Should You Apply for an ICANN Top-Level Domain: the Benefits and the Pitfalls

Now that the window has opened for submitting new top-level domain name applications, should you apply? Before tying to answer that question, a little background.

The Internet Corporation for Assigned Numbers and Names, or ICANN, that regulates the use of Internet domain names announced last June that it would open the field of generic top-level domains (“gTLD”), the identifiers to the right of the dot (.com, .biz, .org) from the current 22 to any word in any language. The application period began on January 12, 2012 and will end 3 months later.

Playing in this new namespace is costly. The application fee is $185,000 and approved gTLDs must pay ICANN an annual fee of $25,000. Total costs for applying and operating a new custom gTLD are expected to reach $500,000. For more information see the fine piece by my colleagues Don Prutzman and Amy Beard of Tannenbaum Helpern Syracuse & Hirschtritt here.

What are the benefits and the pitfalls you should consider?

Benefits

Here are a few of the many benefits. A hotel could offer better access to loyalty programs (rewards.marriott); multinational companies could fashion closed gTLD networks to more easily communicate across boundaries (employeename.exxon); sporting goods manufacturers may set up counterfeit-free zones for the authorized purchase of their products (clubs.callaway); high end retailers may create a network of custom pages for consumers with similar tastes (iloveleather.chloe); and upscale car companies could provide customers with their own domain name (myname.bmw). Doctors could promote their practices and confidential access for patients via a doctor.hospital address. See the helpful Carter Ledyard advisory here for a listing of more benefits.

Further, in Asia and the Middle East businesses may create gTLDs in their own native languages and dialects allowing consumers to more easily type in the domain using letters they are familiar with. Banks may also benefit. Banks may be able to more easily promote a confidential and trusting exchange with customers by advertising with this tag line, “if it doesn’t end with .mybank, it’s not me.”

Problems

The land rush of new gTLDs will increase the number of registry operators, expand exponentially the number of registered domain names and thereby increase the costs brand owners must incur in monitoring and enforcing their intellectual property rights. Also trademark owners may be unable to block other trademark owners from registering the same mark as a gTLD if the owners are in unrelated businesses. For instance, assume that Ford Motors and Ford Flowers hold similar marks within their industries. If only one applies for .ford, the other would have a hard time proving it will be harmed by that application.

There is also the potential for brand abuse. Suppose that a milk producer buys .milk and uses it to favor only its own brands. There is the further possibility of considerable customer confusion. As the FTC points out, “ABC bank could be registered in .com, but another entity could register ‘ABC’ in a new .bank gTLD, and a different entity could register ‘ABC’ in a new .finance gTLD.” Scam artists may then be able to take advantage of this potential for confusion to defraud consumers.

So should you sit back or apply? There is no easy answer. As the advisory by Don Prutzman and Amy Beard points out, applying for a gTLD will be expensive and the benefits not readily apparent.  But waiting runs the risks of incurring significant defensive costs if another applies for your brand.

Further, trying to predict consumer behavior on the Internet over the next few years is a little bit like trying to predict the weather. Will consumers begin to recognize the new .anything and .everything extensions as useful and profitable alternatives to the current .com and .biz extensions? Stay tuned.