Testimony of Daniel L. Jaffe, EVP, Government Relations, Association of National Advertisers (ANA)
Hearing on ICANN's Expansion of Top Level Domains, Senate Committee on Commerce, Science and Transportation
WASHINGTON (Dec. 8, 2011) — The Association of National Advertisers (ANA) appreciates the opportunity to present our serious concerns about the new generic Top-Level Domain Name (gTLD) Program that was approved last June by the Internet Corporation for Assigned Names and Numbers (ICANN).
ANA is the advertising industry's oldest trade association, founded in 1910. Our membership includes 400 companies with 10,000 brands that collectively spend over $250 billion in marketing communications and advertising. More information about our association is available at http://www.ana.net.
I am also appearing on behalf of CRIDO, the Coalition for Responsible Internet Domain Oversight. CRIDO represents 152 major national and international companies and trade associations that have joined together to oppose the roll-out of ICANN's new gTLD Program. A list of all of the members of CRIDO, which represent virtually every sector of the American economy and many important international companies, associations and federations, is attached to this statement.[1] CRIDO members represent some 90 percent of global marketing communications spending, equivalent to $700 billion annually. While CRIDO members may follow different approaches to domain name activity, they are all united in the belief that the proposed unfettered expansion of generic Top Level Domains is both dangerous and misguided. This proposed ICANN initiative is not merely a bad policy choice but a serious threat to the legitimate interests of business and consumers on the internet.
On November 10, 2011, ANA and the other members of CRIDO sent a Petition to Commerce Secretary John Bryson outlining our serious concerns about the new gTLD Program approved last June by ICANN despite significant objections from many global internet stakeholder groups. The CRIDO Petition called on the Department of Commerce, and specifically the National Telecommunications and Information Administration (NTIA), "to use its best efforts to persuade ICANN to stop or postpone the opening of the gTLD application window," which is currently scheduled to begin on January 12, 2012.[2]
Other important groups have also independently spoken out against ICANN's gTLD Program, including the National Retail Federation (NRF), the Screen Actors Guild (SAG) and the American Federation of Television and Radio Actors (AFTRA). Their letters to the Secretary are available at http://www.ana.net/getfile/16997 (NRF), http://www.ana.net/getfile/16998 (SAG) and http://www.ana.net/getfile/17000 (AFTRA).
We commend the Committee for holding this hearing on this critical issue which could impact the shape of the internet for decades, and perhaps in perpetuity. In the past twenty years, the internet has grown from being used by a limited number of engineering and academic elite to being relied on every day by over 2 billion people worldwide. According to a May 2011 report from the McKinsey Global Institute, nearly $8 trillion are exchanged annually through e-commerce. The former Secretary of Commerce, Gary Locke, emphasized that "[t]he internet is becoming the central nervous system of our information economy and society."[3] Since the internet serves as a recognized catalyst for global economic growth, there is far too much at stake, particularly in today's economic climate, not to ensure that ICANN's policies are fair and impartial. This is in keeping with the promises that ICANN made in the Affirmation of Commitments between ICANN and the NTIA, in exchange for the considerable power to oversee the internet that was delegated to ICANN by the U.S. government.
We believe the new gTLD Program is bad for marketers, consumers and the entire online marketplace. Consistent with the Affirmation of Commitments, ICANN has a responsibility to ensure that its actions further the public interest, promote consumer trust and the burgeoning internet domain.[4]
We strongly believe that ICANN's new gTLD Program fails all of these standards.
This Program in aggregate has multi-billion dollar implications for all marketers, both in the commercial and the nonprofit sectors, and their brands. It would cause irreparable harm and damage to the entire online business community. It would throw the domain name universe into substantial confusion for both marketers and consumers.
ICANN has been considering this Program for several years. ANA objected to these proposals as did many other industry groups and companies. Even important governmental entities, including international law enforcement organizations,[5] expressed deep misgivings about ICANN's proposed gTLD Program. Unfortunately these strong objections have largely fallen on deaf ears.
ICANN consistently states that it is a multisectoral, bottom-up policy development organization. However, the creation of a massive bureaucratic labyrinth and process does not mean that ICANN is, in fact, representing the views of the majority of the internet community. There clearly is not "consensus" support for the ICANN gTLD proposals. We cannot let the repetitive mantra that ICANN is a "multisectoral organization" camouflage or mask ICANN's lack of responsiveness to the real concerns of a very broad cross-section of the business community, and a growing group of non-governmental organizations, consumer groups and other internet users.
Key Reasons Why the ICANN Program Must Be Stopped or Delayed
For a variety of reasons, we believe it is critical that the roll-out of the new gTLD Program be delayed.
Flawed Justification: ICANN justifies the Program on grounds that it: "might" or "may" (1) spur competition, (2) relieve scarcity in domain name space and (3) support differentiated services and new products. Yet evidence is sorely lacking that the introduction of new TLDs will actually achieve any of these goals. The very reports relied upon by ICANN to buttress its gTLD proposal prove that such justifications are unsupportable.
Competition. Regarding competition, in the December 2010 report commissioned by ICANN, entitled "Economic Considerations in the Expansion of Generic Top-Level Domain Names, Phase II Report: Case Studies" ("Phase II Report"),[6] the authors of the Phase II Report clearly conclude that the introduction of new undifferentiated gTLDs is not likely to have a "significant competitive impact" in the market for registry services (Phase II Report, ¶ 12).
Scarcity. It is equally clear that scarcity is not a current problem. As the Phase II Report concludes, ". . . [T]he relief of name scarcity is unlikely to be the principal source of social benefits derived from new gTLDs" (Phase II Report, ¶ 20).
Differentiated Services and New Products. The Phase II Report notes new domain uses that are possible with TLDs, comparing such prospects to existing TLDs, e.g., domains that are restricted to particular functions or applications (such as existing TLD .mobi), domains that restrict second level registration to a particular class of owners (such as existing TLDs .museum, and .aero), and domains that restrict second-level registration to presenting a certain type of content (such as current domains relating to a specific geographic area). However, in each case, the experts conclude that the benefits were little more than speculative and that many of the TLDs adopted by ICANN in the last expansion round have been practical failures (Phase II Report, ¶¶ 39, 50, 58, 59, 62).
There is no demonstrable need to increase generic Top Level Domain names on an unlimited basis, and no likely benefit that would result from such an unrestricted increase.
A wide array of 22 suffixes such as ".biz," ".info," ".jobs," ".travel" and ".museum" currently exist, not including the country codes. Most of those gTLD names are minimally used, but nonetheless actively policed by brand owners concerned about trademark dilution, cybersquatting and the online sale of pirated or counterfeited products.[7] The gains assumed by ICANN are completely unsubstantiated. In contrast, the new Program will throw the domain name universe into widespread confusion, impose major costs on marketers and cause harm to consumers. If there is no scarcity of space within the existing domain name system, the ICANN Program appears to be a solution in search of a problem. Even more seriously, the "solution" proposed by ICANN is likely to impose enormous costs on the internet and divert productive resources at a time where these dollars could be far more effectively used for job creation and productive capital investment.
Serious Economic Impact if the Program is Adopted
These are not just our views. The studies ICANN initiated itself recognize that the Program may cause several severe economic harms. As set forth in Paragraph 63 of the Phase II Report, the costs of the Program may include the following:
Misappropriation of Intellectual Property. The experts cite a key concern of misappropriation of intellectual property rights, including the "costs of domain watching, defensive registrations, litigation or other measures to end misappropriation, and costs due to misappropriation that is not blocked (e.g., lost profits due to sales of counterfeit goods or brand dilution)."[8]
Defensive Registrations. As noted, brand owners may be compelled to file defensive registrations, i.e., "registrations undertaken to protect legitimate trademark or intellectual property rights from misuse, not registrations undertaken as the 'defense' of one's business against increased competition on the merits."[9] This cost alone could be in the hundreds of thousands of dollars per brand name, creating a multi-million dollar liability for major corporations and a multi-billion dollar cost to the industry.
Several internet domain name sellers have estimated the range of costs for gTLD applications alone. For example, in an article entitled, "Sweeping Away Confusion Regarding gTLD's," Gretchen Olive stated that, "Those applying will need a minimum of $800,000 to $1 million to not only submit the application, but also to defend it against objections lodged by third parties and to get through the contract process with ICANN and set up the registry technical infrastructure (emphasis added)."[10] The article further noted that, "Monitoring for infringement and submission of objections will likely run most organizations between $25,000 and $50,000 in 2012."[11]
Domain Navigation Dilution because Consumers have More Places to Look. The experts note that the "introduction of additional gTLDs may increase the costs of internet navigation by increasing the number of potential domains over which a user may search. To the extent that such effects arise, they can dilute the value of existing domain names as navigation devices. The costs associated with such dilution include the costs of defensive registrations . . . and the costs due to dilution that cannot be mitigated."[12]
Harm to Internet Users from Increased Cybersquatting. One of the most incipient and costly challenges to the adoption of any new gTLD is the prospect of cybersquatting and the substantial costs associated with preventing and policing it, which are already well into the billions of dollars. With respect to cybersquatting, the experts note, "In addition to harm in the form of increased search costs consumers may suffer more direct harm from increased cybersquatting. This direct harm may result from malware, phishing, and the unknowing purchase of counterfeit goods."[13] While the experts opine that such a result "may" occur, history proves that cybersquatting will occur, just as it has with every TLD that has ever been administered by ICANN.
Reduced Investment by Intellectual Property Owners. The protection and development of intellectual property is a core value for the global economy, particularly given the world's reliance on technology. As ICANN's own experts conclude, the Program seriously undermines intellectual property rights — "There may also be indirect harms from the loss of intellectual property owners' incentives to invest in that intellectual property due to concerns that some of the benefits of that investment would be misappropriated."[14]
Losses from Failed TLDs. History itself discredits ICANN's position that the introduction of new TLDs will increase innovation and competition. One need only look at the dismal financial registration and track record of TLDs like .museum and .aero to prove the point. Such failures are very disruptive and costly to companies that have registered. This reality is borne out by the authors of the Phase II Report, who conclude that "[i]f a new gTLD failed and ceased operation, external costs might be imposed on the internet community. Registrants in a failed gTLD might be stranded, unable easily to move their websites (on which they may have based their business) to other TLDs due to embedded links. More generally, internet users might face increased clutter on the internet if links fail to resolve."[15] Clearly, these types of dangers are likely to be substantially magnified by allowing an unrestricted proliferation and explosive growth of domains.
ICANN has in effect dismissed these concerns in reliance on what its own experts have noted as "speculative" competitive benefits of the Program. However, is it really credible that the broad group represented by the CRIDO membership — that includes some of the largest national and international advertisers, brand holders and associations in the world, with representation cutting across a vast range of industry sectors — can all be unable to foresee what are their true competitive interests?
ICANN's Deliberation Process is Flawed
Nevertheless, ICANN is now moving forward with the Program. ICANN justifies ignoring these studies in its report entitled, "Rationale for Board Decision on Economic Studies Associated with the New gTLD Program."[16] With all due respect, the "Rationale" is nothing short of a nullification of ICANN's own mandate to conduct economic studies. Rather than calling for further expert analysis, ICANN dismisses the very economic evidence derived from the studies and opts for a default justification of "competition" in which any TLDs may be adopted. Furthermore, ICANN minimizes the Phase II Report's conclusion that registry competition will not be significantly affected by the Program; ICANN says its real interest is competition in business generally, and claims that any additional economic study on that subject would be futile.[17] We understand that ICANN contemplates further studies once the new gTLD Program is underway,[18] but at that point, the damage will have been done. Once new gTLDs are deployed, there is no turning back.
If this Program, in fact, were likely to enhance competition and the internet marketplace, one would expect broad statements of support for it. This support would come from many internet and governmental sources. Instead, the voices that are speaking in favor of the Program appear to come almost exclusively from registrars, registries and others who will directly profit from facilitating the gTLD roll out — not those whom ICANN says will benefit. The broader internet business community is clearly rejecting the proposal.
This scant and conflicting economic analysis is one of many examples in which ICANN has disregarded its own requirements and unilaterally issued an edict. ICANN's own Code of Conduct[19] mandates that ICANN will "[w]ork to build consensus with other stakeholders in order to find solutions to the issues that fall within the areas of ICANN's responsibility. The ICANN model is based on a bottom-up, consensus driven approach to policy development." Its undertakings with the U.S. Department of Commerce additionally require that ICANN act rationally and transparently.[20] Clearly, the legal and due diligence requirements of ICANN's own mandates have not been met here. An effort to foist on the world community and markets a change of this magnitude is not the measured "bottom up" approach described in the Code of Conduct. Moreover, it is impossible to describe the decision to adopt the Program as a decision based upon consensus where the research, comments and reports submitted to ICANN clearly show that there was and still is no consensus on the purported benefits of the Program.
Excessive Costs and Harms to Brands
The immediate cost imposed on businesses is likely to be in the billions of dollars. Applying for a new Top Level Domain name will require an extraordinarily expensive registration fee of $185,000 as well as a minimum cost of $25,000 paid annually to ICANN over the ten-year contractual commitment that successful applicants must make. Costs will further escalate at the second level of naming — the word to the left of the "dot" — as brand owners will have to consider registering each of their brand-related terms, for either commercial or defensive purposes.
Some have estimated that, for a typical company, the cost of acquiring a single gTLD and managing it over the initial commitment of ten years could easily exceed $2 million, including expenses for the application process, operations, disputes, and related legal services. The costs associated with trademark monitoring and protection in all the new gTLD spaces will run even higher. Some CRIDO members spend over $1 million a year today to enforce against cybersquatting and fraud in the existing 22 gTLD spaces. These numbers will clearly escalate if ICANN's proposal goes forward. In addition, many companies may face an auction for a generic Topic Level Domain, which will result in higher costs to ICANN's benefit. Many companies have hundreds or even thousands of brands to defend. Brand owners will face a Hobson's choice of either being compelled to spend substantial resources to acquire and manage new gTLDs or risk the harm to their brands that could occur if they take no action. This has certainly been the message spoken loud and clear to us from our members and the many groups within CRIDO.
Following the Money
Existing and prospective internet registries and registrars stand to be the primary beneficiaries of the new gTLD Program. Just examining ICANN's own financial statements, it would appear that registries and registrars pay fees that comprise the lion's share of ICANN's budget. According to ICANN's own audit reports for the Fiscal Year 2011, ICANN's primary source of revenue comes from internet registries and registrars. In fact, of ICANN's $69.3 million in revenue for Fiscal Year 2011, $64.5 million came from fees paid by registries and registrars.[21] That is 93% of ICANN's 2011 revenue. In 2010, that same figure was 94 percent.[22] Looking ahead to this new gTLD program, more TLDs mean new business for registries and registrars and greater numbers of registries and registrars, which in turn creates more fees for ICANN.
However, ICANN's budget incentive for new gTLDs will be more than increased registry and registrar fees. The initial application fees expected in FY 2012 and 2013 will provide the organization with a considerable boost to its budget — a $92.5 million dollar boost in fact (which could be quite conservative because it only projects 500 applications; in some of ICANN's earlier delegation scenarios they have projected 1,000 or more applications as the high end).[23] In the Fiscal Year 2012 budget projections for new gTLD revenues are expected to add another $27.8 million to ICANN's revenue — or adding another 40 percent to its budget.[24] Likewise, in draft Fiscal Year 2013 new gTLD revenues are expected to add another $64.8 million — that is nearly a 94 percent increase in revenues above the 2011 fiscal year figures mentioned above.[25]
ICANN says that it will use these revenues for intensive application review processes, but we would be remiss if we did not add that $30 million or nearly one-third of all expected gTLD application revenues will be earmarked for a litigation risk fund. ICANN is clearly expecting many problems with this application window given the large litigation budget anticipated.[26]
Lack of Consensus
It is true that ICANN spent a number of years considering this Program at meetings around the world. However, the 152 members of CRIDO, representing major global companies and business groups, are living proof that the objections of industry sectors most affected by this Program have not been adequately considered or addressed by ICANN. A number of CRIDO members have actively voiced objections to the new gTLD process and the lack of adequate trademark protection mechanisms, yet their concerns have fallen on deaf ears. This entire constituency — the one required to fund the new names and maintain the internet's economic model — has been largely ignored. On the other hand, we do not hear any clamor for the Program. ICANN has failed to reach stakeholder consensus, a specific requirement of its contract with the NTIA.
Conflict of Interest Concerns
We are very concerned about potential conflicts of interest that may be present in this expansion proposal, for both the Board and staff of ICANN. It is very troubling that many of the same individuals who approved this expansion, including ICANN's former Chairman, now stand to benefit substantially from companies that will register applicants and manage the expansion. For example, within one month after the vote of the ICANN Board to approve the new gTLD expansion, former ICANN Chairman Peter Dengate Thrush had joined a London company called Top Level Domain Holdings, a company that will directly profit from the decision.
These events have cast a serious cloud over the legitimacy of the vote to approve the new gTLD Program. ICANN serves as a quasi-governing body for the day-to-day operations of the internet. It is absolutely critical that all decisions are made in the public interest, not in the best interest of the closely-knit ICANN family.
We believe that ICANN can reclaim its legitimacy as an internet governance body only by conducting a thorough and proactive review of both the gTLD expansion and the broader conflict of interest and ethics policies for the organization. We expressed these concerns in a letter to ICANN on October 2, 2011, which is available at http://www.ana.net/getfile/16766. Our letter notes that serious concerns about the inadequacy of the ICANN conflict of interest policies have been expressed by Senator Ron Wyden (D-OR), by Lawrence Strickling, Assistant Secretary for Communications and Information at the U.S. Department of Commerce, and by the full European Commission.
At its October meeting in Dakar, ICANN's Governmental Advisory Committee (GAC) expressed "extreme concern about the inadequacy of the existing rules of ethics and conflict of interest" in ICANN.[27] The conflict of interest issues threaten to undermine confidence in ICANN's decision-making. Obviously, if ICANN merely adopts prospective conflict of interest corrections they will not undo harms that have already occurred. Attention must be paid to the effects of conflicts on ICANN's deliberations and the legitimacy of the gTLD roll out proposal.
Exemptions to the Program
Three groups were exempted or exempted themselves from the new gTLD Program: the Red Cross, the Olympics and ICANN itself. In letters to ICANN, both the Red Cross and the Olympics stated that they needed this type of protection to assure that the public who trust their brand identities would not fall victim to typosquatting, cybersquatting and phishing. The Red Cross noted that a substantial portion of their resources are used to counteract "fraudulent websites containing Red Cross names to solicit donations routinely after virtually every newsworthy disaster."[28]
While these exemptions may be appropriate, no other exemptions were extended to the thousands of other charities and foundations that similarly use the internet to foster their public interest activities — yet they surely face the same kinds of harms.
The fact that ICANN exempted itself is even more informative. ICANN not only exempted its own name from the gTLD process, but several other names as well. But the protections for ICANN will not end at the top level. ICANN will have the opportunity to negotiate more protections for itself at the second level once new gTLD registries are selected. Take for example, the many reservations that ICANN made for itself on the new .xxx domain. In the .xxx registry, ICANN was even able to protect names of some of its leadership.[29] No other groups received the same protection. Major universities across the country, for example, have recently found it necessary to purchase multiple .xxx domain names to protect against links of their names to porn sites. The Ohio State University purchased a total of 19 domains, including buckeyeblitz.xxx and goldpants.xxx.[30] The cost for each of these domain name purchases was $200 for a purely defensive purpose. These costs could be substantially higher if an auction is required to protect a name.
These exemptions explode the argument that ICANN makes that it has developed adequate protections against cybersquatting, typosquatting and phishing. These charitable and other NGO groups will face the same dangers that the Red Cross and the Olympics highlighted, and many of them will not have the financial wherewithal to defend and protect their good name in the internet marketplace.
Not All TLDs Are Alike
Our concerns primarily focus on generic Top Level Domains (gTLDs). These concerns do not generally extend to so-called ccTLDs dealing with country designators such as .co, .cn, .eu, and .de. Nor are we opposed to the use of other languages and character sets in the Domain system, although we believe that the public interest requires that all Top Level Domains be cost beneficial and not impose undue burdens on the internet or undermine consumer trust. Neither do we believe that there is something sacrosanct about maintaining the existing 22 gTLD system unaltered. However, all of our companies, associations and groups believe the unrestricted and unlimited expansion of gTLDs is a reckless experiment that needs to be halted and reassessed before it damages the very positive growth of consumer trust that is fundamental to the internet marketplace.
Conclusion
We commend the Committee for holding this important hearing. Examining the membership list of CRIDO demonstrates that the concerns of the worldwide business community are extraordinarily widespread. The issues that we raise will fall even harder on consumer groups, charities, foundations, and myriad other entities that have even less financial ability to protect their institutional interests and that will be affected by the rapid, unlimited opening of the generic Top Level Domain space.
We reject the argument of those who say that it is too late for ICANN to step back and reevaluate or for NTIA, the Governmental Advisory Committee and other key internet participants to try to make one last major effort to forestall this potentially severely damaging initiative. There is absolutely nothing sacred about the January 2012 implementation date. Given the serious concerns expressed by a broad and growing cross-section of the entire American and global business community, the companies which provide the economic foundation of the internet, and the potential dangers to consumers, we believe it would be irresponsible for ICANN to proceed full-speed ahead with the roll-out next month.
We are sensitive to the U.S. government's concern that by acting, in any capacity, it could fracture the voluntary domain name system, which is embedded in the authoritative root. Or, alternatively, that control of the ICANN internet governance function could be relinquished to the International Telecommunications Union. However, given the potential harms that we have identified from this Program: consumer harm, cybersquatting, typosquatting, internet piracy and product counterfeiting, inaction could be far more destabilizing to ICANN as a governance body. If the new gTLDs launch and such problems occur en masse, then foreign governments will have no choice other than to call for the dismantling of ICANN. No one here at this hearing wants to see ICANN dismantled. We would like to buttress its authority by ensuring that the gTLD Program is maintained and developed appropriately in the public interest and promotes consumer trust.
We very much appreciate this opportunity to testify and the careful consideration of our and the other members of CRIDO's views.
[1] See Exhibit A. [2] The Petition is attached as Exhibit B. [3] Commercial Data Privacy and Innovation in the Internet Economy: a Dynamic Policy Framework, Department of Commerce (2010), Message from Secretary of Commerce Gary Locke at 1, available at: http://www.commerce.gov/sites/default/files/documents/2010/december/iptf-privacy-green-paper.pdf [4] See http://www.icann.org/en/documents/affirmation of commitments30sep09en.htm. (In relevant part,
- Section 3(a) requires ICANN to "ensure that decisions made related to the global technical coordination of the DNS are made in the public interest and are accountable and transparent";
- Section 3(c) requires ICANN to "promote . . .consumer trust . . . in the DNS marketplace" and Section 8(c) commits ICANN to operating "as a multi stakeholder, private sector led organization with
- input from the public, for whose benefit ICANN shall in all events act.").