Summary of Comments on Economic Case paper

[Patrick Jones <patrick.jones@xxxxxxxxx>]

Summary and Analysis of Comments For:
Economic Case for Auctions

10 September 2008

ICANN staff has prepared this summary and analysis of comments received on the 
Economic Case for Auctions paper. The comment period ran from 8 August to 7 
September 2008. 18 comments were received from 16 individuals (2 individuals 
commented twice). Additional comments and clarifications were also submitted to 
the forum by ICANN staff on 9 September 2008. The public comments on this forum 
are archived at http://forum.icann.org/lists/auction-consultation/.

High Level Summary

Ten of the eighteen comments were received from individuals associated with 
potential gTLD applications or registries.

A number of commenters noted that the Economic Case paper did not describe a 
proposed auction model or use of funds from the potential auction of gTLD 
strings (these are to be the subject of separate documents to be posted along 
with a proposed budget for the new gTLD process prior to the ICANN meeting in 
Cairo).

Commenters were concerned that the use of auctions would not meet the needs of 
community-based applicants or smaller TLDs intended for the "public interest".

A number of commenters noted support for the use of auctions to resolve 
contention among competing identical or confusingly-similar strings, that the 
issue of auctions was complicated, and unlikely to be result in complete 
satisfaction among all parts of the ICANN community.

Two comments were off-topic or marginally related to the Economic Case paper, 
but have been included for completeness.

General Comments

Tom L. of InkDrop Media noted that from a business perspective, the Economic 
Case for Auctions paper "seems very logical and many individuals would agree[s] 
this would be the 'best' way to assure correct use of new gTLDs. However, by 
having these 'auctions' you will have already singled out who can compete in 
the new gTLD world." See 
http://forum.icann.org/lists/auction-consultation/msg00000.html.

Tom L. was also concerned that auctions may limit possibilities as only "large 
corporations with much of the necessary funding will have access to lobbyist[s] 
to assist in acquiring these new gTLDs."

Thomas Lowenhaupt of .NYC submitted two comments. First, he asked whether 
papers had been prepared on the various allocation methods (auction, 
comparative evaluation, etc), and if so, what process would be followed for 
allocation. See http://forum.icann.org/lists/auction-consultation/msg00001.html.

On 7 September 2008, Lowenhaupt submitted his second comment titled "Toward a 
DNS-Enabled Internet for Cities." See 
http://forum.icann.org/lists/auction-consultation/msg00015.html.

Lowenhaupt noted that he had not received a response to his earlier question 
and that he is missing the context for how auctions fits with comparative 
evaluation in the new gTLD process. ICANN staff responded to Lowenhaupt on 9 
September, and a copy of the response was posted on the comment forum. See 
http://forum.icann.org/lists/auction-consultation/msg00019.html.

Lowenhaupt provided a statement in support of providing .NYC as a "public 
interest resource that's central to [New York City's] growth on a variety of 
fronts." He noted that it is "impossible for a civic-oriented, long range, slow 
build TLD of this sort to compete with the financial 'value' other schema will 
provide." He also suggested that ICANN acknowledge the existence of cities and 
cities have special needs that can be addressed by TLDs.

Patrick Vande Walle, a potenial applicant for DotSport, suggested that the 
fundamental values of the paper are wrong, and that it does not distinguish 
among different TLD models and their target communities. He also suggests that 
ICANN will "miss its societal role if it relied only on wealth to select 
between competing proposals." See 
http://forum.icann.org/lists/auction-consultation/msg00002.html.

Vande Walle wrote that "the mere possibility of auctions will generate 
contention on some strings."

Vande Walle questioned what would happen with revenue derived from gTLD 
auctions. It is anticipated that the use of funds will be covered in the 
upcoming proposed budget for the new gTLD process, to be released prior to the 
ICANN meeting in Cairo.

Vittorio Bertola questioned the assumptions in the Economic Case paper and 
stated that the paper does not account for applications where registrations are 
given away for free or a TLD used for a "few public services to be used freely 
by millions of people." See 
http://forum.icann.org/lists/auction-consultation/msg00003.html.

Bertola also noted that another wrong assumption is that "monetary value [for 
gTLDs] is the only quantity that counts." He suggested that the "value" of a 
TLD is connected to other factors, such as 1) "how many final users of the 
Internet will ever use services located inside that TLD";
2) "how strongly these people will feel attached to that TLD"; and 3) "whether 
the TLD will spawn innovative uses of the DNS or enable innovative services".

A number of the concerns and factors that Bertola suggests have already been 
taken into account as part of the work going into the draft RFP and proposed 
auction model.

Jeff Williams agreed with Vittorio Bertola's comment. See 
http://forum.icann.org/lists/auction-consultation/msg00004.html.

Les Laky wrote "with all the computing power that is available today, one would 
expect that a comparative evaluation could be designed to avoid the need for a 
tie-breaker auction." He also suggested it would be helpful to see a case study 
of recent comparative evaluations so they could be compared with auctions. See 
http://forum.icann.org/lists/auction-consultation/msg00007.html.

"Go2ao" submitted an excerpt from an essay by Derick Harris titled "The Policy 
Delusion of Allocative Efficiency in Connection with gTLD Auctions." In the 
comment, Harris questions that stated policy goals of allocative efficiency in 
the Economic Case paper. He also warned of unintended consequences that may 
result from the use of auctions to resolve contention among gTLD applications.

Harries notes "notwithstanding transparency and efficiency, the plain and 
simple fact of the matter is auctions favor moneyed classes...the onus is on 
ICANN to act as conservator of the public interest." See 
http://forum.icann.org/lists/auction-consultation/msg00005.html.

Harris questioned whether ICANN was "capable as an institution of utilizing a 
policy option that favors 'the public interest'" and he noted that the proposed 
allocation process favored business and commercial interests over the public 
interest.

Casper Thomsen of Thomsen Trampedach GmbH disagreed with the comment submitted 
by Vittorio Bertola (noting that Bertola "is forgetting that the auction is the 
[proposed] tie-breaking mechanism"). He suggested "auction is the best way of 
securing the best applicants at a final stage with more than one applicant. And 
the alternative - comparative evaluation, 100% beauty contest, lottery, etc - 
would in my opinion be a far worst solution." See 
http://forum.icann.org/lists/auction-consultation/msg00006.html.

Matthiew Diehl of TLD Managers referred to the draft evaluation process 
flowchart posted at 
http://www.icann.org/en/topics/gtld-evaluation-process-16jun08.pdf and said 
that he sees auction as last resort for ICANN in resolving contention among 
applicants. He felt this process provided preferential treatment for 
community-based applicants over corporations. Overall he agreed with the 
auction approach "as the final measure when a community organization cannot be 
found." See http://forum.icann.org/lists/auction-consultation/msg00008.html.

Dirk Krischenowski of dotBerlin focused his comment on GeoTLDs (city-based or 
region-baed TLDs) and asked what would happen in the case of more than one 
application for a "geoTLD like .paris, .cym or .africa".

Krishenowski referred to the Evaluation Process flowchart (see link above) 
presented during the ICANN meeting in Paris and described the community-based 
objection and comparative evaluation process. He notes that the best solution 
in contention situations "may be if both applicants find an agreement to 
cooperate." See http://forum.icann.org/lists/auction-consultation/msg00009.html.

Brice Parent's comment was not related to the Economic Case for Auctions paper, 
but was in support of permitting "accents and special characters in domain 
names and TLDs." Parent's comment is in support of IDNs generally. See 
http://forum.icann.org/lists/auction-consultation/msg00010.html.

Eric Brunner-Williams submitted two critical comments on the Economic Case for 
Auctions paper (these comments were also posted on CircleID.com), see 
http://forum.icann.org/lists/auction-consultation/msg00011.html and 
http://forum.icann.org/lists/auction-consultation/msg00014.html. ICANN staff 
responded to Brunner-Williams separately on 3 September, and copy of that 
response was forwarded to the comment forum. See 
http://forum.icann.org/lists/auction-consultation/msg00018.html.



Werner Staub of CORE submitted a comment against an auction credit, as this 
would not help community-based applicants. He writes that an auction would 
"deprive the community of any credible influence over the TLD. Second, members 
of the community (as the future users of the TLD) end up paying - indirectly - 
the auction proceeds. Third, auction itself would be the biggest business risk 
for the entire TLD project. Even if the community-based applicant won the 
auction, excessive auction costs would pervert the TLD. As a result, any 
commitments made to the community would become meaningless as the registry 
struggled to recoup its costs."

Staub also wrote that while a community may be able to object to a commercial 
applicant, community organizations may have trouble making an informed decision 
in time and may miss the objection deadline. He suggests that ICANN consider a 
special pre-auction objection period, which would "allow representative 
organization(s) of the targeted community to stop the auction from taking 
place. In such a case, all of the applications [for the given string] would be 
rejected for that round. If later consensus established in the community, a new 
TLD application can be made." See 
http://forum.icann.org/lists/auction-consultation/msg00012.html.

Markus Travaille of SIDN (.NL ccTLD registry) asked a follow-up question to the 
one raised by Dirk Krischenowski and asked if auction was the appropriate 
mechanism to resolve contention between two cities or regions from different 
countries for the same string or if there was another proposed solution. See 
http://forum.icann.org/lists/auction-consultation/msg00013.html.

Olivier MJ Crepin-Leblond wrote that he had read the Economic Case paper and 
the comments submitted through 7 September, and he saw "no clear right/wrong 
answer." Crepin-Leblond supported the reference to auctions as a tie-breaking 
mechanism and noted that "many small communities applying for a gTLD will never 
have to go through the auction process & its higer costs, simply because there 
will be no tie breaker." See 
http://forum.icann.org/lists/auction-consultation/msg00016.html.

Crepin-Leblond rejected some of the comments of an "Internet for the rich" 
caused by gTLD auctions. He writes that "Communities are perfectly able to 
function on the Internet without their own gTLD. So are brands & indeed any 
other kind of applicant."

Steve Metalitz submitted a comment on behalf of the Intellectual Property 
Constituency of the GNSO. Metalitz suggests that the Economic Case paper is not 
consistent with the new TLD procedure presented to the ICANN community. He 
suggests that ICANN should clarify that the paper does not accurately reflect 
its decisions [with regard to handling contention among community-based 
applicants] and that ICANN should reaffirm that the use of auctions in the new 
TLD process will not be expanded beyond what is currently proposed. See 
http://forum.icann.org/lists/auction-consultation/msg00017.html.

"The IPC urges ICANN to reject the approach suggested by the paper of resolving 
all string contention through auctions." Further, the IPC has requested that 
ICANN address concerns previously raised by the IPC in its earlier submissions 
before proceeding further toward consideration of an auction method.

The IPC notes that the paper raises two unanswered questions as applied to the 
new gTLD process: 1) why is "a low-cost applicant" necessarily to be preferred 
over a "high-cost applicant" that seeks to fulfill community need, and 2) what 
is it that differentiates two applications based on "quality"?

The IPC also identifies that the paper is missing a description of the proposed 
use of funds from an auction process, the proposed auction model, how to ensure 
separation between the organization conducting the auction and all bidders, the 
terms of payment and whether successful bidders will be allowed to launch new 
TLDs before full payment has been made.

The IPC supports meaningful, objective criteria for comparative evaluations. 
The IPC recommends that ICANN define with greater specificity "community-based 
applicant" and who can trigger a comparative evaluation. They also note that 
comparative evaluations must be designed to minimize risk of a tie.

Next Steps

ICANN intends to make available the proposed auction model to be incorporated 
in the new gTLD process for community review in advance of the draft RFP. The 
proposed model should make clear that the Economic Case paper did not suggest 
that all string contention would be resolved through auctions, and should also 
address concerns raised by the commenters in this forum.

Contributors

Steve Metalitz on behalf of Intellectual Property Constituency (IPC)
Olivier MJ Crepin-Leblond
Thomas Lowenhaupt (.NYC) (2 comments)
Eric Brunner-Williams (2 comments)
Markus Travaille (SIDN)
Werner Staub (CORE)
Brice Parent
Dirk Krishenowski (dotBerlin)
Matthew Diehl (TLD Managers)
Casper Thomsen
Go2ao (copy of essay by Derick Harris)
Les Laky
Jeff Williams
Vittorio Bertola
Patrick Vande Walle (DotSport)
Tom L. InkDrop Media


--
Patrick L. Jones
Registry Liaison Manager &
Coordinator, ICANN Nominating Committee
Internet Corporation for Assigned Names & Numbers
4676 Admiralty Way, Suite 330
Marina del Rey, CA 90292
Tel: +1 310 301 3861
Fax: +1 310 823 8649
patrick.jones@xxxxxxxxx