Franchisors Must Prepare for Pending Introduction of New Top-Level Domains

In only a few short months, franchisors must choose whether to register a top-level domain (TLD) that corresponds with the franchisor's trademark or company name. Similar to current TLDs .com, .net, and .org, new TLDs like .hilton, .coke, or .merrilllynch will be available. A franchisor's choice must balance potentially significant commercial, advertising, and security opportunities with substantial financial and technological investment.

Potentially, a franchisor could register the TLD that corresponds with the franchisor's trademark or company name. It then could consider registration of additional domain names associated with that TLD. For example, a hotel chain such as Hilton could register the TLD .hilton and then pursue additional domain name registrations based on the geographic location of its hotels, such as www.minneapolis.hilton. A TLD incorporating a franchisor's trademark or company name could benefit the franchisor and franchise network through new marketing, advertising, communications, and security opportunities, but those opportunities do not come without substantial costs and risks.

Background

The Internet Corporation for Assigned Names and Numbers (ICANN) is the non-profit corporation responsible for overseeing the Internet, including managing the distribution of Internet protocol addresses, domain names, and top-level domains. In June 2008, ICANN approved a new program that could greatly increase the number of top-level domains, such as .com, .net, and .org, available for registration. New TLDs can incorporate almost any word, including a company name or brand name. They also can include a generic term relevant to a business, such as .hotels or .bank. According to the program's draft rules, ICANN will begin accepting applications for TLDs during the second quarter 2009, and the application process will be first-come, first-served. Further, there is no limit to the number of new TLDs that ICANN will accept.

According to ICANN, the new TLD program is necessary because of the “demand for more innovation, choice and change to the Internet's addressing system, now constrained by only 21 generic top-level domain names.” With the impending explosion of new TLDs, franchisors should consider which TLDs they wish to register, and how they can control their franchisees as trademark licensees. Given that the application period will open in a few months, franchisors and their counsel need to make their assessments now.

TLD Registration

All intellectual property-rights holders, including franchisors, should be weighing the costs and benefits of applying for the TLDs that correspond with their trademarks and company names. The registration of a TLD could provide a franchisor and its franchisees great benefits; in particular, new marketing and advertising opportunities that, up to this point, were commercially unavailable, might be created. Moreover, the registration of a TLD gives the franchisor tighter security controls of domain names by placing the control of the TLD in the hands of the franchisor. Some experts believe that new TLDs may usher in the Web 3.0, potentially creating new applications of Web technology for commercial and personal activities online.

But the costs of registration and technical maintenance are substantial. According to ICANN's draft New gTLD Program: Draft Applicant Guidebook, the application fee is $185,000, which does not include the considerable costs necessary to operate the back-end of a domain name registry. Of course, the initial draft is subject to change. Nevertheless, the costs to register and maintain a TLD will remain significant.

Franchisors also must control what their franchisees do in this area, as the franchisor's agreements typically limit what rights the franchisee has as a trademark licensee. Also, all intellectual property-rights holders should be concerned that a third party could register the rights holder's trademark or company name as a TLD, leaving the rights holder without control of a TLD that corresponds with its trademark or company name.

Regarding the significant costs of a new TLD registration, a franchisor might consider whether it can use marketing funds to cover some or all of the costs associated with obtaining and operating a TLD that incorporates the franchisor's trademark. Cleary, a franchisor should only pursue this expenditure after careful consideration of all the legal and business issues associated with marketing fund uses.

Monitoring and Enforcement

Franchisors may well determine that the costs associated with the registration and maintenance of a TLD that corresponds with a trademark or company name are prohibitive. Moreover, an intellectual property-rights holder could legitimately conclude that new TLDs are not likely to catch on with either consumers or businesses. Despite the recent launches of new TLDs such as .asia, .eu, and .mobi, the vast majority of generic TLDs remain .com, .net, and .org. The truth is that .com is still king.

Nevertheless, franchisors must monitor the new TLD application process for new TLDs that could potentially be identical or confusingly similar to its trademark or company name. Once the application period concludes, ICANN
will post a list of the new TLD applications on file. The New gTLD Program: Draft Applicant Guidebook provides a limited opportunity for third parties to object to the approval of a new TLD that infringes “the existing legal rights of others that are recognized or enforceable under generally accepted and internationally recognized principles of law.” Franchisors must monitor applications to enforce their intellectual property rights against new TLDs that are identical or confusingly similar to their trademark or company name. Franchisors also must exhibit leadership within their franchise network by establishing what steps it may take with any new TLD and controlling what franchisees do in this area. A franchisor does not want a franchisee on its own to register a TLD name that incorporates the franchisor's trademark or company name.

Conclusion

Finally, even beyond the concerns of intellectual property-rights holders, there is likely to be great demand for generic or descriptive terms registered as new TLDs. Once the new TLD applications are approved, each franchisor will have to decide whether to participate by registering a domain name or names in each new TLD, and some experts suggest that the new TLD program could result in more than 500 new TLDs. Intellectual property-rights holders are already well versed with the difficulties of monitoring online brand infringement, and the addition of a significant number of new TLDs will only make policing intellectual property rights on the Internet much more difficult.

In only a few short months, franchisors must choose whether to register a top-level domain (TLD) that corresponds with the franchisor's trademark or company name. Similar to current TLDs .com, .net, and .org, new TLDs like .hilton, .coke, or .merrilllynch will be available. A franchisor's choice must balance potentially significant commercial, advertising, and security opportunities with substantial financial and technological investment.

Potentially, a franchisor could register the TLD that corresponds with the franchisor's trademark or company name. It then could consider registration of additional domain names associated with that TLD. For example, a hotel chain such as Hilton could register the TLD .hilton and then pursue additional domain name registrations based on the geographic location of its hotels, such as www.minneapolis.hilton. A TLD incorporating a franchisor's trademark or company name could benefit the franchisor and franchise network through new marketing, advertising, communications, and security opportunities, but those opportunities do not come without substantial costs and risks.

Background

The Internet Corporation for Assigned Names and Numbers (ICANN) is the non-profit corporation responsible for overseeing the Internet, including managing the distribution of Internet protocol addresses, domain names, and top-level domains. In June 2008, ICANN approved a new program that could greatly increase the number of top-level domains, such as .com, .net, and .org, available for registration. New TLDs can incorporate almost any word, including a company name or brand name. They also can include a generic term relevant to a business, such as .hotels or .bank. According to the program's draft rules, ICANN will begin accepting applications for TLDs during the second quarter 2009, and the application process will be first-come, first-served. Further, there is no limit to the number of new TLDs that ICANN will accept.

According to ICANN, the new TLD program is necessary because of the “demand for more innovation, choice and change to the Internet's addressing system, now constrained by only 21 generic top-level domain names.” With the impending explosion of new TLDs, franchisors should consider which TLDs they wish to register, and how they can control their franchisees as trademark licensees. Given that the application period will open in a few months, franchisors and their counsel need to make their assessments now.

TLD Registration

All intellectual property-rights holders, including franchisors, should be weighing the costs and benefits of applying for the TLDs that correspond with their trademarks and company names. The registration of a TLD could provide a franchisor and its franchisees great benefits; in particular, new marketing and advertising opportunities that, up to this point, were commercially unavailable, might be created. Moreover, the registration of a TLD gives the franchisor tighter security controls of domain names by placing the control of the TLD in the hands of the franchisor. Some experts believe that new TLDs may usher in the Web 3.0, potentially creating new applications of Web technology for commercial and personal activities online.

But the costs of registration and technical maintenance are substantial. According to ICANN's draft New gTLD Program: Draft Applicant Guidebook, the application fee is $185,000, which does not include the considerable costs necessary to operate the back-end of a domain name registry. Of course, the initial draft is subject to change. Nevertheless, the costs to register and maintain a TLD will remain significant.

Franchisors also must control what their franchisees do in this area, as the franchisor's agreements typically limit what rights the franchisee has as a trademark licensee. Also, all intellectual property-rights holders should be concerned that a third party could register the rights holder's trademark or company name as a TLD, leaving the rights holder without control of a TLD that corresponds with its trademark or company name.

Regarding the significant costs of a new TLD registration, a franchisor might consider whether it can use marketing funds to cover some or all of the costs associated with obtaining and operating a TLD that incorporates the franchisor's trademark. Cleary, a franchisor should only pursue this expenditure after careful consideration of all the legal and business issues associated with marketing fund uses.

Monitoring and Enforcement

Franchisors may well determine that the costs associated with the registration and maintenance of a TLD that corresponds with a trademark or company name are prohibitive. Moreover, an intellectual property-rights holder could legitimately conclude that new TLDs are not likely to catch on with either consumers or businesses. Despite the recent launches of new TLDs such as .asia, .eu, and .mobi, the vast majority of generic TLDs remain .com, .net, and .org. The truth is that .com is still king.

Nevertheless, franchisors must monitor the new TLD application process for new TLDs that could potentially be identical or confusingly similar to its trademark or company name. Once the application period concludes, ICANN
will post a list of the new TLD applications on file. The New gTLD Program: Draft Applicant Guidebook provides a limited opportunity for third parties to object to the approval of a new TLD that infringes “the existing legal rights of others that are recognized or enforceable under generally accepted and internationally recognized principles of law.” Franchisors must monitor applications to enforce their intellectual property rights against new TLDs that are identical or confusingly similar to their trademark or company name. Franchisors also must exhibit leadership within their franchise network by establishing what steps it may take with any new TLD and controlling what franchisees do in this area. A franchisor does not want a franchisee on its own to register a TLD name that incorporates the franchisor's trademark or company name.

Conclusion

Finally, even beyond the concerns of intellectual property-rights holders, there is likely to be great demand for generic or descriptive terms registered as new TLDs. Once the new TLD applications are approved, each franchisor will have to decide whether to participate by registering a domain name or names in each new TLD, and some experts suggest that the new TLD program could result in more than 500 new TLDs. Intellectual property-rights holders are already well versed with the difficulties of monitoring online brand infringement, and the addition of a significant number of new TLDs will only make policing intellectual property rights on the Internet much more difficult.