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Froomkin and Post Send Letter to ICANN Board

by Michael Froomkin and David Post
Webposted on 11 February 2000

 January 26, 2000
Board of Directors
Internet Corporation for Assigned Names and Numbers
4676 Admiralty Way, Suite 330
Marina del Rey, CA 90292

[transmitted by e-mail] 

Re: Uniform Dispute Resolution Policy and Rules 

According to ICANN Board Resolution 99.83, the Uniform Dispute Resolution Policy (UDRP) is intended to be even-handed with respect to complainants -- i.e., trademark or service mark holders -- and domain name holders. ("There should be a general parity between the appeal rights of complainants and domain name holders."). As approved by the ICANN Board on October 24, 1999, however, the UDRP ¶ 4(d) allows the complainant to select the dispute resolution provider who will adjudicate the claim from among a list approved by ICANN. ("The complainant shall select the [dispute resolution service provider] from among those approved by ICANN by submitting the complaint to that provider."). In our view, this structure creates an unnecessary risk of compromising the even-handedness of the dispute resolution process. 

Complainant choice has the useful property of promoting price competition. Unfortunately, economic theory suggests that it also will tend to promote other types of competition, including competition among dispute resolution service providers to be perceived as being most "complainant-friendly" in order to capture all, or a disproportionate share, of the market. We consider this to be a very serious issue, as even the appearance of partiality would so taint the UDRP as to call the entire enterprise into question. We understand from conversations with ICANN General Counsel Louis Touton that ICANN intends to monitor developments under the UDRP to see whether these fears prove well-founded and whether the UDRP ¶ 4(d)âs provisions regarding the selection of dispute resolution providers needs to be reconsidered. Because any post-hoc examination risks becoming mired in an unseemly dispute as to whether particular arbitrators were in fact neutral, or whether a particular dispute provider is engaged in special pleading to further its economic interests, we hope you will accept this invitation to craft rules now which will allow debate over ¶ 4(d) to proceed in as high-minded and dignified a manner as possible, and we urge ICANN to act as soon as possible to set out objective criteria against which the success or failure of UDRP ¶ 4(d) will be measured. 

We propose that the ICANN Board adopt the following procedure to determine whether or not the UDRP system embodies the requisite neutrality between litigants. As of a date certain -- e.g., December 31, 2000 -- ICANN staff should prepare a report on the functioning of the UDRP up to that date. In particular, we recommend that the staff report on the degree of concentration in the dispute resolution service provider market, i.e., the extent to which particular providers have received a disproportionate share of the disputes handled within this system. 

In calculating whether a particular providerâs share of the disputes is "disproportionate" we propose that ICANN use the well-known Herfindahl-Hirschman Index ("HHI"). The HHI is a commonly accepted measure of market concentration used, for example, by the U.S. Department of Justice. See The HHI is calculated by squaring the market share of each firm competing in a market and then summing the results; for example, a market consisting of four firms with shares of thirty, thirty, twenty and twenty percent, respectively, has an HHI of 2600 (302 + 302 + 202 + 202 = 2600). Markets in which the HHI is between 1000 and 1800 points are considered to be moderately concentrated, and those in which the HHI is in excess of 1800 points are considered to be concentrated. 

Obviously, the acceptable size of the HHI is related to the number of dispute providers accredited by ICANN. For example, if only three dispute providers are accredited, the HHI cannot be below 3 * 33.3332 = 3333.333. If all three providers have 1/3 shares, the market is indeed concentrated (thus the high HHI), but there is no provider with a disproportionate share. Even if only a small number of providers are accredited, however, a large difference between the actual HHI and the minimum HHI is a sign of a disproportionate market share. We propose that the ICANN staff publish a table as soon as possible indicating the HHIâs that will be presumptive evidence that ¶ 4(d) needs to be revised. One somewhat arbitrary, but roughly fair set of (rounded) values for this table would be for ICANN to announce it would accept an HHI within some fixed figure, say no higher than 800 or 1000 above the minimum possible value, so long as there are 9 or fewer providers. 

If the above analysis demonstrates that no provider has a disproportionate share of the market, ICANN can be reasonably certain that competition among providers is functioning adequately. If, however, the analysis shows an undue degree of concentration among providers, the entire process will be tainted with the appearance of impropriety without some explanation for this result. Concentration may, of course, be the result of benign factors such as differences in prices charged by different providers; a comparison of prices charged among firms can easily demonstrate whether or not this is likely to be the cause of the discrepancy. 

If, conversely, the dominant provider(s) charge higher prices than their competitors, that will suggest the possibility that other, less benign, factors are responsible. It will be particularly important to examine whether outcome bias is operating in this market. This can be achieved by having ICANN staff simply tabulate the proportion of cases won by complainants at each accredited service provider; if that tabulation shows that the dominant provider(s) are significantly more likely to rule in complainantâs favor than competitors, it will be incumbent upon ICANN to revise UDRP ¶ 4(d) to provide an alternative selection mechanism. Reasonable people can differ about what that alternative should be (indeed, one of us suggested that the choice should be made by requiring complainants and domain name holders to agree on the service provider, failing which the dispute would be assigned at random; the other thought that the selection mechanism could safely be left to registrars once the decision had been made to limit their choices to ICANN-accredited providers). There seems no point in re-igniting that debate at present. However, we would propose that the ICANN Board set out the mechanism by which the new provider selection mechanism would be decided, and a timetable for that decision (if needed), in the resolution committing ICANN to objective decisional criteria. 

For the record, please note that in addition to our academic affiliations set forth below, we are both principals in the Consortium, a dispute resolution service provider that received provisional approval to provide dispute resolution services as part of the under the UDRP on January 1, 2000. However, we are writing this letter in our personal capacities, and it does not necessarily reflect the views of any organizations with which we are affiliated. 

Please consider this letter a formal request that the matter be placed on the ICANN Board's agenda as soon as practicable. 

A. Michael Froomkin
Professor of Law
University of Miami Law School

David G. Post
Professor of Law
Temple University Law School