.web fight back in “court”

ICANN is heading back to the quasi-courtroom of its Independent Review Process, after .web auction runner-up Altanovo Domains filed its second IRP complaint about the controversy-ridden gTLD.

I first reported that the complaint had been filed back in July, but it was not until last Thursday that ICANN published the document, along with thousands of pages of exhibits and its own response, almost all thoroughly redacted to remove references to the one contract at the heart of the mess.

Now-independent Altanovo, which was part of Afilias before that company was acquired by Donuts, claims that ICANN broke its bylaws commitments to apply its policies equitably to everyone.

The company remains incredibly cheesed off that it lost the 2016 auction for .web, which saw a company called Nu Dot Co pay ICANN $135 million for the domain, at a time when it was secretly backed by Verisign.

Altanovo claims that NDC broke the terms of ICANN’s Applicant Guidebook and the rules of the auction by declining to disclose the existence of the Domain Acquisition Agreement it had signed with Verisign.

That deal saw Verisign bankroll and dictate the terms of NDC’s handling of the auction; in exchange, NDC would transfer .web to Verisign shortly after signing its ICANN registry agreement.

Altanovo has already won one IRP about this. The panel in the first case ruled in May 2021 that ICANN broke its bylaws because its board did not make a decision on whether NDC’s behavior was kosher.

As a result of that ruling, the board spent over a year mulling and eventually decided this April that, no, NDC didn’t break the rules. It’s that decision that Altanovo is challenging now. The complaint says:

NDC had no independent business plan for .WEB that it intended to implement. Its sole purpose in applying for .WEB was to obtain it for the oldest of the incumbent players, not to market .WEB itself in any way or to compete in the market… No one in the Internet Community, including the other .WEB Contention Set members, had any clue that, as of August 2015, they were competing with Verisign and not NDC.

ICANN’s response to the complaint states that its board was exercising its “business judgement”, which must be deferred to, and that Altanovo’s claims about bylaws breaches merely amount to differences of interpretation.

Speaking to analysts on Verisign’s third-quarter earnings call last week, company CEO Jim Bidzos quoted from the conclusion of ICANN’s IRP response and added: “Altanovo’s IRP request should be denied. We agree with ICANN.”

“We continue to believe that this IRP filed by Altanovo and its backers has been filed for the purpose of delay,” he said.

Altanovo reckons that Verisign and ICANN have been colluding on their legal responses to the .web and that certainly seems likely in terms of the redactions ICANN has made to the complaint and response published last week.

All quotations of the Verisign-NDC DAA are redacted in the Altanovo complaint are redacted as “third party confidential”, presumably at Verisign’s request; in the ICANN response the single DAA quote remains unredacted.

.web hit by second ICANN complaint

Altanovo Domains, the Afilias spin-off that is fighting Verisign for control of the .web gTLD, has filed a second Independent Review Process complaint with ICANN.

The filing could add years to Verisign’s launch runway for .web, which it won via secret proxy Nu Dot Co at auction in 2016.

ICANN has not yet published the IRP complaint — presumably it’s being redacted to remove commercially confidential information — but documentation shows Altanovo has “filed” an IRP.

Altanovo and ICANN has been in a Cooperative Engagement Process — a form of negotiation designed to avoid an IRP — since May 3, but a document published July 19 shows that the CEP is now over.

It was quite a brisk process. Other CEPs have been known to last many months.

When the CEP first emerged in May, Verisign was pretty brutal in its reaction, accusing Altanovo of “delay for delay’s sake”.

As the second-place bidder, Altanovo could stand to take control of .web if Verisign’s bid was found to be outside the rules. That was the focus of the first IRP case, which lasted almost four years.

The first IRP panel ruled that ICANN broke its bylaws by failing to consider whether Verisign secretly bidding via NDC broke the new gTLD program rules. But ICANN a couple months ago finally bit the bullet and ruled that Verisign did no wrong.

ICANN decided not to rule on whether Altanovo, then Afilias, broke the auction rules by communicating with NDC during a comms blackout period.

The specific allegations in the new IRP are not yet known. The IRP is only for complaints about ICANN’s actions or inaction breaking its own bylaws and other foundational documents.

.web delay likely after Verisign rival files ICANN appeal

The .web gTLD appears unlikely to see the light of day any time soon, after the Afilias spin-off that came second to Verisign in the $135 million auction in 2016 kicked off another appeals process.

Altanovo, which is made up of bits of Afilias left over when Identity Digital acquired the company, has asked ICANN to enter a Cooperative Engagement Process, according to ICANN’s records.

The CEP is a form of mediation companies can force ICANN into when they have beef. It’s designed to avoid the relative expense of a full-on Independent Review Process. They usually result in an IRP anyway.

Altanovo made its request the same day ICANN announced that its board of directors had decided to take .web off hold and resume registry contract negotiations with Verisign, following Altanovo’s original, unsuccessful IRP.

Verisign yesterday said the move amounted to an “abuse of process” and “baseless procedural maneuvering”, likely to lead to “delay for delay’s sake”.

IRPs typically last years and cost many hundreds of thousands of dollars in panel fees, not counting each party’s lawyer fees.

Altanovo believes that Verisign broke ICANN’s new gTLD program rules when it bid for .web via a secret intermediary. Verisign has countered that its rival, then Afilias, broke the rules by trying to negotiate a private deal during the auction’s “black out” period.

Verisign WILL get .web, ICANN rules

Verisign did nothing wrong when it won the $135 million .web gTLD auction via a secret intermediary, ICANN’s board of directors has decided.

The board voted at the weekend to declare that Nu Dot Co, the shell company that applied for .web “did not violate the Guidebook or the Auction Rules” when it signed a secret side-deal that would see Verisign fund its bid in exchange for handing over the registry contract after it is signed.

The board has told ICANN management to continue to process NDC’s application, which has been tied up in legal red tape since the auction in 2016.

ICANN did not rule on Verisign’s claims that second-place bidder Afilias broke the rules when executives sent text messages trying to resolve the contention set during a “black out” period immediately prior to the auction.

The ruling means that, absent any further legal action, NDC can soon sign its Registry Agreement and attempt to transfer it to Verisign, a procedure that is not often controversial when M&A takes place.

It could mean .web, which has been fiercely contested for over 20 years, launches this year.

.web gTLD was first applied for in 2000. Afilias, Neustar (then Neulevel) and others viewed it as the best probable competitor for .com and wanted that sweet, sweet action.

But ICANN instead awarded them .info and .biz respectively, in part because another applicant, Image Online Design, was already running .web in an alternate root.

There were seven applicants in the 2012 round, but attempts at privately resolving the contention set were resisted by NDC, leading to suspicions that it was being secretly bankrolled by a much larger non-applicant company.

That turned out to be true when Verisign fessed up after the auction that it was funding NDC’s $135 million winning bid.

Because Verisign has market power, ICANN referred the deal to US competition regulators, the Department of Justice, which gave the all-clear in 2018.

Runner-up Afilias immediately set the ball rolling to file an Independent Review Process complaint with ICANN, which it did in 2018, claiming ICANN broke its bylaws by failing to establish that Verisign was NDC’s sugar daddy before the auction.

The Afilias .web application is currently owned by Altanovo, the company formed of all the bits of Afilias that Identity Digital (then Donuts) didn’t want when it acquired Afilias.

The IRP panel ruled for Afilias, saying ICANN should have at the very least made a decision on whether the deal was kosher before starting to contract with NDC. That ruling became final at the end of 2021.

It’s taken ICANN 16 months to actually make its decision.

And its rationale? Hard to say with any degree of certainty.

Both sides’ arguments rely heavily on the text of the Domain Acquisition Agreement between Verisign and NDC, and ICANN has redacted all references to that document’s contents (presumably at Verisign’s demand) in its resolution and accompanying rationale.

The board said:

NDC remains the applicant and, if NDC enters into a Registry Agreement with ICANN, NDC will become the Registry Operator for .WEB. Whether or not NDC then attempts to assign the Registry Agreement to Verisign is, at this point, an event that has not occurred and conceivably may not occur depending on the circumstances at the time. And if NDC subsequently decides to request such an assignment, there are processes in place to review such a request, including the need for ICANN’s approval of that request. Such an assignment does not equate to a “circumvention” of the application process but, rather, is a necessary component for servicing Registry Operators and allowing the continued operation of gTLDs.

The board additionally notes that the process of sorting all this out took years and millions of dollars of legal fees.

Verisign and Afilias spar over .web delays

Afilias and Verisign are at odds over a further delay to the resolution of the .web gTLD dispute.

Afilias, aka Altanovo Domains, says its lawyers are too busy to meet ICANN’s deadline for arguments about whether either company broke the rules in the 2016 auction of .web, but Verisign thinks they have plenty of time,

ICANN’s Board Accountability Mechanisms Committee had set a deadline of July 15 for both applicants to submit a document explaining why they believe the other broke the rules and should have their auction bids voided.

But Afilias’ lawyers say they “have longstanding international travel and hearing commitments in June and July that cannot be rescheduled” and want an extension to July 29.

Just two weeks seems like no big deal in a contest that has been running for literally a decade, but Verisign is opposing it anyway, according to emails Afilias submitted to ICANN (pdf).

“ICANN provided the parties with a generous briefing schedule sufficient to accommodate counsel’s other commitments. For this reason, Verisign and NDC do not support Altanovo’s current request for a further extension,” a Verisign lawyer wrote.

Verisign, which won the auction via its proxy, Nu Dot Co, believes Afilias broke a communications blackout period before the auction by texting NDC to negotiate a deal. Afilias believes NDC broke the rules by not disclosing Verisign’s involvement.

The BAMC’s job, following the outcome of an Independent Review Process case last year, is to decide whether either of these claims is legit and settle who won the auction once and for all.

ICANN kicks the can on .web yet again

Did Verisign cheat when it bought .web for $135 million in 2016? ICANN will make its mind up one day, but not today.

The ICANN board of directors has asked the three parties in the contested new gTLD auction for an info dump, so it can decide, presumably before the end of the year, whether to bar the top two bids for breaking the rules.

The Board Accountability Mechanisms Committee has written to Verisign, Nu Dot Co (the proxy Verisign used to hide its bid) and Afilias (aka Altanovo, the second-place bidder) to ask them to condense their last six years of claims and counter-claims into two 75-page documents.

Afilias reckons Verisign and NDC broke the rules by not disclosing that the former was secretly bankrolling the latter’s winning bid. It wants the bid invalidated, allowing Afilias to take over .web for a cheaper price.

Verisign has counter-claimed that Afilias should be disqualified for allegedly privately communicating with NDC during a pre-auction comms blackout period. It’s published screenshots of text messages it says prove this took place.

The Independent Review Process complaint against ICANN technically resulted in a win for Afilias, with the IRP panel ruling that ICANN broke its bylaws by not making a decision on Verisign’s alleged rule-breaking back in 2016.

That decision was reached in December, and ICANN has been faffing around pointedly not making a decision ever since.

Now, BAMC wants the parties to present their final pleadings in this ongoing drama.

It wants both side to “provide a comprehensive written summary of their claims and the materials supporting their claims” in order “to ensure that the BAMC is reviewing a complete picture of the parties’ positions”.

I don’t think there’s anything untoward about this — BAMC is basically just doing what the IRP panel told it to, albeit it in a roundabout way — but it is a little surprising that it thinks there isn’t enough information about their complaints in the public domain already.

As well as three years of legal filings, there are extensive transcripts of seven days of hearings that took place in 2020. ICANN will have access to the unredacted versions, too, which include details of the Verisign-NDC deal that the rest of us aren’t allowed to look at.

Maybe there’s just too much information to wade through.

Under the BAMC’s new process, the parties have until July 15 to present their cases, then another month to rebut their opponents with a further 30-page document.

Assuming the subsequent decision proceeds at ICANN Speed (which is to say, glacial) I don’t think we can reasonably expect a decision before the fourth quarter.

Mutually assured destruction? Now Afilias faces .web disqualification probe

Afilias’ ongoing quest to have Verisign’s winning bid for the .web gTLD thrown out may have backfired, with ICANN now launching a probe into whether Afilias’ own bid should be disqualified.

Afilias and Verisign could now BOTH be kicked out of the .web fight, delivering the coveted gTLD into the hands of the third-placed bidder for a knock-down price.

There’s even the possibility that Verisign’s winning $135 million bid could be more than cut in half, taking tens of millions out of ICANN’s coffers.

ICANN’s board of directors on Thursday said it will investigate not only whether Verisign broke new gTLD program rules by using a Nu Dot Co as proxy to bid, but also whether Afilias broke the rules when an executive texted NDC during a pre-auction comms blackout period.

It’s the first time board has resolved to take a look at the allegations against Afilias, which so far have only come up in letters and arbitration filings from Verisign and NDC.

The .web auction in 2016 resulted in a winning bid of $135 million from NDC. It quickly emerged that its bid was bankrolled by Verisign, which had not directly applied for .web.

Afilias’ applicant subsidiary (now called Altanovo Domains, but we’re sticking with “Afilias” for this story) has been trying to use Verisign’s sleight-of-hand to get the auction overturned for years, on the basis that ICANN should have forced NDC to show its cards before the auction took place.

An Independent Review Process panel last year ruled that ICANN broke its own bylaws by failing to rule on Afilias’ allegations when they were first made, and told ICANN to put .web on hold while it finally formally decides whether Verisign broke the rules or not.

What the IRP panel did NOT do was ask ICANN to rule on Verisign’s counter-allegations about Afilias violating the auction blackout period. ICANN’s decided to do that all by itself, which must piss off Afilias no end.

The board resolved last week, with my emphasis:

Resolved (2022.03.10.06), the Board hereby: (a) asks the [Board Accountability Mechanisms Committee] to review, consider and evaluate the allegations relating to the Domain Acquisition Agreement (DAA) between NDC and Verisign and the allegations relating to Afilias’ conduct during the Auction Blackout Period; (b) asks the BAMC to provide the Board with its findings and recommendations as to whether the alleged actions of NDC and/or Afilias warrant disqualification or other consequences, if any, related to any relevant .WEB application; and (c) directs ICANN org to continue refraining from contracting for or delegation of the .WEB gTLD until ICANN has made its determination regarding the .WEB application(s).

I see four possible outcomes here.

• Nobody gets disqualified. Verisign wins .web and ICANN gets to keep its $135 million. Afilias will probably file another IRP or lawsuit.
• Verisign gets disqualified. Afilias gets .web and ICANN probably gets paid no more than $79.1 million, which was its maximum bid before the auction became a two-horse race. Verisign will probably file an IRP or lawsuit.
• Afilias gets disqualified. Verisign wins .web and then it has to be figured out how much it pays. I believe the high bid before the third-place bidder pulled out was around $54 million, so it could be in that ball-park. Afilias will probably file another IRP or lawsuit.
• Both Afilias and Verisign get disqualified. The third-placed bidder — and I don’t thinks its identity has ever been made public — wins .web and pays whatever their high bid was, possibly around $54 million. Everyone sues everyone else and all the lawyers get to buy themselves a new summer home.

The other remaining applicants are Donuts, Google, Radix and Schlund. Web.com has withdrawn its application.

The people who will decide whether to disqualify anyone are the six members of the Board Accountability Mechanisms Committee who are not recusing themselves due to conflicts of interest (Edmon Chung has a relationship with Afilias).

Given that the board has already ruled that it has a fiduciary duty to dip into the new gTLD auction proceeds pretty much whenever it pleases, can’t we also assume that it has a fiduciary duty to make sure that auction proceeds pool is as large as possible?

Surprising nobody, Verisign to raise .com prices again

Verisign has announced its second consecutive annual price increase for .com domain names.

The wholesale registry fee for .com names will rise from $8.39 to $8.97 on September 1 this year, an extra $0.58 for every new or renewing domain, of which there are currently over 160 million.

Verisign announced the move, which was expected, as it announced a 2021 profit of $785 million and a 65.3% operating margin.

CEO Jim Bidzos, speaking to analysts, played down the impact of the increases on .com registrants, pointing out that .com prices were frozen under the Obama administration and have only gone up once before, last year, since 2012.

“This is the second wholesale price increase for COM since January of 2012,” he said. “So, if you look back over the last 10 years, that translates into a cost increase of only 1.3% CAGR over the last ten and a half years actually.”

The current .com contract, signed off by the Trump administration and ICANN, allows for two more 7% annual price increases, excluding the just-announced one, but Bidzos would not say whether Verisign plans to exercise those options.

If it does (and it almost certainly will) it would raise the price to $10.26, where it would stay until at least October 2026, he said.

“We believe .com continues to be positioned competitively,” he said.

It’s still basically free money for Verisign, which saw strong fourth-quarter and full-year 2021 results.

The company yesterday reported revenue of $1.33 billion for 2021, up 4.9%, with net income of $785 million, down from $815 million. The operating margin was 65.3%, compared to 65.2%.

For the fourth quarter, revenue was up 6.3% to $340 million, with net income of $330 million compared to $157 million. Operating margin was 65.3%, compared to 63.9%.

For 2022, the company is guiding for revenue of between $1.42 billion and $1.44 billion, based on the price increases and predicted unit growth of between 2.5% and 4.5%. The operating margin is expected to be between 64.5% and 65.5%.

Bidzos also addressed the controversial .web gTLD, which it won at auction but has been unable to launch due to legal action pursued by rival bidder Afilias/Altanovo.

An Independent Review Process panel recently threw a decision about .web back at ICANN, which is now considering Afilias’ allegations of wrongdoing at the board level.

“ICANN looks to be moving forward with making the decision on the delegation of .web, and we will be monitoring their process,” Bidzos said. He said that Verisign has not budgeted for any revenue or costs from .web in 2022.

That’s probably wise. Afilias recently told us that it has not stopped fighting against Verisign’s .web win.

Battle for .web “far from over”, says Afilias lawyer

Altanovo Domains’ fight with Verisign and ICANN for the .web gTLD is not over, despite an adverse ruling late last month, according to a top lawyer for the company.

Altanovo, the company previously known as Afilias Domains No 3, has not thrown in the towel and left the path clear for Verisign to launch .web, Arif Ali of the law firm Dechert told DI last night.

“Bottom line: this matter is far from over and no, Verisign doesn’t ‘get to run .web after all;’ certainly if the Board does its job objectively and fairly,” he said in an email.

He said this just hours before ICANN published its latest, but by no means final, board resolution on the .web case.

Ali represented Afilias in its Independent Review Process complaint against ICANN’s decision to award .web to Verisign following a 2016 auction, which was won by a company called Nu Dot Co, secretly backed by $135 million of Verisign’s money.

Afilias technically won its IRP, with the panel ruling last May that ICANN broke its bylaws by shirking its duty to address Afilias’ claim that NDC broke new gTLD program rules. Afilias said ICANN should have forced NDC to disclose itself a Verisign pawn before the auction went ahead.

ICANN got close to signing a registry agreement for .web with NDC, despite it being an open question as to whether the auction was legit, the panel ruled. It ordered ICANN to pay Afilias its $450,000 in legal fees and $479,458 of IRP costs.

What the IRP did not do was void the Verisign/NDC bid, nor give Afilias rights to .web.

Instead, it instructed ICANN to stay the .web contract-signing until its board has formally “considered and pronounced upon the question of whether the [Verisign-NDC Domain Acquisition Agreement] complied with the New gTLD Program Rules”.

The board had held a secret, undocumented discussion about the case in November 2016 and decided to keep its mouth shut and just let the IRP play out, according to the IRP ruling, which essentially told the board to stop avoiding difficult questions and to actually make a call on the legitimacy of the Verisign play.

Before the board could do so, Afilias/Altanovo filed an unprecedented appeal with the IRP panel. Technically an “application for an additional decision and interpretation”, Afilias asked the IRP panel to definitively answer the question of whether Verisign broke the rules rather than merely passing the hot potato back to ICANN’s board.

But in a December 21 decision (pdf), the IRP panel denied Afilias’ request as “frivolous” in its entirely, writing:

The Panel has dismissed the [Afilias] Application in its entirety. In the opinion of the Panel, under the guise of seeking an additional decision, the Application is seeking reconsideration of core elements of the Final Decision. Likewise, under the guise of seeking interpretation, the Application is requesting additional declarations and advisory opinions on a number of questions, some of which had not been discussed in the proceedings leading to the Final Decision.

In such circumstances, the Panel cannot escape the conclusion that the Application is “frivolous” in the sense of it “having no sound basis (as in fact or law)”. This finding suffices to entitle the Respondent [ICANN] to the cost shifting decision it is seeking and obviates the necessity of determining whether the Application is also “abusive”.

The panel told Afilias to pay ICANN’s $236,884 legal fees and the panel’s costs of $140,335, leaving Afilias out of pocket and back to square one in terms of getting clarity on whether Verisign’s actions were kosher.

Afilias had basically accused the panel of shirking its duties and punting its decision on Verisign’s auction bid in much the same way as the panel decided that ICANN had shirked its duties and punted its decision on Verisign’s auction bid.

Nobody seems to want to make a call on whether the successful Verisign-NDC ploy to win the .web auction with a secretly bankrolled bid was legit.

On Sunday, the full ICANN board met to discuss the outcome of the IRP and — surprise surprise — it punted again, instructing a subcommittee to look more closely at the matter:

the Board asks the Board Accountability Mechanisms Committee (BAMC) to review, consider, and evaluate the IRP Panel’s Final Declaration and recommendation, and to provide the Board with its findings to consider and act upon before the organization takes any further action toward the processing of the .WEB application(s).

There’s not yet a publicly announced date for the next BAMC meeting. It tends to meet as and when needed, so we might not have too long to wait.

Once the committee has made a decision, it would be referred back to the full board for a final rubber stamp, and it seems that only after that would Afilias make its next move.

Ali, in an email sent to DI just a few hours before ICANN published its Sunday board resolution last night, said:

The [IRP] Panel also made it clear that the Board can’t just punt on the matter as it did previously, but must decide it, and that its decision is subject to review by a future IRP panel.

There’s nothing preventing Afilias filing another IRP to challenge the board’s ultimate decision, should it favor Verisign. Likewise, if it favors Afilias, Verisign could use IRP to appeal.

Verisign has been pursuing a counter-claim against Afilias, albeit so far only in the court of public opinion, accusing the company of breaking ICANN’s rules by trying to secretly “rig” the .web auction during a communications blackout period.

Ali calls this a “red herring”, among other things.

In my view, whichever way ICANN’s board goes, it’s going to wind up back in an IRP.

With IRP proceedings typically measured in years, and no indication that Afilias or Verisign are ready to back down, it seems the .web saga may still have some considerable time left on the clock.

If you’re desperate to register a .web domain, don’t hold your breath.

Note: most of Afilias was acquired by Donuts a year ago, but the .web application was not part of the deal. The IRP proceedings have continued to refer to “Afilias” interchangeably with “Altanovo”, and I’m doing the same in my coverage.

Afilias hints at more legal action over .web

As Verisign does everything but declare outright victory in last week’s Independent Review Process result, .web rival Afilias is now strongly hinting that its lawyers are not quite ready to retire.

John Kane, VP of Afilias (now Altanovo) said in a statement that Afilias is prepared to “take all actions necessary to protect our rights in this matter”.

This matter is of course the contested 2015 auction for the new gTLD .web, which was won by Nu Dot Co with $135 million of Verisign’s money.

Afilias thinks the winning bid should be voided because Verisign’s involvement had been kept a secret. The IRP panel stopped short of doing that, instead forcing ICANN’s board of directors to make a decision.

The earliest they’re likely to do this is at ICANN 71 later this month.

But with one IRP down, Afilias is now reminding ICANN that the board’s ultimate decision will also be “subject to review by an IRP Panel.”

So if ICANN decides to award .web to Verisign, Afilias could challenge it with another IRP, adding another two years to the go-live runway and another couple million dollars to the lawyers’ petty cash jar.

None of which should overly bother Verisign, of course, if one subscribes to the notion that its interest in .web is not in owning it but rather in preventing its competitors from owning it and aggressively marketing it against .com.

But Verisign also put out a statement reviewing the IRP panel’s decision last week, reiterating that it believes Afilias should be banned from the .web contest and banned from making any further complaints about Verisign’s bid.

While Afilias spent its press release focusing on trashing ICANN, Verisign instead focused its blog post on trashing Afilias.

According to Verisign, Afilias is no longer competent to run a registry (having sold those assets to Donuts) and is just looking for a payday by losing a private auction.

“Afilias no longer operates a registry business, and has neither the platform, organization, nor necessary consents from ICANN, to support one,” Verisign claims.

Afilias could of course outsource its would-be .web registry, as is fairly standard industry practice, either to Donuts or any other back-end operator.