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[alac] Business Constituency Position on ICANN-VRSN Settlement

  • To: ALAC <alac@xxxxxxxxx>
  • Subject: [alac] Business Constituency Position on ICANN-VRSN Settlement
  • From: Bret Fausett <bfausett@xxxxxxxxxxxxxxxx>
  • Date: Thu, 01 Dec 2005 17:41:27 -0800

This was forwarded to the GNSO mailing list a few minutes ago.


Business Constituency Position
2005 ICANN and Verisign Settlement: December 2005

Bilateral negotiation between ICANN management and Verisign has resulted in a settlement agreement comprising several papers on 24 October 2005 (hereafter “the settlement”). See ICANN web site: http://www.icann.org/tlds/agreements/verisign/settlement-agreements.htm
For ICANN, this settlement would:
End six years of litigation with VeriSign and commits Verisign to binding international arbitration for future disputes on issues concerning ICANN’s technical coordination role. This confers a cost and manpower benefit to ICANN.
For Verisign, this settlement confers a series of commercial benefits relevant to:
A revised .com Registry Agreement.
A new Root Server Management Transition Agreement to coordinate future planning in the updating of the root zone.

The Business Constituency (BC) has been invited to comment on the agreement initially within a 24 day public comment period starting 26 October 2005. Following a request by the BC along with other ICANN constituencies and other stakeholders, this has since been extended.

Broad questions
The settlement raises some broad questions for the GNSO Council and the BC.

Process and precedent
Are there issues in this bi-lateral settlement that should have been considered first within the existing policy development role of the GNSO? The BC believes there are such issues and these are explored below.
Are there issues in this bi-lateral settlement that might constrain the future policy development role of the GNSO? The BC believes there are such issues and these are explored below.

Impact on ICANN
Are there issues in this bi-lateral settlement that might constrain the future oversight role of the ICANN community and Board? The BC believes there are such issues and these are explored below.

Impact on users
Are there changes that might have an impact on business users? The BC believes there are both advantages and disadvantages to users in the settlement.

Advantages to commercial users
The BC welcomes the principle of ending the litigation because it removes a distraction to ICANN management and removes unnecessary cost.
The BC welcomes a commitment to a future process of binding arbitration because this is a means of dispute settlement more in keeping with global norms.
The BC welcomes steps towards the stable funding of ICANN because a stable ICANN is an effective ICANN.

Potential disadvantages to commercial users
1. The inclusion of a different text for new registry services
The settlement, in section 3.1b, defines a process for new registry services that is different to the process already agreed to by the ICANN Board as part of ICANN consensus policy development.
The settlement, in section 3.1b(v)C, confers a three-year exemption for Verisign from the normal check of ICANN consensus policy on registry services.

This has potential disadvantages for users related to legal certainty and stability. There seems to be no public interest justification for offering Verisign different terms for new registry services to any other registry, especially given the fact that a universal process for introducing such services already exists.

Moreover, this issue appearing in a bi-lateral settlement is a policy question that sets a bad precedent that might constrain the future policy development role of the GNSO.

2. The presumptive right of renewal for .com
The settlement, in section 4.1, increases the period of extensions to Verisign’s management of .com from 4 to 7 years.
The settlement, in section 4.2, in effect confers a right to perpetual renewal.
This perpetual right of renewal is combined with a potential 7% annual increase in the price for Registry services per name that Verisign collects from Registrars from the current $6 to a potential $9 per name by the end of the first 7-year period.

This has a potential disadvantage to users related to competition. Centralisation of what amounts to over 50% of all names in one registry for perpetuity embeds a significant competitive dominance in the market. Long-term supplier dominance typically runs contrary to user interests.

The bi-lateral agreement to raise the registry fee would provide an immediate financial benefit on top of the market dominance. And the fee increase comes at a time that the Registry fees for other Registries are falling. Although the impact per single user would be small, the overall cost increase if passed on to users of a change from $6-$9 over seven years for today’s 40.3 million1 .com names is around $0.4 billion. This is a substantial aggregate detriment.

Moreover, the question of whether there should be perpetual renewal of the franchises for any registry is a policy question that should have been considered first within the existing policy development role of the GNSO.

3. The exclusive right to data
The settlement, in section 3.1f, confers on Verisign certain intellectual property rights to traffic data from the .com zone file.

The implication of this contract change is unclear. Does it simply concern an expected commercial benefit accruing to any Registry with respect to zone file data? Or is it going further? It would appear that the effect would be to enable the Registry to leverage its natural upstream monopoly position (being the sole registry of .com domain names) into downstream competitive markets (eg. registrars and search engines). It is not in the interest of users to have competitive markets monopolised through capture of upstream inputs by a monopolist. Any bi-product of the monopoly registry service should be made available on a non-discriminatory basis to any and all downstream competitors.
In other words, is this change establishing what may become sui generis (a unique order of) intellectual property rights? If the latter interpretation is correct, then a broader policy question is raised that should be first considered in greater depth.

4. The creation of special funds
The settlement, in section 7.2d, establishes a registry-level transaction fee payable to ICANN of 37c per name (rising to 50 cents) with the revenues designated to special funds.

Replacing the ICANN multi-stakeholder consensus process with bi-lateral contract sets a bad precedent. This risks undermining one of ICANN’s fundamental pillars. In this respect the creation of special funds in the settlement may be seen as a way of circumventing the usual oversight process of the ICANN community and Board in the strategic planning and budget review processes. Further, there is not ICANN community consensus support for special funds. Risks to the ICANN consensus process would be to the detriment of commercial users.

Other risks of detriment

Risks to ICANN
The process for the renewal of the .com agreement is set out in the existing agreement. This covers the date, period of notification and character of any new agreement. It would appear all three of these have been contravened in the proposed settlement. Moreover, ICANN has amalgamated a renewal process, a settlement process and a pricing process. Such issues should be undertaken through ICANN’s bottom-up consensus policy development process rather than through bilateral contract negotiations.

Risk of litigation from other parties.
If other Registries or Registrars believe they will suffer a competitive detriment because of the Verisign settlement, there is a strong risk of litigation by these parties. Further litigation would weaken ICANN. This would be to the detriment of commercial users. The proposed settlement has indeed resulted in new litigation.

Risk of adverse political reaction.
In conversation between BC members and national government representatives in Europe and elsewhere it is clear that there are suspicions about an inappropriate degree of alignment between the US department of commerce, ICANN management and VeriSign. The reassignment of the .net registry back to Verisign contributed to those suspicions. There is a real risk the settlement will push certain government further in opposition to ICANN in favour of ICANN’s role being taken over by an inter-governmental organisation. This would be to the detriment of commercial users.

BC recommendations

The BC supports an amicable resolution of the litigation between Verisign and ICANN, but does not support the proposed settlement in its present form. The BC seeks the following five changes before it can support adoption of the settlement by the ICANN Board:

1. Services. The BC calls for the deletion of both the sections on registry services and the exemption period for registry services from the settlement, as well as the insertion of a reference to ICANN consensus policy on new registry services.

2. Renewal. The BC calls for a deletion of the presumptive right of renewal in the current settlement, and for the ICANN Board to initiate a GNSO policy development process (PDP) on the issue of presumptive renewal of Registry contracts.

3. Data. The BC calls for an amendment of the settlement sections related to traffic data. The BC will also propose that the issue of the ownership rights relating to traffic data is incorporated into the GNSO policy development process (PDP) on new gTLDs.

4. Funds. The BC calls for a confirmation by the ICANN Board that any special funds are indeed explicitly incorporated into the ICANN strategic planning process and the ICANN budget review.

Root Server Management Transition Completion Agreement - potential disadvantages to commercial users

This agreement has many positive points, but it also describes what may be a special relationship for one root server operator over all others.

BC recommendation:

5. Oversight. The BC calls for the insertion of an oversight clause specifying the methodology whereby the broader community’s interests will be represented.


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