Co-authored by Paul Livesay, Verisign, and Jose Ignacio Rasco, Nu Dotco, LLC
On Friday, October 28, Afilias issued a public statement urging the Internet Corporation for Assigned Names and Numbers (ICANN) to nullify the results of its July 27, 2016 public auction for the .web new generic top level domain (gTLD) — in which Nu Dotco, LLC (NDC) submitted the highest bid for .web — and disqualify NDC from participation in the .web contention. The real issue here is whether ICANN should enforce the results of a fair and competitive public auction — where the proceeds will fund infrastructure projects in the interests of the entire Internet community — or give in to false and self-interested claims by a small group of competitors seeking to hold a private auction — where those competitors (rather than the public) would split up the proceeds of the auction among themselves.
More concisely, Afilias seeks to divert $135 million from the Internet community to be divided among Afilias, Donuts and several others (or to secure the .web new gTLD for itself at a below market price) by disqualifying NDC. Afilias' motivation could not be more transparent: in a private auction, either tens of millions of dollars will be paid to it for losing the auction or, if NDC is disqualified, Afilias stands to secure the .web new gTLD at a much lower non-competitive price. Indeed, it was just such maneuvering that caused Afilias to commit, in writing, a demonstrable violation of the Blackout Period as it sought agreement among the contention set to substitute a private for a public auction a few days before the public auction took place. Pursuant to the express terms of the Guidebook, this violation in and of itself could disqualify Afilias.
In June 2012, NDC, along with others, submitted an application to ICANN to acquire rights to operate the .web new gTLD. In accordance with application requirements, NDC identified its corporate officers and ownership. NDC continues to be managed and owned by the same people and entities listed on NDC's application. Prior to the .web auction, ICANN reviewed the claims by Afilias and other members of the .web contention set that NDC has had a change of control, and determined they were unfounded on three separate occasions. Moreover, shortly thereafter, a federal district judge reached the same conclusion, rejecting an application by Ruby Glen (a Donuts' affiliate applicant) for a temporary restraining order enjoining the public ICANN auction for .web. In its order, the court specifically commented on "the weakness of Plaintiff's efforts" and concluded that Ruby Glen had failed to "establish that it is likely to succeed on the merits and failed to demonstrate that its allegations 'raise[d] serious issues.'"
Afilias' claim that NDC assigned its rights to the .web new gTLD to Verisign is likewise wrong. Like many other new gTLD applicants, prior to the auction for the .web new gTLD, NDC entered into an arms-length contract pursuant to which it agreed that if it won the .web auction (using financing provided by the other party), then after executing a Registry Agreement with ICANN, it would seek ICANN's consent to assign the Registry Agreement to such other party (which in this case was Verisign). The contract between NDC and Verisign did not assign to Verisign any rights in NDC's application, nor did Verisign take any ownership or management interest in NDC (let alone control of it). NDC has always been and always will be the owner of its application (with full control thereof) and all rights associated therewith unless and until it seeks and obtains ICANN's consent to transfer an executed Registry Agreement in accordance with ICANN's established rules and procedures for such assignments. In substance, NDC's arrangement with Verisign is no different than similar arrangements agreed to by other new gTLD applicants, including Donuts' arrangement with Rightside to finance Donuts' applications for up to 107 new gTLDs in exchange for an assignment of rights to those new gTLDs to Rightside. Even Afilias presumably financed the auction bids of its affiliate, Afilias Domains No. 3 Limited, for the .web new gTLD.
Afilias' allegations of Applicant Guidebook violations by NDC are nothing more than a pretext to conduct a "private" instead of a "public" auction, or to eliminate a competitor for the .web new gTLD and capture it for less than the market price. Afilias has claimed that it submitted the second-highest bid for .web at the July 27th public auction. Afilias appears to believe that if it can disqualify NDC from the .web auction, then Afilias will obtain the rights to operate the .web new gTLD. And contrary to Afilias' claim, the full contention set did not agree to a private auction; however, they did all sign agreements for a public auction. Before the public ICANN auction, Afilias and other members of the .web contention set attempted to coerce NDC to resolve the contention by private auction — whereby the losing applicants divide the winning bid amongst themselves. Afilias even offered in writing to guarantee a payout to NDC if it would forego a public auction. Under Afilias' preferred private resolution, Afilias and the other members of the .web contention set each would stand to make millions of dollars if they lost the auction. As a result of NDC's refusal to resolve this contention set privately, the $135 million winning bid for .web will be used by ICANN entirely for the benefit of the Internet community. In short, Afilias is not interested in enhancing "competition and choice in domain names" — it is interested in serving its own bottom line, either by obtaining the .web new gTLD outright or playing to "lose" at a private auction.
Finally, it is Afilias, not NDC, that should be disqualified from the .web contention set. The Applicant Guidebook prohibits all applicants within a contention set from discussing "bidding strategies" in advance of an auction — termed the Blackout Period. Violation of the Blackout Period is a "serious violation" of ICANN's rules under the Bidder Agreement, and may result in forfeiture of an applicant's application. Afilias committed such a violation, and should be disqualified. On July 22, just four days before the public ICANN auction for .web, Afilias contacted NDC again to try to negotiate a private auction if ICANN would delay the public auction. Afilias knew the Blackout Period was in effect, but nonetheless violated it in an attempt to persuade NDC to participate in a private auction that would net Afilias millions of dollars even if it lost.
In the end analysis, the ICANN .web auction was an open and competitive public auction won by NDC by bidding the highest price, which Afilias never disputes. From the community's perspective, the important facts are that the auction price was maximized, the funds from the auction will be used for the benefit of the entire Internet community (not losing bidders) and the .web new gTLD will provide the registrant community with additional choice in domain names. ICANN will be serving the best interest of the Internet community by standing by its processes and standing up to the bullying efforts of Afilias and others that seek to cast baseless aspersions for their own self-interest.
Any effect on the market of this new gTLD will be to enhance competition, whoever operates it. There is no doubt that NDC or Verisign would grow .web aggressively so that new domains are offered to as many businesses and consumers as quickly as possible. And Verisign's record for security and stability would bring justified confidence in the new gTLD. That is a winning combination for Internet consumers and competition. There is no principled reason that ICANN should reverse course now simply because of Afilias' transparent efforts to generate community outrage to serve its own economic interests.
Afilias does a great disservice to ICANN and the entire Internet community by attempting to make this issue a referendum on ICANN by entitling its post "ICANN's First Test of Accountability." Afilias frames its test for ICANN's new role as an "independent manager of the Internet's addressing system," by asserting that ICANN can only pass this test if it disqualifies NDC and bars Verisign from acquiring rights to the .web new gTLD. In this case, Afilias' position is based on nothing more than deflection, smoke and cynical self-interest.
By Paul Livesay, VP and Counsel at Verisign
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