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

[Richard Tindal <richardtindal@xxxxxx>]

I agree with Avri.

Also, to keep the discussion as fact based as possible, it should be noted 
there have been no litigation costs for XXX,  rather IRP costs (per ICANN's 
Bylaws).  In addition, all new TLD applicants
are currently required to make this undertaking (my bold text):

6-3 Module 6 Top-Level Domain Application Terms and Conditions    Applicant 
hereby releases ICANN and the ICANN Affiliated Parties from any and all claims 
by applicant that arise out of, are based upon, or are in any way related to, 
any action, or failure to act, by ICANN or any ICANN Affiliated Party in 
connection with ICANN’s review of this application, investigation or 
verification, any characterization or description of applicant or the 
information in this application, or the decision by ICANN to recommend, or not 
to recommend, the approval of applicant’s gTLD application. APPLICANT AGREES 
NOT TO CHALLENGE, IN COURT OR IN ANY OTHER JUDICIAL FORA, ANY FINAL DECISION 
MADE BY ICANN WITH RESPECT TO THE APPLICATION, AND IRREVOCABLY WAIVES ANY RIGHT 
TO SUE OR PROCEED IN COURT OR ANY OTHER JUDICIAL FOR A ON THE BASIS OF ANY 
OTHER LEGAL CLAIM AGAINST ICANN AND ICANN AFFILIATED PARTIES WITH RESPECT TO 
THE APPLICATION. APPLICANT ACKNOWLEDGES AND ACCEPTS THAT APPLICANT’S 
NONENTITLEMENT TO PURSUE ANY RIGHTS, REMEDIES, OR LEGAL CLAIMS AGAINST ICANN OR 
THE ICANN AFFILIATED PARTIES IN COURT OR ANY OTHER JUDICIAL FORA WITH RESPECT 
TO THE APPLICATION SHALL MEAN THAT APPLICANT WILL FOREGO ANY RECOVERY OF ANY 
APPLICATION FEES, MONIES INVESTED IN BUSINESS INFRASTRUCTURE OR OTHER STARTUP 
COSTS AND ANY AND ALL PROFITS THAT APPLICANT MAY EXPECT TO REALIZE FROM THE 
OPERATION OF A REGISTRY FOR THE TLD.

Richard


On Mar 25, 2011, at 12:00 AM, Avri Doria wrote:

> 
> Hi,
> 
> We already have proposals for ways to reduce fees in the Milestone report, 
> section 2.2.  
> 
>> 1. Full consensus: Waive the cost of Program Development11 (US$26,000) for 
>> applicants meeting the criteria for assistance. The US$26,000 is not part of 
>> the implementation budget, but rather to reserve repayment of previously 
>> budgeted funds. The WG expects relatively few applicants (relative to the 
>> total number of new gTLD applicants) to meet the criteria for assistance, so 
>> the financial burden of waiving these fees should be reasonable.
> 
>> 2. Full consensus: Staggered Fees. Instead of paying the entire fee upon 
>> acceptance of the applications, applicants meeting the criteria established 
>> for support could pay the fees incrementally (perhaps following the refund 
>> schedule in reverse). Allowing an applicant to have a staggered fee payment 
>> schedule gives the applicant more time to raise money, and investors will be 
>> more likely to back an application that passes the initial evaluation. 
>> Staggered fees enable an applicant to compete for strings that might 
>> otherwise have gone to the first and/or only group with enough money to 
>> apply. If the applicant does not proceed through the entire process, they 
>> are not "costing" ICANN the full projected amount, therefore cost recovery 
>> remains intact.
> 
>> 3. Full consensus: Auction Proceeds. Qualified applicants receive a partial 
>> refund from any auction proceeds - for which they can repay any loans or 
>> invest into their registry, and/or the auction proceeds could be used to 
>> refill the disadvantaged applicant’s foundation fund for subsequent rounds.
> 
>> 4. Full consensus: Lower the Registry fixed fees that are due to ICANN. In 
>> lieu of the Registry-Level fixed fee of US$25,000 per calendar year, only 
>> charge the Registry-Level Transaction Fee per initial or renewal domain name 
>> registration to a fee comparable to a minimum used for other gTLDs. An 
>> annual fee of US$25,000 to ICANN is a barrier to sustainability for an 
>> applicant representing a small community. If a minimum is absolutely 
>> required, then lower this fee to 30% for qualified applicants.
> 
>> 5. Full consensus: Reconsider the Risk/Contingency cost per applicant 
>> (US$60,000). The Working Group questions if ICANN really expects a total of 
>> US$30,000,000 (US$60,000 x 500 applications) in unknown costs to surface. 
>> This fee should be eliminated for applicants that meet the criteria 
>> established by the WG. If elimination is not possible, then it should be 
>> drastically reduced.
> 
>> 6. Consensus: The US$100,000 base cost to be reviewed in order to determine 
>> if any reductions could be made available to suitable applicants in need.
> 
> In terms of Item 6,  perhaps some further reductions based on the nature of 
> the unanalyzed 100KUSD  portion of the fee - the place where past litigation 
> fees might be buried,  neither the GNSO nor the ALAC felt that this further 
> analysis should be part of our work, despite our consensus recommendation in 
> the milestone report.
> 
> What was missing, and we are working on now, were the specific criteria by 
> which one would be qualified for such fee reductions.
> 
> I suggest that we do not redo the work on fee reduction, but stick with our 
> initial recommendations for reductions.
> 
> a.
> 
> 
> 
> On 25 Mar 2011, at 01:40, Cintra Sooknanan wrote:
> 
>> Hi Karla and JAS members/observers,
>> 
>> It seems to me that Peter's statement (posted in my last email to this 
>> thread) is imploring us to find a way for the Board to reduce fees for needy 
>> applicants! 
>> As such I would have liked to write up my proposal for application fee 
>> reduction on the wiki, to be evaluated prior to the call tomorrow. However, 
>> there seems to be some confusion to the allocation/breakdown of the 
>> application fee. 
>> 
>> At this point, I think it is crucial that the work group understand exactly 
>> how costs are allocated (have a breakdown of the fees) and definition of 
>> what is meant by risk allocation costs in the budget. In this way, we will 
>> have a constructive and clear understanding of the costs allocations and 
>> perhaps consider alternative costing mechanisms. 
>> 
>> I would like to have confirmation as to whether or not ICANN has catered for 
>> obvious (eg. from .xxx) and potential litigation, that will arise from this 
>> process. I think this goes to the core of our WG, as ICANN must offer an 
>> effective procedure for needy applicants (which includes the ability to 
>> properly advise and offer protection mechanisms from these risks). I do not 
>> endorse us allowing needy applicants to buy into a vague and incomplete 
>> system, particularly because these applicants require advice, financial and 
>> technical assistance from ICANN (or appropriate evaluating body) to apply! 
>> 
>> I am also suggesting that we consider the possibility that the GNSO change 
>> its policy on cost recovery before the conclusion of this Working Group's 
>> task, but I will be guided by the other members of the group on this point.
>> 
>> Kind regards
>> 
>> Cintra  
>> 
>> On Thu, Mar 24, 2011 at 1:33 PM, Richard Tindal <richardtindal@xxxxxx> wrote:
>> 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.
>>> 
>>> 
>>> 
>>> 
>> 
>> 
> 
>