An Economic Analysis of Domain Name Policy Karl M
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University of San Diego Digital USD University of San Diego Law and Economics Law Faculty Scholarship Research Paper Series March 2004 An Economic Analysis of Domain Name Policy Karl M. Manheim Loyola Law School, [email protected] Lawrence B. Solum University of San Diego, [email protected] Follow this and additional works at: http://digital.sandiego.edu/lwps_econ Part of the Law and Economics Commons Digital USD Citation Manheim, Karl M. and Solum, Lawrence B., "An Economic Analysis of Domain Name Policy" (2004). University of San Diego Law and Economics Research Paper Series. 1. http://digital.sandiego.edu/lwps_econ/art1 This Article is brought to you for free and open access by the Law Faculty Scholarship at Digital USD. It has been accepted for inclusion in University of San Diego Law and Economics Research Paper Series by an authorized administrator of Digital USD. For more information, please contact [email protected]. Manheim and Solum: Law and Economics Research Paper Series Spring 2004 An Economic Analysis of Domain Name Policy Lawrence B. Solum and Karl M. Manheim Published by Digital USD, 2004 1 University of San Diego Law and Economics Research Paper Series, Art. 1 [2004] SOLUM2V8-FINAL.DOC 2/9/04 10:06 AM An Economic Analysis of Domain Name Policy* by ** *** KARL M. MANHEIM & LAWRENCE B. SOLUM I. Introduction: Domain Name Policy .................................................319 A. The Domain Name System .......................................................322 1. What are Domain Names?...................................................322 2. Why are Domain Names Important? .................................324 3. How Are Domain Names Created? ...................................326 4. How Does the Domain Name System Work?...................327 B. Management of the Domain Name and Root Server Systems.......................................................................................330 1. The Early History of the Domain Name System ..............330 2. The Internet Corporation for Assigned Names and Numbers ..............................................................................332 3. The Root Servers ..................................................................336 C. Generic Top Level Domains.....................................................338 1. Country Code and Infrastructure TLDs ............................338 2. The Generic TLDs................................................................340 D. A Roadmap to the Arguments .................................................343 II. An Economic Analysis of Domain Name Policy ..........................344 A. The Root Is a Scarce Resource ................................................345 1. Economic and Engineering Scarcity...................................346 2. The Root is a Scarce Resource in the Economic Sense . .347 3. Commitment to Indefinite Service Guarantees to SLD Registrants Produces Additional Artificial Scarcity ............347 * © 2003 by the authors. We would like to thank the participants at a Loyola Law School, Loyola Marymount University faculty workshop. Frank Partnoy, Richard Hill, and David Steele made helpful suggestions and comments. Lindsay Stevenson provided invaluable research assistance. ** Professor of Law, Loyola Law School, Loyola Marymount University; Co-Director, Program for Law & Technology at California Institute of Technology and Loyola Law School. *** Professor of Law, University of San Diego. 317 http://digital.sandiego.edu/lwps_econ/art1 2 Manheim and Solum: SOLUM2V8-FINAL.DOC 2/9/04 10:06 AM 318 HASTINGS COMM/ENT L.J. [25:317 B. Domain Name Service Is Not a Public Good .........................366 C. Networking Effects and the Root Service Monopoly ............368 D. Options for ICANN’s Management of the TLD Space.........366 III. Comparisons with Telecommunications Policy ...........................368 A. Introduction to Telecommunications Regulation ..................368 B. Two Fundamental Comparisons: Broadcast and Telephone 371 1. Broadcast Licensing..............................................................372 2. Wireline Telephony ..............................................................380 C. Allocation and Regulation of Name and Number Spaces by the FCC.................................................................................389 1. The Road to Market Allocation of Spectrum ...................390 2. Market Allocation of Telephone Numbers .......................405 IV. A Proposed Model for Expansion of the Name Space...............408 A. Treating Scarce Name Space as a Public Good – An Example of Regulatory Failure...............................................409 1. ICANN and gTLD Expansion ............................................410 2. The Market for Scarce Name Space ...................................414 B. Competitive Bidding for new gTLDs.......................................416 1. What Should Be Auctioned?...............................................417 2. Auction Framework .............................................................421 C. gTLD Auctions Would Serve the Public Interest...................427 1. ICANN’s Mandate to Serve the Public Interest................428 2. gTLD Auctions Serve the Public Interest..........................429 D. gTLD Auctions Have Comparative Advantages over the Feasible Alternatives................................................................437 1. A Static Root.........................................................................437 2. The Taxonomy Alternative .................................................438 3. Case-by-case Public Interest Evaluations by ICANN ......440 4. A Rule of First Occupation .................................................441 5. Lotteries .................................................................................442 E. Objections to Auctions ..............................................................443 1. Why Exclusive Rights?.........................................................444 2. Public Interest gTLDs ..........................................................445 3. Cybersquatting and Defensive Registrations ....................446 V. Conclusion: The Path to Rational Domain Name Policy.............448 A. Auctions and the ICANN Process ...........................................449 B. Alternatives to ICANN .............................................................451 C. A Recapitulation of the Argument ..........................................452 Published by Digital USD, 2004 3 University of San Diego Law and Economics Research Paper Series, Art. 1 [2004] SOLUM2V8-FINAL.DOC 2/9/04 10:06 AM 2003] ECONOMIC ANALYSIS OF DOMAIN NAME POLICY 319 I. Introduction: Domain Name Policy “Dotcom” has acquired economic and cultural significance. There has been a dotcom boom and a dotcom bust.1 Dotcommers grew wealthy and went bankrupt,2 and a television sitcom parodied this now familiar scenario.3 Amazon.com,4 Yahoo.com,5 Google.com,6 and Ebay.com7 have enormous market capitalizations8 and have begun to have transformational effects9 on the International economic system. “FearDotCom” is the name of a feature motion picture—in the horror genre, of course,10 and “Startup.com” was a successful documentary.11 But what does the word—or is it a phrase?12—”dotcom” mean? “Dotcom” is the transliteration of the string of characters “.com” which form part of a domain name, essentially a name for an address on the Internet.13 In the nomenclature of the Domain Name System 1. See Phil Mullan, SPIKED, From Dotcom Boom to Dotgloom <http://www.spiked- online.com/Articles/000000005496.htm> (Feb. 12, 2001). 2. See Lisa Margonelli, SFGate.com, Frank’s Depression: The Boom-bust of a Dotcommer’s Identity <http://www.sfgate.com/columnists/moneytales/> (Jan. 22, 2003). 3. See TVTome, The Ellen Show <http://www.tvtome.com/tvtome/servlet/ ShowMainServlet/showid-3163/> (accessed Mar. 12, 2003). 4. See Amazon.com, Amazon.com Home <http://www.amazon.com> (accessed Feb. 9, 2003). 5. See Yahoo!, Yahoo!.com Home <http://www.yahoo.com> (accessed Feb. 9, 2003). 6. See Google, Google Home <http://www.google.com> (accessed Feb. 9, 2003). 7. See Ebay, Ebay Home <http://www.ebay.com> (accessed Feb. 9, 2003). 8. See Yahoo!, Yahoo! Finance, Quotes & Info, Profile for Amazon.com, Inc. <http://finance.yahoo.com/q/pr?s=amzn> (accessed Nov. 3, 2003) (indicating market capitalization of Amazon.com equals 8.32 billion dollars); Yahoo!, Yahoo! Finance, Quote & Info, Profile for eBay, Inc. <http://finance.yahoo.com/q/pr?s=ebay> (accessed Nov. 3, 2003) (indicating market capitalization of eBay equals 22.3 billion dollars); Yahoo!, Yahoo! Finance, Quotes & Info, Profile for Yahoo! Inc. <http://finance.yahoo.com/ q/pr?s=yhoo> (accessed Nov. 3, 2003) (indicating market capitalization of Yahoo! Equals 10.4 billion dollars). By way of comparison, the market capitalization of General Motors is 20.2 billion dollars. See Yahoo! Yahoo! Finance, Quotes & Info, Profile for General Motors Corp. <http://finance.yahoo.com/q/pr?s=gm> (accessed Nov. 3, 2003). 9. See Sue White, Are You ‘On Course’ With eBusiness? Or Are You Lost at ‘EC?’ <http://www.ecommquest.com/pages/oncourse.shtml> (accessed Mar. 20, 2003). 10.See Warner Bros., Fear Dot Com <http://feardotcom.warnerbros.com/?fromtout =video_a2> (accessed Mar. 20, 2003). 11. See Yahoo! Movies, Startup.com <http://movies.yahoo.com/ shop?d=hv&cf= info&id=1804383693&intl=us> (accessed Mar. 20, 2003). 12. Both dotcom and dot com are used. 13.See Network Working Group, Domain Names – Concepts