Minds + Machines

Summary – A quantitative analysis of UDRP data for all open gTLDs concludes that the introduction of new gTLDs will result in approximately 316 new cases of cybersquatting, and that the resultant cost to trademark holders, overall, will be $870,000 per year – less than less than $.10 for each trademark registered worldwide, or about $.44 per trademark registered in the United States. The data show that cybersquatting correlates to registration volume across all open gTLDs, not to the number of gTLDs, but is more prevalent in .com.

A downloadable PDF of this study is available here.

A Quantitative Analysis of Trademark Infringement and Cost to Trademark Holders in New gTLDs

Will New gTLDs Increase Cybersquatting?

A vocal group of brand and trademark owners has lobbied ICANN, the US Department of Commerce, and the ICANN’s Government Advisory Committee (GAC) claiming that new gTLDs would unleash a tide of lawlessness that would cost brand holders a fortune to combat.

Owners of trademarks and brands have claimed that a new round of gTLDs would leave them facing an onslaught of cybersquatting and typosquatting, and that their policing and enforcement costs would be substantial. Here is a recent representative statement of that view:

It is possible that the new gTLD program could lead to hundreds, if not thousands of new gTLDs. This is likely to cause brand abuse, such as cyber squatting, to grow exponentially. As a result, the legal costs for brand owners associated with monitoring, registering, and enforcing domain names are likely to raise substantially. [Source: Leo Longauer, Head of Group Intellectual Property for UBS AG]

This campaign has been so effective that even intelligent observers like David Maher, Senior VP for Policy at Public Interest Registry, accept it at face value:

… there is a connection between the creation of large numbers of new gTLDs and the public interest in preventing a vast increase in cybersquatting and the spread of fraudulent practices. [Source: CircleID]

But is it really true that new gTLDs will bring a “vast increase in cybersquatting”? A wealth of relevant data allows an empirical test of this claim. Both the World Intellectual Property Organization (WIPO) and the National Arbitration Forum (NAF) keep excellent records of claims of trademark infringement brought through ICANN’s Universal Dispute Resolution Policy (UDRP).

The two main costs of domain names for trademark holders are:

1. the cost of pre-emptively registering brands in new gTLDs
2. the cost of monitoring and enforcing trademarks in new gTLDs

This study looks at enforcement, the second category. To understand the cost of enforcement, we studied the 10-year UDRP data on existing “open” gTLDs. We used the data from WIPO and the NAF, which together comprise the overwhelming majority of UDRP cases files. The sample is statistically relevant, comprising 8 new TLDs since 2001, with over 8 million domain names under management. (The study does not include Czech ADR, ADNDRC, or cases from former providers CPR or eResolution Cases. Inclusion of these cases, which deal almost exclusively with .com, .net, and .org domain names, would show an even greater incidence of infringement in legacy gTLDs compared to new gTLDs.)

This study is the first of several in which we will quantitatively examine the likely effects of new gTLDs on trademark holders.

Infringements Per Million (IPM)

A study of the UDRP case data for the last 10 years for both existing (pre-ICANN) open gTLDs (.com, .net, and .org) and for newer ICANN-created open gTLDs shows that the number of infringements within any open gTLD is quite predictable, depending primarily on the number of registrations within that TLD. (For the purposes of this study, we looked at those top-level domains introduced since 2001 that are either “open” — no restrictions on registrants — or whose restrictions are so easily circumvented, or so loosely enforced, that they are effectively “open.” Because trademark owners have not complained as loudly about restricted TLDs, we did not include them in our study. Not examined, therefore, were truly restricted gTLDs: .int, .gov, .mil, .edu, .museum, .coop, and .aero.)

To help understand the relationship, we introduce a new metric: IPM (infringements per million). The data show that among current gTLDs, IPM varies between about 15 and 40, with .com having by far the highest IPM at 41.71 infringements per million registrations.

Domain name growth across all TLDs has for the past ten years grown at a fairly steady 10 – 15% annually (Source: VeriSign Domain Name Brief). Past introductions of new gTLDs have not changed that overall growth. The new round of gTLDs, which foresees an increase of approximately 300 gTLDs (see page 6 of the 2009 ICANN Root Scaling Study, for instance), may, because of intensive marketing, increase this growth rate, but not by orders of magnitude. Based on historical data, the average IPM for the new open gTLDs listed in Table 3 below is 22.47, and 24.15 for .com, .net, and .org. Table 3 lists the IPM for each TLD.

The Data

Legacy open TLDs — .com, .net, and .org — account for the vast majority (94%) of all WIPO and NAF UDRP cases. This percentage has not changed significantly over the 10 years of data, as Table 1 below shows. (The anomalies here, in 2002 and 2007, are due to .info price promotions, where names were offered for free or near-free, which did increase infringements. Price of new TLD registrations – but not the existence of new TLDs – does increase speculative activities of all kinds.)

Table 1: Com, Net and Org as % of all UDRP Cases

Year	CNO	Other	Total	CNO %
Total	23595	1452	25047	94%
2001	2383	18	2401	99%
2002	1814	189	2003	91%
2003	1635	83	1718	95%
2004	2346	150	2496	94%
2005	3039	134	3173	96%
2006	2406	116	2522	95%
2007	2938	356	3294	89%
2008	3196	227	3423	93%
2009	3817	178	3995	96%
2010 (partial)	21	1	22	95%

 

Table 2, below, shows UDRP claims filed in new open gTLDs.

Table 2: Non .com, .net, or .org UDRP Cases by Year

Year	asia	biz	cat	info	mobi	name	pro	tel	Total
Grand Total	8	385	4	860	155	24	11	5	1452
2001	0	2	0	16	0	0	0	0	18
2002	0	74	0	115	0	0	0	0	189
2003	0	33	0	50	0	0	0	0	83
2004	0	90	0	59	0	1	0	0	150
2005	0	50	0	83	0	1	0	0	134
2006	0	27	0	76	9	4	0	0	116
2007	0	38	4	245	62	7	0	0	356
2008	2	47	0	120	52	5	1	0	227
2009	6	24	0	95	32	6	10	5	178
2010 (partial)	0	0	0	1	0	0	0	0	1

Finding 1: Infringement correlates closely to registration volume, but .com has the highest rate.

The vast majority of infringement occurs in pre-ICANN legacy TLDs, not in the newer TLDs. To understand what is likely to happen with the new round of gTLDs, we need to better understand these numbers.

The key metric this regard is “Infringements per Million,” or IPM. Table shows 3 the IPM across open gTLDs for 2009.

Table 3: 2009 Infringements Per Million (IPM) by TLD

TLD	UDRP Cases	Millions of Registrations	IPM
com	3502	83.97	41.71
net	192	12.63	15.12
org	124	7.93	15.64
info	95	5.5	17.27
biz	24	2.1	11.94
mobi	32	.935	34.22
asia	6	.215	27.91
tel	5	.238	21.1

Cases are calculated not by case number, but by number of domain names. The .cat and .pro TLDs are omitted from this table because for these purposes they are statistically insignificant.

We see that the number of UDRP cases is correlated with the number of registrations in the underlying TLD zone, varying from a low of 11.94 IPM (.biz) to a high of 41.71 (.com). To the extent that there is variation, the outlier is .com, with a higher IPM. Only 4% of all cases (178 out of 3817) occur in non-CNO (com, net, org) gTLDs. Only 1.5% (59 out of 3817) occurred in non-CNOIB (com, net, org, info, biz) gTLDs.

Intuitively, this makes sense: because most large brands and high volume websites operate in .com, one would expect a somewhat larger impact of typo-squatting and other infringement, even relative to the installed base. The next level of TLDs: .info, .biz, .net and .org, which cater to smaller websites, and are less viable as typo-squatting targets, have less than half the IPM ratio.

The newer group of TLDs — .mobi, .asia, .tel — fall within these broad parameters, with .mobi and .asia having a slightly higher IPM, perhaps because they were marketed to the domainer community. Nevertheless it is clear that across all TLDs the results broadly correlate to registration volume.

Finding 2: New TLDs will generate an estimated 316 new UDRP cases per year. Infringements will depend on total domain registrations, not the number of new TLDs.

Our first finding shows that the average IPM for open gTLDs created since 2000 is 22.47. What will the rate be going forward, what will be the total number of infringements, and what will be the corresponding enforcement cost to trademark holders?

Using the average 22.47 IPM for TLDs created since 2000, the new round of gTLDs would create 316 new infringements. This is calculated based on a rosy registration scenario for new TLDs; very likely, they will be less successful, and infringements will be fewer.

Last year, growth across all TLDs was 12%: this includes ccTLDs, which grew at 17% (Source: VeriSign Domain Name Brief). This is very much in line with historical growth of domain names, and we predict that the same growth trend will continue. For gTLDs, this will mean a growth from a combined total of 113 million today to 127 million in February 2011, or an additional 13.6 million names. If these additional names are distributed according to current market share, .com would go from 83.97 million names to 94 million names, .net from 12.63 million to 14.14 million, and so on.

In the past, the introduction of new TLDs has not significantly affected the growth of existing TLDs, and this dynamic is unlikely to change, at least in the short term.

Now, let us turn to the introduction of new TLDs. Suppose that with major marketing efforts the new gTLDs manage to double the growth rate of the overall market from 12% to 24%, and to capture 10% of the market in one year. (Again, this result is extremely optimistic for new TLDs.) The results would look like those presented in Table 4:

Table 4: Projected Registrations after Introduction of New gTLDs
(24% increase in market growth, but new gTLDs capture 10% of market)

Existing TLDs	Current Registrations (millions)	+1 Yr Total
com	83.97	93.71
net	12.63	14.10
org	7.93	8.85
info	5.50	6.14
biz	2.01	2.24
mobi	.935	1.04
asia	.215	.240
tel	.238	.270
New TLDs (combined)		14.07

Finding 3: The expected total annual enforcement costs for new gTLDs will be less than $870,000 per year, or less $.10 per trademark worldwide.

If all 316 new infringements were filed as UDRPs, at an average cost of $5000, the cost of enforcement to trademark holders would be $1.58M. There are 1.97 million active and pending trademarks in the U.S. Patent and Trademark Office, so on a per-trademark basis (for the U.S. only – clearly there are many more trademarks globally), the cost of new gTLDs would be $.80 per U.S. trademark, and if the 2.4 million registered trademarks in China and the 825,000 European Community trademarks are included, the cost of new gTLDs is $.30 per trademark.

But we can expect trademark holders to make use of the new Uniform Rapid Suspension (URS) process, which will have a cost of $500, not $5,000. What percentage of UDRP claims would be adjudicated through the URS process? We suspect that a majority of the cases that would have gone to the UDRP will now go through a URS proceeding. The number is hard to predict, but a reasonable estimate is that 50% of the claims that are now filed as UDRPs would be filed as URS proceedings. If so, the average cost of enforcing a trademark in the domain name arena will go from $5000 to $2750, or $869,000 – that’s $.17 per trademark registered in the U.S., Europe, and China. If all the world’s trademarks were included, the cost of new gTLDs would be under $.10 per trademark worldwide.

Conclusion

Trademark and brand owners will be faced with only minor enforcement costs from the introduction of new gTLDs. While the overall cost of UDRPs today is high ($19.5 million per year) – the culprit is .com – not the 10 new gTLDs that have been introduced over the last 10 years. (Cost of defensive registrations is not considered in this paper but will be covered in a later study.)

We estimate the total enforcement cost resulting from new gTLDs to be $869,000, or under $.10 per trademark registered worldwide.

Contrast this cost to the benefits of new gTLDs. The benefits of new gTLDs have been well rehearsed, but are worth repeating here.

• Ordinary web users (as well as brands) will not be forced to spend over $10,000,000 annually to purchase .com domains in the secondary market at inflated prices.
• Major cities such as .nyc, .paris, .berlin and .london want new TLDs. They see millions in revenue, increased tourism, increased efficiency in providing Internet services to their residents.
• Thousands of jobs will be created, because each new registry will need to employ 5 – 10 people at a minimum. (As a point of comparison, Afilias, which manages .info and provides registry services for .org, has over 200 employees.)
• Linguistic communities such as .gal (Galicia), .eus (Basque), and .bzh (Brittany) see huge cultural benefits.
• Vertical TLDs with strong user bases such as .eco expect to use proceeds from registrations to help solve problems such as global warming.

The data show that new gTLDs are less likely to be involved in UDRP claims than .com. An expansion of new gTLDs is not likely to significantly increase UDRP costs for trademark holders. If ICANN introduces the Uniform Rapid Suspension (URS) provisions currently under consideration, trademark enforcement costs for new gTLDs will sink even further.

The following is a quantitative analysis of the ICANN public comment for the New gTLD Program – Draft Expressions of Interest/Pre-Registrations Model. The full text of comments can be found on ICANN’s site.

We have also prepared a PDF version of our analysis, which includes a full list of all comments and a brief description of each comment.

I. Overall Findings

The ICANN public comment for the New gTLD Program – Draft Expressions of Interest/Pre-Registrations Model closed on February 7, 2010. A total of 274 separate comments were received (several commenters made multiple comments). 183 comments (67 percent) supported EOIs, and a majority of those favored the Draft Model. 76 comments (28 percent) were opposed to EOIs. 15 comments (5 percent) were neither for nor against the Draft Model.

II. EOI Supporters

EOI supporters break down into two major categories (number of comments in parentheses). A full list of commenters, with a brief description of their comments, can be found in the attached PDF.

• Companies and Groups in Favor of EOIs (86)
• Individuals (97)

Commenters in favor of EOIs can be further divided into the following categories:

1. Prospective Applicants for new gTLDs
2. Individuals connected to prospective applicants
3. The ICANN At-Large Advisory Committee
4. The ICANN ISP Constituency
5. The ICANN GNSO
6. Independent small and medium-sized businesses
7. Independent individuals
8. Independent not-for-profit membership organizations
9. Independent not-for-profit charities
10. Existing gTLD registries
11. Existing ccTLD registries
12. ICANN-accredited gTLD registrars
13. Law firms

III. Arguments Made for EOIs

Comments of the respondents in favor of EOIs were for the most part in full agreement with the staff proposal. Some, however, had additional thoughts or reservations:

• Timetable – the delay in the introduction of gTLDs hurts legitimate applicants who relied on ICANN’s announced timetables.
• Begin the process – The gTLD process needs to get started, EOIs are a welcome first step.
• Predictability – EOIs are welcome because they will help set a predictable timetable for the introduction of new gTLDs.
• Participation – Prospective applicants are an important for making policy for new gTLDs, they have should have some official representation at ICANN.
• Anti-Trademark – trademark interests have been given too much already, should not be allowed to derail the process.
• Anti-Monopoly – vested interests have too much power; ICANN should introduce competition.
• Security – new gTLDs are an opportunity to make the Internet more secure.
• Contention – EOIs will allow contending parties to make arrangements between themselves to prevent auctions.
• “Slot” Trading – ICANN should take care about EOI “slots” becoming a speculative marketplace.
• Mandatory – Several supporters of EOIs believed they should not be mandatory.
• Confidentiality – Several supporters were concerned that too much information was being collected in the EOI; others thought not enough was being asked.
• Price – the proposed filing fee for EOIs was seen by some as appropriately high, others as too expensive.

IV. Minds + Machines Comment Form

Minds + Machines put together an online form that outlined the rather complicated arguments for and against EOIs as a way to encourage comments from those for whom the prospect of writing out an extended argument might be daunting. We further encouraged commenters both for and against EOIs to use the comment form. Most commenters using this form, but by no means all, sent in comments favorable to EOIs.

V. EOI Opponents

The large majority of commenters opposing the Draft Model represented the concerns of trademark holders: trademark associations or groups (23); trademark attorneys (21); or the legal departments of companies (15) account for more than 80 percent of those in opposition of the Draft Model. A full list of the comments, along with a brief description of each, can be found in the attached PDF.

• Trademark Groups Opposed to EOIs (23)
• Individual Companies Opposed to EOIs (15)
• Individuals Opposed to EOIs (17)
• INTA members (21)

The commenters against EOIs can be further divided into the following categories:

1. Large brand owners
2. Registrars providing domain name services to brand owners
3. Trademark and intellectual property associations
4. ICANN’s Intellectual Property Constituency
5. Large charitable not-for-profits
6. Members of the International Trademark Association (see Section VI below for further explanation).
7. Sports organizations
8. Independent individuals
9. Eric Brunner-Williams

VI. Arguments made against EOIs

The following are the primary concerns found in the comments opposed to EOIs:

• Resolution of overarching issues – The “overarching issues” need to be resolved before any EOIs.
• DAG – The Final DAG needs to be published before an EOI.
• Speculation – EOIs will promote speculative behavior including “slot” trading.
• Time – The process is moving too quickly for proper response and consideration.
• Price – $55,000 is too much for nonprofits, developing countries and for others who cannot afford it.
• No gTLDs – Any new gTLDs are a bad idea.

VII. INTA Submissions

On January 12, INTA, the International Trademark Association (INTA) sent out an anti-EOI message to its membership (full text below), exhorting them to comment, suggesting that merely registering their opinion would be sufficient as a comment. Therefore we have included them as a separate category.

Dear INTA Members,

The following notice is to bring to your attention two Internet domain name
system developments that warrant your consideration and potential action.

1. ICANN is Soliciting Input: Should it Proceed with Pre-Registrations for
New gTLDs?

The Internet Corporation for Assigned Names and Numbers (ICANN) is seeking
community views, including input from trademark owners and their
representatives, on whether it should begin accepting “pre-registrations” for
new generic Top Level Domains (gTLDs). Please click here for the ICANN
announcement.

INTA’s Internet Committee will submit comments opposing pre-registration, but
it is important that ICANN also hear from trademark owners directly.

This letter was followed by comments from INTA members that were brief and did not include a reason for opposing EOIs. A typical example follows:

To: draft-eoi-model@xxxxxxxxx
Subject: Pre-registrations for new gTLDs
From: “Lisbet Andersen” lan@xxxxxxxxxxxxx
Date: Tue, 12 Jan 2010 10:48:57 +0100

As an INTA member I have been encouraged to give my opinion on the pre-registration issue. This is to inform you that I do not support ICANN accepting pre-registrations for new gTLDs.

Kind regards
Lisbet Andersen

VIII. Conclusion

The majority of the comments in favor of the Draft Model supported all of the proposed points in the Draft Model, with some concerns about price and whether EOIs should be mandatory. Strongly, they urged ICANN to move forward expeditiously and to provide a clear and predictable timeline.

The comments against the Draft Model were for the most part opposed to EOIs and new gTLDs in general. The comments from the 21 INTA members were very short comments opposing EOIs. Some of the arguments by large brand holders were longer and did not comment on the staff proposal so much as offer their concerns about EOIs and new gTLDs. The primary concern among companies providing an explanation for their opposition was the resolution of the “overarching issues.” Security was the second greatest concern.

Comments or Corrections

We may well have made an inadvertent error in our analysis. Please send corrections or comments by leaving a comment here or by sending an email to minds@mindsandmachines.com.

**Update 1/28/2010**
Please note that the comment period with ICANN has ended as of January 27, 2010.

This form will remain here for reference so that people reviewing the comments at ICANN can see the democratic nature of the form. Thank you to those of you who submitted your comments, for or against the EoI.

Submitted Comments can be viewed here: http://forum.icann.org/lists/draft-eoi-model/

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ICANN has opened a comment area for the public to weigh in on pre-applications for new TLDs, called Expressions of Interest (EOI).

At Minds + Machines, we think this is a crucial step toward new TLDs. Others disagree. Whatever your opinion, this is an important matter, and we urge you to make your voice heard.

The form below explains the issues and makes it easy to send your comment to ICANN.

Tell ICANN what you think

You can either support or oppose EOIs with this form, but in either case we encourage you to state some reasons why — this will make your comment useful to ICANN as it evaluates community feedback. The form will take about 10 minutes to complete.

Note: ICANN will send you an email to verify your submission, which sometimes takes up to an hour to arrive. You must reply click the link in this email to confirm your comment, or it won’t be published.

This month I had the distinct privilege of participating in a fantastic session at DePaul University in Chicago, where Paul McGrady (many in the intellectual property world know him as the author on the Lexis-Nexis guide “McGrady on Domains”) hosted and moderated a very well attended session on New TLDs.

The session was well attended, and had applicants, in-house counsel for large well known brands, students, registrars, brand management companies, very sharp attorneys, and many very impressive representatives from the intellectual property profession.

The panel consisted of J. Scott Evans from Yahoo!, Marc Trachtenberg from Winston & Strawn LLP, David Wheeler from Greenberg Traurig, LLP, and myself.

I have posted the presentations and some more information on the session HERE.

It was a distinct honor to sit amongst this group of peers, and there were great questions from the audience.

-Jothan

TechCrunch reports that its brand has been taken as a Twitter name, and that there is a landrush going on to get these names, which are already trading for money. The problem is so bad that a name brokerage, Tweexchange, has sprung up to get to facilitate sales. Twitter has posted a policy outlawing the sale of names, but a quick review of this policy reveals that it’s as as toothless as a newborn baby, and is clearly more observed in the breach than otherwise.

Trademark owners might want to take note of a worrying trend — valuable names that fall outside the DNS, outside any of the recommendations made by ICANN’s IRT (Implementation Recommendation Team), outside the UDRP (Uniform Dispute Resolution Policy), and outside of any recourse except for the creaky, expensive, and slow-moving protections of national trademark laws. Twitter’s policy offers none of the protections of ICANN’s current system, let alone the expanded protections foreseen by the IRT recommendations.

Twitter should be looking hard at a new .TWITTER top-level domain, so that it doesn’t have to come up with its own dispute policy. Whatever that policy ends up being, it is sure to engender numerous lawsuits and the headaches and expense that come with them.

Trademark owners, for their part, would be far better off encouraging Twitter to apply for the top-level domain .TWITTER, so that naming disputes could handled by the umbrella policies that are already built into ICANN, instead of the reactive, seat-of-the-pants policies that will emerge from private companies.

By opposing new top-level domains, and thereby encouraging the palpable demand for new names to leak out of the DNS system and into private namespaces, trademark owners are inviting a world of woe upon themselves. Instead of one uniform policy, they are about to find themselves reacting to multiple policies in multiple namespaces governed by recalcitrant companies whose commercial imperatives are completely opposed to what trademark holders see as their legal responsibilities.

Next up — Facebook. After that, who knows? There will be more.

I recently wrote a paper to which I gave the super-fun title Community Scoring in ICANN’s Draft Applicant Guidebook: How to Make Sure that New Top-Level Domains Are Meaningful and Useful.

I also submitted it as a comment to ICANN’s IRT (Implementation Recommendation Team).

Warning! This is very long. Worth studying every word, of course…

Summary: The new top-level domains (TLDs) from ICANN have the potential to usher in a much more useable Web, but ICANN needs to define a “community” TLD better so that existing communities of interest can create and manage their own TLDs. As it stands, these communities will be shut out and many new TLDs will become meaningless replications of .COM. We recommend tweaking the scoring in ICANN’s Draft Applicant Guidebook to make it easier to qualify as a community.
(more…)

Minds + Machines will be at the INTA 2009 Annual Meeting in Seattle, Washington from May 16 to 20. Please stop by our booth and visit with us if you’re attending.

Our CEO, Antony Van Couvering was a founder of NetNames and NameEngine, two premier providers of online brand management, and has a tremendous perspective on the subject of domain names and brands. I worked with the Digital Brand Management group at VeriSign (now MelbourneIT) so I also appreciate and understand the complexities and challenges of online brand management.

We carry that experience forward in our approach and objectives with Minds + Machines as a consultancy and registry service provider.

As a result. we’re finding that professionals involved in intellectual property law find our approach to the new TLD process quite friendly, comfortable, and appropriate. One could also use the word refreshing.

We’re glad to discuss our specific solutions and how they can benefit your clients or your company’s brand(s) in person.

To schedule a meeting please let us know the best time and day to meet.

Seattle is a beautiful city with great sights and friendly people. We’re glad to be participating at the INTA Annual Meeting and we hope to see you there.

-Jothan