I have a hard time understanding how a private auction would be illegal in the case of new TLD allocation.
A couple weeks ago a new TLD applicant told me they weren’t participating in private TLD auctions because they thought the auctions would ran afoul of U.S. laws.
Now we have some confirmation that there are at least legitimate concerns, as Uniregistry announced that the Department of Justice declined to issue a business review on the topic. (It was an oral briefing, so we don’t know the full rationale. The DOJ isn’t saying that the auctions would be illegal; they’re just not saying up front that they aren’t.)
When I first heard the idea that holding a private auction instead of an ICANN auction could violate anti-trust rules, I had to think through it a bit.
In many scenarios it would seem obviously illegal. Consider this scenario:
Two of us are the only people to backorder at particular domain at NameJet. Instead of duking it out and paying NameJet $10,000, we hold a private auction between us and settle on a price. We then pay NameJet the minimum backorder fee.
It’s pretty obvious how that would be illegal.
But in the case of new TLD auctions, ICANN has expressly said it doesn’t want to hold any auctions. It wants applicants to sort things out amongst themselves. It would rather have one final applicant for .app come to the table at the end than have to hold an auction.
ICANN isn’t interested in getting more money from auctions. It just wants to delegate each TLD to one company with as few headaches as possible.
It’s a very different scenario than the NameJet bidding example where we are ripping off the auctioneer.
Let’s say that the idea of private new TLD auctions is a legitimate legal issue because the applicants would be depriving ICANN of its auction revenue.
In that case, wouldn’t any settlement between applicants run afoul of the law?
Even if there are no formal auctions ahead of an ICANN auction, there will be lots of settlements and payoffs for other applicants to go away. Whether that’s giving away equity through a partnership or flat out paying cash, that’s really just an informal auction, isn’t it? How would this not also be illegal? If it is illegal, ICANN auctions will be the only to settle contention sets that still exist after objections and community decisions. That’s the last thing ICANN Wants.
While I understand the concerns about private auctions, I have a hard time understanding the logic of how this could be a legal issue in this specific application.
George Kirikos says
What ICANN says is irrelevant. It can’t rewrite anti-trust laws. Saying “you sort it out amongst yourselves” in the guidebook was naive and simply idiotic, as that doesn’t give violators a “get out of jail card” when the feds show up at their door.
The DOJ did provide proper guidance on how new gTLDs should have been handled, in the 2008 letter from Deborah Garza. It stated plainly “that ICANN evaluate bids from the perspective of the benefits they provide consumers, not merely the amount bidders are willing to pay to ICANN for the right to operate the gTLD. ICANN’s request for bids should expressly call for bids to specify an initial maximum price that would be charged by the operator for domain registrations, as well as limitations on price increases over time.”
In other words, a competitive tender. And they also wanted competitive bidding for RENEWALS, rather than having perpetual presumptive renewal by the registry operator.
Of course, ICANN ignored the advice of the DOJ. ICANN wants the money for itself, they don’t want to maximize benefits for consumers.
monte says
Andrew, there was no official letter or response from DOJ on this matter. This was a statement put out by UniRegistry which interpreted their telephonic communications with someone at the DOJ (it would be important to know who they spoke with and what their position is within the DOJ) on this matter. However, the DOJ refused to formally respond to this issue in writing or issue a formal opinion at all.
You are also correct in your opinion on how resolving contention, whether by private auction or simply negotiating with the other parties in the contention set, would be considered illegal. You would not be able to determine the legality of that process until the process was completed for each contention set. Ironically, not sure how collusion could occur if there is a resolution between just 2 parties in contention, or if the proceeds are donated to a charity instead of the non winning bidders in a contention set?? That also does not seem it could be illegal.
To make matters even more confusing now, collusion can certainly occur in a last resort ICANN auction just the same as in a private auction. There is absolutely no difference between the two according to this interpretation. This then puts ICANN’s process and stated guidelines for resolving contention and entire process at risk
The ICANN guidebook states:
4.1.3 Self-Resolution of String Contention
Applicants that are identified as being in contention are encouraged to reach a settlement or agreement among themselves that resolves the contention. This may occur at any stage of the process, once ICANN publicly posts the applications received and the preliminary contention sets on its website.
Applicants may resolve string contention in a manner whereby one or more applicants withdraw their applications. An applicant may not resolve string contention by selecting a new string or by replacing itself with a joint venture. It is understood that applicants may seek to establish joint ventures in their efforts to resolve string contention. However, material changes in applications (for example, combinations of applicants to resolve contention) will require re-evaluation. This might require additional fees or evaluation in a subsequent application round. Applicants are encouraged to resolve contention by combining in a way that does not materially affect the remaining application. Accordingly, new joint ventures must take place in a manner that does not materially change the application, to avoid being subject to re-evaluation.”
UniRegistry says that the DOJ told them:
“The Department of Justice further advised that arrangements by which private parties agree to resolve gTLD string contentions solely to avoid a public auction present antitrust issues”
That would mean that its not just private auctions that are in question, but any arraignments, sales, deals, trading mergers, any activity between parties that would “present” antitrust issues.
Logically, how would two parties competing for the same asset be said to be engaged in an illegal activity per se, by just coming to an agreement to settle their dispute?
Almost every lawsuit ends in an agreement of competing parties.
There are auctions held by private companies where someone wins and others lose for both privately owned and government owned property.
Some applicants put up tens of millions of dollars into a process based a set of rules set up and administered by an organization, and now they are to dismiss substantive parts of same organization’s rules and plans (the guidebook) as being not in accordance with federal law?
To think some applicants can pick and chose which parts of this program are in compliance with federal law and which are not, without risking the entire program altogether?
Lets not forget that ICANN has council who advised them throughout the 5+ year process over which this new gTLD program was developed. Would they have written rules they thought violated federal law? I guess its possible…..
Since the DOJ did not issue a formal opinion, there is every possibility that a private auction could be held without any legal implications for the participants and an ICANN auction could be held with everyone involved getting indicted, based on how the facts and circumstances layout.
Hopefully ICANN will jump on this one way or another and formally respond in a way that the participants feel comfortable in moving forward. If they don’t its likely we will be sitting here next year with not one contention set resolved and still no ICANN auction date set to resolve them. And where would all that contention money go once they do??????
John Berryhill says
“ICANN isn’t interested in getting more money from auctions.”
Is that a proper position? ICANN is a California public benefit corporation. Can a charity run a benefit concert on the basis of saying “We’re going to unload the tickets at a discount to scalpers, because we don’t want to raise too much money.”?
Andrew Allemann says
Well, since they’ve said they want auctions as a last resort, and they raise way more money than they expected from applications, I think it’s the positive regardless of if it’s “proper”.
Domo Sapiens says
and the “New gTLD” Three ring circus continues…
John Berryhill says
“Lets not forget that ICANN has council who advised them throughout the 5+ year process over which this new gTLD program was developed. Would they have written rules they thought violated federal law?”
The .biz lottery lawsuit comes to mind.
But that aside, Monte, you hit the nail right on the head – the non-ICANN auctions are an agreement among competitors to essentially avoid or arrange bids for the ICANN auctions. If there are, say, five applicants for .tld, and four of them go off and make some agreement about how to handle contention with the fifth one, that’s a clear problem.
You are also absolutely correct that competitors participate in auctions all of the time. Let’s say that we were talking about federal mining leases. Those are regularly auctioned. But if the oil companies get together and decide among themselves – even by conducting their own auction in advance of the federal one – how they are going to arrange their participation in the federal auction.
You are also correct that the AGB suggests that contention may be resolved among the parties. It does not follow that ICANN endorses any particular mechanism for doing that and, absolutely, you might want to ask ICANN to do what it is you suggest they do above, and endorse various mechanisms. You’ll find that ICANN will not do so.
The AGB suggests a number of things. For example, the AGB requests applicants to describe abuse mitigation policies. However, it does not follow that a TLD which proposes hunting down and executing abusive domain registrants will therefore be engaged in a lawful activity.
One point which is missed in all of this is that it is not only the DoJ which can bring an action under federal antitrust law. For example the suit brought by Manwin against ICM Registry is, to my knowledge, still going on, and it’s not as if Manwin had even applied to run the .xxx registry.
One final thing that seems missed in the discussion is that this was not some sort of exceptional request. The business review letter process provided by the DoJ is a routine function of the DoJ. It may be enlightening to some readers to look at the index of business review letters here:
http://www.justice.gov/atr/public/busreview/letters.html#page=page-1
in order to gain some perspective on the sorts of arrangements for which the DoJ’s review is regularly sought. The DoJ provides this service precisely to avoid economic uncertain that might otherwise exist in the absence of it.
John Berryhill says
And, Monte, this comment is simply strange:
“Almost every lawsuit ends in an agreement of competing parties.”
Yes, and settlements of lawsuits can violate antitrust law. It’s one of the things one has to be mindful of in determining how to settle a lawsuit. It is precisely what happened in United States v. Singer Mfg., 374 U.S. 174 (1963), in which Singer’s settlements of legal disputes with its competitors were found to violate the Sherman Act. It is a very common hazard in the settlement of intellectual property cases in particular, since IP cases usually involve an exclusive right of some kind.
So, if you mean to say it is your personal belief that an agreement to settle a legal dispute is somehow immune to antitrust concerns, then your belief is clearly and objectively incorrect, and it may not be the best business for you to be advising others on the subject generally.
monte says
John – again all this moot unless collusion occurs. DOJ did not state that holding an auction public or private violates any law. They said they had the right to prosecute those that broke the law if they do break the law. This again can happen in the last resort auction that ICANN conducts. Two parties can get together and prevent another from winning regardless if they receive money or not.
Your the lawyer, I certainly am not. But I/we are licensed auctioneers and must follow the law to conduct our auctions, or we can lose our license.
We can debate the intent of even calling on the DOJ for an opinion and what their opinion even means, for months and years. This still does not get us closer to resolving contention and having more choices for end user customers as intended by this whole process. This has now caused more confusion in an already confusing process.
RightOfTheDot intends on legally helping contending parties resolve their contention, whether in public auctions, private auctions, or mediated outcomes so that those in this process and those that have spent $185K – $300mm know what they are going to be doing for a living over the next several years 😉
Adam says
If ICANN stands to benefit from the auctions, but tells the other parties to do the “back room” deals so they don’t have to do the auctions, who is harmed ? Who is the DOJ protecting ?
John Berryhill says
“This again can happen in the last resort auction that ICANN conducts. Two parties can get together and prevent another from winning…”
But isn’t that how, structurally, the private auctions will work? Parties are getting together to effectively decide who ‘wins’ the ICANN auction (or (a) render the ICANN auction moot, or (b) decide, using the private auction, which of those private auction participants will go up against a non-participant, or (c) use proceeds from the private auction to increase their ability to bid against other TLD applicants in the ICANN auction on TLDs which were not part of the private auction). Where I think we are talking past each other is on the word “collusion”. You are applying that word to “an auction”, and not taking a step back to see how the private auction – in combination with subsequent ICANN auctions – may be viewed as a collusive process in relation to the ICANN auction.
And, to be clear, what I’m saying here is “there is an issue”. I’m not rendering an opinion on any particular structure. But the reason for DoJ business review letters is to get a read on how the DoJ sees these things. If you look back over the types of business reviews that the DoJ has issued, you’ll notice that they practically all say “yes, this is okay”. It’s a formalized process. It’s not something we cooked up. When the DoJ doesn’t see a problem, they issue those letters – again, to which I’ve linked. When there are unresolved issues or questions, they don’t issue one. That’s where we are.
John Berryhill says
…and, again, it’s not just the DoJ which can bring a civil antitrust action.
But, look, the doors of the DoJ are as open to you as they are to anyone else.
Here’s the how to:
http://www.justice.gov/atr/public/busreview/index.html
Whip out a pen and a piece of paper, tell them it’s a no-brainer, and ask them to issue a business review. Simple, no?
monte says
Anyone can sue anyone – that can happen regardless and does. The point still is that the last resort ICANN auction is not a public auction either. It’s no different than an auction where all the same parties participate and agree to participate as well as agree to the rules of the auction prior to the ICANN auction. You or I cannot buy a TLD or win a TLD in the ICANN auction because we did not individually apply and were not approved in new TLD process with ICANN. So we cannot participate, therefore not a public auction. We can however, go to Ebay and bid on virtually anything….therefore a public/open auction.
I can then later come back and sue the winner of a new TLD for unfair competition and posing as a monopoly just as MW did with ICM/.xxx.
Many feel the whole exercise of even getting the DOJ’s opinion on the matter was a waste of time and energy for the majority of applicants and applications…..and a huge smoke bomb. And using the DOJ’s non public/non written/ non official comments on the matter, is perceived by many as just a delay tactic on behalf of some applicants to make others face continued delays and potentially run out of money and steam in an already overdue and delayed process. And since the majority participants in this process, are new and unaware of how things are supposed to work, everyone becomes scared of every potential scenario that can happen.
The ironic part of all this, prosecution and law suits can and will happen anyway regardless of how you resolve contention, public or private, mediated or negotiated, following the ICANN process or not.
The good news is that some see through the smoke screen and want to move forward in resolving contention before the ICANN auction (which no dates, details, costs, vendor, rules, etc. have been posted yet) so they know what they will be doing this year and next.
As long as the participants are resolving contention for other reasons than simply avoiding an ICANN Auction, such as wanting to have certainty as to when their business is starting, market timing and strategies, etc., risks are greatly reduced as is the parties not colluding in any way.
Professor says
Interesting stuff