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

[Richard Tindal <richardtindal@xxxxxx>]

The registrar entity itself (eNom Inc) couldn't apply --  but that shouldn't 
concern you as Free Trade,  JN2 and RACK all have that same requirement --- for 
reasons of structural separation they all require that the registry be a 
separate corporate entity from the registrar entity.     

The issue is how much of the registry entity the registrar entity can own,  and 
what sort of ownership.

What the DAG4 says is that eNom Registrar Inc can own up to 100% of a registry 
entity (e.g.  eNom Registry Services Inc) as long as the four conditions are 
met -  no ability to direct management,  no ability to set policies,  no voting 
rights,  etc).

Richard



On Jul 6, 2010, at 4:32 PM, Jeff Eckhaus wrote:

> This is the language that I read and seems pretty clear to me that it 
> excludes Registrars
>  
> Restrictions on Registrar Cross-Ownership1-- Applications will not be 
> considered from any of the following:
> 1. ICANN-accredited registrars or their Affiliates;
> 2. Entities controlling or Beneficially Owning more than 2% of any class of 
> securities of an ICANN- accredited registrar or any of its Affiliates; or
> 3.Entities where 2% or more of voting securities are beneficially owned by an 
> ICANN-accredited registrar or any of its Affiliates.
> Further, applications where the applicant has engaged an  ICANN-accredited 
> registrar, reseller, or any other form of distributor or any of their 
> Affiliates (or any person or entity acting on their behalf) to provide any 
> registry services for the TLD will not be approved
>  
>  
> From: owner-gnso-vi-feb10@xxxxxxxxx [mailto:owner-gnso-vi-feb10@xxxxxxxxx] On 
> Behalf Of Richard Tindal
> Sent: Tuesday, July 06, 2010 11:43 AM
> To: Gnso-vi-feb10@xxxxxxxxx
> Subject: Re: [gnso-vi-feb10] the "it excludes some applicants" argument
>  
> 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
>  
>  
>