Questions regarding this advisory should be addressed to author Scott M. Sisun (212-238-8728, sisun@clm.com) or Rose Auslander (212-238-8601, auslander@clm.com).



Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © 2017 Carter Ledyard & Milburn LLP.
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