[Comments-org-renewal-18mar19] Thoughts on Mr. Balto's antitrust analysis of the .org market

[Nat Cohen]

Mr. David Balto in his comment (
https://mm.icann.org/pipermail/comments-org-renewal-18mar19/attachments/20190429/731d6eac/DBOrgICANNCommentsFinal.pdf)
offers his perspective as a very experienced antitrust lawyer on the issue
of removing price caps on legacy gTLDs, in particular .org.

Mr. Balto offers a helpful framework for analyzing the antitrust concerns
that are raised by the removal of price caps.  While Mr. Balto has
expertise in antitrust law, it is less clear that he has particular
expertise or familiarity with the dynamics of the domain name system or of
online branding.  It is unclear on what basis Mr. Balto made the
assumptions that he relies upon in his comment.  He does not cite to any
economic study or research.   It appears he is relying only on his own
personal opinion or on talking points provided to him by an undisclosed
client.

Mr. Balto’s conclusions rest upon the application of the law to a set of
assumed circumstances.  The assumptions of fact, however, appear to be
incorrect such that the legal conclusions he draws are likewise incorrect.
When the facts that Mr. Balto relies upon are corrected, his letter becomes
a strong argument in favor of a finding that there is market failure and
that price controls are needed.

If the relevant market for analysis is non-profits, not-for-profits and
other volunteer organizations, it appears that .org has a greater market
share in that world than .com has in the commercial world.  A
non-scientific recent review of a sample of 88 non-profits demonstrated
that .org had over a 90% share of the domain names used for those
non-profits' websites.  (
https://domainnamewire.com/2019/04/24/how-icann-uses-the-org-registry-to-fund-the-internet-society/).
This far exceeds the 30% market share that Mr. Balto indicates that a firm
has market power.

In a 2008 letter to ICANN, the U.S. Department of Justice found that
multiple gTLDs, not only .com, had market power (
https://www.icann.org/en/system/files/files/baker-to-dengate-thrush-18dec08-en.pdf).
The DOJ letter stated in part, “Finally, our investigation of the .com
agreement found evidence that other gTLD registry operators may possess a
degree of market power.  The market power inherent in other gTLDs is less
than the market power in .com, but is still material...”.  Ten years later,
.org continues to be by far the dominant TLD for the non-profit community
indicating that the .org’s market power is apparently undiminished.
Indeed, the DOJ predicted that the introduction of new gTLDs would be
unlikely to affect the market power of legacy gTLDs:

   “Further, the introduction of new gTLDs is not likely to constrain the
market power by existing gTLDs..”

The reason for this is in large part because organizations that have built
public awareness and have become well established on a particular domain
name are “locked-in” to their current choice.  Andrew Allemann, in a post
on DomainNameWire.com (
https://domainnamewire.com/2019/04/29/the-economics-of-domain-name-prices/),
highlighted that Search Engine ranking and well established email accounts
are two factors that make switching from a domain very costly and
disruptive.

His conclusion:

“These high switching costs make domain owners hostages to the registries
that operate their domains. They simply have to pay whatever they are
charged. The cost to switch is too much.  For this reason, renewal costs
must be capped.”

A comment by the National Council of Nonprofits highlighted some of the
reasons that a non-profit cannot easily switch to another domain name:

“The domain name is an important part of being found. If domain names are
no longer affordable, nonprofits will be forced to use less substantial
subdomain. Donors are much more likely to donate at nonprofit.org than
nonprofit.wixsite.com. Nonprofits that are no longer able to afford to keep
a domain also risk longstanding domains being taken over by others, causing
branding confusion and the potential for domains associated with charitable
works being used for less-than-charitable purposes.” (
https://mm.icann.org/pipermail/comments-org-renewal-18mar19/2019q2/000918.html
)

The American Society of Association Executives (ASAE), in their comment
stated:

Stating that nonprofit organizations can easily switch from one domain name
to another if they don’t like the pricing structure ignores the reality
that established nonprofits have a longstanding Internet presence built on
a .org domain name – a name and online reputation that the organization
(not the registry operator) has spent decades cultivating. (
https://mm.icann.org/pipermail/comments-org-renewal-18mar19/2019q2/002154.html
)

These statements and analysis strongly support a view that .org registrants
that have established a presence on a .org domain name are indeed “locked
in” to their choice and cannot switch to another domain name with ease.

When Mr. Balto’s antitrust analysis is applied to the circumstances of the
.org registry enjoying market power in the non-profit segment and that
registrants with an established online presence are locked-in to their
choice of domain name, the clear conclusion is that there is market failure
requiring the retention of price caps for the benefit of domain name
registrants.
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