Renewal is Premature
On behalf of Network Solutions, LLC, I am writing to raise several concerns with the proposed registry agreements to operate the .biz, .info and .org registries. This is not a comment on whether the existing registry operators should continue to operate the respective registries. Indeed, we have no concerns with the performance of the current operators. Rather, our comments are limited to concerns with the timing, approval process, and substance of certain provisions of the draft agreements. I. ICANN Should Not Renew These Agreements At This Time Renewal of these proposed gTLD registry agreements at this time is premature. There is simply no policy or contractual reason that compels ICANN to make a final decision now on these proposals: The current .org registry agreement does not expire until 2009 and the .biz and .info agreements expire in 2007. While the agreements may have been part of longstanding contract negotiations, such discussions were conducted in private without community input. From the perspective of the ICANN community, therefore, this is a fast-track review, which is unwarranted for a number of reasons. First, many of the provisions of the proposed .com Registry Agreement with VeriSign about which concerns have been raised also are included in these proposals. For example, the automatic renewal provision in the proposed .com agreement apparently has been used as a model for these agreements. In light of the fact that the U.S. Department of Commerce ("DOC") - with the advice of the U.S. Department of Justice - is reviewing the proposed .com agreement with a specific emphasis on the competitive implications of the renewal and pricing provisions, it would be inappropriate to renew the agreements at this time without waiting for the benefit of these agencies' views. Furthermore, ICANN should not attempt to fast-track approvals of other gTLD agreements with similar anti-competitive provisions, such as automatic renewal, in a misguided attempt to add support for its proposed .com agreement. Second, the DOC also is considering whether to renew its Memorandum of Understanding ("MOU") with ICANN. As part of this process, the DOC called for public input regarding ICANN's agreements with registries, recognizing that the MOU also "contains a series of core tasks for ICANN, which include establishing appropriate relationships with the organizations that form the technical underpinnings of the Internet [Domain Name System ('DNS')]." Registry agreements are among ICANN's most important contractual relationships underpinning the DNS. Because the anticipated amendment of the MOU is inextricably intertwined with the proposed registry agreements, the agreements should not be considered until the underlying MOU is renewed. Third, ICANN's Generic Names Supporting Organization ("GNSO"), which is responsible for developing ICANN policies, has established a Task Force to review certain contract issues related to the renewal of registry agreements. The Task Force is working toward providing policy recommendations to the ICANN Board on issues including (1) whether ICANN should enter into registry agreements with automatic renewal provisions; (2) whether there should be price caps for registries with and without market power; and (3) whether a registry operator with market power should pay ICANN more, less, or the same in a per-name fee than a registry without market power. Considering that this policy review is well underway and that these contracts don't expire until 2007 (.info & .biz) and 2009 (.org), there is no justification for this blatant attempt to circumvent ICANN's bottom-up policymaking process. Troublingly, the proposed contracts provide a limitation against subsequent consensus policies changing these contracts in regard to most, if not all, of the issues under consideration by the Task Force. Therefore, even if ICANN reaches consensus on these policy issues, they would not apply to these registries if the contracts are approved prior to the implementation of the policy. Therefore, ICANN should not finalize essentially permanent contracts that cannot be changed by Consensus Policy, while key policy issues remain under review by the Task Force. Recommendation - ICANN should await the outcome of the MOU and .com review processes, as well as the ongoing GNSO Task Force evaluation, before approving virtually irrevocable renewals. If for some reason ICANN elects not to wait for guidance from these reviews for the two agreements that expire in 2007, the renewals either (1) should be limited to one or two-year extensions of the existing contracts to allow for the incorporation of inputs from these processes, or (2) should be renegotiated to provide that any approved Consensus Policies that come out of the existing GNSO Task Force should apply to these registries. II. Automatic Renewal Forgoes Competition and Threatens Security The proposed agreements provide for "automatic renewal" provisions, virtually guaranteeing that the agreements would continue in perpetuity. The only limitation on renewal is in the event of a repeated and material breach of one of just three sections of the agreement. Even then, renewal would occur unless an arbitrator has ruled that an operator has breached one of the three provisions and such breach had not been cured within a reasonable time after the arbitrator's award. The operators' control of the registries would be, therefore, of likely infinite duration, and ICANN would be abandoning the bulk of its responsibilities to oversee the operations of the registry operators and to protect the DNS. The automatic renewal provisions in these agreements (and in the proposed .com agreement) are very different than the renewal provisions in the existing .biz, .info, and .org registry agreements, as well as the presumptive renewal provision in the existing .com agreement. Under the existing .biz, .org and .info registry agreements, the operator must submit a Renewal Proposal to ICANN, which can decide to accept it at its "sole discretion." In the Renewal Proposal, each operator must justify the renewal request with a detailed report on the registry operations, proposed improvements or changes in price or other terms. After a requisite review period, ICANN, at its sole discretion, may seek competing proposals, including a bid from the incumbent, weighing factors such as its "enhancement of competition for registry services." Again, the selection among the proposals is solely at ICANN's discretion. The existing .com agreement also requires VeriSign to submit a proposal justifying why the contract should be renewed. VeriSign would be entitled to a four-year extension unless ICANN demonstrates that it is in material breach of the agreement (which ICANN has alleged in the pending litigation), it has not have provided a "substantial service" to the Internet community in its performance, or it seeks to charge a price higher than $6 (which it has in the proposed .com contract). By comparison, under the proposed renewal terms for .biz, .info and .org, ICANN's discretion on renewal is essentially discarded. There is no longer any requirement on the operator to justify a renewal claim based on performance, eliminating another important safeguard for ICANN oversight. Further, ICANN would no longer be able to seek competing proposals at its discretion, let alone in the case of a material breach of any, but three, provisions of the agreements. Awarding a registry contract to an operator in perpetuity is neither the only means nor the best means to ensure infrastructure investment. The term of the contract should be of sufficient length for the registry operator to recover investments, whereas the assurance of a perpetual franchise can easily lead an operator to believe that investment is unnecessary. Clearly, registry operators have been willing to invest in and develop registries awarded without automatic renewal provisions. Regular review of past performance and rebidding motivates good behavior by ensuring accountability and the security and stability for the registry. The assurance of perpetual renewal of any TLD reduces incentives to comply with ICANN's policies and principles and provide a secure and stable registry. ICANN staff members inappropriately cite the current .net and the proposed .com registry agreements as justification for approving these automatic renewal provisions in the .biz, .org, and .info agreements. First, the .com agreement has not been approved and is facing a great deal of scrutiny and criticism related to ICANN's proposed renewal provision. Second, as we all know, the .net agreement was approved and signed by ICANN with no public review at all on these points and should not be used as a fair precedent for future agreements. We do not oppose renewing registry agreements when the registry operator has performed well during the term and the renewal is on competitive terms. ICANN's ability to carry out core principles such as promoting security and stability, competition, transparency and accountability are significantly restrained by automatic renewal provisions that foreclose future review in all but the most extreme of circumstances. One of the best market mechanisms to introduce competition into registry operations, and to ensure exemplary performance by registry operators, is through competitive bidding for renewals. The proposed renewal provisions abandon any opportunity for ICANN to use that mechanism in the future, for no reason. Recommendation - ICANN should eliminate the automatic renewal provisions in the proposed registry agreements. To ensure meaningful contract oversight by ICANN and to motivate good behavior, registry operators should be required to justify renewals and meet certain continuing qualifications and standards. At a minimum, before ICANN approves a contract with an automatic renewal provision, it should publicly seek a panel of competition and security experts to opine on whether automatic renewal provisions in sole source contracts create an incentive or disincentive to invest in a registry. III. The Proposed Termination Provisions are Too Weak Unlike the proposed .org, .biz and .info agreements, the terms of the existing registry agreements provide a menu of options under which ICANN can terminate the agreements before they expire. These termination rights provide ICANN with important tools to exercise its oversight function, which unfortunately would not exist if the proposed agreements were approved. For example, under the current agreements, ICANN could terminate if the registry operator is convicted of a felony or other serious offense related to financial activities, is disciplined by the government for dishonest acts or misuse of others' funds, or if an officer is convicted as a result of financial malfeasance and is not immediately removed. Similarly, ICANN could terminate if the operator has made a "material misrepresentation, material inaccuracy, or materially misleading statement" in its TLD application. Indeed, ICANN has the right to order sanctions against the registry operator if it failed to fulfill certain contractual obligations related to the performance of the registry. The failure to pay such sanctions could result in termination of the agreement. The proposed terms of the .org, .biz and .info renewals, however, would substantially circumscribe ICANN's termination rights as referenced above, limiting ICANN to circumstances in which the operator is in material breach of one of only three provisions and it fails to cure the breach, loses at arbitration or court, and still has not corrected the breach at the direction of an arbitration decision or court order. Recommendation - Termination provisions should support ICANN's oversight responsibilities. The termination provisions in the proposed agreements would enable ICANN to essentially abdicate its oversight in this area. ICANN should strengthen its termination rights in these three proposed agreements, as well as in all new registry agreements. IV. Price Controls Should Be Addressed as a Policy Question The existing .org, .biz and .info registry agreements contain pricing controls on registry services that the proposed renewals would lift, without explanation or analysis. Instead, ICANN staff merely asserts that the proposed lifting of these price controls came after "extensive consideration and discussion." Furthermore, it is unclear whether or not the proposed contracts permit differential pricing by domain name. Unfortunately, to date there has been no public consideration and discussion of these important policy issues regarding pricing for gTLD registries. ICANN staff has not provided any policy analysis or rationale for the lifting of the price caps, nor any evidence that external experts have been consulted to arrive at the conclusion that such pricing controls should be lifted or the economic and competition implications of pricing controls. On behalf of ICANN, the GNSO Task Force also is studying the policy question of price controls for registry services. The issues of whether or not price caps should be imposed and whether differential pricing should be permitted are of sufficiently broad enough importance to the ICANN community at large that they should be addressed with the publicly disclosed guidance of competition experts as part of a bottom-up representation policymaking process. Recommendation - ICANN should seek independent advice, including from competition authorities, on whether dominant and/or non-dominant registries should be subject to price caps. This independent evaluation should be made public for the purposes of seeking input from the ICANN community. Once this guidance is received, the ICANN community would be in a position to determine whether price caps are appropriate for the specific registries at issue. V. Conclusion The proposed registry renewals at issue attempt to undertake by contractual fiat what ICANN has yet to decide with targeted expert advice that is part of a transparent decisionmaking process. To this end, the Board must ensure the GNSO, as ICANN's policy arm, is afforded a reasonable amount of time to complete a review of contractual policy issues for gTLDs. The stated goal of the GNSO's Policy Development Process is to determine "what policies are appropriate, for the long-term future of gTLDs within the context of ICANN's mission and core values." By comparison, nothing in ICANN's posting for public information on the proposed registry renewals addresses how the terms of the agreement would support core principles such as competition, transparency, security, and accountability. ICANN's interest in moving forward on these proposals long before the agreements expire is perplexing in light of the long-standing concerns that members of the ICANN community have raised about proposed provisions such as automatic renewals. Network Solutions has advocated a presumption against automatic renewal and weak termination terms that remove ICANN's ability to encourage competition and to protect the DNS in the face of demonstrated "bad behavior." We urge ICANN to first address through policymaking deliberations key components of these proposed agreements before executing contracts that cannot be subsequently altered via Consensus Policy.