The global landscape of domain names is on the cusp of another significant transformation. As the internet’s governing body, ICANN (Internet Corporation for Assigned Names and Numbers), prepares for the next round of new Top-Level Domain (TLD) name expansion, a critical policy shift is taking center stage: the organization’s determined effort to eliminate private auctions as a means of resolving contention sets.

A Fundamental Shift from the 2012 gTLD Expansion

The previous wave of new gTLD applications in 2012 saw a pragmatic approach to handling contention. When multiple parties applied for the same domain string, ICANN encouraged them to negotiate and resolve these conflicts among themselves. This often led to private auctions, where applicants would bid against each other, with the winning party either operating the TLD or receiving a substantial financial payout for withdrawing their application. While seemingly efficient, this method created unforeseen challenges that ICANN is now eager to rectify.

This time, the approach is markedly different. ICANN is actively working to devise mechanisms that prevent such private resolutions, particularly those involving monetary payouts for withdrawal. The core belief driving this policy change is that private contention sets inadvertently incentivize applicants to apply for domain strings they have no genuine interest in operating, solely with the expectation of a lucrative payoff. This speculative behavior, ICANN contends, can dilute the integrity of the new gTLD program and divert resources from legitimate enterprises.

The Dilemma: Balancing Legitimate Collaboration with Preventing Abuse

The challenge for ICANN lies in threading a delicate needle. On one hand, the organization acknowledges the validity and necessity of legitimate joint ventures (JVs) between applicants who wish to collaborate on operating a new TLD. Such partnerships can pool resources, expertise, and market reach, fostering stronger and more diverse additions to the internet’s naming system. On the other hand, ICANN must erect robust barriers against arrangements where parties primarily profit from merely submitting an application, rather than contributing to the operation and development of the TLD itself. This distinction is incredibly nuanced and fraught with potential loopholes, making the crafting of an effective policy a complex undertaking.

NERA’s Economic Insights: Proposed Models for Contention Resolution

To navigate this intricate regulatory landscape, ICANN commissioned a comprehensive report from NERA Economic Consulting. This report outlines several potential models designed to address and mitigate the issues associated with private monetary resolutions, while still offering pathways for legitimate collaboration. NERA’s insights are crucial in shaping the future rules for the next gTLD round.

NERA proposes three primary models for consideration:

1. Model 1: Auctions as the Resolution of Last Resort

   This model suggests that applicants in contention sets should primarily resolve their disputes through ICANN-administered auctions. These auctions would serve as the definitive last resort if other forms of resolution fail. While pre-application joint ventures—formed and declared before the official application submission—would be permitted and even encouraged, post-application coordination and communication between contending parties would be heavily discouraged or outright restricted. The aim here is to prevent applicants from filing competing applications only to collude later for a private financial settlement, thereby pushing all unresolved contentions into a transparent, ICANN-controlled environment.

2. Model 2: Formal Process for Joint Venture Formation

   Envisioning a structured approach, this model proposes the integration of formal stages within ICANN’s application and resolution process dedicated to supporting joint venture formation. Under this framework, applicants in contention would be explicitly allowed to form and formally register joint ventures as the sole acceptable means of private resolution. This formal process would likely involve specific criteria, disclosure requirements, and perhaps even ICANN’s oversight to ensure the legitimacy and operational intent of the JV. The goal is to channel collaborative efforts into a transparent, auditable process, minimizing opportunities for disguised speculative deals.

3. Model 3: Imposition of Fees for Private Resolutions

   The third model introduces a financial disincentive for private resolutions. Here, applicants who opt for a private resolution method would be required to pay a substantial fee to ICANN. Crucially, even under this model, only legitimate joint ventures would be recognized as acceptable private resolution methods; direct monetary payouts for withdrawal would likely remain prohibited. The fees would be set high enough to make private resolutions less financially attractive, thereby incentivizing applicants to choose ICANN’s default auction mechanism instead. This model seeks to leverage economic pressure to steer contention resolution towards ICANN’s preferred public process.

Challenges and Unforeseen Complications of Each Model

While each NERA model presents a potential solution, they are not without their complexities and potential drawbacks. ICANN faces fundamental questions:

• Defining “Legitimate” Joint Ventures: Does ICANN truly want to delve into dictating the precise terms and operational structures of private business agreements? How can it effectively distinguish between a genuine collaboration and a cleverly disguised payoff scheme? This would require significant regulatory oversight and potentially lead to disputes over interpretation.
• Preventing Side Deals: The domain industry is known for its ingenuity. Regardless of the rules, there will always be attempts to find loopholes for “side deals” that fall outside official scrutiny. How can ICANN effectively prevent off-the-books agreements, or informal arrangements that achieve the same speculative outcome without triggering official penalties?
• Registry Exploitation Concerns: An interesting point raised by the original content is the potential for registry operators to leverage the joint venture idea for their own benefit. A registry, for instance, could apply for a string and then consent to a joint venture with another applicant, provided that applicant agrees to use the registry as their backend service provider, potentially with an additional equity payment. Such arrangements, while potentially beneficial for business, could complicate the resolution process and create new forms of indirect monetary compensation.

The NERA report itself acknowledges the inherent messiness of certain aspects of joint ventures, particularly concerning monetary components:

Joint ventures need to satisfy minimum criteria to be considered good-faith and have the possibility to make monetary side payments. The minimum criteria may involve at least two partners in contention, each with a minimum share. Most joint ventures will likely involve the definition of shares in the joint venture that will participate in the ALR [auction] and operate the gTLD. This will likely reduce the use of monetary means of compensation. However, it would be necessary to allow side payments to promote good faith joint ventures. For example, two partners may prefer compensating an applicant for withdrawing its application rather than including it in the joint venture.

This passage highlights the fundamental difficulty: completely banning monetary exchanges might hinder legitimate good-faith resolutions, but allowing them opens the door to the very speculative behaviors ICANN seeks to eliminate. It’s a tightrope walk that could easily become quite “messy” in practice.

Enforcement and ICANN’s Regulatory Reach

The pursuit of these new policies raises questions about ICANN’s role and capacity for enforcement. If ICANN were to force companies into its own auction or impose severe penalties for private resolutions, it might also have to assume a more active policing role. Preventing “cheating” or collusion would require legal action against parties found to be in violation, a level of direct intervention that ICANN has historically tried to avoid. Does ICANN truly wish to get entangled in complex legal battles over private business dealings, or risk being perceived as overstepping its governance mandate?

Revisiting the 2012 Approach: Was It Truly Flawed?

One might reasonably ask, what was so inherently wrong with the previous model? The primary criticism leveled against the 2012 approach was the notion that parties might have applied for strings solely to receive a payoff. However, it’s debatable how widespread this truly was. While some applicants might have hoped for a financial windfall on certain strings, the overarching incentive for most applicants was still to successfully operate the TLD. Acquiring and running a new gTLD represented a significant business opportunity, often more valuable than a one-time payout for withdrawal.

Nevertheless, the landscape may have shifted. The visibility of companies receiving multi-million dollar payouts to cede control of a string in the last round creates a compelling and potentially problematic business model for future applicants. This perception, whether entirely accurate or not, fuels ICANN’s current drive to tighten regulations. The next round, therefore, holds the potential to become a different game entirely, attracting a new breed of applicants whose primary interest might indeed be the speculative value of an application rather than the operational commitment.

Conclusion: The High Stakes of the Next TLD Expansion

ICANN’s determination to reform contention resolution for the next new gTLD round is a testament to its commitment to fostering a fair and robust internet ecosystem. However, the path forward is fraught with complex regulatory, economic, and practical challenges. Balancing the encouragement of legitimate collaboration with the prevention of speculative abuse requires a policy framework that is both stringent and flexible, clear yet adaptable. The decisions made in this area will not only define the operational rules for domain industry participants but also profoundly shape the diversity, integrity, and future growth of the internet’s naming architecture for years to come.