Fair trade or exploitation – the ‘warehousing’ of Internet domain names

By LAURIE PATTON | 27 March 2019

auDA – the company managing our Internet domain name registration system – is engaged in a reform program. This follows a review by the communications department which called for major governance changes.

As I have previously written, auDA had been mired in controversy for many years, with the impression being it was subject to too much influence from vested interests, including an inner circle of what are called ‘domainers’ – people who buy and sell domain names, often extracting large windfall profits by warehousing unique names that subsequently command a premium. 

auDA has released a discussion paper and has called for public submissions on a range of proposed policy and operational changes. This is being accompanied by a consultation process that sees auDA presenting to MP’s and senators at Parliament House next week.

While a primary recommendation is a plan to adopt the international practice of allowing so-called ‘direct registration’ – registration of domain names directly before the dot au, for example, yourcompany.au – there are other proposed changes attracting comment. The most controversial relates to the warehousing and resale of domain names, which is the business model of the domainers.

While the practice of registering domain names “for the sole purpose of resale or transfer to another entity” has always been prohibited it has been ignored by auDA for years. This has seen companies paying large fees to intermediaries to ‘unlock’ a domain name that they would otherwise be able to obtain from an auDA re-seller for less than a few hundreds of dollars. Recently, for example, the Certified Practising Accountants’ peak body paid $50K for ‘cpa.com.au’.

The auDA consultation paper states: The current policies appear to have the aim of preventing speculators registering domain names that they do not wish to use, but for the purpose of selling them to others at a later time (supposedly for a profit). Rationales for this rule may include that the Internet community is better off if the Australian domain name space (being a scare resource) is utilised rather than warehoused in part, and that domain name speculators add little value to the Australian domain name space.

The consultation paper observes that rules prohibiting warehousing are rarely enforced for a number of reasons:

• The rules use general terms that are open to various interpretations;

• It is difficult to demonstrate that a domain name has been registered for the “sole” purpose of resale; and

• A sophisticated domain name speculator can easily create computer- generated webpages, with advertising, and then assert that the purpose of registering the domain name is for use as a directory website and not resale (The Panel received public feedback that this is in fact occurring).

The paper goes on to argue that the resale and warehousing prohibition rule should be retained and strengthened, and recommends:

The current rule be amended to read: “A registrant is prohibited from registering any open 2LD domain name for the primary purpose of (a) resale, (b) transfer to another entity, or (c) warehousing”;

• Making it clear in the policy that holding a domain name for defensive reasons is not warehousing. For example, it should not be impermissible for a trade mark or brand owner to hold domain name licences for domain names that are the same or substantially similar to their trade mark or brand to prevent registration of these domain names by cybersquatters. Additionally, for example, it should not be impermissible for the holder of the domain name abcxyz.com.au to also hold licences for abcxyz.net.au and abcxyz.au (whether they are used or not);

• In certain circumstances, the onus of proving that a domain name has not been registered for the primary purpose of resale or warehousing should be on the registrant. If there are indicators that a domain name has been registered for resale or warehousing, then auDA can require the registrant to prove otherwise.

According to the paper, indicators that a domain name has been registered for resale or warehousing include when some of the following factors are satisfied:  

• The registrant, or entities associated with the registrant, own more than 100 Australian domain names that are not substantially identical to trademarks or business names of the registrant or that consist of acronyms, dictionary words, or common phrases;

• The domain name in question is not being used, or if being used, resolves to a website that is primarily computer generated and does not relate to the registrant, and other domain names owned by the registrant are also not being used or resolve to similar computer generated websites;

• The domain name in question is listed or advertised for sale or auction, and other domain names owned by the registrant are also listed or advertised for sale or auction;

• The registrant of the domain name in question solicited the sale of the domain name or offered the domain name for sale to another for valuable consideration in excess of documented out-of-pocket costs directly related to the domain name;

• In the past six months, the registrant has sold or transferred more than six domain names, other than in relation to the sale of a business.

If the majority of these indicators are satisfied, there will be a rebuttable presumption that the domain name has been registered for resale or warehousing. In such circumstances, if the owner of the domain name presents clear and convincing evidence to auDA that the domain name was not registered for resale or warehousing, the presumption will be rebutted.

While domain name warehousing is only one of numerous issues being considered by auDA it is likely to be the one that causes the most heated debate.

In the lead up to constitutional changes made last year at the demand of the Government, a small band of dissidents posted sensationist material on a range of industry and social media forums. Despite having failed to prevent the much needed reform of auDA’s governance arrangements it’s likely that defending domain name warehousing, where there are big bucks at stake, will see the resurgence of a group notoriously known as the ‘Grumpies’.

(Laurie Patton has provided advice to auDA and to Afilias Australia, the company managing the .au registry for auDA. However, any views expressed here are his own and have not been endorsed by auDA or Afilias.)