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“Dangerous precedent” as ICANN rejects $1.13 billion .org buyout

Kevin Murphy, May 1, 2020, 10:21:07 (UTC), Domain Registries

In a decision that will shock many, ICANN won’t let Ethos Capital buy Public Interest Registry from the Internet Society.

Its board of directors yesterday voted to reject PIR’s request for a change of control of the .org contract, saying that “the public interest is better served in withholding consent”.

Ethos responded angrily almost immediately, saying the decision “sets a dangerous precedent with broad industry implications” and that it is “evaluating its options”.

The ICANN resolution, which was published overnight, is justified by setting out the case that .org is a unique case: a large legacy gTLD with a mandate to serve non-profit entities.

The Board was presented with a unique and complex situation – a request to approve a fundamental change of control over one of the longest-standing and largest registries, that also includes a change in corporate form from a viable not-for-profit entity to a for-profit entity with a US$360 million debt obligation, and with new and untested community engagement mechanisms relying largely upon ICANN contractual compliance enforcement to hold the new entity accountable to the .ORG community. ICANN is being asked to agree to contract with a wholly different form of entity; instead of contracting with the mission-based not-for-profit that has responsibly operated the .ORG registry for nearly 20 years, with the protections for its own community embedded in its mission and status as a not-for-profit entity. If ICANN were to consent, ICANN would have to trust that the new proposed for-profit entity that no longer has the embedded protections that come from not-for-profit status, which has fiduciary obligations to its new investors and is obligated to service and repay US$360 million in debt, would serve the same benefits to the .ORG community.

Essentially, ICANN is holding ISOC to the by-and-for non-profits commitment that it made when it inherited the registry from Verisign back in 2002. You may recall I went into some depth on the history of .org back in December.

While noting the broad criticism from various parties — which included domainers and non-profits — about the proposed acquisition, the resolution makes specific reference to the investigation by the office of the California attorney general, which had made vague threats of legal action against ICANN.

Some commentators, including Jonathan Zuck and Michele Neylon — are worried that the AG’s influence now means ICANN has a new boss, and that special interest groups in future need only lobby his office in order to override community-built consensus.

But ICANN did not single out one reason for its decision, saying withholding consent was “reasonable in light of the balancing of all of the circumstances”.

Ethos, while not calling out the AG directly, made the broader claim that ICANN has acted outside its mandate by succumbing to lobbying by outside parties.

Its statement, which I think contains hints at future legal action, reads in full:

Today’s decision by ICANN sets a dangerous precedent with broad industry implications. ICANN has overstepped its purview, which is limited to ensuring routine transfers of indirect control (such as the sale of PIR) do not impact the registry’s security, stability and reliability. Today’s action opens the door for ICANN to unilaterally reject future transfer requests based on agenda-driven pressure by outside parties. It allows ICANN to base its decisions on a subjective interpretation of what it deems to be relevant in these transactions, rather than following its own clear and specified legal directive.

This decision will suffocate innovation and deter future investment in the domain industry. ICANN has empowered itself to extend its authority into areas that fall well outside of its legal mandate in acting as a regulatory body. Today’s decision also creates an uncertain and unpredictable business environment, where the enforceability and value of the ICANN contract itself may be called into question now that the rules of transferring ownership are open to influence by outside interests. Ethos is evaluating its options at this time.

In the same statement, PIR called the decision “a failure to follow its bylaws, processes, and contracts” and ISOC said ICANN “has acted as a regulatory body it was never meant to be”.

While the decision could be chalked up as a win for domain investors and civil libertarians that had challenged the acquisition, it has implications that may not entirely please them.

Assuming the deal stays dead, PIR is no longer promising to only increase prices by 10% a year. It will be able to raise its registry fee arbitrarily, whenever it likes, subject to notice periods and the usual uniform pricing rules.

Domainers will have to hope there’s no sour grapes at ISOC, or they could be looking at big price hikes before long.

And for those interested in censorship, remember PIR is no longer committing to a Stewardship Council that would help protect free speech in .org domains.

The ICANN decision came in spite of a last-minute plea from former chair and ISOC co-founder Vint Cerf, who in a letter (pdf) described the deal as a “wedge issue” that could be leverage to force ICANN into an existential crisis, with outside interests such as the ITU pushing itself as a replacement.

ICANN also received eleventh-hour submissions from the German government (which was against the deal) and German trade group Eco (which was vague but appeared to be for the deal).

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Comments (11)

  1. Konstantinos Zournas says:
    May 1, 2020 at 11:04 am

    Yeah, I forgot to include Michele Neylon to my list of useful idiots…
    Sorry about this.

    https://onlinedomain.com/2020/04/30/domain-name-news/icann-independence-icanns-new-excuse-for-allowing-the-org-transfer/

    Reply
  2. Mark Thorpe says:
    May 1, 2020 at 12:15 pm

    “Ethos responded angrily almost immediately”
    No one feels bad for you.

    Reply
  3. Chris Bell says:
    May 1, 2020 at 12:25 pm

    Both ICANN and the Attorney General did the right thing, by defending the interests of the registrants eventually.

    I imagine this also benefits PIR, as they can remain independent. And ISOC, as they can get a lot more revenue out of PIR than a billion dollars.

    Only Ethos their registry flipping business is off to a bad start. Although they can always apply for their own ntld during the next round. Who doesn’t want a .ethos domain, which would be a stable home for non-profits?

    Reply
  4. John Berryhill says:
    May 1, 2020 at 12:53 pm

    The full Ethos statement is much better than the excerpt above, especially the part about “wicked thieving Hobbitses stealing our precious.”

    I can see why no one wants to put their name on breathless junk that looks like it fell off of the back of the catch-phrase truck. Regardless of your position on the sale, and I for one truly couldn’t care less, you have to love how much empty and cheap dime store rhetoric the writer manages to pack in to a few short paragraphs….

    “with outside interests such as the ITU pushing itself as a replacement” – That one is a true golden oldie. I regret leaving that one out of the “we must do X or government will intervene” / “we must not do what the government wants in order to prove our independence” dichotomy. Whenever one of those buttons doesn’t work, start the Darth Vader music and push the ITU button.

    “dangerous precedent”… “agenda-driven pressure by outside parties”… “suffocate innovation”… oh my, lock up the wimmenfolk and chilluns!

    But there are a couple of gems for anyone who appreciates stark evidence of feeblemindedness in print:

    “opens the door for ICANN to unilaterally reject future transfer requests” – well, duh, have you ever seen a proposal by one party to another be “bi-laterally rejected” by both parties. But “unilaterally” is always a good adjective to throw into sentences like that. Like empty calories in food, it adds nothing of substance, but sounds bad. I unilaterally got out of bed this morning and unilaterally made oatmeal. The horror.

    “base its decisions on a subjective interpretation of what it deems to be relevant” – Ah, yes, the famous “My interpretation is objective, and yours is subjective.” That’s why, for example, there is only one interpretation of works like, say, the US Constitution. Anyone who disagrees with the author is simply incapable of being objective. ICANN rules spawn creative ways of making personal insults against others. The members of the ICANN board are all biased and incapable of an honest disagreement, in case you missed it. Why not just say what you mean?

    The best on, though, and I think this one is worthy of an award in the annals of self-important narcissistic rhetoric:

    “Today’s decision also creates an uncertain and unpredictable business environment”

    The obviously overpaid author fails to grasp that there is a reason he or she is writing such ridiculous crap while sitting at home in pajamas, and it is the cause of a lot more uncertainty and unpredictability than this decision will ever be, regardless of the eventual outcome after the lawyers cash in their chips.

    You are going to request reconsideration (after insulting the intelligence and integrity of everyone to whom that request will be put), and litigate in courts which are moving at a snail’s pace and backed up for years at this point. Lashing out in an infantile jumbled tantrum of catch phrases and vicious little sneers doesn’t get your sale done, and won’t impress anyone “objective”.

    Meanwhile, the rest of the world has something more important to deal with, and you would be best advised that crying like a wounded hyena over your delayed ability to reap a windfall is going to earn no sympathy points outside your circle jerk of groupthinkers and paid hangers-on.

    Reply
  5. Brad Mugford says:
    May 1, 2020 at 3:29 pm

    No, the “dangerous precedent” was handing over a legacy extension to a brand new private equity company with no track record and limited protections for registrants.

    ICANN made the right decision.

    Additionally, ISOC/PIR lost much of their credibility with the .ORG community over this agreement. Now they need to start working to build that trust back.

    If they try any punitive actions like arbitrarily raising prices, the push back is going to be even stronger.

    Brad

    Reply
  6. Antony Van Couvering says:
    May 1, 2020 at 7:18 pm

    Oh, the ironies…

    Some may recall that ICANN was set up in response to another Internet governance effort, the gTLD-MoU, which proposed an HQ in Switzerland, well beyond interference by any Attorney General from the US. ICANN’s California residence is not an accident, there was a choice made (exactly by whom and why and how remains foggy) to station its HQ in the US and specifically in California. So it has been since the beginning.

    As a particular kind of California not-for-profit corporation, ICANN is required to look after the public interest, and it is subject to relevant California laws — and more to the point, its law enforcement. This was all planned by ICANN from the beginning, and so they have to live with it, and so does anyone who transacts with it, private equity firms and global do-gooders included. No-one can be surprised that California’s AG, who is known to be active in defending his state’s prerogatives, has chosen to state his opinion.

    Who should know this better than Ethos, headed by an ex-CEO of ICANN, who during his tenure was never backward in pressing the “we must do this or else government will intervene” button? Did they just hope that the AG would not notice, or that none of this deal’s many critics would alert him? Or that ICANN’s board would not take his letter seriously? Wishful thinking at best, given that the ICANN board has always had, as one of them put it to me, a “consequentialist” (read: “political”) cast of mind.

    And what about ISOC? They were actually an important part of that original IAHC effort, the one that wanted an HQ in Switzerland, where the authorities have always had a soft spot for well-funded organizations with squidgy governance. Its leader at the time, Don Heath, was criticized for being too close to the ITU, but the current leadership may see his stance as prescient. Perhaps ISOC is so embedded in international politics that they forgot about California, or maybe they were just blinded by the money. But while Ethos, despite its name, is understood to have profit as its motive, ISOC is supposed to care about other things. No doubt they had impressive plans for saving the planet with their grubstake, but still….

    “Public interest” has a specific legal meaning for the California AG, but in plain English it means something that benefits the public. Outside of the interested parties, who really thinks that a .org run by private equity and saddled with massive debt benefits the public, even with all the wonderful things ISOC would do with the money? Clearly not the California AG, or (with a little prodding) the ICANN Board.

    Granted, we have seen so many decisions by the ICANN Board that clearly do not follow the plain meaning of public interest that seasoned observers may reel in shock to find that the organization is acting in the spirit of the law instead of diligently seeking every convenient loophole, omission, and intertice to circumvent it. But even the most skeptical will admit that from time to time even ICANN must lean slightly in the other direction, if only to maintain the appearance of being fair.

    No-one can be surprised by a state enforcing its laws. No-one can be surprised by an organization existing under those laws choosing to follow them, or paying serious attention to the point of view of that state’s head of law enforcement. Except the cynical, the naive, and the delusional, who appear to be the chief cooks of this dish.

    If ICANN and its suitors want it to behave like the IOC or FIFA then by all means they should move it to Switzerland, and deals like this would go through easily, gaily festooned with language about good intentions. But apparently in backward places like California, officials have not yet understood that at least sometimes public interest does not mean private interest with a wink.

    Sometimes you need a cop.

    Reply
  7. David says:
    May 3, 2020 at 10:51 am

    Do it with any other termination but not .Com .Net .Org

    They shouldn’t be a privatization for them.

    Reply

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