Franchisors and the New Internet: Trademark Obligations and Opportunities

What if McDonalds could be more than just “mcdonalds.com”? What if the company could control the entire universe of internet addresses that ended with the suffix “.mcdonalds”? What if UPS owned the universe of internet addresses that ended with “.ups”? Franchisors could limit the use of registrants using their particular domain suffix to franchisees, to customers, to suppliers, or any other group that they choose, and could control the entire registry process for the category of users that they choose to designate. The possibilities for expanding a franchisor’s web presence with this kind of tool could be considerable, but carries challenges for franchisors as well. Franchisor trademark owners must be well informed to make responsible decisions to promote and protect their brands online.

Background

Top Level Domains (TLD) are the letters located to the right of the dot in a web address. For example, “.com” “.net” and “.org” are some of the most common top level domains. Currently there are a finite number of top level domains, and anyone applying for a new web address must apply to have an address with one of the existing top level domains.¹ The existing TLDs fall into several categories. Some, generally referred to as sponsored TLDs, are operated for a defined group of stakeholders according to a specific charter. For example, “.aero” is sponsored by the Societe Internationale de Telecommunications Aeronautique S.C. and is intended for use solely by the aviation industry. Others, like “.uk” are referred to as country-code TLDs and represent country specific web material.² Domain names which are not sponsored or country code TLDs are considered generic TLDs and are generally available for any use.

Over the years there have been various efforts to expand the number of TLDs available. Recently, the Internet Corporation for Assigned Names and Numbers (ICANN), the organization responsible for administration of the generic TLDs, has decided to accept applications for additional generic TLDs (gTLD). The idea is that private companies or organizations could invest in their own gTLDs for either a specific community or for more general public use. The new opportunities presented to franchisors by the expansion of TLDs could be quite significant for a number of reasons: (1) the expansion provides franchisors and other brand owners with the opportunity to create a more positive online user experience; (2) by obtaining a TLD, a franchisor has complete control over the TLD including security and registry services; (3) with the appropriate marketing, obtaining a TLD can reduce the need for defensive registrations; and (4) unlike “.com”, there is no scarcity of names at the second level (i.e. www.anythingyouwant.YourFranchiseGTLD will always be available).

In addition, there are good reasons to make the investment now rather than waiting to see how the process develops. Applications for new gTLDs will be considered in rounds, and subsequent rounds are likely to be delayed if there are a significant number of first round applicants. If you miss this opportunity, there may not be another opportunity anytime soon. And if someone else registers your proposed string, there may not be another opportunity at all. Second, with limited numbers of reputable back-end registry services providers, finding the external technical expertise necessary to run a TLD may be difficult.

Proposed Evaluation Process

The application process for new gTLDs is still being developed. In October of 2008, ICANN released its first Draft Applicant Guidebook (DAG) for public review and comment.³ A revised version was released in February 2009.⁴ As proposed, the process will work as follows. Applicants must complete an application and pay a $185,000 application fee. Applicants for new gTLDs will have the option of designating their proposed gTLD as “community-based”. A community-based gTLD is one that is operated for the benefit of defined community consisting of a restricted population (i.e. “.bank” or “.chicago”). Presumably branded gTLDs would fall in this category. All non-community-based gTLDs are considered “open”.⁵ Under the DAG, if there is a community-based applicant and an open applicant for the same gTLD name or “string,” the community-based gTLD will be given priority.

Once an applicant applies for a particular gTLD string, both the string and the applicant will undergo an initial evaluation. The proposed string will be evaluated to determine (1) whether it is so similar to other existing or applied-for strings that confusion is probable,⁶ (2) whether the proposed string conflicts with any names reserved by ICANN, (3) whether the proposed string could negatively effect DNS security or stability, and (4) whether, if the proposed string is a geographical name, the requisite governmental support or lack of objection has been obtained. The applicant will also be evaluated to confirm that it has the requisite (1) technical and operational capability, (2) financial capability, and (3) registry services to operate the gTLD according to the proposed terms without compromising DNS security or stability.

During the evaluation stage, franchisors may have an opportunity to object to registrations that they believe may adversely impact their interests. The objection procedures are important because the proposed process assumes that anyone who passes the initial evaluation will be approved if no objections are filed. There are multiple grounds on which an objection may be filed. A franchisor that has applied for a gTLD will be able to make a String Confusion Objection if an applied-for gTLD string is confusingly similar to the franchisor’s existing or applied-for gTLD string.⁷ Even if a franchisor does not itself apply for a gTLD, franchisors that claim rights in registered or unregistered marks will be able to make a Legal Rights Objection if the delegation of an applied-for gTLD string would infringe upon the franchisor’s existing legal rights.⁸ If an objection is made to a proposed string during the objection period, no TLD will be delegated until all of the objections are resolved. If an objection is successful, the string cannot proceed to registration. However, if the applicant passes the initial evaluation and defeats all objections, the application for the proposed string will be approved.

Business Considerations and Potential Pitfalls

As a franchisor evaluates whether to make the investment in its own gTLD, there are several things to consider. On one hand, the costs of obtaining a new gTLD may be considerable. The application fee will be at least $185,000 and each successful applicant currently must pay a mandatory renewal fee of $25,000 for the first three years of registration. There will also be costs associated with providing the required registry services as well as potential legal costs associated with the application process and subsequent registry services. On the other hand, the introduction of unlimited numbers of gTLDs has the potential to completely change the internet as we know it. If a business spends the marketing money necessary to utilize its gTLD as a strategic business and marketing tool, it could pay dividends while other companies are scrambling to catch up.

Even if a franchisor chooses not to make an immediate investment, it is important that the franchisor remains involved in and aware of the gTLD delegation process. As written, the evaluation procedures outlined by the DAG create a potentially heavy burden on trademark owners.

First, there currently are no procedures for automatic comparison of a proposed string with an existing trademark unless the mark is the subject of an existing gTLD or new gTLD application. Thus, even trademark owners that decide not to pursue a branded gTLD will bear the costs of monitoring and objecting to applications by unrelated entities for a gTLD that might encompass their mark.⁹ To make matters more complicated, words that are un-trademarkable by virtue of being too descriptive will not automatically be unregisterable. If no objections are filed, there is nothing preventing Papa John’s from obtaining the TLD .pizza, nor is there anything preventing Ace Hardware from obtaining “.tools”. As a result there may be two duties imposed on franchisor trademark owners by the new gTLDs (1) a duty of creativity to determine which descriptive marks may eventually affect their rights, and (2) a duty to monitor the gTLD application process for competitor’s efforts to apply for a new TLD based on such a mark.¹⁰

Second, while the sheer cost of applying for a new gTLDs may prevent cyber-squatting¹¹ at the top level, the DAG does little to prevent cybersquatting at the second level of newly established gTLDs. The current DAG requires applicants to identify the rights protection mechanisms that they plan to use to protect users from post-delegation infringement.¹² However, without specific requirements or minimum standards for such rights protection mechanisms, it is unclear whether the mechanisms will be sufficient.¹³ As a result, franchisors must be aware of the potential need for defensive registrations in a greatly expanded domain space.

What To Do Now

Given the burden on franchisors to make the appropriate objections at the appropriate times, it is important that franchisors work with counsel to develop a system for monitoring and handling potential threats to their interests. At a minimum, franchisors should have a plan for participation in various right protection mechanisms, defensive registrations, and objection filing. For instance, franchisors that are aware of other companies with similar or identical marks may be able to avoid objection proceedings by being proactive about resolving potential conflicts.

Takeaway¹⁴

The “new internet” created by unrestricted gTLD may be both an amazing new tool and a source of frustration. If gTLDs change the culture of the internet, and users begin to expect brands or online communities to have specific suffixes, the choice to enter the market at the beginning of the process may pay off in a big way. This will of course depend on whether consumers can shift away from the dot com paradigm. Will internet users keep track of the new gTLDs? Or will they still type “.com” when trying to find a specific company or brand? If the influx of new suffixes makes it less reliable to simply type in a brand name plus dot com to get the company one seeks, will users simply become more reliant on search engines to find the website they are looking for? And if consumers are using search engines, does the suffix of the web address really matter? Regardless of the answers to these questions, the more aware franchisors are of the process, the better equipped they are to protect their future interests and those of their franchisees.

1 gTLDs currently available include: .aero, .arpa, .asia, .biz, .cat, .com, .coop, .edu, .gov, .info, .int, .jobs, .mil, .mobi, .museum, .name, .net, .org, .pro, .tel, and .travel.

2 The entire list of top level domains, together with information on the category of the domain and the sponsoring entity (if any) is available at http://www.iana.org/domains/root/db.

3 Internet Corporation for Assigned Names and Numbers, Draft Applicant Guidebook, Version 2 (February 18, 2009) http://www.icann.org/en/topics/new-gtlds/draft-rfp-redline-18feb09-en.pdf.

4 Internet Corporation for Assigned Names and Numbers, New gTLD Program: Draft Applicant Guidebook (Draft RFP) (October 24, 2008) http://www.icann.org/en/topics/new-gtlds/draft-rfp-24oct08-en.pdf.

5 An “open” gTLD is one that can be used for any purpose consistent with the registry agreement and requirements of the application and evaluation criteria.

6 This confusion evaluation considers visual similarity only. Phonetically similar strings will not be rejected.

7 Internet Corporation for Assigned Names and Numbers, Draft Applicant Guidebook, Version 2 §3.1.1 (February 18, 2009) http://www.icann.org/en/topics/new-gtlds/draft-rfp-redline-18feb09-en.pdf.

8 Id.The Draft Applicant Guidebook also provides the following “non-trademark based” objection grounds: Morality and Public Order Objection – The applied-for gTLD string is contrary to generally accepted legal norms of morality and public order that are recognized under international principles of law; and Community Objection – There is substantial opposition to the gTLD application from a significant portion of the community to which the gTLD string may be explicitly or implicitly targeted.

9 To address these concerns, the International Trademark Association has argued that ICANN should develop a “Trademark Reserved List” which would be open to any trademark owner that can meet specific criteria that demonstrate the scope of their trademark rights. “Such criteria could include: (1) Ownership of trademark registrations of national effect for the mark at issue in a sufficient number of separate countries; (2) Ownership of trademark registration of national effect for the mark at issue in a sufficient number of ICANN geographic regions; and (3) Demonstration (and supporting documentation) that the mark at issue has been the subject of repeated cybersquatting, as established by successful proceedings under the UDRP, other dispute resolution policies applicable to other TLDs, or applicable national law.” In theory, the string review process would then include the Trademark Reserve List in determining whether there was a probability of confusion. See International Trademark Association, Comments of the International Trademark Association on the Draft Applicant Guidebook for New GTLDs (December 15, 2008) on file with author.

10 As previously noted, Caroline Chicoine, one of the authors of this piece will be chairing a panel which will prepare a report to ICANN with proposed solutions to these and other trademark issues raised by the introduction of the new gTLDs. The panel is organized by the Intellectual Property Constituency of ICANN.

11 Cyber-squatting refers to the practice buying a domain name (usually of a trademarked or famous name) in the hope that the brand owner or celebrity will pay for the domain at an inflated price.

12 The DAG provides that the Uniform Dispute Resolution Process (UDRP), which is currently used to resolve many domain name disputes between registrants and trademark owners, will automatically apply to any new gTLDs.

13 The International Trademark Association has suggested that ICANN should provide rights protection mechanism models to be used by successful applicants. In June of 2008, the Intellectual Property Constituency of ICANN released a sort of how-to guide on rights protection mechanisms for potential TLD owners. Among other things, the publication analyzes different strategies for so-called “Sunrise” provisions, which allow legal rights holder to pre-register their marks before a registration is opened to the public. See ICANN Intellectual Property Constituency, The Perfect Sunrise? How Pre-Launch Rights Protection Mechanisms and Successful Registry Operations Go Hand in Hand (June 2008) http://www.icann.org/en/topics/new-gtlds/perfect-sunrise-jun08-en.pdf.

14  It should also be noted that at this point, the revised Draft Applicant Guidebook is still just that – a draft. In addition to the basic trademark concerns outlined in this article, there are number of procedural issues that, while beyond the scope of this piece, may affect Franchisors and other trademark rights holders. A number of groups have proposed changes to the procedures, and expansions of the protections contained therein, and ICANN is scheduled to release another draft prior to beginning to accept applications. However, Franchisors with concerns about the process should continue to participate in the ICANN process to make sure their concerns are heard.