Having reviewed the Second Draft of the New gTLD Guidebook released the other day by ICANN, it looks like if you are planning on applying for one of these new extensions, you better have a lot of cash on hand.

We all know that the “Evaluation Fee” for a new gTLD has been set at $185,000.

However that just where the money flow starts.

Next there is a “Registry Services Review Fee”, if applicable, this fee is payable for additional costs incurred in referring an application to the RSTEP for an extended review. Applicants will be notified if such a fee is due. The fee for a three member RSTEP review team is anticipated to be USD $50,000. In some cases, five member team will be required and of course in such a case additional fees over and about the $50K will be required.

Next there is a “Dispute Resolution Filing Fee”  Now this fee is paid by anyone filing a formal objection to a new gTLD application. (this can be on any of 4 grounds although today we are only covering the first ground string confusion)

ICANN estimates that non-refundable filing fees could range from approximately $1,000 to $5,000.

If someone pays the $1K-$5K to file a formal objection, that will trigger the “Dispute Resolution Adjudication Fee”.

Ordinarily, both parties in the dispute resolution proceeding will be required to submit an advance payment of costs in an estimated amount to cover the entire cost of the proceeding.

This may be either an hourly fee based on the estimated number of hours the panelists will spend on the case (including review of submissions, facilitation of a hearing, if allowed, and preparation of a decision), or a fixed amount.

The prevailing party in a dispute resolution proceeding will have its advance payment refunded, while the non-prevailing party will not receive a refund and thus will bear the cost of the proceeding.

ICANN estimates that adjudication fees for a proceeding involving a fixed amount could range
from USD 2,000 to USD 8,000 (or more) per proceeding,

Ok that’s not bad, fair enough.

However, ICANN further estimates that “”an hourly rate based proceeding with a one-member panel could range from $32,000 to $56,000 (or more) and with a three-member panel it could range from USD 70,000 to USD 122,000 (or more)“”.

Wow $32K to $56K PER HOUR!!!!

Hell, there not many people with more experience In the domain field than myself and I’m willing to go out on a limb right now and say for the record that I’ll do the work for only $25,000 an hour.  I mean times are tough so I’m willing to work for 1/2 price.

Seriously, how is this fee justified?

How many hours will this process take?

One hour, four hours or ten hours?

With a three man panel your looking at $122,000 per hour “(or more)”

With no control how many hours this process can last.

Wow

There are additional fees

“”””This list does not include fees (that is, registry fees) that will be payable to ICANN following execution of a registry agreement. See http://www.icann.org/en/topics/newgtld-draft-agreement-18feb09-en.pdf.””” (when I clicked on this link, it did not resolve so this fee is uncertain at this time).

An objection may be filed on any one of the four grounds.  Today we are only going to cover one, as so you head does not explode.

String Confusion Objection – The applied for gTLD string cannot be confusingly similar to an existing TLD or to another appliedfor gTLD string in the same round of applications.

This review involves a preliminary comparison of each applied for gTLD string against existing TLDs and against other applied for gTLD strings. The review is to determine whether the applied for  gTLD string is so similar to one of the others that it would create a probability of detrimental user confusion.

So two types of entities have standing to object:

a.  An existing TLD operator may file a string confusion objection to assert string confusion between an
applied-for gTLD and the TLD that it currently operates.

b.  Any gTLD applicant in this application round may file a string confusion objection to assert string
confusion between an applied-for gTLD and the gTLD for which it has applied.

ICANN will not approve applications for proposed gTLD strings that are identical or that would result in string confusion, called contending strings.

So if say there is an application for .sex, .xxx, and .porn only one of these will be allowed.

If there is an application for .realestate, .property, .house and .homes only one maybe allowed.

Of course there may be multiple applicants for the same extension.  5 companies may apply for .xxx, 10 for .sex and 3 for .porn.

So how is the winner determined?

“””The first option to do that is through voluntary agreements between the applicants concerned. Applicants in contention are encouraged to reach a settlement or agreement that results in resolution of the contention.””

So in my example 18 companies would have to reach a mutal agreement.

Highly unlikely

Assuming no agreement is reached then all 18 parties in my example go into auction.

Here is the auction process:

The auction will be conducted over the Internet, with bidders placing their bids remotely using a web-based software system designed for the auction.

Access to the site will be password-protected and bids will be encrypted via SSL. The auction will generally be conducted in such a way as to conclude quickly, ideally in a single day

Here’s the important part:

The bid amount for an application is not permitted to exceed the financial limit established for the application, such limit based on the financial deposit received from the respective applicant in accordance with the Auction Rules

So if you wind up in a auction you going to have to deposit with ICANN the maximum amount you are willing to bid in advance of the auction.

So if your willing to pay $5,000,000 for .xxx then you have to deposit that amount with ICANN before the auction starts.  If you only deposit $500K then that’s the max you will be allowed to bid.

Now for the auction format:

The auction will be carried out in a series of auction rounds. The sequence of events will be as follows:

For each round, the auctioneer will announce in advance: (i) the Start-of-Round Price; (ii) the End-of-Round Price; and (iii) the starting and ending times of the round. In the first round, the Start-of-Round Price for all applications in the auction will be $0; in subsequent rounds, the Start-of-Round Price will be its End-of-Round Price from the previous round.

The End-of-Round Price will be set in relation to the number of contending applications and the willingness to pay within the range of intermediate prices between the Start-of-Round and End-of-Round Prices. In this manner, an applicant may indicate its willingness to “stay in” the auction at all prices through and including the End-of-Round Price, or its wish to exit the auction at a price less than the End-of-Round Price (“exit bid”).

Exit is irrevocable. If an application exited the auction in a previous round, the application is not permitted to re-enter in the current round.

Applicants may submit their bid(s) at any time during the round.

After each round, the auctioneer will disclose the aggregate number of contending applications that remained in the auction at the End-of-Round Prices for the round, and will announce the prices and times for the next round.

As the auction process continues, with the auctioneer increasing the price range associated with each given TLD string in each round, until there is at most one contending application at the end-of-round prices. After a round in which this condition is satisfied, the auction will conclude, and the auctioneer will determine the clearing price(s). The last remaining application(s) will be deemed the successful application(s), and the associated applicant(s) will be obligated to pay the clearing price(s).

In the case of n mutually-contending applications, the successful application and the clearing price are determined by the following process.

At the end of each round, the auction software aggregates the bids of individual applicants to determine the level of demand for a TLD string.

If the number of remaining bidders exceeds one, applicants are notified of the aggregate demand at the End-of-Round Prices, and applicants are notified of the prices and timing details for the next round. If the aggregate demand is not greater than one, the auction software identifies the lowest price at which such an outcome occurs (i.e. the exit bid of the penultimate applicant). This price is deemed the clearing price, and the remaining application is deemed the successful application. In the unlikely event that all of the remaining applications exit at the clearing price, then the application exiting at the clearing price which has the highest priority number is deemed to be the successful application

Here is the example ICANN gives how the process will work:

“””In the simplest description of an ascending-clock auction structure, the auctioneer announces a single price associated with each round and bidders indicate whether they are “in” or “out” at that price. For example, the price for Round 1 might be $50,000 and the price for Round 2 might be $100,000. Since price ascends in discrete steps, this introduces a reasonable likelihood of ties. For example, Bidders A and B might both indicate that they are “in” at $50,000, but “out” at $100,000.

Each round of the auction has a “Start-of-Round Price” and an “End-of-Round Price”, and bidders indicate whether they are “in” or “out” at all prices within that range. For example, in Round 1, the Start-of-Round Price might be $0 and the End-of-Round Price might be $50,000; while in Round 2, the Start-of-Round Price might be $50,000 and the End-of-Round Price might be $100,000. Assuming that a bidder stayed “in” for Round 1, it has the following alternatives available in Round 2:

It may stay “in” through the End-of-Round Price for the current round (i.e. $100,000); or

It may submit an “exit bid” (a number strictly between $50,000 and $100,000).

As an example, Bidder A might submit an exit bid of $83,000, while Bidder B might submit an exit bid of $92,500. If these are the only two bidders, then $83,000 is the first price at which fewer than two bidders remain. Thus, the auction ends and Bidder B wins the item, at a final price of $83,000.

If instead, both Bidders indicate that they are “in” through $100,000, then the auction progresses to Round 3. The Start-of-Round Price for Round 3 equals the End-of-Round Price for Round 2, while the Auctioneer announces an End-of-Round Price of perhaps $150,000 for Round 3.

Ties remain possible, but now become extremely unlikely. In order to avoid any possibility of a tie, bidders will be randomly assigned “priority numbers” before the auction. In the unlikely event that all of the remaining bidders submit identical exit bids, the winner will be deemed to be the exiting bidder with the highest priority number. Of course, any bidder can avoid having the priority numbers determine whether it wins by judicious choice of its exit bid, for example by submitting an exit bid of an odd amount such as $83,017 instead of using a round number such as $83,000.

As in the basic description of the ascending-clock auction, the Auctioneer announces after each round the number of bidders who remained “in” at the End-of-Round Price, but not their identities. Exit is irrevocable; a bidder who submits an exit bid in Round 2 can no longer participate if the auction progresses to Round 3.

The successful bidder will be offered the base registry agreement and a certain period of time to come to terms. If terms cannot be agreed, the agreement will be offered to the second place bidder.”””

Ok that should be crystal clear clear to everyone.

Bottom line, if your going to apply for one or more of these new gTLD’s and there are domainers planning on going for these, you better be prepared with a lot more than $185K.

Unless you go for a non-contested extension and one not similar to another application, pretty unlikely, you are going to be in a bidding war against multiple parties and you going to have to cough up plenty of money in fees and costs you better have the funds to deposit with ICANN to bid on the auction.

You want some good news, here it is.

If you apply for an extension you can always withdraw your application, including presumably at the same you drop out of  the auction or the auction exceeds you deposit in which case you will be entitled to a refund of 20% of your application fee of $185K or $37K.

However, none of the other fees, including the $122K per hour fee appear to be refundable.

I know if you made it to this point you have a headache.

This is just part one.

More to come.