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.hotel losers gang up to threaten ICANN with legal bills

Kevin Murphy, August 30, 2016, Domain Registries

The six losing applicants for the .hotel new gTLD are collectively threatening ICANN with a second Independent Review Process action.

Together, they this week filed a Request for Reconsideration with ICANN, challenging its decision earlier this month to allow the Afilias-owned Hotel Top Level Domain Sarl application to go ahead to contracting.

HTLD won a controversial Community Priority Evaluation in 2014, effectively eliminating all rival applicants, but that decision was challenged in an IRP that ICANN ultimately won.

The other applicants think HTLD basically cobbled together a bogus “community” in order to “game” the CPE process and avoid an expensive auction.

Since the IRP decision, the six other applicants — Travel Reservations, Famous Four Media, Radix, Minds + Machines, Donuts and Fegistry — have been arguing that the HTLD application should be thrown out due to the actions of Dirk Krischenowski, a former key executive.

Krischenowski was found by ICANN to have exploited a misconfiguration in its own applicants’ portal to download documents belonging to its competitors that should have been confidential.

But at its August 9 meeting, the ICANN board noted that the timing of the downloads showed that HTLD could not have benefited from the data exposure, and that in any event Krischenowski is no longer involved in the company, and allowed the bid to proceed.

That meant the six other applicants lost the chance to win .hotel at auction and/or make a bunch of cash by losing the auction. They’re not happy about that.

It doesn’t matter that the data breach could not have aided HTLD’s application or its CPE case, they argue, the information revealed could prove a competitive advantage once .hotel goes on sale:

What matters is that the information was accessed with the obvious intent to obtain an unfair advantage over direct competitors. The future registry operator of the .hotel gTLD will compete with other registry operators. In the unlikely event that HTLD were allowed to operate the .hotel gTLD, HTLD would have an unfair advantage over competing registry operators, because of its access to sensitive business information

They also think that HTLD being given .hotel despite having been found “cheating” goes against the spirit of application rules and ICANN’s bylaws.

The RfR (pdf) also draws heavily on the findings of the IRP panel in the unrelated Dot Registry (.llc, .inc, etc) case, which were accepted by the ICANN board also on August 9.

In that case, the panel suggested that the board should conduct more thorough, meaningful reviews of CPE decisions.

It also found that ICANN staff had been “intimately involved” in the preparation of the Dot Registry CPE decision (though not, it should be noted, in the actual scoring) as drafted by the Economist Intelligence Unit.

The .hotel applicants argue that this decision is incompatible with their own IRP, which they lost in February, where the judges found a greater degree of separation between ICANN and the EIU.

Their own IRP panel was given “incomplete and misleading information” about how closely ICANN and the EIU work together, they argue, bringing the decision into doubt.

The RfR strongly hints that another IRP could be in the offing if ICANN fails to cancel HTLD application.

The applicants also want a hearing so they can argue their case in person, and a “substantive review” of the .hotel CPE.

The HTLD application for .hotel is currently “On Hold” while ICANN sorts through the mess.

Afilias set to get .hotel despite hacking claims

Kevin Murphy, August 19, 2016, Domain Registries

Afilias is back on the path to becoming the registry for .hotel, after ICANN decided claims of hacking by a former employee of the applicant did not warrant a rejection.

The ICANN board of directors decided last week that HOTEL Top-Level Domain Sarl, which was recently taken over by Afilias, did not gain any benefit when employee Dirk Krischenowski accessed competing applicants’ confidential documents via an ICANN web site.

Because HTLD had won a Community Priority Evaluation, it should now proceed to contracting, barring any further action from the other six applicants.

ICANN’s board said in its August 9 decision:

ICANN has not uncovered any evidence that: (i) the information Mr. Krischenowski may have obtained as a result of the portal issue was used to support HTLD’s application for .HOTEL; or (ii) any information obtained by Mr. Krischenowski enabled HTLD’s application to prevail in CPE.

It authorized ICANN staff to carry on processing the HTLD application.

The other applicants — Travel Reservations, Famous Four Media, Radix, Minds + Machines, Donuts and Fegistry — had called on ICANN in April to throw out the application, saying that to decline to do so would amount to “acquiescence in criminal acts”.

That’s because an ICANN investigation had discovered that Dirk Krischenowski, who ran a company with an almost 50% stake in HTLD, had downloaded hundreds of confidential documents belonging to competitors.

He did so via ICANN’s new gTLD applicants’ portal, which had been misconfigured to enable anyone to view any attachment from any application.

Krischenowski has consistently denied any wrongdoing, telling DI a few months ago that he simply used the tool that ICANN made available with the understanding that it was working as intended.

ICANN has now decided that because the unauthorized access incidents took place after HTLD had already submitted its CPE application, it could not have gained any benefit from whatever data Krischenowski managed to pull.

The board reasoned:

his searches relating to the .HOTEL Claimants did not occur until 27 March, 29 March and 11 April 2014. Therefore, even assuming that Mr. Krischenowski did obtain confidential information belonging to the .HOTEL Claimants, this would not have had any impact on the CPE process for HTLD’s .HOTEL application. Specifically, whether HTLD’s application met the CPE criteria was based upon the application as submitted in May 2012, or when the last documents amending the application were uploaded by HTLD on 30 August 2013 – all of which occurred before Mr. Krischenowski or his associates accessed any confidential information, which occurred from March 2014 through October 2014. In addition, there is no evidence, or claim by the .HOTEL Claimants, that the CPE Panel had any interaction at all with Mr. Krischenowski or HTLD during the CPE process, which began on 19 February 2014.

The HTLD/Afilias .hotel application is currently still listed on ICANN’s web site as “On Hold” while its rivals are still classified as “Will Not Proceed”.

It might be worth noting here — to people who say ICANN always tries to force contention sets to auction so it possibly makes a bit of cash — that this is an instance of it not doing so.

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

Kevin Murphy, July 28, 2016, Domain Sales

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.

Donuts denied! .web auction to go ahead today

A California judge had denied Donuts’ eleventh-hour attempt to delay today’s .web gTLD auction.

In a ruling late yesterday, Judge Percy Anderson rejected the company’s request for an emergency temporary restraining order preventing ICANN from selling off the premium gTLD.

This means the auction is pretty much certain to go ahead starting at 1300 UTC — that’s 6am local time for ICANN — today.

Donuts had sought the TRO because it claims ICANN failed in its duty to investigate whether rival bidder Nu Dot Co is now backed by a new big-money controlling party.

Its ultimate goal appears to have been to somehow force .web to private settlement, where all the unsuccessful applicants could get a multi-million dollar pay-off.

Anderson dismissed the request for a multitude of largely technical legal reasons surrounding the timing of Donuts’ request.

He said that, had ICANN not already filed its opposition to the TRO, he would have ruled against Donuts simply for failure to formally serve ICANN in a timely fashion.

But on the merits, he ruled that there was not a strong likelihood of Donuts winning a full trial, due to the statements of two NDC executives, who swore on oath there had been no change to the company’s ownership or management.

Anderson wrote (pdf):

Based on the strength of ICANN’s evidence submitted in opposition to the Application for TRO, and the weakness of Plaintiff’s efforts to enforce vague terms contained in the ICANN bylaws and Applicant Guidebook, the Court concludes that Plaintiff has failed to establish that it is likely to succeed on the merits, raise serious issues, or show that the balance of hardships tips sharply in its favor on its breach of contract, breach of the implied covenant of good faith and fair dealing, and negligence claims. Moreover, because the results of the auction could be unwound, Plaintiff has not met its burden to establish that it will suffer irreparable harm in the absence of the preliminary injunctive relief it seeks. The Court additionally concludes that the public interest does not favor the postponement of the auction.

He did give Donuts leave to amend its request, but given that the auction is due to start today before California office/court hours, that courtesy seems moot.

It’s likely that by the end of the day we will know how much the .web, and possibly .webs, domains fetched. We’re certainly looking at eight figures for .web, in my view.

Some have guessed prices in the ballpark of $50 million, based on the $41.5 million paid for .shop earlier this year.

It seems at least seven of the eight applicants in the auction will be bidding blind, strategically speaking.

Circumstantial evidence suggests that NDC does indeed have one or more secret sugar daddies supporting its bid, insulated from public view by NDC’s corporate structure.

The applicants for .web are NDC, Radix, Donuts, Schlund, Afilias, Google and Web.com. Vistaprint’s bid for .webs is also in the auction.

ICANN currently has over $100 million in a bank account, segregated from its operating funds, from previous last-resort auctions.

Donuts .web claims “discredited”, ICANN tells court

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.