Concerns with the Agreement

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

On behalf of Network Solutions, LLC, I write to raise a number of
concerns with the proposed .TEL Registry Agreement (the "Agreement").
This is not a comment on Telnic Limited ("Telnic"), whether it should
operate the .TEL registry, or whether the Board should approve the
creation of a .TEL registry.  Rather, our comments are limited to
concerns with the following provisions of the draft Agreement.  These
comments also should be considered for other draft registry agreements
with similar provisions.
 
1.                         Presumptive Renewal
 
The Agreement provides that Telnic would operate the .TEL registry for a
ten-year term, and it provides a "presumptive renewal" provision
virtually guaranteeing that the agreement would be renewed after the
ten-year period.  The proposed presumptive renewal provision is
effectively an automatic renewal provision because the only limitation
on renewal is in the event of a material breach of one of just three
sections of the agreement.  Even then, renewal is presumed unless an
arbitrator has ruled that Telnic has breached one of those provisions
and such breach has not been cured within a reasonable time after the
arbitrator's award.  Telnic's control over the .TEL registry under the
agreement would be therefore of likely infinite duration, and ICANN
would be abandoning the bulk of its responsibilities to oversee the
registry operator's behavior.  
 

We do not oppose renewing registry operator agreements where the
registry operator has performed well during the term and the renewal is
on competitive terms.  We do oppose presumptive renewals, however, which
preclude that review and those terms.  ICANN's ability to carry out core
principles such as promoting security and stability, competition,
transparency and accountability are significantly restrained by
presumptive renewal provisions that foreclose future review, competition
and accountability in all but the most extreme of circumstances.  For
example, competition is one of the guiding principles for ICANN laid out
in the original Memorandum of Understanding (MoU) with the U.S.
Department of Commerce and a core principle in ICANN's Bylaws.  The MoU
provides that ICANN will promote "the management of the DNS in a manner
that will permit market mechanisms to support competition and consumer
choice in the technical management of the DNS.  This competition will
lower costs, promote innovation, and enhance user choice and
satisfaction."  Section II.C.2.  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.  

 

Moreover, presumptive renewal provisions alter the contractual checks
and balances that otherwise provide safeguards to ensure that ICANN
maintains a baseline of oversight over the agreement on a going forward
basis.  When seeking renewal, registry operators should justify their
renewal and meet certain continuing qualifications and standards, a
process .aero, .coop, and .museum have recently undergone.
(http://www.icann.org/announcements/announcement1-21dec05.htm).  Even if
registry operators meet these standards, ICANN should still have the
choice to seek out a bid at its discretion, thereby meeting its core
principles of promoting competition.  

  
Awarding a registry contract to an operator in perpetuity is neither the
only means nor the best means to ensure infrastructure investment.  A
ten-year time period is more than sufficient 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 presumptive renewal provisions and with less than ten-year
terms.  Regular review and rebidding motivates good behavior by ensuring
accountability and providing for periodic reviews of past performance,
which are key factors in contract extensions.  The assurance of
perpetual renewal of any TLD forswears reliance on competitive bidding
as a means of assuring compliance with ICANN's policies and principles,
whether or not the TLD has market power, and therefore is unnecessary
and unjustified.
 
Why would ICANN want to lose its leverage over the registry operators?
As more registries are approved, it becomes increasingly likely that a
registry operator will not act in a manner desired by ICANN or the ICANN
community, but will meet its very minimal contractual requirements or
will regularly cure contract breaches only when challenged.  ICANN needs
to reserve the right not to renew a registry agreement with a bad actor.

  
If ICANN insists on including a presumptive renewal provision, renewal
should not be presumed if there is a material breach of any part of the
contract.  The right not to renew should not be limited to a material
breach of just three sections of the Agreement (Section 3.1, 5.2, or
7.2).  Furthermore, the presumptive renewal provision in the proposed
Agreement is different than the provisions in the .jobs and .travel
agreements, which state that the registry operator's renewal "is
conditioned on its negotiation of renewal terms reasonably acceptable to
ICANN, including, but not limited to, provisions relating to
registry-level fees."  Inexplicably, ICANN proposes to reduce its
leverage again in the proposed .TEL Agreement by replacing this broad
language with a more restrictive provision.  
 
Finally, there currently are GNSO policy development processes (PDPs) to
address this very issue with regard to new registries and renewals of
existing registries.  ICANN should not enter into a permanent agreement
while the PDPs are pending on the same issue.  
 
2.            New Registry Services
 
There is no reason to include a provision on the approval of new
registry services in a registry agreement.  The proposed agreement with
Telnic provides that "Registry Operator will fully comply with and
implement all Consensus Policies . . . as of the Effective Date and as
may in the future be developed and adopted in accordance with ICANN's
Bylaws . . ."  Section III.1(b)(i).  There is an existing ICANN GNSO
Consensus Policy on the new registry services approval process to which
every registry operator must abide.  Notwithstanding, there is draft
provision related to the approval of new registry services.  See Section
III.1(d)(iv).  Including this provision is not only confusing, but could
cause a legal quagmire for a registry operator.  Should a registry
operator follow the Consensus Policy or the contract terms?  Are there
differences between the two?  What happens if the Consensus Policy
changes?  
 
To make matters more confusing, the new registry service provision in
the draft .TEL agreement is different than the existing Consensus Policy
and different than the policy in the proposed .com agreement.  For
example, the .TEL provision provides that "ICANN shall respect Registry
Operator's reasonable objection to the proposed disclosure of such
[confidential] information to a particular expert based on equitable or
competitive concerns."  Section III.1(d)(iv)(3).  This provision does
not appear in the Consensus Policy or the proposed .com contract.  Why
would ICANN want to operate under at least three different procedures
for the approval of new registry services?  It makes much more sense to
follow the Consensus Policy and delete the new registry services
provision from all registry agreements.  
 
3.            Terminations Provision
 
ICANN appears to be limiting its rights and leverage with regard to
termination of the proposed .TEL Registry Agreement.  Under the terms of
the proposed Agreement, ICANN only may terminate the Agreement if Telnic
is found by an arbitration panel to have been "repeatedly and willfully
in fundamental and material breach" of one of just three sections
(Sections 3.1, 5.2, and 7.2) and the arbitrators "repeatedly have found
Registry Operator to have been in fundamental and material breach of
this agreement, including in at least three separate awards, . . ."
Section IV.4.  ICANN shouldn't establish such a high burden for itself
to terminate a registry agreement.  Taking this provision together with
the presumptive renewal provision is an unacceptable abdication of
important responsibilities and tools ICANN needs to provide its
oversight function over registry operators.  ICANN has failed to explain
or justify its decision to abdicate its own responsibilities.

Furthermore, under Sections 5.4.1 in the registry agreements for .aero,
.biz, .coop, .info, .museum, .name, .org, and .pro, ICANN has the right
to terminate the agreements if: 

"There was a material misrepresentation, material inaccuracy, or
materially misleading statement, made with knowledge of its falsity,
inaccuracy, or misleading nature or without reasonable cause to believe
it was true, accurate, and not misleading, of then-existing fact or of
Registry Operator's [Sponsor's] intention in its application for the
Registry [Sponsored] TLD or any written material provided to or
disclosed to ICANN by the Registry Operator [Sponsor] in connection with
the application. The foregoing shall not apply to projections or
forward-looking statements (other than statements, not made in good
faith, about Registry Operator's [Sponsor's] intentions) in the
application or materials."

At some point, this provision was struck and does not appear in the
proposed .TEL Registry Agreement further limiting ICANN's rights and
leverage in this Agreement.  

Based on the above-mentioned deficiencies in the proposed Registry
Agreement, we recommend that the ICANN Board not approve this Agreement
in the current form.  Again, this is not a comment on Telnic or the .TEL
registry, but a criticism of certain terms in the proposed Agreement and
in any other similar proposed registry agreements.