Donuts rolls the dice with $22.5 million .web lawsuit

Donuts is demanding ICANN pay up the $22.5 million it reckons it is owed from the auction of the .web gTLD, which sold late last month for $135 million.
The company yesterday amended its existing California lawsuit against ICANN to allege that Verisign tried to avoid regulatory scrutiny by secretly bankrolling successful bidder Nu Dot Co.
The updated complaint (pdf) reads:

VeriSign’s apparent acquisition of NDC’s application rights was an attempt to avoid allegations of anti-competitive conduct and antitrust violations in applying to operate the .WEB gTLD, which is widely viewed by industry analysts as the strongest competitor to the .COM and .NET gTLDs.

Donuts wants a minimum of $22.5 million, which is roughly what each of the six losing .web applicants would have received if the contention set had been resolved via private auction.
(I previously reported that number as $18.5 million, because I accidentally counted .webs applicant Vistaprint as losing .webs applicant, when in fact it won .webs, paying $1.)
The company’s claims are still based around the allegation that ICANN breached its duties by failing to root out Verisign as the puppet-master.
The complaint alleges breach of contract, negligence, unfair competition and other claims. It says:

ICANN allowed a third party to make an eleventh-hour end run around the application process to the detriment of Plaintiff, the other legitimate applicants for the .WEB gTLD and the Internet community at large.
…
ICANN intentionally failed to abide by its obligations to conduct a full and open investigation into NDC’s admission because it was in ICANN’s interest that the .WEB contention set be resolved by way of an ICANN auction.

The irony here is that Ruby Glen LLC, the Donuts company that applied for .web, is subject to an arrangement not dissimilar to NDC’s with Verisign.
Ruby Glen is owned by Covered TLD LLC, in turn a wholly-owned Donuts subsidiary.
It’s well-known that fellow portfolio registry Rightside has rights to acquire Covered TLD’s over 100 applied-for strings, but this is not disclosed in its .web application.
ICANN will no doubt make use of this fact when it files its answer to the complaint.
Verisign itself has not been added as a defendant, but much of the new text in the complaint focuses on its now-confirmed involvement with NDC. The suit reads:

Had VeriSign’s apparent acquisition of NDC’s application rights been fully disclosed to ICANN by NDC… the relationship would have also triggered heightened scrutiny of VeriSign’s Registry Agreements with ICANN for .COM and .NET, as well as its Cooperative Agreement with the Department of Commerce.

The fact that Verisign is allowed to collect over half a billion dollars cash every year as a result of its state-endorsed monopoly is a longstanding cause of embarrassment for the Department of Commerce.
It has taken an interest in regulating Verisign’s .com contract in the past — it’s the only reason Verisign has not been able to raise .com prices in the last few years.
But the US government is not a party to the .web contract (unlike .com, where it has a special relationship with Verisign) and is not involved in the new gTLD program’s management or policies.
The complaint also makes reference to a completely unrelated Independent Review Process declaration from last week, which slammed ICANN for its lack of accountability and transparency.
Donuts faces the additional problem that, like all new gTLD applicants, it signed a covenant not to sue ICANN when it applied for its new gTLDs.
A judge in the DotConnectAfrica v ICANN can has allowed that lawsuit to proceed, regardless, but it may prove a stumbling block for Donuts.
It all looks a bit flimsy to me, but I’ve learned not to second-guess American judges so we’ll just have to see how it plays out.

1 Comment Tagged: .web, .webs, auctions, donuts, ICANN, last resort, new gTLDs, nu dot co, rightside, verisign

IRP panel crucifies ICANN for lack of transparency

ICANN has lost another Independent Review Process decision, with the panel stating some potentially alarming opinions about how much power ICANN staff has over its board and “independent” third-party contractors.
This time, the successful IRP complainant was Dot Registry LLC, the Kansas company that applied for the gTLDs .llc, .llp, and .inc as a “Community” applicant.
The company lost its Community Priority Evaluations back in 2014, scoring a miserable 5 of the possible 16 points, missing the 14-point winning line by miles.
The IRP panel has now found — by a two-to-one panelist majority — that these CPE decisions had extensive input by ICANN staff, despite the fact that they’re supposedly prepared by an independent third-party, the Economist Intelligence Unit.
It also found that the ICANN Board Governance Committee rejected Dot Registry’s subsequent Request for Reconsideration appeals without doing its due diligence.
The IRP panel said in essence that the BGC merely rubber-stamped RfR decisions prepared by legal staff:

apart from pro forma corporate minutes of the BGC meeting, no evidence at all exists to support a conclusion that the BGC did more than just accept without critical review the recommendations and draft decisions of ICANN staff.

ICANN had of course denied this interpretation of events, but refused to provide the IRP panel with any of the information the BGC had supposedly used in its decision-making, citing legal privilege.
The panel also had questions related to the relationship between the EIU and ICANN staff, pointing to extensive margin notes left on the draft CPE decisions by ICANN staff.
Remarkably, the EIU appears to have incorporated ICANN suggested text into its decisions, even when the facts may not have supported the text.
For example, the final CPE decision on .inc contained the sentence:

Research showed that firms are typically organized around specific industries, locales, and other criteria not related to the entities structure as an LLC

The panel concluded that this text had originated in ICANN’s margin notes:

Possibly something like… “based on our research we could not find any widespread evidence of LLCs from different sectors acting as a community”.

According to the IRP decision, there was no mention of any pertinent “research” in the record prior to ICANN’s note. It’s possible no such research existed.
It seems the ICANN legal team helps redraft supposedly independent CPE decisions to make them less likely to be thrown out on appeal, then drafts the very decisions that the compliant BGC later uses to throw out those eventual appeals.
The IRP panel by majority therefore found a lack of due diligence and transparency at the BGC, which means the ICANN board failed to act in accordance with its bylaws and articles of incorporation.
One of the three panelists dissented from the the majority view, appending a lengthy opinion to the majority declaration.
The IRP panel went beyond its mandate by improperly extending ICANN’s bylaws commitments beyond its board of directors, he wrote, calling the declaration “a thinly veiled rebuke of actions taken by the EIU and ICANN staff”
Just because ICANN submitted no evidence that the BGC acted independently rather than merely rubber-stamping staff decisions, that does not mean the BGC did not act independently, he wrote.
The dissenting view may carry some weight, given that the majority declaration does not give ICANN any guidance whatsoever on how it should proceed.
Dot Registry has specifically not asked for a rerun of the CPEs, and the panel didn’t give it one. Instead, it had asked the panel to simply declare that its applications should have passed CPE the first time around.
That bold demand was, naturally, declined.
But the panel offers no redress in its place either. ICANN has simply been told that the BGC’s decisions on Dot Registry’s RfRs broke the bylaws. What ICANN does with that information seems to be up to ICANN.
These gTLDs are almost certainly still heading to auction.
The documents for this IRP case can be found here.

3 Comments Tagged: .inc, .llc, .llp, dot registry

L’Oreal shows cards on former “closed generic” gTLDs

Want to register a .beauty or .makeup domain name? L’Oreal will get to decide unilaterally whether “you’re worth it”.
The cosmetics maker has released the registration policies for its first former “closed generic” gTLD, .makeup, and they’re among the most restrictive in the industry.
Free speech appears to be the first victim of the policy — “gripe sites” are explicitly banned in the same breath as cybersquatting, 419 scams and the sale of counterfeit goods.
Domain investors and those who would hide their identity behind Whois privacy services appear to be unwelcome, too.
But perhaps most significantly, L’Oreal has also given itself the right to decide, in its sole discretion, whether a would-be registrant is eligible to own a .makeup domain.
Its launch policy reads:

Registrant Eligibility Requirements
To support the mission and purpose of the TLD, in order to register or renew a domain name in the TLD, Applicants must (as determined by the Registry in its sole and exclusive right):

• Own, be connected to, employed by, associated with, or affiliated with a company that provides makeup and/or cosmetics related products, services, news, and/or content; or (ii) be an individual, association, or entity that has a meaningful nexus (as determined by the Registry in its sole discretion) with the cosmetics industry; and
• Possess a bona fide intention to use the domain name in supporting the mission and purpose of the TLD.

Would-be registrants have to submit an “application” for the domain they want, and L’Oreal gets to decide whether to approve it or not.
Whether L’Oreal chooses to apply liberal or conservative standards here remains to be seen.
Like most new gTLD registries, the company plans to reserve many domains for the use of itself, partners, or future release.
The policies also give L’Oreal broad discretion to suspend or terminate names it decides violate the terms of the registration policy, which it says it can amend and retroactively apply at any time.
Using the domain counter to the mission statement of the gTLD is a violation. The mission statement reads:

The mission and purpose of the TLD is first and foremost to promote the beauty, makeup and cosmetics segments, through meaningful engagement with manufacturers, beauty enthusiasts, consumers, and retailers, using a domain space intended for use by individuals and/or companies within or associated with the various industries that provide, utilize, or bear a recognizable connection to makeup and cosmetic products and/or services.

L’Oreal has defined gripe sites — sites established primarily to criticize — as a security and stability concern that “may put the security of any Registrant or user at risk”, banning

other abusive behaviors that appear to threaten the stability, integrity or security of the TLD or any of its registrar partners and/or that may put the security of any Registrant or user at risk, including but not limited to: cybersquatting, sale and advertising of illegal or counterfeit goods, front-running, gripe sites, deceptive and⁄or offensive domain names, fake renewal notices, cross gTLD registration scams, traffic diversion, false affiliation, domain kiting⁄tasting, fast-flux, 419 scams.

If you want to set up a .makeup web site to criticize, say, L’Oreal for “body shaming” or for its animal testing policy, lots of luck to you.
The gTLD is owned by L’Oreal but seems to be being managed primarily by its application consultant, Fairwinds Partners.
It was originally designated as a single-registrant space, a so-called “closed generic” or “exclusive access” gTLD, in which only L’Oreal could register names.
But the company was forced to change its plans, under pain of losing its application, after the Governmental Advisory Committee persuaded ICANN to perform a U-turn on the permissibility of closed generics.
.makeup is due to start accepting pre-launch requests for Founders Program domains next Monday. General availability will start October 19.
Sunrise will kick off September 8, though L’Oreal warns that it has withheld generic terms such as “shop” from this period.
The company also owns .beauty, and I expect its terms there to be similar.

11 Comments Tagged: .beauty, .makeup, gripe, ICANN, l'oreal, launch, new gTLDs, sunrise

Verisign confirms it did fund $135 million .web bid

Verisign has just confirmed that it was behind the winning bid in last week’s .web gTLD auction.
Nu Dot Co won the auction after 23 rounds over two days of bidding, but Verisign was thought to be the real beneficiary.
The company has now released the following statement confirming the relationship:

The Company entered into an agreement with Nu Dot Co LLC wherein the Company provided funds for Nu Dot Co’s bid for the .web TLD. We are pleased that the Nu Dot Co bid was successful.
We anticipate that Nu Dot Co will execute the .web Registry Agreement with the Internet Corporation for Assigned Names and Numbers (ICANN) and will then seek to assign the Registry Agreement to Verisign upon consent from ICANN.
As the most experienced and reliable registry operator, Verisign is well-positioned to widely distribute .web. Our expertise, infrastructure, and partner relationships will enable us to quickly grow .web and establish it as an additional option for registrants worldwide in the growing TLD marketplace. Our track record of over 19 years of uninterrupted availability means that businesses and individuals using .web as their online identity can be confident of being reliably found online. And these users, along with our global distribution partners, will benefit from the many new domain name choices that .web will offer.

No big surprises there. Verisign had already told investors it had a $130 million payment coming up soon.
See DI’s analysis on the auction results here.

4 Comments Tagged: .web, auction, ICANN, last resort, new gTLDs, nu dot co, verisign

Ombudsman trashes ICANN’s rejection of .gay “community”

ICANN’s outgoing Ombudsman fired a parting shot at his former employer last week with a scathing analysis of its rejection of .gay as a community gTLD.
ICANN should reject the decisions of two independent Economist Intelligence Unit panels, which found that Dotgay LLC’s application for .gay did not meet the strict definition of “community” under ICANN rules, LaHatte wrote.
“This is the time to recognise that even if the EIU evaluation did not achieve the appropriate number of points, that the community is real, does need protection and should be supported,” he wrote.
His recommendation appears on his personal blog, dated July 27, the same day his contract with ICANN expired. It has not appeared on the official ICANN Ombudsman blog.
The EIU is responsible for conducting Community Priority Evaluations for applicants who claim to be representing communities.
Its decisions have been unpredictable and to a degree inconsistent, but both times its panels looked at Dotgay’s .gay, they scored the application lower than the 14 out of 16 points required to pass the CPE.
Winning a CPE generally means you get the gTLD in question. Losing means you have to go to auction against competing applicants.
In the case of .gay, the other applicants are Top Level Design, Minds + Machines and Rightside.
Dotgay failed both times because its stated community — which includes straight people — does not match the string “gay”.
Nobody’s ever said that there’s no such thing as a gay community, they’ve just said there’s no such thing as a gay Community (big C) as defined by Dotgay LLC.
LaHatte’s recommendation does not delve into the nitty-gritty of the scoring process, but seems to criticize the system — and the flawed Request for Reconsideration system Dotgay has thrice unsuccessfully invoked — as “inadequate”. He wrote:

The role of the ombudsman is to deal with issues of fairness, and this encompasses issues such as respect for diversity and support for all parts of our community. Sometimes the mechanisms which we have put together to resolve challenges are simply inadequate…
But the issue that I want to emphasise in this recommendation is that it has always been open to ICANN to reject an EIU recommendation, especially when public interest considerations are involved. What is needed is to take a bold approach and demonstrate to the ICANN community, but also much more widely, to the world of Internet users, that ICANN has a commitment to principles of international law (see Article IV of the Bylaws), including human rights, fairness, and transparency.
The board will be very aware of the human rights initiatives undertaken in the light of the IANA transition and the careful evaluation of the accountability processes. But sometimes it is necessary to take a view which evaluates whether the decision taken corresponds with the bylaws and articles of incorporation. That view should be that ICANN supports the gay community and recognises that there is a community which requires protection and recognition, which has been marginalized, threatened and attacked, and which should be considered a genuine community notwithstanding the EIU recommendation.

He’s basically calling on ICANN’s board to cast aside the rules and previous practice in this particular instance and instead make a political statement, in my reading of the recommendation.
I don’t think ICANN will do that.
On a couple of occasions when Dotgay has suffered an ICANN-induced setback in the past, ICANN has put out statements reminding everyone that there will be a .gay, they only question is who runs it.
Because Dotgay filed a community application, it would be obliged to make .gay a restricted space. Its application talks about registrants having to be approved as eligible before they register.
But it also would have the strictest measures in place to address homophobia and harassment — something the other applicants may, but have not formally committed, to implement.

7 Comments Tagged: .gay, community, cpe, dotgay, ICANN, Ombudsman, request for reconsideration

Verisign likely $135 million winner of .web gTLD

Verisign has emerged as the likely winner of the .web gTLD auction, which closed on Thursday with a staggering $135 million winning bid.
The shell company Nu Dot Co LLC was the prevailing applicant in the auction, which ran for 23 rounds over two days.
Just hours after the auction closed, Domain Name Wire scooped that Verisign had quietly informed investors that it has committed to pay $130 million for undisclosed “contractual rights”.
In its Securities and Exchange Commission quarterly report, filed after the markets closed on Thursday, Verisign said:

Subsequent to June 30, 2016, the Company incurred a commitment to pay approximately $130.0 million for the future assignment of contractual rights, which are subject to third-party consent. The payment is expected to occur during the third quarter of 2016.

There seems to be little doubt that the payment is to be made to NDC (or one of its shell company parents) in exchange for control of the .web Registry Agreement.
The “third-party consent” is likely a reference to ICANN, which must approve RA reassignments.
We speculated on July 14 that Verisign would turn out to be NDC’s secret sugar daddy, which seems to have been correct.
Rival .web applicant Donuts had sued ICANN for an emergency temporary restraining order, claiming it had not done enough to uncover the identity of NDC’s true backers, but was rebuffed on multiple grounds by a California judge.
Donuts, and other applicants, had wanted the contention set settled privately, but NDC was the only hold-out.
Had it been settled with a private auction, and the $135 million price tag had been reached, each of the seven losing applicants would have walked away with somewhere in the region of $18.5 million in their pockets.
This draws the battle lines for some potentially interesting legal fallout.
It remains to be seen if Donuts will drop its suit against ICANN or instead add Verisign in as a defendant with new allegations.
There’s also the possibility of action from Neustar, which is currently NDC’s named back-end provider.
Assuming Verisign plans to switch .web to its own back-end, Neustar may be able to make similar claims to those leveled by Verisign against XYZ.com.
Overall, Verisign controlling .web is sad news for the new gTLD industry, in my view.
.web has been seen, over the years, as the string that is both most sufficiently generic, sufficiently catchy, sufficiently short and of sufficient semantic value to provide a real challenge to .com.
I’ve cooled on .web since I launched DI six years ago. Knowing what we now know about how many new gTLD domains actually sell, and how they have to be priced to achieve volume, I was unable to see how even a valuation of $50 million was anything other than a long-term (five years or more) ROI play.
Evidently, most of the applicants agreed. According to ICANN’s log of the auction (pdf) only two applicants — NDC and another (Google?) — submitted bids in excess of $57.5 million.
But for Verisign, .web would have been a risk in somebody else’s hands.
I don’t think the company cares about making .web a profitable TLD, it instead is chiefly concerned with being able to control the impact it has on .com’s mind-share monopoly.
Verisign makes about a billion dollars a year in revenue, with analyst-baffling operating margins around 60%, and that’s largely because it runs .com.
In 2015, its cash flow was $651 million.
So Verisign has dropped a couple of months’ cash to secure .web — chickenfeed if the real goal is .com’s continued hegemony.
In the hands of a rival new gTLD company’s marketing machine, in six months we might have been seeing (naive) headlines along the lines of “Forget .com, .web is here!”.
That won’t happen now.
I’m not privy to Verisign’s plans for .web, but its track record supporting the other TLDs it owns is not fantastic.
Did you know, or do you remember, that Verisign runs .name? I sometimes forget that too. It bought it from Global Name Registry in late 2008, at the high point of its domains under management in this chart.

I don’t think I expect Verisign to completely bury .web, but I don’t think we’re going to see it aggressively promoted either.
It will never be positioned as a competitor to .com.
If .web never makes $135 million, that would be fine. Just as long as it doesn’t challenge the perception that you need a .com to be successful, Verisign’s purchase was worth the money.

3 Comments Tagged: .web, auction, donuts, google, ICANN, new gTLDs, nu dot co, verisign

Verisign announces .net price increase

Verisign has just announced that prices for .net domains are going up again this coming February.
Announcing its second-quarter earnings, the company revealed plans to raise its registry fee from $7.46 to $8.20, effective February 1, 2017.
That’s the maximum 10% price hike it’s allowed to claim under its .net Registry Agreement with ICANN.
Raising .net prices has become a bit of an annual tradition with Verisign, one of the few gTLD registries to still have its prices regulated by ICANN.
The company had about 16.2 million .net domains under management at the last formal, published count in March. Its daily “domain base” has .net at 15.7 million names today.

2 Comments Tagged: .net, ICANN, pricing, verisign

.web could already be a record-breaker as auction enters day two

It seems likely that .web has already smashed through the $41.5 million record sale price for a new gTLD at ICANN auction.
The auction, which kicked off properly at 1300 UTC yesterday, seems to have ended its first day of bidding at around 2300 UTC last night without a winner.
That suggests, based on the rules and how previous auctions have played out, that we’re probably already looking at high bids over $50 million.
The previous top price for a gTLD at ICANN auction was .shop, which sold to GMO for $41.5 million earlier this year.
The signs are that .web will go for more.
Be warned, this is mostly informed guesswork. I don’t know what the current bids are.
ICANN auctions work in rounds. In each round the minimum bid is either $1 (for round one) or the previous round’s maximum bid (for all subsequent rounds).
The maximum bid in each round is set by the auctioneer, who has broad discretion, based on the action at the time.
The range between minimum and maximum bids seems to get bigger in each passing round, based on previous auction results.
According to ICANN auction rules (pdf) each bidding round lasts 20 minutes and is immediately followed by a 20-minute recess.
This schedule is somewhat flexible. It could be slowed down or sped up with the consent of all bidders.
The .web auction was due to kick off at 1300 UTC yesterday, according to court papers, though it seems probable that round-one bids were accepted the previous night.
The first day’s bidding was due to end at 2330 UTC yesterday.
So that’s over 10 hours of bidding yesterday, which works out to about 15 rounds if they stuck to the 40-minute round schedule.
When .shop sold for $41.5 million, it did so in just 14 rounds, carried out in a single day.
The final round of that auction saw an acceptable bidding range of $36.8 million to $46 million — an almost $10 million spread.
So, if we can assume that there were at least 15 rounds in the .web auction yesterday and we can assume that the auctioneer is following a similar playbook to the .shop auction, the maximum bid when the auction paused overnight was likely well over $50 million.
By the time you read this, this guesswork could be moot anyway. I expect we’ll find out later today whether those assumptions were accurate. It seems unlikely that a third day’s bidding will be required.
The applicants for .web are NDC, Radix, Donuts, Schlund, Afilias, Google and Web.com. Vistaprint’s bid for .webs is also in the auction.

3 Comments Tagged: .web, auction, ICANN, last resort, new gTLDs

M+M billings quadruple on China .vip surge

Minds + Machines this morning said that its billings increased to $8.05 million in the first half of 2016.
That’s a 300% increase on the comparable year-ago period, the company said in a preliminary statement to the markets.
It added that its domains under management grew from 217,200 at the end of June 2015 to 728,940 a year later.
While the statement did not elaborate on the reasons behind the growth, the recently launched .vip gTLD seems to be the main factor.
It went to general availability a little over two months ago and quickly topped 400,000 registrations.
Just a few weeks before the end of the reporting period, M+M said its billings and orders for .vip alone had already hit $5.5 million.
That’s due to interest from Chinese domain investors, who were courted by M+M during a conference in Beijing.
M+M will report its full interims on September 20.

Comment Tagged: earnings, Minds + Machines, mmx

“Ditch .com!” government to tell Indians

The Indian government is to urge citizens to register .in domain names instead of .com, according to local reports.
The Economic Times reports today that the Ministry of Economy and IT is to launch a “massive advertising campaign aimed at companies, individuals and startups” promoting .in.
Rajiv Bansal, MEIT joint secretary, is reported as saying the campaign will play up to nationalist sentiments
The government wants to grow .in from about 2.1 million domains to 3 million domains by March next year, it said.
Prices could come down to the $2 to $3 range, the paper said.
The campaign is due to start in a month or so, it was reported.

9 Comments Tagged: .com, .in, cctlds, india