--- From: Cameron Powell <CameronPat_private> To: "'declanat_private'" <declanat_private> Cc: Mason Cole <MasonCat_private> Subject: Posting Requested Date: Mon, 17 Jun 2002 16:33:14 -0700 MIME-Version: 1.0 Dear Declan, Would it be possible for you to post on your Politech list a document we have written regarding ICANN's role in approving new registry services? It is topical with respect to the WLS, but it is also broader than that. I'm not sure whether you prefer the document embedded in an email or as an attachment, so I'll do both. Please let me know if you need anything else. Sincerely, <<Part I ICANN Standard of Review 6.17.02.doc>> Cameron Powell VP of Business Development and General Counsel SnapNames 115 NW First Avenue Suite 300 Portland, OR 97209 (503) 219-9990 x229 (503) 502-5030 cell (503) 274-9749 fax cameronpat_private The ICANN Board Should Promptly Approve the WLS Proposal Since the early fall of 2001, VeriSign and ICANN have been participating in discussions about deleted names and a "parallel registry" -- the original name of the WLS concept -- along with the larger ICANN community. These first discussions originated at ICANN meetings in Montevideo on September 9, 2001. For nearly two months afterward, in September and October, registrars, resellers, speculators, and attorneys amassed hundreds of e-mails in an intense online debate, which was monitored by ICANN staff. Afterwards, VeriSign again communicated to registrars that it would be willing to consider offering the "parallel registry" technology while continuing to offer the three-pool system that had solved the technical, if not equitable, aspects of customer access to deleted names. At the November ICANN meetings in Marina del Rey, the registrars asked VeriSign for a more detailed proposal. The detailed proposal was submitted in late December 2001 after review and suggestions by ICANN staff (for example, even at this early date, ICANN negotiated with VeriSign the 12-month trial period, and insisted on omission of .ORG from the proposal). That proposal for the first time termed the technology the Wait-Listing Service (WLS). Based on a second round of discussions during January, VeriSign, with ICANN's input, distributed a revised WLS proposal to stakeholders in the DNSO on January 28, 2002. That second proposal included specific procedures and a timeline for a third round of community input. After the ensuing third round of discussions during February and March, and after the Names Council and the General Assembly meetings in Accra in March 2002, VeriSign requested that ICANN amend Appendix G to VeriSign's contract to add a price for a new service that VeriSign, using SnapNames-developed and -provided technology, would offer to the marketplace. ICANN's staff then requested still a fourth round of public comment. The service, called the "Wait-Listing Service," will allow subscribers (who are waiting for a particular existing domain name registration to expire) an equal opportunity to buy through a registrar a subscription to be first in line for that particular name. Because the WLS will involve making a record that will be consulted by the registry in deciding who may be the next registrant of an expired name, it is certain to be effective, fair, and transparent. By contrast, registrar-offered services today can only "ping" the registry database continually and inefficiently (up to 500,000 times per name) to find out whether a particular name is available, and most do so only on behalf of a handful of customers. And a registrar on its own can provide no guarantee that a desired name will actually go to someone paying for its service. We know the WLS will be good for registrants, because it will provide certainty and will save registrants time, effort, cost, and anxiety. But that's not the point of this paper. (We discuss the merits of the WLS in a companion paper prepared for the Board.) We are submitting this paper to explain why the Board should carefully limit the scope of its review of the proposal. ICANN's Review of a New Registry Service is Narrowly Limited Based on our review of the agreements ICANN has with registries, ICANN has three questions to ask in connection with new services to be offered by registries: effect on interoperability; whether there is an avoidance of the price cap on basic registration services; and whether a consensus policy exists prohibiting the new service. WLS Raises No Operational Issues. To make sure that the registration system remains stable and interoperable, ICANN has the power to approve changes to the protocols that allow registrars' and registries' machines to talk to each other (e.g., .net Registry Agreement, Section 3.2). There has been no suggestion that WLS will have any adverse effect on interoperability, and indeed it will not, so interoperability is not an issue here. WLS Cannot Be An Evasion of The Price Cap for Basic Registration Services. To make sure that registrants who have made an initial investment in a domain name won't be "locked-in" to paying high prices later for mandatory services that are inextricably intertwined with their registrations, ICANN is permitted to make sure that the registry may not charge an unreasonably high price for a new mandatory service in order to avoid the protections provided by the contractual price cap on basic registration services. (e.g., .com Registry Agreement, Appendix G and Section 22(B)). This price approval mechanism was intended to avoid, for example, a registry selling Yahoo! the domain name yahoo.com for $35 in 1995, and then charging a "hold-up" price on renewal of that name in 2003. In the case of WLS, which is both reasonably- and market-priced and optional, concerns about the "lock-in" effect caused by fees charged for mandatory services are non-issues as well. WLS is not a mandatory service. No registrant has to buy a subscription to WLS. To protect their existing registrations, registrants merely have to remember to renew their names on time, or to continue to purchase multi-year registrations. Registrars properly bear the burden of providing ample notice to their customers of the need to renew; indeed, only registrars (not the registry which would be offering WLS) have the customer's contact information, and registrars have every financial incentive to use it. (And if they do not, the existence of the WLS will not change the status quo today, where someone other than the original owner will still get the name -- albeit through back-room, non-transparent arrangements with registrars for privileged VGRS access.) WLS is an optional service for would-be registrants who don't know (and don't have the time or want to know) the timing of every batch-delete file, and who don't want to have to check a name's availability every day or even every few hours, but who do want the convenience of knowing they will be first in line for a name registration. These potential registrants want to know that if that particular name becomes available (as up to 800,000 have per month), it will be reliably theirs. Because WLS is not a mandatory service (and is offered at a price reasonably related to its value), there will be no end-run around the protections provided by the basic registration services price cap. No Consensus Policy Exists Prohibiting the WLS. ICANN may consider whether a new service is prohibited by an existing (and binding) consensus policy. (e.g., .com Registry Agreement, Section II(3)(A)(ii)). With regard to the WLS, there is no such policy. While some have suggested that ICANN's decision on the requested amendment should itself be subject to the "consensus process," the consensus process does not apply to this type of decision. The consensus policy clause in the contracts that registries have signed with ICANN concerns mandatory policies that (a) all registries must follow and that (b) deal with generally applicable future rules -- not with a question whether a particular new service may be priced at a certain level by a particular registry. The whole purpose of the consensus policy process outlined in these registry agreements was to make clear that registries are free to innovate unless and until a consensus policy is created to prohibit some particular practice - not, as has been stated, that a registry requires a consensus in order to innovate. Moreover, because there is no Independent Review Panel, as required for consensus policymaking, registries are not even contractually bound to follow consensus policies arising out of such non-compliant consensus processes. (.com Registry Agreement, Section I(1)(F).) In any event, there is clearly no consensus here that services like WLS may not be offered by registries. ICANN's Review Is Limited to Considering Whether the Proposed Price for the WLS Is Unreasonable. ICANN's obligation under its agreements with registries is to consider only questions bearing on the reasonableness of the proposed price. ICANN is not entitled, under these contracts, to consider whether or not it (or possible competitors) considers the service to be valuable or desirable -- that is for the market to decide. Nor does ICANN have any role in deciding questions of legal or economic policy, market demand or innovation. Indeed, ICANN is not allowed to disapprove any new registry services (even "mandatory services") that are provided for free. (The contract provides only that a registry may not charge a price exceeding one set forth in Appendix G.) The fact that ICANN cannot disapprove free services demonstrates that the purpose of the review sought here is solely to prevent unreasonable prices, and that ICANN may not withhold approval for any ulterior or extraneous purposes. Of course, some Board members have indicated in the past that they should have no role at all in price-setting, including because no other private company has ever attempted to exercise such power in an industry, and of course such Board members may elect to apply a more deferential standard, including the traditional standard of permitting the market to set prices. The Proposed Price for the WLS Is Reasonable. Although there might theoretically be cases where a price being charged for a new registry service is so out of line with the value of that new service that ICANN should disapprove the price, that is not the case here. WLS is reasonably priced in relationship to its value. At a wholesale price of $24-$28 (following a planned rebate to registrars from VeriSign), WLS will clearly provide benefits, for those who choose to use it, that far exceed the proposed cost. For higher prices, registrars are currently offering to a few exclusive customers their own services to access the registry for deleting names, and those services are inescapably inferior. As just a few examples, there is an American registrar who charges ten speculators each $2500 per month for preferential access to VGRS, plus registration fees; a Russian registrar and partner who charge $669 for enhanced-access "membership," plus $100 registration fees; and a Korean registrar who charges $237 per name registered through privileged access -- all of these charges far exceed the proposed price for WLS, but the services provided in exchange for these prices are far less effective and reliable than the WLS, in addition to being only selectively available. ("Part II: The Merits of the WLS" sets forth pricing information in even greater detail at around page 17.) ICANN Is Required To Foster Competition and Innovation, Not Prevent It. It is not clear that ICANN has contractual or other authority (absent an existing and properly documented consensus policy, which does not exist here) to prevent new services from being offered by registries; its only authority relates to adding the price of those services to the registry agreement(s). ICANN is required by its bylaws and contracts to foster competition, not to favor or disfavor particular competitors or services. (See, e.g., .com Registry Agreement, Section II(4)). Indeed, denying the proposed amendment to Appendix G on the basis of considerations advanced by competitors (who make up the bulk of the very vocal minority critical of WLS) who are arguing for prohibition of a new service would raise very serious antitrust issues, violate the implied duty of good faith and fair dealing that accompanies every contract, and raise other questions regarding ICANN's authority and legitimacy. In contrast, carefully limiting the Board's actions in compliance with the contractual interpretation set forth above would avoid such questions. And, of course, contracts should be interpreted so as to avoid the implication that the parties agreed to any unlawful course of action. Thus, any decision by the Board to prevent introduction of WLS -- whether based on a claimed consensus or otherwise -- would raise substantial legal questions. ICANN should not put itself in the position of protecting particular competing parties from new competition. The antitrust laws protect only competition, not individual competitors. WLS will be a lawful and voluntary new service. The market should and will decide whether WLS is a valuable service. Because the proposed price for WLS is demonstrably reasonable, and no contrary evidence exists or could be supplied, ICANN should not, consistently with its contracts and authorized role, decline to approve the proposed amendment on the basis of the circumstances present in this case. Endnotes: Verbatim Excerpts from the .net and .com Registry Agreements i 3.2 Functional Specifications for Registry Services. All Registry Services provided by Registry Operator shall be provided under this Agreement and shall meet the functional specifications established by ICANN. The initial functional specifications are set forth in Appendix C <http://www.icann.org/tlds/agreements/verisign/registry-agmt-appc-16apr01.ht m>. Non-material changes and additions to the functional specifications may be made by Registry Operator with prior written notice to ICANN and any affected ICANN-Accredited Registrars. All other changes and additions to the functional specifications may be made only with the mutual written consent of ICANN and Registry Operator (which neither party shall withhold without reason) or in the manner provided in Subsections 4.3 through 4.6. ii Section 22(B). Registry Operator may, at its option and with thirty days written notice to ICANN and to all ICANN-accredited registrars, revise the prices charged to registrars under the Registry-Registrar Agreement, provided that (i) the same price shall be charged for services charged to all ICANN-accredited registrars (provided that volume adjustments may be made if the same opportunities to qualify for those adjustments is available to all ICANN-accredited registrars) and (ii) the prices shall not exceed those set forth in Appendix G <http://www.icann.org/tlds/agreements/verisign/registry-agmt-appg-com-16apr0 1.htm>. iii Section II(3)(A)(ii). Registry Operator shall comply, in its operation of the registry, with all Consensus Policies insofar as they: (a) are adopted by ICANN in compliance with Section 4 below, (b) relate to one or more of the following: (1) issues for which uniform or coordinated resolution is reasonably necessary to facilitate interoperability, technical reliability and/or stable operation of the Internet or DNS, (2) registry policies reasonably necessary to implement Consensus Policies relating to registrars, or (3) resolution of disputes regarding the registration of domain names (as opposed to the use of such domain names), and (c) do not unreasonably restrain competition. iv Section I(1)(F). In the event that, at the time the ICANN Board establishes a specification or policy under the first paragraph of Definition 1 above during the term of this Agreement, ICANN does not have in place an Independent Review Panel established under ICANN's bylaws, the fifteen working day period allowed under Subsection (A) above to seek review shall be extended until fifteen working days after ICANN does have such an Independent Review Panel in place and Registry Operator shall not be obligated to comply with the specifications or policy in the interim. v Section II(4). General Obligations of ICANN. With respect to all matters that impact the rights, obligations, or role of Registry Operator, ICANN shall during the Term of this Agreement A. exercise its responsibilities in an open and transparent manner; B. not unreasonably restrain competition and, to the extent feasible, promote and encourage robust competition; C. not apply standards, policies, procedures or practices arbitrarily, unjustifiably, or inequitably and not single out Registry Operator for disparate treatment unless justified by substantial and reasonable cause; and D. ensure, through its reconsideration and independent review policies, adequate appeal procedures for Registry Operator , to the extent it is adversely affected by ICANN standards, policies, procedures or practices. ------------------------------------------------------------------------- POLITECH -- Declan McCullagh's politics and technology mailing list You may redistribute this message freely if you include this notice. 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