ICANN (International Corporation for Assigned Names and Numbers) has said that auctions will be used if two organisations vying for the right to a gTLD are tied on other grounds.
ICANN announced earlier this summer that it would no longer limit the number of gTLDs to 21, and that almost any word or phrase could be registered as a domain.
The move has been condemned as a "nightmare" for brand owners because many will feel compelled to buy their brand's name at each of numerous new TLDs expected to appear.
ICANN's announcement that auctions will settle disputes over who will have the right to register words as domains is likely to be just as controversial.
The body announced in June that anyone can register any word as a TLD as long as it meets four conditions. "It must respect prior rights and marks, it mustn't be confusingly similar to any existing TLD, for example a .KOM would be too close to a .COM, if it represents a community, it must be with the full agreement of that community, and it must respect morality and public order," said ICANN chairman Peter Dengate Thrush at the time of the announcement.
If two applications are tied then ICANN has now said it would use an auction to determine who wins the right to own the domain.
"ICANN intends to use auctions in the new gTLD process as a tie-breaking mechanism, not the primary allocation mechanism, for the resolution of string contention among competing new gTLD applicants for identical or similar strings," said a consultation document discussing the move. "Auction would be the final means of settling any contention cases that have not been resolved at any of the previous stages in the process."
A report produced by consultancy Power Auctions said that a four year old paper produced by the Organisation for Economic Cooperation and Development (OECD) had backed auctions as the most efficient way to distribute domains.
"On balance the economic arguments favour the use of auctions in some form, where scarcity exists, in relation to the goals set by ICANN for allocation procedures," said that report. "They are particularly strong in relation to allocation decisions concerning to existing resources and where a ‘tie-breaker’ is needed during a comparative selection procedure for a new resource. In all cases, the best elements of comparative selection procedures could still be incorporated, at a prequalification stage for registries, using straightforward, transparent, and objective procedures that preserve the stability of the Internet."
In its report, Power Auctions argued that auctions help to attach the correct value to domains. "Auctions are well suited to accomplishing the goal of allocative efficiency: putting scarce resources into the hands of those who value them the most," said the report. "As such, the results of auctions tend to create greater social value than alternative allocation mechanisms."
In order to ensure fairness, the report also proposed a system of handicaps in favour of some kinds of applicants.
"Various devices can be considered for favoring disadvantaged bidders in an auction," it said. "For example, a 25% bidding credit could be offered to community-based bidders whose community is located primarily in least-developed countries: a $300,000 bid from such a bidder would be viewed as equivalent to a $400,000 bid from a wealthy country."