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EU to ICANN: Go Back to Drawing Board on Auctions!

Stéphane Van Gelder

The European Commission is not a big fan of the David versus Goliath ICANN new gTLD auction scenario.

On December 12 last year, ICANN released a set of revised public auction rules. These auctions are presented as the avenue of last resort for resolving new gTLD contentions.

As is ICANN's custom, the rules were put out for public comment. The EU submitted its statement on the very last day of the comment reply period.

The European Commission's Communications networks, Content and Technologies Directorate-General (DG CONNECT for short) voices deep concerns for what several others have identified as a risk of seeing powerful applicants use their financial clout to squash more innovative TLD operating models.

The EU dubs these "portfolio applicants". Those who have applied for a spate of strings and used the same business model throughout to make operating them more cost effective. In the cross-hairs are companies like Google, Amazon and Donuts.

Facing them are much smaller applicants forced to swap the fat chequebooks they don't have with clever ideas. "We are deeply concerned about the implications that the Auction Rules in the gTLD program may have for the protection of public policy interests, competition, openness and innovation," says the EU. "As expressed in several comments already submitted during the comment period, the current Auction Rules are advantageous for portfolio applicants rather than for small, innovative and community applicants, which is at odds with the "diversity and innovation" policy that ICANN seeks to promote."

Unconvincing auction rules

The EU is calling for a fairer auction process. "It would be desirable to give these applicants a more even playing field when they come up against larger portfolio holders in the contention process. Also, ICANN's auction rules has not yet proven convincing to the community and deserves being revisited in light of the input received."

The EU argues that because of the way the rules are currently drawn up, larger applicants have no reason to even talk to the smaller guys. "There seems not to be any incentive for financially strong applicants to solve the contention 'through voluntary agreement among the involved applicants'," says the EU, quoting the spirit of contention resolution the gTLD Applicant Guidebook, whereby discussions between applicants are promoted as the more desirable way to resolve contentions. "This solution places an unnecessary burden on applicants and departs from the artificial assumption that parties are eager to negotiate."

With other problem areas — the need for community applications to be given preferential treatment, for security and consumer protection considerations to become a fundamental requirement of the process, and for more clarity on how the auction proceeds will be used - the EU is calling on ICANN to revisit its current auctions plans: "We are confident that community input received will allow ICANN to amend the current draft Auction Rules (version 2013.12.12) in a manner consistent with ICANN's objectives and fully rooted in the principle of fairness."

By Stéphane Van Gelder, Consultant
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Both European Comission and GAC in alignment with .MUSIC's position Constantine Roussos  –  Feb 06, 2014 9:50 AM PDT

These are exactly the same arguments .MUSIC (DotMusic) made in recent Public Comments in regards to Auctions and the new material changes ICANN is proposing in regards to Specification 13 i.e giving preferential treatment to brand owners while neglecting GAC Advice to make changes to give preferential treatment to Community Applicants with demonstrable support, who as you well know have meet a harsh, unsubstantiated 14-point threshold (which was determined by ICANN without any "negotiation" or "discussion" with the community).

.MUSIC public comments on new gTLD auctions favoring portfolio applicants over Community Applicants
:

According to the ICANN Applicant Guidebook, Module 4.3 Auction, ICANN states that “it is expected that most cases of contention will be resolved by the community priority evaluation, or through voluntary agreement among the involved applicants” and that “In practice, ICANN expects that most contention cases will be resolved through other means before reaching the auction stage.” ICANN also clarifies that any monies derived from auction “funds must be used in a manner that supports directly ICANN’s Mission and Core Values and also allows ICANN to maintain its not-for profit status”…

...The auction mechanism prepared by Power Auctions LLC for ICANN fails to address these core issues and align its Auction Rules to the Applicant Guidebook and ICANN’s own Bylaws to promote competition, innovation and diversity. ICANN holds the power to adjust its auction rules to be consistent with its non-for profit status, its Mission and Core Values and to promote effective competition given the current status of the new gTLD Program which is dominated by Portfolio Applicants…

... ICANN’s expectations per the Applicant Guidebook (AGB) that “most” contention sets being resolved “voluntarily” or “through other means before reaching auction stage” have not been met. As such, the AGB own expectations have failed and as it stands favors a few “deep pocketed” players and more importantly puts in question ICANN’s role as a non-for profit organization by structuring the new gTLD Program and Auctions in a manner that maximizes profit for ICANN. This becomes a serious concern when public resources – such as semantic gTLDs – are given to a few, select companies who can afford to “buy” up the entire generic, non-branded gTLD space at the expense of other smaller players who could offer a more specialized, niche approach – such as community applicants serving their corresponding communities with registration policies and rules that cater to those entities without the fear of commoditizing gTLDs…

... This poses many unanswered questions on the issue of auctions and how they should be administered to promote ICANN’s Mission and Core Values and to ensure leveling the playing field and not make the entire new gTLD Program a space where the current Auction Rules only favor billion-dollar corporations or venture-capital-funded applicants with deep pockets. This completely ignores the context of the current new gTLD environment and how the Internet space is in danger of being divided amongst a few select players, many of whom have found ways to circumvent the process in relation to areas such as Background Checks, Objections in the form of Legal Rights Objections or Community Objections, Safeguards and other Material Changes, including NGPC Resolutions, new registry agreement revisions pertaining to exclusive-access, PICs (e.g Famous Four won .CHARITY over Donuts because of their PICs submission), Responses to GAC Category 2 Advice intending to change Applications from exclusive-access to non-exclusive access. As such, ICANN has not strictly followed the AGB and the global public interest should be considered while applying appropriate auction rules to promote competition and diversity…

... The Auction Rules have done little to incentivize partnerships and ICANN’s role is constrained to “give time to applicants to negotiate amongst them”, according to a response given by the head of the new gTLD program in the public forum in Buenos Aires. The current Auctions Rules actually ensure the opposite to happen: a select few competing solely on financial power irrespective of any single Applicant’s innovative, niche and more focused approach. Rewarding a gTLD based on financial prowess alone is not aligned with ICANN’s non-for profit status and new gTLD objectives to promote competition, diversity, innovation and consumer choice…

...There is zero incentive for Google, Amazon or other deep-pocketed Applicants to make any deal since the alternative of “buying” gTLDs in an auction grants them more strategic power despite any negative consequences on competition and diversity. This is something that ICANN has to address in order to be aligned with its goals given the current status of the new gTLD program and the select few portfolio companies whose objective is to squash on smaller, more focused Applicants with diverse plans…

... Another overarching issue is some Applicants, such as Community Applicants, have applications with restrictive policies (e.g Eligibility Requirements, Name Selection, Content and Use, Enforcement). It is indisputable that Community Applicants can not compete in an auction with an Applicant with an "open" application since "open" Applications lack such restrictions. No-one can dismiss the fact that the ROI on "open" applications is much higher than that of "restricted" applications giving non-community Applicants a "near-definite" assurance to win an auction unless a Community Applicant bids higher that their expected ROI.

If Community Applicants choose to outbid non-community Applicants beyond their expected ROI, the unintended consequence would be the Community Applicant would face a certainty of registry failure since they would have spent all their monies which would otherwise be used for operations and marketing of the gTLD and given the restrictive nature of their gTLD would face an impossible feat in generating profits that would bring a positive ROI after over-bidding in the ICANN Auction…

.MUSIC public comments on ICANN giving brands preferential treatment (Specification 13) over Community Applicants:

If ICANN implements such a change in the Applicant Guidebook to give preferential treatment to one type of Applicant, then, under the same token, ICANN should also lower the threshold of 14 points to pass Community Priority Evaluation (CPE) to community-based Applicants with demonstrable community support.

The Government Advisory Committee (GAC) advised ICANN in its Beijing Communique that:

“In those cases where a community, which is clearly impacted by a set of new gTLD applications in contention, has expressed a collective and clear opinion on those applications, such opinion should be duly taken into account, together with all other relevant information”

The GAC reiterated its advice to ICANN from the Beijing Communiqué in its Durban Communique for ICANN to give:

“…preferential treatment for all applications which have demonstrable community support, while noting community concerns over the high costs for pursuing a Community Objection process as well as over the high threshold for passing Community Priority Evaluation.”

GAC’s advice to ICANN was to enable:

“better account of community views, and improve outcomes for communities, within the existing framework, independent of whether those communities have utilized ICANN’s formal community processes to date.”

ICANN has yet to make any GAC-advised changes in the CPE process to improve “outcomes to communities” and give “preferential treatment” to community-based applicants with authentic, “demonstrable support” to pass the CPE threshold given the “high threshold for passing Community Priority Evaluation.”

If ICANN agrees to the proposed Specification 13 then ICANN should also adopt a similar proposition which follows GAC Advise to give preferential treatment to community-applicants with demonstrable support.

In light of the EU settling its search-related anti-trust probe against Google, it certain the next step for the European Commission (and GAC) is to look at Google's (and Amazon's) involvement in the new gTLD Program and how ICANN accommodated them to easily "buy" new gTLDs in a landgrab of epic proportions. ICANN needs to serious consider these issues and the repercussions especially since ICANN never consulted with the community in regards to the selection of Power Auction without a formal RFP and also without requiring Power Auctions to align the auctions with ICANN's Bylaws to promote competition and diversity. Power Auctions seems to have the upper hand given the 4% fee they will get to maximize profits at the expense of Applicants. Why not a sealed bid as RightoftheDot proposed and why does ICANN pay all expenses to Power Auctions giving them tens of millions of business?

Constantine Roussos
.MUSIC
https://twitter.com/mus

The concerns that Dotpay SA had expressed Oleg Serebrennikov  –  Feb 07, 2014 11:59 PM PDT

The concerns that Dotpay SA had expressed in its Public Comments back in December 2013 are now addressed by European Comission. Awesome! While some politicians (in particular Sergey Lavrov, Russian Foreign Minister) are fostering the debate on online internet governance the real issue slips from their attention: the control over the Internet naming space and Internet infrastructure may slip away soon into the hands of few powerful US corporations who have access to tons of money. And this may only happent over the implementation of current ICANN auction rules that give up the naming infrastructure for money although ICANN is a non-for-profit organization! What about diversity and innovation?!

There is still another issue that has been yet greatly overlooked as we believe. The Beijing Communique Category 2 list of the generic strings is not exhaustive while the strings that are applied for by the portfolio applicanst are mostly generic terms. In its response to GAC advice Dotpay SA urges ICANN to recognise and address this issue and in particular in regard to the .pay string applied for by Amazon that up to date did not provide ICANN with Public Interest Commitment while ICANN seems not to care to require it. This may mean that .pay generic term can be used by Amazon as a closed domain in contest with the public interest. And so may happen with other generics.

The Amazon conflict of interest has yet to be addressed either Constantine Roussos  –  Feb 08, 2014 5:04 AM PDT

Oleg,

It seems Amazon has found many loopholes in this Program to proceed unscathed, regardless if it is a Legal Rights Objection, Community Objection, PICs or a Response to GAC Category 2 Advice etc.

At some point ICANN will face the music since these issues have dragged too far. On one hand Amazon is given once again preferential treatment to either change its position (e.g the case in regards to .MUSIC, .SONG and .TUNES) without any accountability in a Community Objection. Furthermore and amazingly, Amazon was given preferential treatment once again to win a Community Objection over a conflict of interest (.AMAZON community objection) while their Legal Counsel Doug Isenberg representing Amazon in Community Objections (.MUSIC, .SONG, .TUNES, .GAME, .CLOUD) was a new gTLD Program Objection Panelest in another case ruling against the Food Network (.FOOD). Even Michael Partridge was allowed to be a Panelist ruling against .MUSIC in a Legal Rights Objection but then given the green light to be an Objector legal counsel in the .GAME case. Where does one draw the line with these conflicts of interests and why is Amazon continuously given a pass?

I could name many issues with the Program but the bottom line is ICANN will say and do what benefits ICANN and hide behind the AGB where it suits ICANN (e.g look at all the re-consideration requests for Community Objections and the fact that there is no appeal process). For example, if a Panelist relies on lies and false statements ICANN gives any determination immunity without accountability or a chance of appeal because the loophole is that the Panel ‘may refer to and base its findings upon the statements and documents submitted and any rules or principles that it determines to be applicable.’ (Procedure, Art. 20(b).)”

The European Commission and GAC have every right to complain. ICANN is certainly ignoring issues with the Category 2 list which is non-exchaustive. The issue with .PAY - an exclusive, closed application by Amazon - is the same as the .TUBE case (a synonym for .VIDEO which was covered in the GAC list) where Google has an exclusive, closed application but was not asked by ICANN to be included.

Another issue are those with applications with exclusive access language who made false statements in their responses to GAC category 2 Advice claiming that their current applications were not exclusive access when they actually were exclusive access. Their goal was to circumvent the "change request" which ultimately was what happened. When ICANN was confronted about the issue the response was that they rely on the "truthfulness" of the Applicant in a most recent webinar. If that is so why are community applicants discriminated against in CPE where evaluators have to verify their letters of support? Such verification is not in the AGB but ICANN has chosen to not rely on the "truthfulness" of community applicants and implement a new policy to validate support while in other areas ICANN is allowing loopholes for others to circumvent the process.

Certainly the issue of auctions is a huge deal but everything in the end is related to auctions since any change in an application affects ROI and the final auction amount. So changing an application from exclusive to non-exclusive does change financials, the letter of credit etc and according to ICANN's Material Changes rules (http://newgtlds.icann.org/en/applicants/customer-service/change-requests), it could lead to disqualification:

ICANN reserves the right to require a re-evaluation of the application in the event of a material change. This could involve additional fees or evaluation in a subsequent application round. Failure to notify ICANN of any change in circumstances that would render any information provided in the application false or misleading may result in denial of the application.

Where does one draw the line? We all know ICANN crossed it a long time ago and hiding behind the AGB giving preferential treatment to some and creating a system where ICANN and the auctioneer maximizes profit despite their non-for profit status.

Disappointing developments to say the least.

Constantine Roussos
.MUSIC
https://twitter.com/mus

The Objection Panelist in the .MUSIC Objection Constantine Roussos  –  Feb 08, 2014 5:08 AM PDT

The Objection Panelist in the .MUSIC Objection case referred to above was Mark Partridge not Michael Partridge. Sorry for the typo!

http://europa.eu/rapid/press-release_IP-14-142_en.htm Oleg Serebrennikov  –  Feb 13, 2014 12:34 PM PDT

http://europa.eu/rapid/press-release_IP-14-142_en.htm

Eropean Commission to pursue role in future global negotiations on Internet Governance Oleg Serebrennikov  –  Feb 13, 2014 12:09 PM PDT

Here is an anecdote:  epitaph on the grave tells "John you were right crossing the road on pedestrian green light but now you are as dead as if you were not right". This anecdote is exactly about what European Commission trys to implement.

European Commission is right (read this) but it may appear that when the Internet governance is finally internationalized it is already late because all sweet newTLD strings have been taken by US portfolio applicants through the current ICANN auction rules implementation and the latter fact will greatly diminish the value of this EC achievement.

European Commission along with Russia and Asian Countries should think real and while fighting for internatinal governance they have to establish ASAP a special fund supporting diversity and innovation in the Internet providing financial aid to those single and small innovative newTLD appicants who can then win over portfolio applicants in ICANN auctions. The internationalized Internet governance is a long-to-go raod and as such cannot prevent US business to take control over the newTLDs namespace and infrastructure before the governance has changed.

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