Re: [gnso-vi-feb10] the "it excludes some applicants" argument

[Richard Tindal <richardtindal@xxxxxx>]

I don't think it's an interpretation.  It's what the DAG 4 says.   Please read 
Module 1.2.1 and the New gTLD Agreement section 2.9 and let me know if you read 
them differently.

As for the pros and cons of this approach --- I think that's for the WG to 
discuss.   

My point is simply that this method (what's in the DAG now) doesn't limit 
ownership by registrars.  It limits beneficial ownership and/or control.

RT



On Jul 6, 2010, at 11:06 AM, Jeff Eckhaus wrote:

> Sorry, this is your personal interpretation and has not been validated by 
> Staff or the Board and actually does not make a lot of sense to me.  You are 
> saying the DAG is fine with allowing ownership, but is restricting the sale 
> of the stock of that company. What is the purpose of that and how does that 
> benefit users?
> Not really sure how this thread or line of discussion helps or goals and  I 
> think this Working Group should really focus on the charter and how we help 
> new TLDs, lets save the interpretation of the DAG for the lawyers and the 
> experts in these details.
>  
>  
>  
>  
> From: owner-gnso-vi-feb10@xxxxxxxxx [mailto:owner-gnso-vi-feb10@xxxxxxxxx] On 
> Behalf Of Richard Tindal
> Sent: Tuesday, July 06, 2010 10:48 AM
> To: Gnso-vi-feb10@xxxxxxxxx
> Subject: Re: [gnso-vi-feb10] the "it excludes some applicants" argument
>  
> Jeff E and Jeff N,
>  
> To clarify,  I'm saying the DAG 4 language allows eNom (for example)  to own 
> as much of a registry company as it wants as long as the following, four 
> criteria are met:
>  
> 1.  eNom cannot have voting rights in the stock
>  
> 2.  eNom cannot dispose of the stock
>  
> 3.  eNom cannot direct management
>  
> 4.  eNom cannot set registry policies
>  
> As long as these criteria are met eNom can own all of the registry company, 
> should it choose,  and eNom can receive all of the operating profits of that 
> registry company.
>  
> That's what's in the DAG (Module 1 and Draft Registry Contract) now.
>  
> RT
>  
>  
>  
> On Jul 6, 2010, at 9:34 AM, Jeff Eckhaus wrote:
> 
> 
> The statements below may be partially true but they are incomplete.  
>  
> 1.     The Resolution, as it stands now,  does allow beneficial ownership of 
> registries by registrars;  and
> (It allows 2% beneficial ownership, this is not ownership)
>  
> 2.     It's up to us to recommend policy.  If we like the like the Beneficial 
> Ownership language in the DAG we should feel free to incorporate it in our 
> proposals.    I do like it.    If incorporated in our proposals it allows 
> registrars to own registries -- but places a limit on control and influence 
> of that registry.
> (Again, this only allows 2% beneficial ownership)
>  
>  
>  
>  
> From: owner-gnso-vi-feb10@xxxxxxxxx [mailto:owner-gnso-vi-feb10@xxxxxxxxx] On 
> Behalf Of Richard Tindal
> Sent: Tuesday, July 06, 2010 8:02 AM
> To: Gnso-vi-feb10@xxxxxxxxx
> Subject: Re: [gnso-vi-feb10] the "it excludes some applicants" argument
>  
>  
> Jeff,
>  
> I understand what you're saying.  Given the profile of this issue over the 
> last year I'll be very surprised if the Board/ Staff didn't carefully review 
> the details of the Nairobi resolution - however I agree with you that we 
> don't know this for a fact.
>  
> Here are two things we do know though:
>  
> 1.     The Resolution, as it stands now,  does allow beneficial ownership of 
> registries by registrars;  and
>  
> 2.     It's up to us to recommend policy.  If we like the like the Beneficial 
> Ownership language in the DAG we should feel free to incorporate it in our 
> proposals.    I do like it.    If incorporated in our proposals it allows 
> registrars to own registries -- but places a limit on control and influence 
> of that registry.
>  
> RT
>  
>  
> On Jul 5, 2010, at 7:54 PM, Neuman, Jeff wrote:
> 
> 
> 
> Richard,
>  
> I appreciate this thread, but we are not sure, nor will they ever confirm or 
> deny, what ICANN staff’s motivation was behind the language they used.  It 
> could be as simple as the comments I filed to DAG 1 or 2 (can’t remember) 
> asking ICANN staff to look at United States SEC Rule 405 for the definition 
> of Affiliate/Associate, Ownership/control (where the notion of beneficial 
> ownership is discussed in definitions).  Or it could actually be deliberate.  
> Certainly I would not make the assumption that the Board approved or even saw 
> this language.
>  
> One thing I raised on the last call, which I will repeat in e-mail and will 
> repeat in comments, is that ICANN staff did not refer to the complete 
> definition of beneficial ownership as used by the applicable regulations.  
> Rule 13-d, reprinted below,  talks about how to determine “beneficial 
> ownership” and if you look at (b) below, that would seem to narrow down some 
> of the alternatives you imply in your e-mail (i.e., no putting shares into a 
> trust or pooling agreement, etc.). 
> 
> Perhaps this was purposely done, but I would not necessarily make that 
> assumption since failure to adopt the entire definition as reprinted below in 
> (b) would be subject to incredible gaming (now that I have told everyone how 
> to do it J).
>  
> +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
>  
> Rule 13d-3 -- Determination of Beneficial Ownership
> 
> 
>  
> a.     For the purposes of sections 13(d) and 13(g) of the Act a beneficial 
> owner of a security includes any person who, directly or indirectly, through 
> any contract, arrangement, understanding, relationship, or otherwise has or 
> shares:
> 
> 1.    Voting power which includes the power to vote, or to direct the voting 
> of, such security; and/or,
> 
> 2.    Investment power which includes the power to dispose, or to direct the 
> disposition of, such security.
> 
> b.    Any person who, directly or indirectly, creates or uses a trust, proxy, 
> power of attorney, pooling arrangement or any other contract, arrangement, or 
> device with the purpose of effect of divesting such person of beneficial 
> ownership of a security or preventing the vesting of such beneficial 
> ownership as part of a plan or scheme to evade the reporting requirements of 
> section 13(d) or (g) of the Act shall be deemed for purposes of such sections 
> to be the beneficial owner of such security.
> 
> c.     All securities of the same class beneficially owned by a person, 
> regardless of the form which such beneficial ownership takes, shall be 
> aggregated in calculating the number of shares beneficially owned by such 
> person.
> 
> d.    Notwithstanding the provisions of paragraphs (a) and (c) of this rule:
> 
> 1.     
> 
>                                       i.        A person shall be deemed to 
> be the beneficial owner of a security, subject to the provisions of paragraph 
> (b) of this rule, if that person has the right to acquire beneficial 
> ownership of such security, as defined in Rule 13d-3(a) within sixty days, 
> including but not limited to any right to acquire:
> 
> A.    through the exercise of any option, warrant or right;
> 
> B.    through the conversion of a security;
> 
> C.    pursuant to the power to revoke a trust, discretionary account, or 
> similar arrangement; or
> 
> D.    pursuant to the automatic termination of a trust, discretionary account 
> or similar arrangement; provided, however, any person who acquires a security 
> or power specified in paragraphs (d)(1)(i)(A), (B) or (C), of this section, 
> with the purpose or effect of changing or influencing the control of the 
> issuer, or in connection with or as a participant in any transaction having 
> such purpose or effect, immediately upon such acquisition shall be deemed to 
> be the beneficial owner of the securities which may be acquired through the 
> exercise or conversion of such security or power. Any securities not 
> outstanding which are subject to such options, warrants, rights or conversion 
> privileges shall be deemed to be outstanding for the purpose of computing the 
> percentage of outstanding securities of the class owned by such person but 
> shall not be deemed to be outstanding for the purpose of computing the 
> percentage of the class by any other person.
> 
>                                      ii.        Paragraph (d)(1)(i) of this 
> section remains applicable for the purpose of determining the obligation to 
> file with respect to the underlying security even though the option, warrant, 
> right or convertible security is of a class of equity security, as defined in 
> Rule 13d-1(i), and may therefore give rise to a separate obligation to file.
> 
> 2.    A member of a national securities exchange shall not be deemed to be a 
> beneficial owner of securities held directly or indirectly by it on behalf of 
> another person solely because such member is the record holder of such 
> securities and, pursuant to the rules of such exchange, may direct the vote 
> of such securities, without instruction, on other than contested matters or 
> matters that may affect substantially the rights or privileges of the holders 
> of the securities to be voted, but is otherwise precluded by the rules of 
> such exchange from voting without instruction.
> 
> 3.    A person who in the ordinary course of his business is a pledgee of 
> securities under a written pledge agreement shall not be deemed to be the 
> beneficial owner of such pledged securities until the pledgee AE1 has taken 
> all formal steps necessary which are required to declare a default and 
> determines that the power to vote or to direct the vote or to dispose or to 
> direct the disposition of such pledged securities will be exercised, 
> provided, that:
> 
>                                       i.        The pledgee agreement is bona 
> fide and was not entered into with the purpose nor with the effect of 
> changing or influencing the control of the issuer, nor in connection with any 
> transaction having such purpose or effect, including any transaction subject 
> to Rule 13d-3(b);
> 
>                                      ii.        The pledgee is a person 
> specified in Rule 13d-1(b)(1)(ii), including persons meeting the conditions 
> set forth in paragraph (G) thereof; and
> 
>                                     iii.        The pledgee agreement, prior 
> to default, does not grant to the pledgee;
> 
> A.    The power to vote or to direct the vote of the pledged securities; or
> 
> B.    The power to dispose or direct the disposition of the pledged 
> securities, other than the grant of such power(s) pursuant to a pledge 
> agreement under which credit is extended subject to regulation T and in which 
> the pledgee is a broker or dealer registered under section 15 of the act.
> 
> 4.    A person engaged in business as an underwriter of securities who 
> acquires securities through his participation in good faith in a firm 
> commitment underwriting registered under the Securities Act of 1933 shall not 
> be deemed to be the beneficial owner of such securities until the expiration 
> of forty days after the date of such acquisition.
> 
>  
>  
> Jeffrey J. Neuman 
> Neustar, Inc. / Vice President, Law & Policy
> 
> 
> 
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>  
> From: owner-gnso-vi-feb10@xxxxxxxxx [mailto:owner-gnso-vi-feb10@xxxxxxxxx] On 
> Behalf Of Richard Tindal
> Sent: Monday, July 05, 2010 10:20 PM
> To: Gnso-vi-feb10@xxxxxxxxx
> Subject: [gnso-vi-feb10] the "it excludes some applicants" argument
>  
>  
> I've heard comments that some WG proposals would exclude registrars from 
> participating in the registry business.  Having re-read the DAG language I 
> wanted to push back on that notion -- and stimulate some discussion on the 
> topic.
>  
> I've thought for some time now the Staff and Board have become very 
> sophisticated in their understanding of the cross-ownership issue.   Given 
> this, I think the DAG 4 language is very carefully worded so that it does not 
> place limits on 'ownership' of a registry by a registrar.  Rather,  it places 
> limits on 'beneficial ownership',  which is more akin to limits on control.
>  
> As I review the DAG language it seems clear a registrar could own as much of 
> a registry as it wanted,  and enjoy any operating profits from that registry, 
> as long as its 'beneficial ownership' was  limited.  Beneficial ownership 
> includes voting rights or the ability to sell shares.     If the DAG had 
> meant to place limits purely on ownership I think it would have used the term 
> "ownership" -  and not the more specific concept of "beneficial ownership".   
>  
> If the DAG language is applied then none of the proposals before this WG 
> (e.g.  RACK+)  would exclude registrars from owning registries.  Rather, it 
> would prevent those registrars from having beneficial ownership beyond 15%.   
>  As such I dont think registrars are excluded from becoming registries.  I 
> just think they are excluded from having control.
>  
> Comments welcome.
>  
> RT
>  
>