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

["Mike Rodenbaugh" <icann@xxxxxxxxxxxxxx>]

Both Richard and Jeff E. seem to be quoting contradictory provisions of
DAGv4.

 

Otherwise I agree completely with Milton here, and with Jothan's last post
re the restriction on sale of one's own TLD.  These proposed restrictions
make no sense whatsoever for new TLD applicants, and seem only to be blatant
attempts at self-preservation by existing contract parties.  Their efforts
to prove any harms that will befall non-contract parties have failed.  And
in any event, any such harms, if serious enough, can be addressed through a
later PDP.  Meanwhile there is no consumer-based justification to restrict
free trade in new TLD domain names.

 

Mike Rodenbaugh

RODENBAUGH LAW

tel/fax:  +1 (415) 738-8087

http://rodenbaugh.com <http://rodenbaugh.com/> 

 

From: owner-gnso-vi-feb10@xxxxxxxxx [mailto:owner-gnso-vi-feb10@xxxxxxxxx]
On Behalf Of Milton L Mueller
Sent: Wednesday, July 07, 2010 7:52 AM
To: Jeff Eckhaus; Gnso-vi-feb10@xxxxxxxxx
Subject: RE: [gnso-vi-feb10] the "it excludes some applicants" argument

 

I agree that Richard T. is interpreting the DAGv4 correctly, and I agree
with Jeff E. that the DAGv4 limitations have no real purpose and no public
interest justification. Their only purpose is to maintain an ownership
separation between registries and registrars, and such limitations have
utterly no justification in new TLDs lacking in market power. 

 

The idea that applicants are not "excluded" because they can "own" part of a
registry in such a remote, neutered way (no voting rights, no policy
control, no ability to sell shares, no direct mgmt) is a pretty lame attempt
by the status quo advocates to cover their posteriors against antitrust
arguments. I'm not buying it. 

 

Imagine if someone proposed that computer manufacturers couldn't open their
own retail outlets except under the conditions in the DAGv4. Would this be a
barrier to computer companies opening retail outlets? Of course it would be.
The limitations eliminate almost all of the reasons anyone would want to
open their own retail outlet. 

 

--MM

 

From: owner-gnso-vi-feb10@xxxxxxxxx [mailto:owner-gnso-vi-feb10@xxxxxxxxx]
On Behalf Of Jeff Eckhaus
Sent: Tuesday, July 06, 2010 2:07 PM
To: Gnso-vi-feb10@xxxxxxxxx
Subject: RE: [gnso-vi-feb10] the "it excludes some applicants" argument

 

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)
<http://www.law.uc.edu/CCL/34Act/sec13.html#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)
<http://www.law.uc.edu/CCL/34ActRls/rule13d-3.html#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)
<http://www.law.uc.edu/CCL/34ActRls/rule13d-1.html#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)
<http://www.law.uc.edu/CCL/34ActRls/rule13d-3.html#b> ;

                                     ii.        The pledgee is a person
specified in Rule <http://www.law.uc.edu/CCL/34ActRls/rule13d-1.html#b.1.ii>
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
<http://www.law.uc.edu/CCL/34Act/sec15.html>  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