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Comments Submitted to ICANN Regarding Proposed GTLD Registry Agreements
Sunday, August 27, 2006
August 28, 2006
Board of Directors
Internet Corporation for Assigned Names and Numbers (ICANN)
4676 Admiralty Way, Suite 330
Marina del Rey, CA 90292-6601
Re: Proposed .Biz, .Info, and .Org gTLD Registry Agreements
Dear Members of the ICANN Board:
This comment letter is submitted by the Internet Traffic Association (INTRAS) in regard
to the proposed .BIZ, .INFO, and .ORG generic top level domain (GTLD) registry agreements
posted for public comment by ICANN on July 28, 2006. INTRAS is a new, not-for-profit trade
association which is currently in formation and will commence formal operations shortly.
INTRAS' membership will be composed of individuals and companies that own, buy, sell,
resell, host and manage Internet traffic emanating from search engines, domain names
and Internet links. INTRAS' 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. INTRAS 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. INTRAS is being established to provide a unified
voice for a membership with common interests and a diverse collection of experience in the
Internet traffic marketplace.
General Position
Due to the potential for the proposed agreements referenced above to sanction fundamental
and highly negative changes in the operations of registry operators, INTRAS' founding
directors are taking this unusual step of filing comments in advance of our Association's
formal commencement of operations.
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
ithin 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.
Discussion
Presumptive Renewal
The proposed agreements provide for presumptive renewal; that is, a presumption in favor of
letting the current registry operator continue to operate the gTLD registry when the agreement
comes up for renewal. INTRAS has no objection to some reasonable presumption in favor of letting
incumbent registry operators continue that role provided that no fundamental and material breach
of its obligations has occurred during the term of the expiring agreement as a result of its
willful acts or gross misconduct. However, under the proposed agreements registry operators
would not receive a mere presumption of renewal but a virtual guarantee of perpetual renewal.
The proposed agreements provide that a registry operator shall forfeit its presumption in
favor of agreement renewal only if -
- after committing one or more fundamental and material breaches of its
agreement, and
- after receiving notice of its breach and failing to cure same, and
- after being found by an arbitrator or court to have been in fundamental
and material breach of its agreement
- it fails to comply with the decision of the arbitrator or court.
These laughable provisions guarantee that the only registry operators who lose the presumption
in their favor are those which are brain dead, sociopathic, or so grossly incompetent that they
should never have been awarded the contract in the first instance. They are akin to a criminal
statute that says a burglar shall be imprisoned if, after being caught and convicted, he fails
to say "I'll stop and won't do it again." They are thoroughly insufficient to assure that
registry operators act in the interests of the broad Internet community. It is deeply troubling
that these provisions are also perpetual, in that each of the proposed agreements contains an
explicit statement that no future change in Consensus Policies can in any way modify the terms
and conditions for its renewal or termination.
As noted, INTRAS has no objection to true presumptive renewal, as opposed to the perpetual
renewal the proposed agreements would effectuate. Registry operation appears to be a natural
monopoly, but as with all monopolies it is antithetical to market competition and thereby
subject to abuse, and precautions must be implemented to deter bad conduct. The only effective
means for deterring the abuse of a natural monopoly is pervasive regulation or periodic market
testing, in combination with vigorous antitrust enforcement. It is INTRAS' preference that
market discipline be utilized to the maximum feasible extent. But it is INTRAS' belief
that when a registry operator has committed a fundamental and material breach of its
obligations through willful conduct or gross negligence there should be no longer be
any presumption in favor if its continued operation of that registry, and that marketplace
testing in such circumstances through competitive re-bidding is the best potential means of
ensuring that registry operators maintain high service levels and reasonable pricing regimes.
Unfortunately, and to the long-term detriment of the broad Internet community, the proposed
agreements would provide for the awarding of perpetual monopolies absent adequate regulatory
or marketplace constraints.
Lifting of Price Controls and Differential Pricing
A grant of perpetual monopoly is made exponentially more dangerous when combined with unrestrained
pricing power, yet that is exactly what ICANN has proposed in these agreements. ICANN appears
inextricably committed to erecting one bad idea atop another in its rollout of revised gTLD
agreements. The "presumptive renewal" clause of the most recent .Net registry agreement was
replicated in the proposed .Com settlement, in combination with an additional grant of authority
to VeriSign to raise .Com registration fees up to a fixed maximum percentage in four of the renewed
agreement's term of six years absent any cost or service improvement justification. The U.S.
Department of Commerce has, to date, prudently declined to approve the proposed .Com settlement
in response to a sustained outcry from the Internet community, legislators, and other parties of
interest. Yet, despite that hue and cry and the Department of Commerce's corresponding reticence,
ICANN now proposes to leapfrog the .Com settlement with new agreements that remove pricing
constraints altogether - both in the aggregate and in the case of individual domain names up
for renewal. We cannot help but note that, in its response to litigation brought against ICANN
by the Coalition for Internet Transparency (CFIT) in regard to the proposed .Com agreement,
ICANN argued that, "In a single supplier market, price caps are, if anything, procompetitive".
A priori, in the single supplier markets for .Biz, .Info, and .Org domain names, a lack of price
caps would be anticompetitive - yet ICANN has now contradicted its position in the CFIT litigation
by proposing to sanction such anticompetitive actions by registry operators. Though this proposal,
ICANN is abdicating its responsibility to promote competition and exercise effective oversight over
registry operators to protect the DNS.
The proposed agreements evidence a fundamental misunderstanding of the role of and appropriate
rewards for registry operators. These are not entrepreneurs who have invested capital and work
into the realization of new business ventures. Rather, they are entities that have won a bidding
process to provide ministerial services of a technical nature. Other than the different
technological requirements, there is little difference between a registry operator and a
government agency that reviews applications for various forms of intellectual property and
maintains the records that confirm ownership of patents, trademarks and copyrights. While
INTRAS believes that an entity that has contracted to provide such ministerial services
deserves some reasonable return on the time and capital it invests in such enterprise, it
is our preference that abuse of its monopoly position be restrained by some reasonable
combination of pricing restraints and marketplace re-testing. Such controls are thoroughly
absent from the proposed agreements.
Even where a registry operator is empowered to exercise unbridled pricing power, if it is
constrained to charge the same price to each new - and even more importantly, each renewing -
domain name registrant, monopoly abuse should be curbed to some degree by the fact that a price
rise for one will be a price rise for all, and therefore an increase regarded universally as
unjustified will trigger a strong and broad outcry. Further, across-the-board increases for
new and renewal registrations will trigger competition from competing registry operators who
keep their own fees reasonable to attract new registrants.
Even these modest constraints are absent when, as ICANN's Chairman has confirmed in the past
week, the new agreements allow registry operators to charge different fees for the renewal
of different domain names. Such arbitrary and unrestrained pricing power cannot be justified.
It would seem clear that a domain registry provides the same identical service to each
registered site within the gTLD it oversees, regardless of the traffic the site receives
or the success of the business it hosts.
To the extent that any differential pricing implemented by a registry operator
is not justified by a material difference in the services it provides to a registrant,
such difference in pricing ceases to be a fee for services rendered and becomes an arbitrary
tax providing it with unjustified enrichment. And we have little doubt as to what this tax will
be levied upon. It will be levied upon success. And its effect will be to provide registry
operators with an extortionate means to claim an unjustified and parasitic share of monetary
rewards flowing from the hard labor and capital investment of others who have created successful
websites and associated businesses.
In 1819, United States Supreme Court Chief Justice John Marshall declared, in the seminal
case of McCulloch v. Maryland, that "the power to tax involves the power to destroy".
That statement remains true nearly two centuries later. The power to tax is dangerous enough
when vested in an elected legislature beholden to an enfranchised citizenry; it has deadly
potential when granted to a perpetual monopoly. ICANN has proposed in the pending agreements
to provide perpetual registry monopolists with an unrestricted power to tax the commerce
developed by any website within its domain. This provides registry operators with the power
to threaten the commercial destruction of any successful enterprise using a domain name within
its gTLD. If entrepreneurs should develop a highly successful new search engine/encyclopedia
at allknowledge4U.info then by what right does the registry operator for the .Info gTLD get
to claim a quasi-equity share of that commercial success by asking for a vastly inflated
registration fee when that domain name comes up for renewal? Why should the entrepreneurs
who built that business face the threat that, if they refuse to pay such extortion, their
domain name will be put up for auction and they will have to bid to retain their site against
third parties whose sole motivation is to secure the rights to a valuable website for sale back
to them - or perhaps to their competitors? Further, given that ICANN for the present remains
subject to some oversight of the U.S. Department of Commerce (DOC), we would have thought that
ICANN would have taken note that U.S. legislators have been in general and bipartisan agreement
that the Internet should not be subject to new forms of taxation, and would consequently have
refrained from proposing that registry operators be permitted to tax the success of their
registrants.
We take little comfort in recent reports that the Chairman of the ICANN Board regards such
extortionate pricing as unlikely to occur because it would be "suicide" for a registry to do
it. That view appears based upon the view that perpetual monopolists will refrain from
collusive conduct that allows all to enjoy the unjust potential rewards of the exercise of
this taxing power. The ability to engage in such anti-competitive conduct is enhanced by the
uncertainty as to what antitrust regime could be enforced against gTLD registries based in a
variety of national jurisdictions. Indeed, it is not even clear whether antitrust sanctions
could be brought against gTLD registry operators, who can be expected to argue that their
conduct has been authorized by their contractual agreements with ICANN, which in turn has been
imbued with sole authority over the governance and conduct of the DNS.
Nor are we comforted by the Chairman's reported view that renewing registrants could at least
temporarily protect themselves from abusive increases because a six-month notice period would
afford them the opportunity to renew at the old rate for a ten year period. The commercial
Internet itself has just entered its second decade of existence, and ICANN should be striving
to establish fair and sound policies that can persist for many decades to come. Differential
domain name renewal pricing is unjustifiable and potentially destructive taxation regardless
of when it takes effect. Once such pricing is implemented, regardless of the breadth of
subsequent opposition from the broad Internet community, it cannot be rescinded since the
agreements specifically state that Consensus Policies "shall not.prescribe or limit the
price of Registry Services". There is no guarantee that the six-month notice period and
ten year renewal right will carry over to future iterations of these registry agreements.
We also question whether ICANN has retained any ability to intervene against abuse of this
differential pricing power - that is, since the agreements explicitly remove all pricing
constraints and ICANN has already conceded that they allow such differential pricing, then
the exercise of that power could not constitute a fundamental and material breach of the
agreement. Finally, we are disquieted that ICANN has a direct financial stake in and will
reap financial benefit from a registry's exercise of this confiscatory taxation authority
in that, commencing in 2009, ICANN will reap additional transaction fees to the extent that
a gTLD's average domain name registration price exceeds $3.01.
In addition to failing to present any convincing policy justification for this drastic and
fundamental change, much less to discuss whether potential abuse can be effectively constrained
by antitrust authorities or by ICANN itself, ICANN has also failed to give adequate consideration
to the potential conflict between differential pricing and trademark law. There would be a hue and
cry against any governmental agency charged with registering various forms of intellectual
property if it proposed to levy greater charges for renewal of a valuable patent or widely
recognized trademark for the performance of its ministerial function. Yet this proposal would
allow each gTLD to levy an inflated renewal fee against every company which has registered its
own trademarked name, and the trademarked names of its most valuable products, across all gTLDs
in an attempt to safeguard those valuable names and its own reputation. It can certainly be
expected that registry operators will look toward domain names consisting of valuable trademarks
as a primary means of enriching themselves under a differential pricing regime, and it is by no
means clear that a registrant can prevent the sale of its trademarked domain name to a third
party if it refuses to ante up an extortionate renewal fee.
While differential pricing would only be allowed under these proposed agreements for what are,
at present, secondary gTLDs, we have little doubt that their approval would pave their way for
incorporation of the same dangerous concept in the .Net and .Com agreements. Just as these
proposals build upon the controversial and yet unapproved .Com settlement, as it in turn built
upon the revised .Net agreement, we would fully expect that if these agreements are adopted
VeriSign will, after some interval, will demand "parity" and seek to incorporate the same
rapacious pricing power in the .Net and .Com agreements so that it may be levied against the
most valuable pieces of Internet real estate.
While differential renewal pricing has dangerous potential in the commercial sector, its
implications are equally troubling for the future of the Internet as a forum for the free
expression of ideas and exchange of knowledge, an ideal that underlies the success of many
websites. Many of INTRAS' founding and prospective members defended ICANN's continued governance
of the DNS against proposals circulating in the UN's World Summit on the Information Society
(WSIS) process that these duties be transferred to a multinational, politicized entity affiliated
with the UN. They continue to hold that view despite grave disappointment over the proposed .Com
settlement and these proposed registry agreements. Yet the UN is going ahead with its Internet
Governance Forum (IGF) and there is no assurance that future U.S. administrations will remain
as steadfast in their defense of ICANN. Therefore, any proposed fundamental change in Internet
governance policies must also be considered in light of its potential for abuse in a more
politicized governance regime. In that context, the power of taxation to destroy can become a
power to suppress popular websites that facilitate the dissemination of facts and the discussion
of ideas that threaten various government regimes, facilitated by the bringing to bear of political
pressure on gTLD registry operators to suppress such websites through the levying of renewal fees
they cannot possibly pay.
The potential politicization of Internet governance also raises another disquieting possibility.
Once gTLD registry operators begin to implement differential renewal pricing and reap its unjust
rewards, the treasuries they amass may well become regarded as convenient "slush funds" to be used
in part for whatever subsidies or other purposes are deemed desirable by the prevailing
multinational political consensus in ICANN's successor. Taxes collected yield monies to be
spent, and providing gTLDs with a tax-like power can be expected to provide a new monetary
incentive to those who wish to transfer DNS governance away from ICANN.
For all of the reasons outlined above, we believe that the proposal to grant differential pricing
powers to registry operators would result in a fundamental and undesirable alteration in the basic
operation of the Internet. ICANN is proposing to embark down a slippery and very steep slope that,
in our view, leads only to trouble for all those who have risked their capital and expended their
energies to create the Internet we know and enjoy today. ICANN does not oversee the DNS by divine
right, and the Internet should not be treated as some newly discovered continent subject to
division into fiefdoms to be awarded in perpetuity to loyal entities imbued with unrestrained
taxing powers.
Procedural Concerns
The current .Biz and .Info agreements do not expire until 2007, and the .Org agreement does
not expire until 2009. Yet ICANN has proposed to effect fundamental and permanent changes in
the operation of these registries and of the Internet itself through a notice and comment
procedure commenced at the beginning of the summer vacation season in the northern hemisphere,
and has afforded commentators a scant thirty days in which to ponder the long term consequences
before they file their comments in advance of potential Board action on September 13th. This
fast-track procedure is even more troubling given that the most dangerous potential of the new
agreements, that of differential pricing for domain name renewals, has only become apparent in
the last few days in the wake of published reports of confirmation of this ability by ICANN's
Board Chairman.
Further, ICANN's attempt to rush to ratify these agreements before the Internet community can
fully grasp their implications is "putting the cart before the horse" in light of other pending
developments. The DOC is considering whether it should renew its Memorandum of Understanding
(MOU) with ICANN this fall, and has asked for public comment regarding ICANN's agreements with
registries. We believe that any proposed changes in the registry agreements should await
consideration until after DOC has taken final action on the MOU.
In addition, ICANN's Generic Names Supporting Organization (GNSO) has established a Task Force
to review certain contract issues related to the renewal of registry agreements, including
automatic renewal and price caps, as well as whether registry operators afforded greater market
pricing power should remit higher per-name fees to ICANN. ICANN's rush to implement fundamental
changes of these key agreement terms in advance of delivery and consideration of that Task Force's
report undercuts its mission and the very bottom-up policymaking process that is supposed to
govern ICANN actions. ICANN's attempt to fast-track adoption of the proposed agreements raises
serious issues of fundamental fairness, given that the agreements themselves would bar any
ability for future Consensus Policies to change almost all of the key issues being reviewed
by the GNSO Task Force.
Conclusion
For all of the reasons stated above, INTRAS is strongly opposed to the proposed registry
agreements. INTRAS urges ICANN to withdraw the proposed agreements until the DOC has taken
final action on MOU renewal and the GNSO Task Force has issued its report on registry
agreement contract renewals.
When the proposed agreements are reissued at an appropriate time for public comment and review
they should:
- Contain a mere presumption in favor of renewal for a registry operator
that has not engaged in a fundamental and material breach through willful misconduct or
gross negligence, rather than a virtual guarantee of perpetual renewal.
- Contain effective restraints on unreasonable registration fee increases,
and should absolutely bar any differential pricing of domain name renewals.
- Should incorporate to the maximum extent feasible marketplace discipline
of pricing and performance through competitive re-bid procedures.
Be accompanied by detailed explanations of and policy justifications for any proposed
material changes in agreement terms.
- Should afford the broad Internet community sufficient time to fully
consider their implications and develop responsive commentary for submission to ICANN.
ICANN's actions over the past year have severely undercut its support among important segments
of the Internet community and have led many to question whether it retains any real commitment
to a transparent, bottom-up, and consensus driven policy development process. ICANN can only
begin to restore confidence in its ability to responsibly manage the DNS on behalf of the
Internet community if it withdraws the proposed agreements and goes back to the drawing board.
Sincerely,
Bob Martin
CEO, Internet REIT, Inc.
Founding Member, INTRAS
Frank Schilling
Name Administration, Inc.
Founding Member, INTRAS
Philip S. Corwin
Partner, Butera & Andrews
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If you are a domain name owner, website owner, or a hosting company
and have an interest in selling your domain name portfolio, we would
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