Competition in the Domain Game Is on the Horizon

Distributing addresses on the Internet is a bit like doling out telephone numbers. There needs to be some organized distribution system and a centralized database. In the United States, if you want a domain name, most people will go to Network Solutions, Inc. ("NSI"). In many ways, they have a monopoly on this service. All of this is about to change, however, as the company that doles out Internet addresses is in the midst of losing its monopoly.

If you use the Internet (or if you read this column), you already know a "domain name" is like a customized telephone number. It's your easy-to-remember address on the Web. Someone can find you by simply typing in your address. The ".com" name usually represents a commercial entity. Similarly, ".org" is for not-for-profit organizations and ".net" is for an Internet-related company. Companies wanting to register domain names especially value those names that relate to their company name or products, such as "McDonalds.com" and "MTV.com".

The transfer of the guard of domain name registrations is significant because it represents the continued growth of the Internet as a commercial forum. The US Government's National Science Foundation used to register domain names, and registration was free. In 1993, NSI, a Virginia based company, was hired to act as the registrar and administer the database of names. Even if you've registered your domain name through your Internet service provider, they simply acted as a middle-man for NSI.

Few people recognized that issuing domain names would become big business. Yet by 1995, commercial use of the Internet was exploding, and names ending in ".com" became the most desirable names. At the same time, it was becoming more costly to register the volumes of names and maintain the database.

The government felt that it no longer made sense to give away names for free. In 1995, NSI began charging $70 for a two year registration. . With its monopoly status, NSI doled out about 2 million names in 1998--nearly twice the number registered in 1997.

Growing Pains

The good thing about competition is that it often encourages innovation, better prices and improved customer service. So, it's probably for the best that NSI's contract is up, which means the domain name registration system will be privatized and become competitive.

NSI is now swamped with new orders for domain names. One commonly reported problem has been that it takes NSI too long to respond to requests for new domain names. One of the authors of this article submitted an application for a domain name on January 5, but didn't even receive NSI's "auto-response" to confirm receipt of the application until six days later. In the past, it has taken only several hours for NSI to confirm receipt.

In 1998, the Department of Commerce recognized there was widespread dissatisfaction with the lack of competition in domain name registration. It laid the groundwork for some major changes when it published its White Paper in June 1998. You can find it at http://www.ntia.doc.gov/ntiahome/domainname/6_5_98dns.htm.

At the same time, a virtually self-appointed group from leading companies in the Internet community formed the Internet Corporation for Assigned Names and Numbers ("ICANN"). In November 1998, the Department of Commerce entered into an agreement with ICANN to jointly design and develop procedures to fully transfer management to the private sector. ICANN was charged to set up the new registration system, select new registration companies (also known as "registrars"), and establish guidelines for governing the Internet's domain name system.

The not-for-profit organization is preparing to choose five companies to compete with NSI for a two-month period. After the test period, NSI will have to open up the registration system and its database of domain names to all registrars approved by ICANN.

The draft accreditation guidelines propose certain minimum qualifications for registrars. These minimum qualifications are designed to prevent fly-by-night Internet companies that can't handle the rigors of the registration process from becoming registrars. For example, one requirement would be that the registrars have at least $1 million in liquid capital and $500,000 in liability insurance.

Over a Billion Served

Although NSI is challenged to handle the volume, and critics abound, it's still in a relatively good position even with the introduction of competition. It knows the name registration process and it currently runs the largest domain name registrar in the world. NSI reportedly posted net revenues of $31.3 million for fourth quarter 1998, a 117 percent rise over a year ago Its stock hasn't done too poorly either, although it shows the typical ups and downs of some technology stocks.

NSI is not sitting tight. Soon, you'll also see NSI involved in more marketing deals, so that it can prepare for competition in the domain name business. It's now working on deals with U.S. and foreign Internet companies. NSI's brand name value has already helped it to reach accords with Netscape Communications and Yahoo.

First-come First-served

NSI was the first name registrar that had to deal with disputes over domain names and it has been a nightmare for it. These disputes have become increasingly common as the Net-savvy have quickly snatched ".com" names.

NSI has tried to remove itself from the middle of these conflicts. Its position is that it simply doles out names on a first-come, first-served basis. Under its dispute resolution, an owner of a federally registered trademark can present a copy of the trademark certificate to NSI to stop somebody else from using a domain that is the same as their trademark. NSI will put the domain name in a "hold" category until the conflict is resolved between the parties or according to a court order.

One of the problems is that more than one person or company can have legitimate rights to use a name under our trademark system. So that while two companies can legitimately be "Acme", only one can have acme.com.

This limitation on the total number of available domain names, and the problems associated with confusingly similar domain names, will continue. Eventually, we may have to consider adding more top-level domain names. This is a bit like adding new area codes for telephone numbers. Other top-level names have been proposed for several years, but none have generated the notoriety of ".com". Still, will you really be able to recognize the difference between "sun.firm", "sun.com" and "sun.org"?

Adding to the problem is the fact that the Internet is inherently international. The domain name problems are complicated by different countries' laws for protecting names and trademarks. The World Intellectual Property Organization (WIPO), based in Geneva, Switzerland, is studying worldwide problems associated with the registration of Internet domain names, trademarks and ownership rights to names. Its recommendations will go to ICANN. Among some of the expected recommendations include extensive mandatory alternative dispute resolution procedures for all registrars, and additional protections for owners of famous trademarks.

It's clearly challenging to try to harmonize different laws and protect everyone's interests in the growth of the Internet and use of domain names. Michael Froomkin, a professor at the University of Miami School of Law and a prominent scholar on Internet law, is an advisor to the WIPO group, which is preparing the recommendations to ICANN. In his opinion, the WIPO recommendations create unfair privileges for trademark owners, restrict freedom of expression on the Internet, and will effectively allow big companies to scare off ordinary people from using domain names, which they legitimately hold.

Transitions

ICANN is important because it's a bridge to increased competition in the domain name industry. You can expect ICANN's efforts to yield faster registration and better customer service. New name registration and renewal processes, and improved domain name dispute policies should mean better business for online companies, big and small. At least, we can hope it will.