Questions to and Answers from Applicant for .kids

ICANN Questions:

ICANN is in the process of reviewing .Kids Domains' TLD Application. As outlined in the October 23, 2000 TLD Application Review Update which appears at http://www.icann.org/tlds/tld-review-update-23oct00.htm, ICANN may "gather the additional information [it] require[s] by posing specific questions to applicants in e-mail and requesting a written response."

Keeping in mind the goal to evaluate applications to operate or sponsor new TLDs in as open and transparent a manner as possible, both the questions posed by ICANN and the Applicant's responses will be publicly disclosed on the ICANN website.

Accordingly, ICANN requests your reponses to the following questions:

1. Identify and describe in detail your source of "Directory Income".

2. Identify and describe in detail how you intend to cover the negative cash flow situations provided in your pro forma financial statements.

3. State in detail your position as it relates to possible legal claims by certain applicants and/or non-applicant third parties based on alleged trademark, patent or other violations of purported rights in the TLDs identified in your application.

4. If you receive a new TLD, state whether you will indemnify ICANN for claims arising from legal challenges regarding your right to operate the new TLD. If you will indemnify ICANN, identify and describe in detail the resources you propose to utilize for the indemnification.

.Kids Domains Responses:

Sirs and Madams:

This letter is written in response to your email of November 1, 2000 requesting additional information under the guidelines established by ICANN for communication with applicants.

First of all, we would like to congratulate ICANN on it’s handling of a complex and multifaceted process. As the only applicant for a restricted .kids top level domain, we welcome the full illumination of all applications and appreciate the opportunity to clarify our original application.

You have requested answers to the following questions:

1. Identify and describe in detail your source of "Directory Income."

Directory income is projected to come from the optional opportunity for registrants to list their site in the “.KIDS Directory”. The Directory will be available to consumers in online and print versions. We have estimated Five Percent (5%) of the Personal and Special Applicants, Ten Percent (10%) of the Businesses and Twenty-Five (25%) of the special applicants will list in the directory. Cost to registrants for listing within the Directory is proposed at $5 per domain year.

While .KIDS Domains, Inc. also plans to sell advertising in the Directory, advertising revenues are not reflected in the projections.

The Directory will be categorized by website subject, language, alphabetical by title or company name, and keyword.

The Directory will also be categorized and available for reference by country. .KIDS intends to explore further use of the DNS in segmenting part of the .KIDS network by country through third level domain registration or "double dots" (i.e. siteaddress.us.kids, siteaddress.eu.kids, etc.). Via compound queries, users will be able to limit their Directory searches to websites by a specified country.

Country headings in the Directory will offer users information about variances in the suitability and appropriateness guidelines for that particular country. Subject headings, and multiple sub-headings, will organize websites within the .kids network in an intuitive and comprehensive fashion.

2. Identify and describe in detail how you intend to cover the negative cash flow situations provided in your pro forma financial statements.

We plan to cover the negative cash flow situations found within our projections in two ways-

A. KIDS Domains, Inc. intends to offer a “prepaid plan” option to registrants. This will allow registrants that so desire to pay for their domain name for up to 10 years in advance, avoiding any chance of a missed renewal. This will acelerate cash reciepts from years 2 through 5 into earlier years.

B. In addition to the $10,000,000 funding commitment from ZA Associates, .KIDS Domains, Inc. has secured a Five Year Letter of Credit for up to $2,500,000 from WH Partners. This funding will be secured by future domain name renewal payments. $250,000 of this letter of credit can be drawn down in the Year 2000; up to $1,000,000 in the Year 2001 and up to the full amount in 2002.

3. The legal strength of any name used as a trademark is determined by the name's meaning in relation to the goods sold or services provided under it. In general, the more descriptive the name is of the goods or services, the less protection it deserves. This is because the law recognizes that one cannot monopolize language.

In the case of our proposed TLD, the name "KIDS" is used in a purely descriptive manner. Its generally accepted meaning is "children". Since the purpose of our proposed TLD targets children, the word is used descriptively. Therefore, our use, and the use by any of our registrants would not be an exposure to claims of infringement by anyone who may have trademark rights to the name "KIDS".

Furthermore, a very persuasive argument can be made that TLD names in general cannot function as a trademark or provide any indication of the source for a good or service. Rather, the TLD can act only as an indicator of a type of good or service. The United States Patent and Trademark Office addressed this issue in detail in its Examination Guide No. 2-99 published September 1999. This function of TLDs reduces the likelihood that a TLD name having at least a minor descriptive component would lead to any public confusion.

It is therefore our position that in any domain using the .KIDS TLD there could be no exposure to infringement since .KIDS would be seen as simply a generic term for websites related to kids.

Regarding possible legal claims involving other rights, .KIDS Domains, Inc. is not currently aware of a patent which would interfere with our operation of the .kids TLD. We do not believe that anyone would receive a valid and enforceable patent on the implementation of such a TLD apart from any other TLD.

4. .KIDS Domains, Inc. recognizes that ICANN operates on a cost-recovery basis, and also that ICANN may face litigation regarding the new gTLDs. .KIDS Domains, Inc. is amending its application to state that if it recieves and is operating a restricted .kids gTLD under the terms of its application it is willing to indemnify ICANN to the appropriate extent in cases where third parties, who contend they have a right to operate a .kids gTLD, challenge .KIDS Domains' right to operate a .kids gTLD specifically. .KIDS Domains realizes that intellectual property and other challenges to its right to operate a .kids gTLD could conceivably arise. While we do not believe that there exist any valid intellectual property claims which would prevent .KIDS Domains, Inc. from the operation of a .kids gTLD, we intend to indemnify ICANN against challenges made against .KIDS Domains, Inc. arising from claims, based on intellectual property issues, by third parties, who claim they have a right to operate a .kids gTLD, to the use of a .kids gTLD.

In instances where third parties challenge ICANN's right and authority to designate, create or otherwise authorize new gTLDs, to determine who should operate new gTLDs and/or to delegate the authority to operate the new gTLDs generally, .kids Domains expects, if it recieves and is operating a restricted .kids gTLD under the terms of its application, that it would agree to indemnify ICANN to the extent that all gTLD operators agree to do so--in other words, .kids Domains is prepared to negotiate with ICANN in good faith an appropriate level of indemnification in such matters, with the understanding that all gTLD operators would share in such expenses on a pro rata, fairly and uniformly apportioned basis.

As stated in its gTLD Proposal, .kids Domains has specifically budgeted $500,000 for legal expenses in the first quarter of 2001. This was done in part in anticipation of any possible legal challenges to its right to operate a .kids gTLD. In addition, in order to minimize its exposure, .kids Domains has budgeted up to $150,000 for insurance coverage to indemnify third parties such as ICANN, and is currently examining the feasibility of obtaining such coverage. .kids Domains has also engaged the legal services of two law firms to assist in any legal challenges to its right to operate a .kids gTLD.

In summary, our right to operate will come from the approval of our application to use this unique time to establish in the first testbed for gTLD’s a safe greenspace for the children of the World and a special group of websites and website content communicated in a voice specifically designed for the fastest growing user community on the Internet.

We look forward to the continuation of this fair and forthright process.

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