Internet Commerce Association Strongly Opposes Adoption of These Revised Agreements

["Phil Corwin" <pcorwin@xxxxxxxxxxxxxxxxxx>]

By E-Mail

 

 

                                                                                
                November 14, 2006

 

Board of Directors

Internet Corporation for Assigned Names and Numbers (ICANN)

4676 Admiralty Way, Suite 330 
Marina del Rey, CA 90292-6601

 

Re: Revised .BIZ, .INFO, and .ORG Registry Agreements

 

Dear Members of the ICANN Board:

 

This comment letter is submitted by the Internet Commerce Association (ICA) in 
regard to the October 24th ICANN notice, "Revised .BIZ, .INFO, and .ORG 
Registry Agreements Posted for Public Comment". ICA is a new, not-for-profit 
trade association. Its membership is composed of individuals and companies that 
own, buy, sell, resell, host and manage Internet traffic emanating from search 
engines, domain names and Internet links. ICA's mission is to promote the 
values and benefits of Internet traffic, including the value of purchasing 
direct navigation traffic, to the press, advertisers, and governmental 
authorities on a global basis. ICA stands for Internet prosperity and 
entrepreneurship and for fairness among regulators and in the dispute 
resolution process, taxation, and treatment under other relevant laws, 
regulations, and agreements in the U.S. and other nations. ICA has been 
established to provide a unified voice for a membership with common interests 
and a diverse collection of experience in the Internet traffic marketplace. The 
website ownership community represented by ICA has risked large amounts of 
capital in order to develop domain names as the first new form of property of 
the virtual age. These professional registrants are the source of the fees that 
support registrars, registries, and ICANN itself.

 

The ICA is strongly opposed to the adoption of these revised TLD agreements. 
The extremely modest revisions made to the original proposals utterly fail to 
meaningfully address the multiple substantive concerns raised by the ICA as 
well as the broad Internet community. Further, adoption of these revised 
agreements would thoroughly undermine the credibility of ICANN's recent 
commitment to greater transparency and accountability in its operations. In 
particular, the allowance of unjustified registry price increases under these 
agreements by perpetual monopolists subject neither to effective price 
regulation nor market re-testing of pricing levels and service quality would 
allow them to levy an unjustifiable tax of the property value of domain names 
and would thereby unjustly enrich registries at the expense of the registrant 
community. ICANN has yet to articulate any convincing policy justification for 
such contract provisions, and in particular has failed to explain its view of 
the proper role of TLD registries and the extent to which their pricing 
policies and services are adequately governed by inter-registry competition and 
other factors; true transparency of and accountability for ICANN's registry 
policies cannot exist in the absence of such a clear policy framework and its 
debate within the Internet community. In addition, the adoption of privately 
negotiated agreements imbued with such broad policy and competitive 
implications in advance of any consideration of the forthcoming PDP 06 report 
on core TLD registry management issues would be at complete odds with ICANN's 
rhetorical commitment to greater transparency and accountability.   

 

The remainder of this letter provides further details regarding our position.

 

 

The Revised Agreements Fail to Address the Substantial Shortcomings of the 
Originals

 

On August 28, 2006 the ICA posted its comments regarding the original versions 
of these proposed agreements (that comment, available at 
http://forum.icann.org/lists/biz-tld-agreement/msg00523.html 
<https://outlook.sierracorp.us/exchweb/bin/redir.asp?URL=http://forum.icann.org/lists/biz-tld-agreement/msg00523.html>
 , was made under our original name of Internet Traffic Association (INTRAS)).

 

The General Position stated in that letter was as follows:

 

INTRAS believes that consideration of the proposed agreements is premature and 
that the accelerated comment and decision process under which ICANN seeks to 
make a final decision on this matter fails to allow the affected Internet 
community sufficient time to consider the broad and fundamental changes to 
Internet governance that will result from adoption of the proposed agreements. 
In particular, INTRAS is strongly opposed to the provisions of the proposed 
agreements that allow for their perpetual renewal under almost any 
circumstance, and that not only remove price caps on domain name registrations 
but allow registry operators to, for the first time, implement tiered pricing 
on domain names. Registry operation is a natural monopoly and the only means by 
which to curb potential abuses of that monopoly is for ICANN to exercise a 
strong and continuing oversight role over registry operators and to allow for 
appropriate marketplace testing at the time of an agreement's renewal. 
Perpetual renewal as proposed in these agreements deprives ICANN of any 
meaningful control over the service quality or conduct of registry operators 
and makes a mockery of the potential discipline of arbitration or litigation 
concerning fundamental and material breaches of the registry agreements. 
Unrestrained pricing power, especially tiered domain name pricing, would effect 
a fundamental alteration of the role of registry operators from technical 
providers of ministerial services to unrestrained and unelected taxing 
authorities with the potential to extract extortionate and parasitic rents from 
entrepreneurs whose work and capital have built successful websites and 
associated businesses. Tiered pricing also creates a dangerous potential 
conflict between the power of registry operators and the intellectual property 
rights of domain name owners in regard to websites whose names constitute 
registered and valuable trademarks under the laws of the United States and 
other jurisdictions. INTRAS believes that there is virtually no support in the 
broad Internet community for such fundamental alteration in the powers and 
roles of registry operators and that the substance and timing of these 
proposals is directly contrary to the "bottom up" consensus Internet governance 
process that ICANN is charged with implementing. These proposed agreements 
threaten the free and unfettered flow of commerce and ideas on the Internet. 
Adoption of these proposed agreements by ICANN's Board at its upcoming 
September 13th meeting would further undermine support for ICANN's policies and 
procedures among major segments of the Internet community and would therefore 
be detrimental to efforts to assure that the long-term governance of the domain 
name system (DNS) remains centered within ICANN rather than in some new 
multinational entity subject to politicization.   

 

INTRAS therefore strongly opposes finalization of the proposed registry 
agreements at this time. INTRAS urges the ICANN Board to immediately withdraw 
these agreements and to republish them for comment only at an appropriate time 
after the Internet community has been afforded sufficient opportunity to fully 
consider their ramifications. When these proposed agreements are republished 
INTRAS urges that:

·        Perpetual renewal be replaced by a renewal process that affords ICANN 
sufficient power to discipline registry operators who have engaged in 
fundamental and material breaches, and that allows for vigorous marketplace 
testing of the service quality, conduct, and pricing regimes of existing 
operators through a competitive re-bid process.

·        Meaningful controls on registration price increases during the term of 
the agreements be incorporated within the agreements.

·        The revised agreements put out for public comment should specifically 
forbid differential pricing for domain names based upon the revenues or traffic 
of any domain site operator, the value of any trademarked term incorporated 
within a domain name, or any other factor.

·        The notice provided by ICANN should be accompanied by detailed 
explanations of and policy justifications for any proposed material changes in 
agreement terms, and the comment procedure should afford the broad Internet 
community sufficient time to fully consider their implications and develop 
responsive commentary for submission to ICANN.

 

The only revision of the republished agreements that in any way responds to our 
concerns is a change from unlimited future price increases to an annual cap of 
ten percent on such future increases. This would still allow for a 
near-doubling of registry prices over the term of the new agreements absent any 
justification, and would still allow for differential pricing based upon the 
value of particular domain names and the businesses they host. And there is no 
assurance that even the ten percent price increase cap will remain in effect 
for the full term of the agreement, as the agreements now provide that "ICANN 
shall consider and discuss with registry Operator other appropriate changes to 
pricing and related terms under the Agreement in the event ICANN shall obtain 
further independent data from professional experts providing analysis of the 
pricing of domain name registrations and competitive market considerations". 
This new provision clearly contemplates the possibility of future annual price 
increases of more than ten percent during the term of the new agreements.   All 
of this is utterly unacceptable. 

 

Further, ICANN's failure to materially respond to the multiple concerns of 
those who filed more than 1,000 comments on the original proposals (virtually 
all of which were opposed), or to even explain why it was leaving unchanged the 
great majority of those provisions of the agreements relevant to their 
concerns, is also unacceptable. Such cavalier and unexplained dismissal of 
those comments is completely at odds with the "bottom up" consensus process 
that allegedly guides ICANN actions, and hardly demonstrates a meaningful 
commitment to transparency and accountability.

 

We are greatly troubled that the notes of your most recent Board meeting of 
October 18, 2006 indicate that this present comment process may be an exercise 
devoid of meaning. The adopted Resolution calling for an "Economic Study of 
Proposed registry Agreements" contains the following provision: Whereas, the 
Board has carefully considered the proposed new agreement, and the public 
comments and the registry responses 
<http://www.icann.org/announcements/announcement-1-12oct06.htm> , and finds 
that approval of the proposed new agreements would be beneficial for ICANN and 
the Internet community, provided that ICANN and the registry operators are able 
to agree to appropriate revisions to the proposed agreements to address 
competition-related issues such as differential pricing. We fail to understand 
how the Board could believe that approval of the proposed agreements would be 
beneficial for the Internet community when comments from the community opposed 
them by a 200-to-1 ratio; further, the revised agreements do not address 
differential pricing and in fact appear to permit it so long as the maximum 
price charged to any entity stays within the ten percent annual limit on 
increases. 

 

The Resolution then goes on to assert:  Whereas, the GNSO is currently 
conducting a policy-development process that includes study of some of these 
issues, but ICANN has pressing operational questions relating to its bilateral 
contracts with registry operators that need to be resolved, separate from any 
generally applicable new policies on this subject that might be recommended 
through the GNSO process. This feeble rationale for failing to await the GNSO 
study of TLD management issues demonstrates a lack of accountability to ICANN's 
own internal policy development processes, and attempts to artificially 
separate so-called pressing operational questions from underlying policy 
justifications when, in fact, those "operational questions" are not as pressing 
as ICANN avers and the substance of the proposed agreements attempts to put in 
place substantially new and near-perpetual policies regarding the fundamental 
role and powers of registry operators. 

 

We do applaud the provision of the Resolution that directs the ICANN President 
to commission an independent economic study on the domain registration market, 
including such questions as:

*        whether the domain registration market is one market or whether each 
TLD functions as a separate market,
*       whether registrations in different TLDs are substitutable,
*       what are the effects on consumer and pricing behavior of the switching 
costs involved in moving from one TLD to another,
*       what is the effect of the market structure and pricing on new TLD 
entrants, and
*       whether there are other markets with similar issues, and if so how are 
these issues addressed and by who?

The ICA would be pleased to provide input to such a study. However, the 
probative value of both the GNSO process and the proposed economic study have 
been completely undercut by ICANN's decision to publish, a scant six days after 
adoption of this Resolution, new versions of the agreements that are nearly 
identical to the original proposals that elicited such broad opposition, and to 
afford the Internet community a scant three week comment period.  Such actions 
can only generate deep concern that ICANN has already decided to adopt these 
cosmetically altered agreements on an expedited timetable without the benefit 
of GNSO input or relevant economic data.

Inasmuch as the revised registry agreements fail to address our concerns in any 
substantial or meaningful way, we must remain strongly opposed to their 
adoption for the following reasons:

*       Final action at this time would still be premature, especially as it 
would predate the receipt of the Generic Names Supporting Organization's (GNSO) 
PDP 06 report on core TLD management issues and thereby undermine ICANN's own 
internal policy development process.
*       The agreements still provide for essentially perpetual renewal 
regardless of a registry operator's contract breaches, and without any 
realistic opportunity for assurance of fair pricing and service quality through 
the market testing provided by a competitive renewal process.
*       The agreements still permit the introduction of differential pricing, 
which we continue to regard as an unjustified tax on the value of particular 
domain names and the businesses they host. Further, ICANN has failed to 
articulate any rationale for permitting annual price increases of up to 10% 
absent any cost justification, which would allow for a near-doubling of 
registration fees over the term of the new agreements, when marketplace prices 
for competitively set technology services continue to fall. Given that the 
pricing of .Net registrations fell by one-third when the renewal of that TLD 
agreement was made subject to competitive re-bid, we see no justification for 
permitting substantial price increases for the three TLDs at issue here absent 
compelling justification. In fact, ICANN has yet to explain to the broad 
Internet community why, following the .Net example, the initial base price set 
by the agreements should not be reduced to $4 rather than maintained at the 
present $6 level.
*       The proposing of such "revised" agreements that fail to meaningfully 
address the multiple concerns of the broad Internet community, as articulated 
in more than 1,000 comments on the original proposal, would severely undercut 
the credibility of ICANN's recent commitment to greater transparency and 
accountability that was made in the context of the renewal of its Memorandum of 
Understanding (MOU) with the U.S. Department of Commerce (DOC).
*       The substance of the revised agreements and the procedures for their 
publication and adoption fail to include any of the revisions and protections 
urged by ICA in our original comment letter.

 

Adoption of the Revised Agreements Would Devalue ICANN's Rhetorical Commitment 
to Greater Transparency and Accountability

 

On October 31, 2006 the ICA posted its comment to your inquiry requesting an 
"Initial Response Regarding Development of Transparency and Accountability 
Management Operating Principles". In that comment letter we made the following 
observations regarding the interplay between the revised TLD agreements and 
ICANN's commitment to greater transparency and accountability (full letter 
available at http://forum.icann.org/lists/principles-comments/msg00012.html 
<https://outlook.sierracorp.us/exchweb/bin/redir.asp?URL=http://forum.icann.org/lists/principles-comments/msg00012.html>
 ):

 

Comments received from the Internet community ran 200 to 1 against the 
proposals. As ICANN's own September 7th "Summary of Public Comments" memo 
notes, process concerns noted by commentators included:
·        Insufficient public information regarding ICANN's reasoning underlying 
both the timing and substance of the proposals.
·        A public comment period (30 days) that was entirely too short, given 
the permanent and fundamental nature of the proposed changes.
·        The premature nature of the proposals, given that the agreements in 
question do not expire for another one to three years.
·        The manner in which the proposals undermine the legitimacy of ICANN's 
own Policy Development Process 06 (PDP 06), in which the Generic Names 
Supporting Organization (GNSO) Council is addressing such core gTLD management 
issues as permanent assignment of domain names to registry operators, consensus 
policies, price constraints, and the use of traffic data.
 
In short, if ICANN was operating in a transparent and consensus-driven manner 
it would not have negotiated these proposed agreements in secret with incumbent 
registry operators, it would not have proposed them prematurely and without 
adequate policy justification, and it would not have given the broad Internet 
community insufficient time in which to fully digest their implications and 
prepare comprehensive commentary.
 
ICANN's own "Summary of Public Comments" lists the serious deficiencies of 
these gTLD registry agreement proposals that were readily apparent to the 
affected public but either went unperceived or ignored by ICANN staff:
·        Unrestricted, differential registration and renewal fees could be 
applied in a manner to suppress political and economic views disfavored by the 
registry operator, a power with chilling future potential should DNS governance 
ever be transferred to a politicized organization.
·        Unrestricted, differential registration and renewal fees could create 
significant barriers to entry, especially for small businesses; result in 
extortionate renewal fees, given the lock-in effect of the high cost and 
potential detrimental business fallout for registrants switching to an 
alternative gTLD; effectively constitute a "domain name tax" on successful 
e-businesses; and create conflicts with trademark law if a registrant was 
unable or unwilling to pay an extortionate initial registration or renewal fee 
and the registry operator auctioned its trademarked domain name to the highest 
bidder (including a direct competitor).  
·        The allowance of the use of traffic data for any commercial purpose 
could undermine data privacy, and allow the registry operator to, in effect, 
compete against its own registrants by engaging in "domain-tasting" in order to 
determine how high a price the market would bear for a specific new domain name 
registration. 
·        The presumptive renewal provision was tantamount to a grant of 
perpetual monopoly; would permit registry operators to commit multiple, 
fundamental and material breaches of their agreements and flaunt ICANN 
authority for extended periods without risking loss of the contract; and made 
inadequate utilization of market mechanisms, such as competitive re-bidding, to 
provide discipline and assure high levels of service and reasonable pricing 
policies.
 
It is apparent from these comments that adoption of the proposed agreements 
would fundamentally change the mission and character of the gTLD registries and 
of the Internet itself. Yet the only policy rationale provided so far by ICANN 
was after the fact, contained in its September 7th Summary of Public Comments 
document, in which it asserts that it "sought to strengthen the stable and 
secure operation of the Internet's unique identifier systems, while reducing 
any unnecessary entanglement in the economic regulation of the competitive 
market for domain registration services".  This explanation does not even begin 
to suffice.
 
Unfortunately, ICANN's response to the concerted outcry from the Internet 
community regarding these proposals is hardly encouraging to those who hope 
that transparency and accountability will move from rhetoric to reality. On 
October 24th ICANN published revised versions of these agreements in which, 
according to your own summary, 
               "The key changes to the document include a new restriction on 
the use of "traffic data" in the context of the operation of .BIZ, .INFO and 
.ORG as "thick" registries (meaning they publish additional registrant- 
supplied contact details in their public WHOIS services), and the acceptance of 
a 10% cap on price increases along the lines of the .NET and proposed .COM 
registry agreements. "
 
ICA intends to file additional comments on these proposed agreements by the 
comment deadline of November 14th. However, ICANN continues to fail in regard 
to both transparency and accountability by:
·        Failing to provide any rationale why registries should be entitled to 
any price increases absent cost justification, much less explain why price 
increases should even be anticipated when the prices of most Internet services 
continue to fall (including in the .Net agreement, by one-third, when its 
renewal was subjected to competitive bidding).
·        Failing to even address presumptive renewal - which is really nearly 
assured perpetual renewal under the proposed agreement terms - despite the 
broad consensus in opposition to this concept.
·        Failing to explain while it is still apparently rushing to finalize 
these agreements far in advance of their termination dates, and why it is 
undermining its own PDP 06 process by failing to wait on the forthcoming GNSO 
report on core gTLD management issues.
·        Failing to provide any detailed policy response and rationale to the 
concerns raised by more than one thousand commentators. 
 
 
If ICANN wants to demonstrate a true commitment to the implementation of 
transparency and accountability in its policymaking process it should begin by 
withdrawing these agreements, waiting on the submission and consideration of 
the GNSO report, and then soliciting input from the Internet community in 
regard to the fundamental issue at the core of the dissent over these proposals 
- the proper role and functioning of the TLD registries. ICANN has yet to 
explain why the registries should not be regarded as natural monopolies over 
which it needs to exercise some restraining supervision to prevent pricing 
abuses and assure service quality; or, in the alternative, why periodic market 
testing through a re-bid process is not required to assure that registries do 
not abuse their position. ICANN has also failed to articulate whether it 
believes that there is sufficient competition between registries, and that the 
domains they administer are largely interchangeable, and there is consequently 
no need for meaningful restrictions on their practices (while we fundamentally 
disagree with that viewpoint, we can think of no other policy explanation for 
ICANN's TLD proposals). Finally, ICANN should state whether it agrees or 
disagrees with the views of some parties who support presumptive renewal on the 
grounds that registries are entitled to quasi-property rights in the domains 
they administer (again, we strongly disagree with that viewpoint, but it is 
certainly deserving of vigorous and extended debate).
 
In sum, until ICANN begins to articulate and defend the policy assumptions that 
underlie the timing and content of these agreements, its rhetorical commitment 
to transparency and accountability must be viewed with utmost skepticism.
 
Unfortunately, we see no reason to deviate from our view that adoption of these 
agreements, at this time, would substantially undercut ICANN's credibility in 
regard to the commitments made in the "Affirmation of Responsibilities", 
approved by ICANN's Board on September 25th   in conjunction with the revision 
and renewal of its MOU with the DOC, and that commits ICANN to continuing 
improvements in transparency, accountability, and an improved policy 
development process. ICANN's actions are at great odds with the rhetoric that 
accompanied that recent action. 
 
In addition to filing this comment letter, we intend to directly convey to the 
relevant committees of the U.S. Congress and to the DOC our serious concerns 
regarding ICANN's failure to demonstrate a meaningful commitment to grater 
transparency and accountability in the context of these proposed agreements. 
 
Conclusion
 
For all of the reasons stated above, the ICA must continue to strongly oppose 
adoption of these revised TLD agreements due to major concerns over their 
substantive provisions and the opaque and unaccountable procedures that have 
formed the context for their consideration.

 

The ICA appreciates your consideration of our comments in this matter.
 
Sincerely,
 
Philip S. Corwin
Partner, Butera & Andrews, Washington, DC
Counsel, Internet Commerce Association

 

 

 
Philip S. Corwin 
Partner 
Butera & Andrews 
1301 Pennsylvania Ave., NW 
Suite 500 
Washington, DC 20004 
202-347-6875 (voice)/-6876 (fax) /202-255-6172 (mobile)
"Luck is the residue of design." -- Branch Rickey