Renewal is Premature

["Nevett, Jonathon" <jnevett@xxxxxxxxxxxxxxxxxxxx>]

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.