On trademarks, domain names, and internal auctions

The first-in-time priority rule for appropriation of domain names has deprived various established businesses of the ability to use their valuable trademarks as their domain names. Many firms have seen their trademarks registered as domain names by "cybersquatters" - individuals who register famous marks for the purpose of reselling them at a higher price to their owners - while others have watched smaller businesses win the registration race. The inability of established firms to use their trademark as their domain name imposes high costs not only on the firms, but also on Internet users who are forced to bear higher search costs when transacting on-line. Two legal solutions have emerged in response to this problem. In 1999, Congress enacted the Anticybersquatting Consumer Protection Act, establishing a new cause of action against cybersquatting. In addition, the International Corporation for Assigned Names and Numbers (ICANN) - the entity responsible for assigning domain names - has instituted rules for arbitration of domain name disputes. Central to both solutions is the "good-faith" standard: if the domain-name registrant acted in good faith, she should retain the domain name. In this essay, Professor Parchomovsky argues that neither solution provides an adequate mechanism for resolving disputes over domain names. Both solutions are unnecessarily expensive and time-consuming, and neither guarantees the efficient allocation of domain names. A superior solution would be an asymmetric internal auction system to resolve domain-name disputes. The auction mechanism would ensure that the disputed domain-name ends up in the hands of its highest value user, while granting just compensation to the other party. Furthermore, it accomplishes this result instantaneously and at negligible cost.