Re: [soac-newgtldapsup-wg] RESENT Proposal for application fee reduction

[Andrew Mack <amack@xxxxxxxxxxxx>]

All,

I spoke with Cintra in SF and want to make sure we keep this idea as simple
as possible.  Here's what I understood:

1) We want to help applicants that wouldn't otherwise get into the root,
especially those from underserved and needy areas/script communities.

2) A non-trivial part of the $185k ICANN mandated cost of an application --
perhaps some $30-60k, but we can confirm this -- is being requested by ICANN
specifically to serve as a "reserve" to cover the cost of legal disputes
which may or may not happen.

3) We propose to address this specific cost by working with an insurance
company or companies to build an insurance product specifically to address
this issue, so that insurance to cover the specific "legal risk" part of the
application could be purchased by potential applicants.

4) Parties covered by the insurance could be the applicant and ICANN.

5) This would lower the cost of the application, and provide appropriate
cover for ICANN.

If I understood correctly, this seems like a simple, even elegant solution
that would be targeted specifically to the "legal costs" issue that are
buried somewhere in ICANN's $185k application calculation.  In fact, the
idea isn't really a price concession at all -- just a better form of cash
management.

There are a number of unanswered questions:  Who would provide the insurance
and how much would it cost?  Also, how quickly could we get it set up?
Still need to get those questions sorted out.

That said, this is an elegant solution that could make it easier for
applicants, and in my mind is one worth looking into.

Cheers, Andrew

On Wed, Mar 23, 2011 at 9:12 PM, Cintra Sooknanan <
cintra.sooknanan@xxxxxxxxx> wrote:

>  Hi Mike,
>
> Thank you for your comments. I have responded in Blue below, quite a few
> points of clarification don't seem necessary as the sentences were broken up
> rather than read as a whole.
>
> For ease of reference I have highlighted your comments in Green. Please let
> me know if this clarifies, I would be happy if this encourages more
> discussion on the topic and welcome explanation of my points on skype chat
> or by email before Friday's call.
>
> Regards
>
> Cintra
>
>>
>> On Wed, Mar 23, 2011 at 8:14 AM, Mike Silber <silber.mike@xxxxxxxxx>wrote:
>>
>>>  Cintra
>>>
>>> A couple of questions if you don't mind - in-line below. I apologise if
>>> some of these are pedantic, however I do not believe it behoves this WG well
>>> if language is used loosely.
>>>
>>> Regards
>>>
>>> Mike
>>>
>>>
>>> On 22/03/2011 23:07, Cintra Sooknanan wrote:
>>>
>>>  ---------- Forwarded message ----------
>>> From: Cintra Sooknanan <cintra.sooknanan@xxxxxxxxx>
>>> Date: Mon, Mar 21, 2011 at 10:17 PM
>>> Subject: Proposal for application fee reduction
>>> To: SOAC-newgtldapsup-wg@xxxxxxxxx
>>>
>>>
>>> Dear All,
>>>
>>>  Following Peter Dengate Thrush's statement at the GAC/Board meeting in
>>> March that a fee reduction will be considered for needy applicants.
>>>
>>> I have no recollection of such a statement being made. Can you please
>>> point us to the transcript?
>>> Please see the bottom of page 119 of the transcript at
>>> http://meetings.icann.org/meetings/transcript-board-gac-28feb11-en.pdf
>>>
>>
>> "*>>S…BASTIEN BACHOLLET: Just a question about the transcript.*
>> *You say you are authorized or you are not authorized to have different
>> price? Because it was written "you are authorized," and I think --*
>> *>>PETER DENGATE THRUSH: Principle N, capital "N," for Nancy, from the
>> GNSO recommendations, from memory, says that if the board wants to, it can
>> set up disparate fee structures, including for needy applicants. We just
>> need to work out how to do this. There's no difficulty with the concept.*
>> "
>>
>>>
>>>   I propose that we suggest a fee removal/reduction
>>>
>>> Can you please explain the use of the term removal/reduction?
>>> Are you proposing the fee be waived in its entirety by the term
>>> "removal"?
>>> What is the preferred choice?
>>> If reduction - by what amount and how is this justified? If on a sliding
>>> scale - then using which criteria?
>>> Answering these questions is more appropriate after reading the latter
>>> part of my original sentence below.
>>>
>>>   to apply to the legal part of the application cost.
>>>
>>> Having just rechecked the DAG and the supporting documentation, I cannot
>>> find any reference to a "legal fee". Possibly that is shorthand that has
>>> been used in the group for another component of the application fee - in
>>> which I apologise for my ignorance and ask to be better informed.
>>>
>>> Are you referring to the Risk Costs?
>>>
>>
>>
>>> I quote from the cost considerations document 04 October 2009:
>>>
>>> "3.    Risk costs. Uncertain costs and costs that are harder to predict,
>>> or risks, include unanticipated costs such as variations between estimates
>>> and actual costs incurred. These costs expected value amount to $30,000,000,
>>> or $60,000 per application."
>>> Please note that before answering this I confirm that we do not actually
>>> know the exact break down of figures of the application fees, particularly
>>> in relation to litigation costs. But we are well aware that part of the
>>> application fee is set aside for legal costs relating to the present and
>>> past gTLDs (eg .xxx) . The aim is to reduce or eliminate this segment of
>>> the application costs because we are able to provide more thorough due
>>> diligence for needy applicants and that *they* will be actively managing
>>> the risk of litigation by taking out and maintaining indemnity insurance and
>>> contributing annually to ICANN'S gTLD compensation fund (yes I just made
>>> this name up).
>>>
>>> The removal OR reduction is to apply ONLY to the legal part of the
>> application cost. You are correct to say that the DAG does not refer to any
>> legal part per se, and in the budget this is bundled in the allocation to
>> Risk Costs
>> http://www.icann.org/en/topics/new-gtlds/new-gtld-budget-28may10-en.pdf .
>>  This aspect of the application fee is well known to the community, for
>> example the point was raised in Jothan Frakes' blog
>> http://blog.jothan.com/icann/new-gtlds-and-their-hidden-costs-part-1/
>>
>  ICANN claims that the $185,000 application fee covers its projected costs
>>> and no more. Yet $60,000—about a third of that fee—is earmarked for a
>>> contingency reserve, to cover risks like litigation and administrative costs
>>> for greater-than-expected numbers of applications. The Joint Supporting
>>> Organizations/Advisory Councils Working Group on New gTLD Applicant Support
>>> rightly “questions if ICANN really expects a total of US$30,000,000 (US$60k
>>> x 500 applications) in unknown or variable costs to surface.”
>>>
>>>
>>>    The legal part will instead be covered
>>>
>>>  Covered by whom?
>>>
>>> by the needy applicant by -
>>>
>>>  a) Passing our criteria for needy applicants;
>>>
>>> Again - will this be a full waiver, a partial waiver or a sliding scale
>>> contribution.
>>>
>>> b) Taking out and maintaining Indemnity Insurance to some minimum
>>> coverage amount e.g. US$5million; and
>>>
>>> Who will take out and maintain the insurance? In whose favour? In respect
>>> of which incidents / occurrences?
>>>
>>> c) Contributing annually to the body evaluating the criteria for need
>>>
>>> Who will make this contribution?
>>> I am proposing that ALL needy applicants (Being the applicants who have
>>> applied as needy and met our criteria) have a fee reduction based on *their
>>> mitigating their own legal risk*. I may be repeating myself, but they
>>> mitigate their own legal risk by taking out and maintaining indemnity
>>> insurance and by contributing to ICANN's gTLD compensation fund. In this
>>> way, if they have any issues/infringements the "aggrieved" may claim
>>> directly through the insurance and only if there is insufficient
>>> compensation they may be able to claim from the compensation fund.
>>>
>>>   (suggest ICANN Non profit company created for this purpose)
>>>
>>> I am not sure what this means? Are you suggesting that ICANN plays this
>>> role or a new entity? If a new entity - who will take the responsibility for
>>> the new entity including establishment costs, appointment of a Board (or
>>> similar), staff and salaries, tax exemption (if applicable), location of
>>> establishment (USA or elsewhere), audit and audit costs and other running
>>> costs?
>>> It is obvious that this function takes away from ICANN's core role.
>>>
>>
>
>> The idea existed that there be a separate independent body which is
>>> closely affiliated with ICANN (eg a non profit branch company of ICANN) will
>>> deal with assessment of needy applicants; I am suggesting that this body 
>>> also
>>> deals with the management and control of the compensation fund. This affords
>>> some independence and subsidiarity.
>>>
>>
>
>> In theory it is the also same reason/principle that Banks normally
>>> transfer bad debts to another Service Company in order to handle Mortgage
>>> Sales/Debt Recovery... it's about maintaining ICANN's core functionality but
>>> also about keeping ICANN's brand, reputation and name safe while having its
>>> subsidiary/sister company deal with problematic issues arising from the
>>> process.
>>>
>>
>
>> While the considerations you have listed are important, they would have
>>> had to be resolved for the proposed body evaluating the needy applicants so
>>> there would be no additional setup, but rather just an evaluation of
>>> additional ongoing working costs for this added role.
>>>
>>>   a specific amount to ICANN'S gTLD Compensation Fund. This fund is to
>>> be managed for the payment of losses in excess of that covered by insurance
>>> or for other purposes and is to be disbursed and managed solely by the body
>>> evaluating the needy criteria. See
>>> http://www.sra.org.uk/sra/regulatory-framework/solicitors-compensation-fund-rules-2009.page
>>>
>>>
>>>   I see absolutely no equivalence between grants to persons who have
>>> suffered losses or damage due to the actions of solicitors and the current
>>> situation.
>>> Picture this... ICANN creates the procedure and framework for the gTLD
>>> applications as well as opposition and final approval of those applications.
>>> It ensures that those that are wronged are compensated and that bad
>>> applicants are rejected. It does not own the gTLDs, it does not manage or
>>> mainatain them and it certainly should not responsible for any claims of
>>> infringement or otherwise arising from the issued gTLDs. --- ICANN (or
>>> designated body as suggested above) IS THE REGULATOR (such as the driver's
>>> licensing authority or the solicitors regulation authority or the dental
>>> authority)
>>>
>>
>>
>>> ICANN (or designated body as suggested above) will do some due diligence
>>> before granting a new gTLD, but it Should not be held responsible for
>>> the wrongs or misrepresentations of gTLD holders (as in the examples the
>>> above each respective regulatory body cannot prevent accidents that happen,
>>> are not liable for the lawyers that steal from client trust accounts or for
>>> dental malpractice) THOUGH they (as the regulator) do have a duty to ensure
>>> that there is an appropriate complaints and compensation mechanism. This is
>>> about balancing the need of Applicants for gTLD's with the protection of the
>>> Community. If the interests are effectively balanced then both parties can
>>> find a solution without having to go through/sue ICANN, if not, then ICANN
>>> will undoubtedly be sued either by the Applicants/holder or the Community.
>>>
>>
>>
>>> To further stress my point, ICANN (or designated body as suggested
>>> above)
>>>  must ensure that those that are wronged or 'aggrieved' have a mechanism
>>> to complain, to be compensated (primarily through insurance but also through
>>> the compensation fund) and to get rid of/punish infringing or negligent gTLD
>>> applicants and holders.
>>>
>>
> PERHAPS the scope of the compensation fund MAY also be utilised for actions
> by Needy Applicants who were denied, this is something we have to assess. (I
> believe staff has already allocated 70% rebate on their fee, but not sure of
> this applicability to needy applicants)
>
>>
>>>
>> If you are suggesting the creation of a compensation fund for consumers -
>>> that is a massive exercise (which could be quite interesting) but would
>>> involve a policy change at gNSO (and possibly ccNSO) level.
>>> I am only considering the insurance and compensation fund structure as a
>>> primary mechanism of settlement for issues arising from the needy applicants
>>> who become approved gTLD holders and related actions on these needy cases
>>> from the community.
>>>
>>
>
>> My focus is not on the parties bringing litigation (because this can be
>>> anyone not only consumers), my focus is on the party who the litigation
>>> should be directed to when it comes and how legitimate claims can be
>>> compensated--- My aim is that we must allow an effective complaints and
>>> compensation mechanism and ensure that ICANN is not the first point of
>>> litigation! If it works then maybe it can be applied to the rest of the
>>> community... there is no point to building a system that is too onerous on
>>> any segment of the community-- be it ICANN, the gTLD applicants/ owners or
>>> anyone who may be aggrieved by the process.
>>>
>>
>>
>>>
>>> If you read the DAG - ICANN enforces certain rules against registries but
>>> does NOT step in to compensate anyone who has suffered damages. There is no
>>> element of the application fee that relates to 3rd party damage. The fees
>>> relate to ICANN's costs and risks.
>>>
>> I recognise this, but understand that the whole point of there being a
>> risk costs allocation in the budget is so that ICANN can be proactive,
>> mitigate and avoid potential litigation. I am suggesting that it is crucial
>> for this round of gTLD applications to be successful, especially where it
>> concerns needy applicants who do not have deep pockets to sustain
>> litigation.
>>
>
>
>> ICANN should consider building in this Compensation fund measure in the
>> unthinkable situation where insurance is unable to cover *as well as* for
>> ICANN's own costs and risks.
>>
>>>
>>>   The aim of indemnity insurance is to allow aggrieved parties to
>>> directly claim against the gTLD owner through their insurance provider.See
>>> http://www.insuranceprofessionalindemnity.org/
>>> http://en.wikipedia.org/wiki/Professional_indemnity_insurance
>>>
>>> http://ezinearticles.com/?How-Professional-Indemnity-Liability-Insurance-Works&id=2658423
>>>
>>> http://www.bytestart.co.uk/content/20/20_3/hiscox-professional-indemnity-insurance.shtml
>>>  http://www.sra.org.uk/siir/
>>> Interestingly, we may also cater for matters dealt with by the Ombudsman
>>> e.g. as set out in the link above
>>> 1*.8*
>>>
>>> *Award by regulatory authority*
>>>
>>> *The Insurer will indemnify each Insured against any amount paid or
>>> payable in accordance with the recommendation or determination of the Legal
>>> Services Ombudsman, the Legal Complaints Service, the Office for Legal
>>> Complaints (including the Legal Ombudsman pursuant to sections 137(2)(c) and
>>> section 137(4)(b) of the Legal Services Act 2007) or any other regulatory
>>> authority to the same extent as it indemnifies the Insured against civil
>>> liability provided that the Insurer will have no Liability in respect of any
>>> determination by the Legal Ombudsman pursuant to section 137(2)(b) of the
>>> Legal Services Act 2007 to refund any fees paid to the Insured.*
>>>
>>>   This also has the benefit of taking ICANN out of the equation as the
>>> party being sued and in fact may allow ICANN to join the aggrieved party in
>>> its claim if it is found that the gTLD holder also caused some damage to
>>> ICANN's reputation etc.
>>>
>>>   ICANN has never been IN the equation.
>>>
>>> I am not sure how this proposal adds anything as it seems to be totally
>>> unrelated to the any version of the DAG to date or current practice in any
>>> TLD?
>>> It adds because it allows ICANN to reduce costs as well as try an
>>> alternative mechanism for managing its risks in the gTLD process by
>>> effectively making the each applicant and gTLD holders manage their own
>>> potential litigation costs arising from the gTLD. It provides some measure
>>> of assurance to ICANN that it won't be sued instead of needy applicants (who
>>> are not worth suing anyway) As well as for the community to know they have
>>> some measure of recourse which will be cheaper and more effective than the
>>> Courts.
>>>
>>>   This is just a framework I am suggesting, we will have to modify it to
>>> the gTLD process. But I think it is applicable and a good way to reduce fees
>>> and build some assurance that ICANN will not have to constantly be on guard
>>> for litigation.
>>>
>>>   I really do not see how this is applicable or how it can reduce fees.
>>> The ICANN concern about litigation does NOT necessarily relate to 3rd
>>> parties.
>>> I agree I have mainly dealt with 3rd parties suing not only the
>>> applicant/holder but also ICANN, and suggested that even where 3rd parties
>>> wish to sue ICANN because the Applicant/holder's insurance is their first
>>> point of claim, this means the claim on ICANN would be significantly
>>> reduced.
>>>
>>
>
>> ALSO, I have suggested that ICANN can apply the compensation fund to
>>> instances where it is sued by the Applicant/holder and I would strongly
>>> endorse ICANN reviewing obtaining insurance for these instances. I am not
>>> aware of the specific details, but I know this was reviewed in the past and
>>> the cost was too high. Perhaps with this unbundling of claims --only
>>> generally coming from needy Applicants/holders-- and not the World, it may
>>> lead to a premium reduction?
>>>
>>
>>
>>>
>>> In addition - ICANN cannot force anyone to use such a process. At best
>>> ICANN can take out insurance - but will have to pay for it and hand over
>>> litigation to the insurance company.
>>> Why not? if it is part of the process for needy applicants, it is part of
>>> the process... if you don't want to insure then don't drive or practice
>>> law/medicine! Further I think because it will reduce the application fees it
>>> will be welcome by the applicants.
>>>
>>
>>
>>
>>
>


-- 
*
                                                       *

***Andrew A. Mack
**Principal
*AMGlobal Consulting

+1-202-642-6429  amack@xxxxxxxxxxxx
2001 Massachusetts Avenue, NW  First Floor
Washington, DC 20036
www.amglobal.com