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Donuts .web claims “discredited”, ICANN tells court

Kevin Murphy, July 26, 2016, 09:41:51 (UTC), Domain Registries

Donuts’ attempt to delay tomorrow’s .web gTLD auction is based on a now “discredited” reading of a single email from rival bidder Nu Dot Co, ICANN told a California court yesterday.
Supporting ICANN’s opposition to Donuts’ motion for a temporary restraining order, two top NDC executives also swore under penalty of perjury that the company is not under new ownership or management.
The filings were made in response to Donuts’ lawsuit, filed Friday, which seeks over $10 million damages and a TRO against the .web auction.
Donuts believes that NDC has been taken over by an as-yet unknown third party with a vested interest in keeping the auction proceeds out of the hands of its competitors by forcing an ICANN-run last-resort auction.
Its belief is based on a June 7 email from NDC CFO Jose Rasco that alludes to COO Nicolai Bezsonoff no longer being with the company and makes reference to unspecified “powers that be” that are now in charge of the company.
By not disclosing the alleged change of control to ICANN, NDC broke Application Guidebook rules, Donuts claims.
But according to ICANN and NDC, this is all nonsense. ICANN told the court:

three separate ICANN bodies – ICANN’s staff, ICANN’s Ombudsman, and ICANN’s Board – have already looked into the alleged change in Nu Dotco’s ownership or management. All three found no credible evidence that any such change had occurred within Nu Dotco, and therefore nothing supported a delay of the Auction. Plaintiff’s TRO application, filed nearly three months after the Auction was scheduled and just two business days before bidding is set to officially begin, relies solely on a strained, and now completely discredited, interpretation of the Nu Dotco CFO’s June 7 email. However, the evidence accompanying this opposition – sworn declarations from ICANN and Nu Dotco executives – confirms that Nu Dotco has not made any change in its ownership or management, much less a “disqualifying” change that should derail the Auction processes already under way or the official start of bidding.

Rasco and Nicolai Bezsonoff both swear in accompanying declarations that the managers and members (ie owners) of NDC have not changed since the original 2012 application.
NDC, according to its .web application, is owned by two Delaware shell companies — Domain Marketing Holdings, LLC and NUCO LP, LLC — both of which appear to have been created in order to provide a layer of separation between NDC and its actual investors.
Rasco and Bezsonoff say that these two companies remain the only owners of NDC requiring their identities to be disclosed to ICANN.
There’s no comment in either declaration about whether either of those two companies has undergone a change in control.
What we seem to have here, amusingly, is NDC using exactly the same legal tricks as Donuts to hide the ultimate beneficiaries of its gTLD applications.
Donuts, you may recall, applied for 307 new gTLDs via 307 distinct shell LLCs with randomly generated names. Not only that, but each of those LLCs is owned by one of two other shell companies — 201 belonged to Dozen Donuts LLC, 106 belonged to Covered TLD LLC.
Donuts never formally disclosed in its ICANN applications (or, to my recollection, publicly confirmed) that business partner Rightside had the right to buy any of the Covered TLD strings — including .web, it seems — a right Rightside has exercised many times since.
Rightside basically got the same layer of identity insulation that whoever’s pulling the strings at NDC is getting now.
That irony is not pointed out in ICANN’s latest court filing, which can be read here (pdf). The Rasco and Bezsonoff declarations can be read here and here.
The applicants for .web are NDC, Radix, Donuts, Schlund, Afilias, Google and Web.com. Vistaprint’s bid for .webs is also in the auction.
Unless Donuts gets its TRO, the auction will begin at 1400 UTC tomorrow and we could find out how much .web sold for later that day.

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Comments (5)

  1. George Kirikos says:
    July 26, 2016 at 1:02 pm

    I believe there’s a possible loophole in the process.
    Conceivably, a company could, before the auction takes place, agree to a contingent arrangement (i.e. an option or a warrant) involving future equity, etc. to avoid the “change of control” immediately, but allow for that change of control to occur only *after* a successful auction bid.
    I have no knowledge that’s taking place here, though, but it’s a “theoretical attack” on the spirit of the process.

    Reply
    • Rubens Kuhl says:
      July 26, 2016 at 3:33 pm

      AGB would categorize that as a Joint Venture, which was required to be disclosed… the loophole as Kevin mentioned is the fact than the applicant itself has obligations that are not transitive to their parent companies.

      Reply
  2. Dot Advice says:
    July 26, 2016 at 2:55 pm

    Loopholes – there are more loop holes than a Swiss cheese. So why wont/didn’t NDC and its actual investors agree to a private auction- these past two years – when all parties could gain $Ms – even if they lose, when now ICANN takes all the proceeds,which is dead money, taken out of the “gTLD investment circularisation” . Roll on Friday. $75M anyone – Google to buy ?

    Reply
  3. Rubens Kuhl says:
    July 26, 2016 at 6:45 pm

    For me, the declarations make clear that the only company from the domain industry that would benefit from NDC winning the contention set is Neustar. The remaining question is whether the sugar daddy is Neustar itself, or someone else outside the domain industry.

    Reply
  4. Charles says:
    July 27, 2016 at 12:37 pm

    Much ado about nothing. The new g’s all suck and will all soon go under. Does it matter who owns .Web when it goes down?

    Reply

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