Phil Corwin of the Internet Commerce Association (ICA), just published a very interesting story on how the trademark clearinghouse (TMCH) program maybe negatively effecting the numbers of new gTLD’s registrations to a factor of 6X.

Its a great read and I think Phil maybe on to something.

As an unintended consequence of trying to protection legitimate trademark holders, there is a lot of game-playing at the TMCH where words like “the” “great”, “cool” “luxury” and hundreds of more that are really not what 99.9999% of people would consider trademarked terms like Verizon, Google and Microsoft.

Here is Phil’s post;

While scanning the text of the 73-page Report, this statistic regarding Trademark Claims Notices generated by the Trademark Clearinghouse (TMCH) leapt out:

Sum of TLDs with initiated Claims periods 297

Sum of Claims Transactions 96,471

Sum of Claims Notices Generated 25,221,479

That 25 million-plus Claims Notices statistic is the one that garnered attention.

As of February 1, 2015 the total number of domains registered in all new gTLDs was approximately 4.2 million, so the ratio of Claims Notices to new gTLD registrations was about 6:1.

That is, for each new gTLD domain that was registered there were about 6 additional registrations that were commenced for some purpose – but of that total number, only three tenth of one percent (96,471 out of 25,221,479) continued on to completing a “transaction” resulting in a domain registration.

This is a continuation of a situation first observed one year ago, soon after the new gTLD program launched. One domain industry blogger observed in March 2014, “The Trademark Clearinghouse (TMCH) said today that is has delivered 500,000 Claims Notices (CNIS) of which 95% of the queries for trademark terms are not being followed through to a live registration…That news was released by the TMCH on a day where the total number of new gTLD registrations have passed 350,000.”

Upon the release of that half million Claims Notices statistic, another industry observer stated:

Half a million appears to be an awfully big number, especially when compared to the number of active domain names in new gTLDs, which today stands at just over 347,000.

The TMCH said today that 95% of these notices led to the name not being registered, which it said shows the success of the Claims system.

It could also mean that it’s having the “chilling effect” predicted by opponents of the process, with legitimate registrants being scared away from non-infringing uses of registered marks.

In the intervening year since those initial comments the number of Claims Notices has increased fifty-fold, the percentage of completed registrations against TMCH inquiries has declined by more than ninety percent, and the ratio of Claims Notices to registered new gTLD domains has increased from 4:3 to 6:1. So the TMCH is clearly having a “chilling effect” – but is it primarily chilling potentially infringing or non-infringing domain registrations?

To fully understand these figures you need to know that the Trademark Claims period follows a new gTLD’s Sunrise registration period and lasts a minimum of 90 days. As explained in the Report:

During the Trademark Claims period for a TLD, anyone attempting to register a domain name matching a mark that is recorded in the Trademark Clearinghouse will receive a notification displaying the relevant mark information. The Claims Notice is intended to provide clear notice to the prospective domain name registrant of the scope of the Trademark Holder’s rights… If the notified party acknowledges the notice and proceeds to register the domain name, the Trademark Clearinghouse will send a notice to those trademark holders with matching records in the Clearinghouse, informing them that someone has registered the domain name.

As of January 2015 34,300 marks had been submitted for registration into the TMCH. So, on average, each registered mark generated 735 Claims Notices.

At the time the Report was issued, there were 297 new gTLDs that had initiated Claims periods, so there was an average of 85,000 Claims Notices generated per new gTLD. For the vast majority of new gTLDs that is far higher than their total domain registrations to date – indeed, only the top seven new gTLDs exceed that figure.

So what is going on here? Is the TMCH incredibly effective at deterring the registration of trademark infringing domains? Or is it incredibly effective at deterring the registration of domains with an intended use that would not infringe trademark?

It may well be a lot of both.

It’s no secret that new gTLD registrations are substantially lower than new registry operators anticipated. And ICANN as well, which had to cut its FY 2015 budget by $10 million due to the resulting projected income shortfall. As one recent article observed:

Our hopes of some real ground-breaking new TLDs being immediately put to use did not materialise, and while a few global brands did engage with the programme, many simply took a ‘wait and see’ approach. A year down the track and we are still waiting for that one moment, the compelling event, which will see the programme really take off. If this was an end-of-year school report it would certainly read ‘C+; must try harder’.

While registration numbers have topped 3.5 million in the first year, the .com and .net base grew by 8.6 million in the first quarter of 2014 alone. Despite there being new options for brand owners out there, it seems that many still default to the old way of trying to find registrations within the .com or .net TLD base. Is this the case of ‘the emperor’s new clothes’?

Indeed, if the attention of the ICANN community and global policymakers were not so presently focused on the IANA transition and enhanced ICANN organizational accountability, there would be much greater discussion of the lacklustre performance of the new gTLD program. It was, after all, created and moulded by the much-vaunted multistakeholder process and is the largest and riskiest venture ever undertaken by ICANN. At some point it is going to be back in the spotlight.

We have contacted ICANN staff and they have confirmed that the 25,221,479 figure is accurate and not a typo. They have also clarified that there is presently no breakdown of Claims Notices differentiating those generated by attempted registrations of unique, non-generic trademarked words from those set off by generic dictionary words registered in the TMCH. It would be even more difficult – indeed, probably impossible — to parse out attempted registrations of generic words trademarked for some class or classes of goods and services where the potential registrant intended to use the domain for non-infringing purposes.

No doubt there have been attempts by intentional cybersquatters to register trademarked names that have been effectively deterred when they received a Claims Notice and realized that the trademark owner would be notified of the domain registration immediately and might well take some form of legal response.

But there also may have been lots of potential registrants for non-infringing uses of short and meaningful generic dictionary words as domain labels who were spooked enough when they received the Claims Notice to abandon the registration. While the Claims Notice does provide a prospective registrant with information regarding the Jurisdiction where the trademark is registered and the class of Goods and Services that the trademark covers, most prospective registrants of non-infringing domains are not well versed in trademark law, don’t want to have to spend money to consult a lawyer to see if their registration will be infringing or not, and don’t want to risk being hit with a cease-and-desist letter, UDRP or URS filing, or a trademark infringement lawsuit. The same could be true even for potential registrants well versed in trademark law who simply don’t wish to expose themselves to a potential legal action, regardless of its merits – especially since continuing on to registration after receipt of the Notice might be alleged to constitute proof of bad faith registration.

The legalistic language of the Trademark Notice would certainly cause major hesitation for most prospective general public applicants, reading as follows:

You have received this Trademark Notice because you have applied for a domain name which matches at least one trademark record submitted to the Trademark Clearinghouse.

You may or may not be entitled to register the domain name depending on your intended use and whether it is the same or significantly overlaps with the trademarks listed below. Your rights to register this domain name may or may not be protected as noncommercial use or “fair use” by the laws of your country.

Please read the trademark information below carefully, including the trademarks, jurisdictions, and goods and services for which the trademarks are registered. Please be aware that not all jurisdictions review trademark applications closely, so some of the trademark information below may exist in a national or regional registry which does not conduct a thorough or substantive review of trademark rights prior to registration. If you have questions, you may want to consult an attorney or legal expert on trademarks and intellectual property for guidance.

If you continue with this registration, you represent that, you have received and you understand this notice and to the best of your knowledge, your registration and use of the requested domain name will not infringe on the trademark rights listed below.

Now the Claims Notice is not the only possible reason that an attempted registration did not go through to completion. Many potential registrants might well have been deterred by the high annual registration fees set by some registries for Premium names. The new .Sucks registry, for example, is about to enter its Sunrise period on March 30th and has set a Suggested Retail Price of $2499 per year for any Premium Name that has been registered with the TMCH.

Indeed, some new gTLD registries may have run long lists of generic words through the TMCH to determine which were listed in order to populate their premium priced names list (a situation that trademark owners have unhappily become aware of when they contemplated domain registrations during registry sunrise periods). But even if every one of the 297 registries covered by the Report has triggered a Claims Notice on every one of the 34,300 terms registered in the TMCH, that would have resulted in the generation of only 10.2 million Claims Notices. So what generated the other 15 million?

Let’s guesstimate that half of the total initiated registrations that generated a Claims Notice – 12.6 million – were for generic word domains intended for a non-infringing purpose.

Let’s guesstimate further that half of those registrations — 6.3 million — were terminated because of registry pricing.

That would still leave 6.3 million initiated, potentially non-infringing registrations that might have gone to completion but for the registrant being scared off by the Claims Notice. That 6.3 million is 150 percent higher than the total number of new gTLD registrations completed as of February 1, 2015!

Using the same methodology, even if one subtracts the 10.2 million Notices that may have been generated by registry inquiries for Premium name designations, that would still leave 3.75 million non-infringing registrations that may have been deterred – a figure equivalent to 89 percent of actual registrations covered by the Report.

So maybe there is a lot more demand for new gTLDs than current registration numbers indicate, and it has been substantially suppressed by Claims Notices that generate excessive “false positives” to potential registrants with no design to infringe.

That may or may not be true. But it does seem to deserve additional inquiry.

Yet, if it turns out that it is true, it is unclear what if anything should or will be done about it. If and when the new gTLD RPMs are reviewed in anticipation of another round of new gTLDs, the TMCH will almost surely be kept in place as it was one of the two new RPMs adopted for the program at the strong urging of the influential trademark community (the other being Uniform Rapid Suspension (URS)). In fact, early indications are that the trademark community may well urge that Claims Notices be generated on a permanent basis and not just for the first 90 days of a registry’s existence, which could further suppress potentially non-infringing domain registrations. Revising the language of the Claims Notice to make it more understandable by a registrant lacking deep understanding of trademark law might also be considered, but that can hardly be relied upon to protect the registrant from post-registration legal action by the trademark owner.

Summing up, the TMCH has almost surely been quite effective in deterring infringing domain registrations at new gTLDs. But it appears to also have been a substantial damper on total new gTLD domain registrations. The unanswered question is how big of a headwind it has been.