RE: [gnso-vi-feb10] Joint Proposal

["Michael D. Palage" <michael@xxxxxxxxxx>]

Jon,

Let me start with your last question about defining market share. Personally
I am in full agreement. As noted in my email to Richard, the group seriously
considered pulling the 40% absolute bar from the proposal because of the
difficulties in defining market share and ICANN's lack of expertise in this
area. The fact that most of the comments (3) have raised similar questions
would probably reinforce our leaning toward removing this absolute bar as
stated in the footnote. However, we wanted to seek feedback from the entire
community before making that change. 

With regard to your first question which is a little more complex. These
were the principles that formed the basis of this proposal. First we are not
asking for an advisory opinion from a competition agency. In is my
understanding that within the context of the US DoJ, the do not give "green
lights" to proposed deals, they just "red light" potential enforcement
actions. I/we are looking into the standard that the DG-IV employs because
the group appreciates the need to NOT be US centric in our approach. 

Second, without breaching any fiduciary obligations from my time on the
ICANN Board, I can tell you that the VeriSign .COM contract was reviewed by
the US Government, and the funnel request that now appears in every gTLD
registry agreement provides a mechanism, e.g. "ICANN shall refer the issue
to the appropriate governmental competition authority or authorities with
jurisdiction." Therefore, if there is no mechanism to handle referrals from
ICANN, than the community has a much bigger problem on its hands.

Third, the fact that ICANN experts proposed a similar referral mechanism we
assumed (yes a very dangerous thing) that this should be ok. While the
Salop/Wright proposal only recommended sending a small subset to the
competition agencies for review, we did take an initial more expansive view.
Recognizing that more expansive view and how that might over load the
competition agency, that is one of the reasons why the proposal for ICANN to
forward any comments it received in connection with the public forum was
proposed. Therefore to use a scenario that Richard is probably most
concerned with, if a registry with zero market share proposes to use an
affiliated registrar, and the ICANN public comment forum has only a small
handful of comments, I do not see a competition agency needing a very large
time frame to make a determine if any enforcement action (red light) is
necessary.

With regard to time lines. It is my understanding that when mergers are
submitted to the DoJ (sorry for the US centric approach we are trying to
review DG-IV guidelines for our any revised/final proposal) their initial
review window is 30 days (we have proposed 45). The DoJ then has 30 days
after the last response to their subpoenas in which to take further "red
light" enforcement action. We figured doubling that time frame was
appropriate since this was kind of new subject matter for the person that
might be receiving these submissions from ICANN. Again based upon my
understanding of DoJ enforcement actions, if there is serious concern about
the proposed merger, the parties (company and competition authority) will
enter into an agreement to extend the review period. A driving factor in the
approach we took was to keep ICANN out of these competition areas in which
it lacked the requisite expertise and to allow the experts to handle these
bigger questions, just like no one on this list would go to an economist to
have their DNS configured for a DNSSEC implementation :-)

Hopefully this has answered all of your questions. Again these are my own
personal interpretations, and I will defer to my fellow Team MMA members to
offer any of their personal insight/opinion. I would also like to personally
thank my fellow Team MMA members for their close scrutiny of the proposal
prior to publication which makes answering these questions a whole hell of a
lot easier :-)

Best regards,

Michael Palage


-----Original Message-----
From: Jon Nevett [mailto:jon@xxxxxxxxxx] 
Sent: Monday, April 12, 2010 8:11 AM
To: Michael D. Palage
Cc: 'Jeff Eckhaus'; Gnso-vi-feb10@xxxxxxxxx
Subject: Re: [gnso-vi-feb10] Joint Proposal

Mike/Milton/Avri:

Thanks for offering your well thought-out proposal.  

One question I have about the proposal is whether you have consulted with
the US Department of Justice (DOJ) directly or indirectly through the ICANN
GC about the approval process?  In my prior conversations with DOJ staff
members, they have indicated to me that they are not set up to offer
advisory opinions in these circumstances.  Do we know if they would be in a
position to approve or disapprove a request to exceed 15% cross ownership? I
know that ICANN added these type of referrals to the relevant competition
authority in the Registry Services Evaluation Process, but as far as I know
that part of the process hasn't been tested in the US and these DOJ staff
members have indicated that such a request would not be able to be honored.
Even if it could be honored, they said that the timelines would be way too
short.  So the question is whether this part of the MMR proposal is viable
in the US?  It might be viable in other jurisdictions, but absent a positive
indication from the DOJ, I don't think that we should assume that it is in
the US.  

Also, when you talk about 40% market share, how should the relevant market
be defined?  In antitrust merger analyses (again in the US), one of the
hardest and most fought out aspects of the issue is how to define the
market.  So what did you have in mind -- would 40% be of all registries;
gTLD registries; a specific geographic market (e.g., 40% of registrations in
Canada); a specific substantive market (e.g., 40% of linguistic and cultural
registries), etc.?    

Thanks.

Jon 


On Apr 12, 2010, at 1:10 AM, Michael D. Palage wrote:

> 
> Jeff E.,
> 
> I was the chief proponent of the 15% baseline in the proposal so allow me
to
> explain my individual thinking. This new gTLD process will likely generate
> tens or potentially hundreds of millions of dollars in revenue. Therefore
> parties that feel that they have been denied an opportunity to fairly
> compete in that marketplace could litigate. Seeing how a lawsuit would
> potentially slow down the launch of the new gTLD process, I was looking
for
> a legal construct that would create parity within the existing marketplace
> (going forward and retroactively) and maximize ICANN's ability to prevail
in
> any lawsuit. 
> 
> Now when you look at the test that we have proposed it is highly unlikely
> that a competition agency would reject any co-ownership application
(0-100%)
> from any entity with less than 40% market share. Therefore 15% could have
> effectively been 0%. However, by using a 15% baseline we created parity
with
> the majority of the existing registry operator agreements. (This approach
I
> believe was also articulated in Jon Nevett's proposal). It is this same
> concern for parity on why I began to have serious second thoughts on the
40%
> market share absolute bar in the original proposal.  
> 
> In discussing the history of VRSN 15% contractual requirement, it had
> nothing to do with creating competition, and was just a by-product of what
> minor ownership VeriSign retained after selling NSI. As we discussed in
our
> group, competition had already been created in the registrar market place
> notwithstanding VeriSign owning the registry and registrar, in part
because
> of the structural separation and no self dealing rules that had been in
> place since 1999. 
> 
> I would really encourage you and other entities interested on entering the
> marketplace to focus on the >15% threshold and how competition authorities
> will handle those situations. Is the 15% threshold an historical artifact
-
> yes. However, any inconvenience by leaving it in this next draft agreement
> is clearly outweighed in my opinion by the parity it creates within the
> marketplace.  As my favorite ICANN General Counsel Louis Touton use to
say,
> ICANN is about protecting competition, not protecting competitors.
> 
> Best regards,
> 
> Michael
> 
> 
> -----Original Message-----
> From: owner-gnso-vi-feb10@xxxxxxxxx [mailto:owner-gnso-vi-feb10@xxxxxxxxx]
> On Behalf Of Jeff Eckhaus
> Sent: Sunday, April 11, 2010 8:11 PM
> To: Gnso-vi-feb10@xxxxxxxxx
> Subject: RE: [gnso-vi-feb10] Joint Proposal
> 
> 
> Team MMA,
> 
> First off MMA is the best acronym yet,  now I think of Mixed Martial Arts
> competitions inside a steel cage. Thanks for that.
> 
> The proposal looks good and look forward to hearing the details tomorrow. 
> 
> I do not want to jump the gun on the list but would like to ask a question
> that I hope you can address in your presentation tomorrow. The 15% limit
is
> a legacy number that I believe is contractually based and is rooted in the
> VeriSign / NSI sale and how they structured the deal. 
> 
> Could you discuss tomorrow the value of maintaining that 15% limit going
> forward ? Why is that the appropriate percentage of ownership?  How is 15%
> better than 5% or 51% or 100% ? 
> 
> 
> Thanks
> 
> Jeff E
> 
> 
> 
> ________________________________________
> From: owner-gnso-vi-feb10@xxxxxxxxx [owner-gnso-vi-feb10@xxxxxxxxx] On
> Behalf Of Michael D. Palage [michael@xxxxxxxxxx]
> Sent: Sunday, April 11, 2010 9:18 AM
> To: Gnso-vi-feb10@xxxxxxxxx
> Subject: [gnso-vi-feb10] Joint Proposal
> 
> Hello All,
> 
> Attached is the proposal which is being jointly submitted by Avri, Milton
> and myself to the working group for consideration.  We look forward to
> formally presenting this concept to the group on tomorrow's call, and
> answering any questions that you may have.
> 
> Best regards,
> 
> Michael Palage (on behalf of Team MMA)
> 
>