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

[Richard Tindal <richardtindal@xxxxxx>]

All,

I think there's misunderstanding regarding the basis of the $60K risk 
component.  

In the thread below there seems to be a focus on litigation, but that sort of 
cost does not play a strong role in the documents explaining the $60K.

I believe this is the most recent analysis of the $185K fee -- 
http://www.icann.org/en/topics/new-gtlds/cost-considerations-04oct09-en.pdf

Para 3 (3) on page 6 and Section 3.3 on pages 11 and 12 are the most relevant.  
  These extracts define risk more in terms of unexpected costs relating to the 
evaluation process itself.  For example:

•       What would happen if many more or many fewer applications were received 
than anticipated?
•       How simple or complex will the average application be (dictating how 
many process steps must be executed for each application)?
•       Have expected fees by outside consultants been estimated correctly?
•       Are the time estimates for each task accurate?
•       What happens if additional tasks are required?
•       Have expenses for support functions such as information technology 
systems, legal support, contract support, and the like been fully identified?
•       Will additional external costs be required to shore up defense against 
unanticipated events?

Although litigation costs could become part of this, I think the $60K is 
largely based on unexpected changes to the 100+ procedures that form the 
evaluation process.

Richard



On Mar 23, 2011, at 6:12 PM, Cintra Sooknanan 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.
> 
>  
> 
>