Palage’s epic rant as he asks ICANN to cancel Verisign’s .net contract

ICANN is devolving into a trade association hiding under a thinning veneer of multistakeholderism and the domain industry is becoming a cartel.

Those are two of the conclusions reached by consultant Michael Palage, who’s been involved with ICANN since pretty much the start, in an epic Request for Reconsideration in which he asks the Org to unsign Verisign’s recently renewed .net registry contract.

ICANN’s equally intriguing response — denying, of course, Palage’s request — also raises worrying questions about how much power ICANN’s lawyers have over its board of directors.

The RfR paints a picture of a relationship where Verisign receives special privileges — such as exemptions from certain fees and obligations — in exchange for paying higher fees — contributing $55 million of ICANN’s budget — some of which is accounted for quite opaquely.

Palage claims the domain industry of being “on the precipice of becoming a cartel” due to recent consolidation, and says that is being enabled by ICANN’s failure to conduct an economic study of the market.

Verisign’s .net and .com contracts are the only registry agreements that do not oblige the registry to participate in economic studies, Palage says, reducing ICANN’s ability, per its bylaws, “to promote and sustain a competitive environment in the DNS market.”

Palage writes:

The failure of ICANN to have the contractual authority to undertake a full economic study to ensure a “competitive environment in the DNS market” undermines one of its core values. This failure is resulting in a growing consolidation within the industry which is on the precipice of becoming a cartel. ne needs to look no further than four US-based companies, Verisign, PIR, GoDaddy, and Identity Digital which currently control almost the entirety of the gTLD registry market based on domain names under management. This unchecked consolidation within the industry directly and materially impacts the ability of individual consultants to make a livelihood unless working for one of the dominant market players.

While Palage says he and other registrants are being harmed by increasing .net prices, and that an economic study would help lower them, he also asks ICANN to get Verisign to migrate to the Base Registry Agreement, which would enable Verisign to raise prices at will, without the current 10%-a-year cap.

He’s also concerned that ICANN’s volunteer community is shrinking as the domain industry becomes an increasingly dominant percentage of public meeting attendance.

Figures published by ICANN show that, at the last count, 39% of attendees were from the domain industry. ICANN stopped breaking down attendee allegiance in 2020 during the pandemic and did not resume publication of this data afterwards.

“ICANN has started down the slippery slope of becoming a trade association,” Palage writes.

While his RfR was going through the process of being considered by ICANN and its Board Accountability Mechanisms Committee, Palage separately wrote to ICANN general counsel John Jeffrey to express concerns that ICANN policy-making might be risking falling foul of antitrust law.

It seems a recent meeting of the working group discussing updates to ICANN’s Transfers Policy debated whether to cap the amount registries are allowed to charge registrars for bulk transfers. Dollar amounts were discussed.

Palage suggested ICANN might want to develop a formal antitrust policy statement that could be referred to whenever ICANN policy-makers meet, in much the same way as its Expected Standards of Behavior are deployed.

If the RfR as published by ICANN lacks some coherence, it may be because ICANN’s lawyers have redacted huge chunks of text as “privileged and confidential”. That’s something that hardly ever happens in RfRs.

It seems Palage knows some things about the .net contract and Verisign’s relationship with ICANN from his term on the ICANN board, which ran from April 2003 to April 2006, a time when Verisign and ICANN were basically at war.

Because the information Palage is privy to is still considered privileged by ICANN, it was redacted not only from the published version of the RfR but also it seems from the version supplied to the BAMC for consideration.

ICANN cited this part of its bylaws to justify the redactions:

The Board Accountability Mechanisms Committee shall act on a Reconsideration Request on the basis of the public written record, including information submitted by the Requestor, by the ICANN Staff, and by any third party.

Reading between the lines, it seems most of the redactions likely refer to the Verisign v ICANN lawsuit of 2004-2005.

Fellow greybeards will recall that Verisign sued ICANN for blocking its Site Finder service, which put a wildcard in the .com zone and essentially parked and monetized all unregistered domains while destabilizing software that relied on NXDOMAIN replies.

The October 2005 settlement (pdf) forced Verisign to acknowledge ICANN as king of the internet. In exchange, it got to keep .com forever. The deal gave Verisign financial security and ICANN legitimacy and was probably the most important of ICANN’s foundational documents before the IANA transition.

So what did the board of 2005 know that’s apparently too sensitive for the board of 2023? Dunno. I asked Palage if he’d be willing to share and he politely declined.

In any event, his RfR (pdf), which among other things asked for ICANN to reopen .net contract negotiations, was dismissed summarily (pdf) by BAMC last week on the grounds that he had not sufficiently shown how he was injured by ICANN’s actions.

DropCatch raises antitrust concerns about Donuts’ Dropzone proposal

TurnCommerce, the company behind DropCatch.com and hundreds of accredited domain name registrars, reckons Donuts’ proposed Dropzone service would be anticompetitive.

Company co-founder Jeff Reberry has written to ICANN to complain that Dropzone would introduce new fees to the dropping domains market, raising the costs involved in the aftermarket.

He also writes that Donuts’ ownership of Name.com, a registrar that DropCatch competes with in the drop market, would have an “unfair competitive advantage” if Dropzone is allowed to go ahead:

Donuts is effectively asking every entity in the ICANN ecosystem to bear the costs of introducing a new service with no benefit outside of a financial benefit to itself, while forcing all registrars to spend more money and resources to register available domain names.

Donuts is proposing Dropzone across its whole portfolio of 200+ gTLDs. It’s a parallel registry infrastructure that would exist just to handle dropping domains in more orderly fashion.

Today, companies such as TurnCommerce own huge collections of shell registrars that are used to ping registries with EPP Create commands around the time valuable domains are going to delete.

Under Dropzone, they’d instead submit create requests with the Dropzone service, and Donuts would give out the rights to register the domains in question on a first-come, first-served basis.

While ICANN had approved a similar request from Afilias before it was acquired by Donuts, the Dropzone proposed by Donuts has one major difference — it proposes a new fee for accessing the system.

No details about this fee have been revealed, which has TurnCommerce nervous.

Donuts is asking for Dropzone via the Registry Services Evaluation Process and ICANN has not yet approved it.

Reberry says ICANN should consult with the relevant governmental competition authorities before it approves the proposal.

You can read Reberry’s letter here (pdf) and our original article about Dropzone here.

.web closer to reality as antitrust probe ends

Verisign has been given the all-clear by the US government to go ahead and run the new gTLD .web, despite competition concerns.
The Department of Justice told the company yesterday that the antitrust investigation it launched almost exactly a year ago is now “closed”.
Verisign’s secret proxy in the 2016 auction, the original .web applicant Nu Dot Co, now plans to try to execute its Registry Agreement with ICANN.
That contract would then be assigned to Verisign through the normal ICANN process.
The .com registry operator today filed this statement with the US Securities and Exchange Commission:

As the Company previously disclosed, on January 18, 2017, the Company received a Civil Investigative Demand from the Antitrust Division of the United States Department of Justice (“DOJ”) requesting certain material related to the Company becoming the registry operator for the .web gTLD. On January 9, 2018, the DOJ notified the Company that this investigation was closed. Verisign previously announced on August 1, 2016, that it had provided funds for Nu Dot Co’s successful bid for the .web gTLD and the Company anticipates that Nu Dot Co will now seek to execute the .web Registry Agreement with ICANN and thereafter assign it to Verisign upon consent from ICANN.

This basically means that Justice disagrees with anyone who thinks Verisign plans to operate .web in a way that just props up its .com market dominance, such as by burying it without a trace.
People clamoring to register .web domains may still have some time to wait, however.
Rival applicant Donuts, via subsidiary Ruby Glen, still has a pending lawsuit against ICANN in California.
Donuts had originally sued to prevent the .web auction going ahead in mid-2016, trying to force Nu Dot Co to reveal who was really pulling its strings.
After the auction, in which Verisign committed to pay ICANN a record-setting $125 million, Donuts sued to have the result overturned.
But in November 2016, a judge ruled that the no-suing covenant that all new gTLD applicants had to sign was valid, throwing out Donuts’ case.
Donuts is now appealing that ruling, however, filing its most-recent brief just a few weeks ago.
Whether that will stop ICANN from signing the .web contract and delegating it to Verisign is an open question. It managed to delegate .africa to ZA Central Registry despite the existence of an ongoing lawsuit by a competing applicant.
If history is any guide, we may see a rival applicant apply for a temporary restraining order against .web’s delegation before long.

Justice gives nod to O.com auction

The US Department of Justice does not intend to prevent Verisign from auctioning off the single-letter domain o.com.
Aaron Hoag, chief of the department’s Technology & Financial Services Section, told ICANN in a letter (pdf) that it does not intend to probe Verisign’s proposal.
The letter reads in its entirety:

Your letter dated December 7, 2017, to Makan Delrahim, Assistant Attorney General of the Antitrust Division, regarding VeriSign’s proposal to auction O.COM, has been referred to the Technology & Financial Services Section for review. After careful consideration of the matter, the Division can report that it does not intend to open an investigation into the proposed auction described in the attachment to your letter.

Verisign asked ICANN’s permission to auction o.com, with most of the the proceeds going to good causes, after over a decade of nagging from retailer Overstock.com, which desperately wants to own the currently reserved name.
It would set a precedent for the company to sell off the remaining 22 single-letter domains, not to mention the 10 digits, which are all currently reserved due to a decades-old technical policy no longer considered necessary.
Verisign would only receive its $7.85 base registry fee from the sale, despite the fact that single-letter domains could easily fetch seven or eight figures.
The company asked ICANN for permission to release the name via its Registry Services Evaluation Process last month.
ICANN said earlier this month that it had no objection on technical grounds, but referred it to US competition authorities for a review.
With the DoJ apparently not interested, the door is open for ICANN to approve the RSEP before the end of the year, meaning Verisign could carry out the auction in 2018.
The big question now is whether anyone other than Overstock will want to take part in the auction. Overstock has US trademarks on “O.com”, despite the fact that it’s never actually owned the domain.

ICANN punts o.com auction to US watchdogs

Verisign’s proposed auction of the domain o.com might have a negative effect on competition and has been referred to US regulators.
That’s according to ICANN’s response to the .com registry’s request to release the domain, which is among the 23 single-letter domains currently reserved under the terms of its contract.
ICANN has determined that the release “might raise significant competition issues” and has therefore been referred to “to the appropriate governmental competition authority”.
It’s forwarded Verisign’s request to the US Department of Justice.
Verisign late last month asked ICANN if it could release o.com to auction as a test that could presumably lead to other single-character .com names being released in future.
The plan is for a charity auction, in which almost all the proceeds are donated to internet-related good causes.
Only the company running the auction would make any significant money; Verisign would just take its standard $7.85 annual fee.
ICANN told the company that it could find no technical reason that the release could not go ahead.
The only barrier is the fact that Verisign arguably has government-approved, cash-printing, market dominance and is therefore in a sensitive political position.
Whether its profitless plan will be enough to see the auction given the nod remains to be seen.
A certain bidder in the proposed auction would be Overstock.com, the online retailer, which has been pressuring ICANN and Verisign for the release of O.com for well over a decade and even owns trademarks covering the domain.
Disclosure: several years ago I briefly provided some consulting/writing services to a third party in support of the Verisign and Overstock positions on the release of single-character domain names, but I have no current financial interest in the matter.

Antitrust feds probing Verisign’s .web deal

US antitrust authorities are investigating Verisign over its anticipated operation of the .web gTLD.
The probe was disclosed by company CEO Jim Bidzos in yesterday’s fourth-quarter earnings call. He said:

On January 18, 2017, the company received a Civil Investigative Demand from the Antitrust Division of the US Department of Justice, requesting certain information related to Verisign’s potential operations of the .web TLD. The CID is not directed at Verisign’s existing registry agreements.

He did not comment further, beyond describing it as “kind of like a subpoena”.
Verisign acquired the rights to run .web at an ICANN last-resort auction last July, agreeing to pay $135 million.
Rather than applying for the gTLD itself, it secretly bankrolled shell company Nu Dot Co, which intends to transfer its .web contract to Verisign after it is signed.
ICANN is being sued by rival applicant Donuts, which claims NDC should have been banned from the auction. Afilias, the auction runner up, is also challenging the outcome.
But this new DoJ investigation, if we take Bidzos’ words at face value, appears to focus on what Verisign plans to do with .web once it is live.
It’s the view of many that .web would be the new gTLD best positioned as an alternative to .com, which makes Verisign hundreds of millions of dollars a year.
It’s my view that it would make perfect sense for Verisign to flush the $135 million and bury .web, rather than have a viable competitor on the market.
Verisign has repeatedly said that intends to “grow and widely distribute .web”, words Bidzos repeated last night.
The investigation is likely into whether Verisign wants to actually raise .web, or strangle it in its crib.
It seems the investigation was launched in the dying days of the Obama administration, so the recent changing of the guard at Justice — Attorney General Jeff Sessions was confirmed by Congress just two days ago — may have an impact on how it plays out.

Industry lays into Verisign over .com deal renewal

Some of Verisign’s chickens have evidently come home to roost.
A number of companies that the registry giant has pissed off over the last couple of years have slammed the proposed renewal of its .com contract with ICANN.
Rivals including XYZ.com (sued over its .xyz advertising) and Donuts (out-maneuvered on .web) are among those to have filed comments opposing the proposed new Registry Agreement.
They’re joined by business and intellectual property interests, concerned that Verisign is being allowed to carry on without implementing any of the IP-related obligations of other gTLDs, and a dozens of domainers, spurred into action by a newsletter.
Even a child protection advocacy group has weighed in, accusing Verisign of not doing enough to prevent child abuse material being distributed.
ICANN announced last month that it plans to renew the .com contract, which is not due to expire for another two years, until 2024, to bring its term in line with Verisign’s contracts related to root zone management.
There are barely any changes in the proposed new RA — no new rights protection mechanisms, no changes to how pricing is governed, and no new anti-abuse provisions.
The ensuing public comment period, which closed on Friday, has attracted slightly more comments than your typical ICANN comment period.
That’s largely due to outrage from readers of the Domaining.com newsletter, who were urged to send comments in an article headlined “BREAKING: Verisign doubles .COM price overnight!”
That headline, for avoidance of doubt, is not accurate. I think the author was trying to confer the idea that the headline could, in his opinion, be accurate in future.
Still, it prompted a few dozen domainers to submit brief comments demanding “No .com price increases!!!”
The existing RA, which would be renewed, says this about price:

The Maximum Price for Registry Services subject to this Section 7.3 shall be as follows:
(i) from the Effective Date through 30 November 2018, US $7.85;
(ii) Registry Operator shall be entitled to increase the Maximum Price during the term of the Agreement due to the imposition of any new Consensus Policy or documented extraordinary expense resulting from an attack or threat of attack on the Security or Stability of the DNS, not to exceed the smaller of the preceding year’s Maximum Price or the highest price charged during the preceding year, multiplied by 1.07.

The proposed amendment (pdf) that would extend the contract through 2024 does not directly address price.
It does, however, contain this paragraph:

Future Amendments. The parties shall cooperate and negotiate in good faith to amend the terms of the Agreement (a) by the second anniversary of the Effective Date, to preserve and enhance the security and stability of the Internet or the TLD, and (b) as may be necessary for consistency with changes to, or the termination or expiration of, the Cooperative Agreement between Registry Operator and the Department of Commerce.

The Cooperative Agreement is the second contract in the three-way relationship between Verisign, ICANN and the US Department of Commerce that allows Verisign to run not only .com but also the DNS root zone.
It’s important because Commerce exercised its powers under the agreement in 2012 to freeze .com prices at $7.85 a year until November 2018, unless Verisign can show it no longer has “market power”, a legal term that plays into monopoly laws.
So what the proposed .com amendments mean is that, if the Cooperative Agreement changes in 2018, ICANN and Verisign are obligated to discuss amending the .com contract at that time to take account of the new terms.
If, for example, Commerce extends the price freeze, Verisign and ICANN are pretty much duty bound to write that extension into the RA too.
There’s no credible danger of prices going up before 2018, in other words, and whether they go up after that will be primarily a matter for the US administration.
The US could decide that Verisign no longer has market power then and drop the price freeze, but would be an indication of a policy change rather than a reflection of reality.
The Internet Commerce Association, which represents high-volume domainers, does not appear particularly concerned about prices going up any time soon.
It said in its comments to ICANN that it believes the new RA “will have no effect whatsoever upon the current .Com wholesale price freeze of $7.85 imposed on Verisign”.
XYZ.com, in its comments, attacked not potential future price increases, but the current price of $7.85, which it characterized as extortionate.
If .com were put out to competitive tender, XYZ would be prepared to reduce the price to $1 per name per year, CEO Daniel Negari wrote, saving .com owners over $850 million a year — more than the GDP of Rwanda.

ICANN should not passively go along with Verisign’s selfish goal of extending its unfair monopoly over the internet’s most popular top-level domain name.

Others in the industry chose to express that the proposed contract does not even attempt to normalize the rules governing .com with the rules almost all other gTLDs must abide by.
Donuts, in its comment, said that the more laissez-faire .com regime actually harms competition, writing:

It is well known that new gTLDs and now many other legacy gTLDs are heavily vested with abuse protections that .COM is not. Thus, smaller, less resource-rich competitors must manage gTLDs laden (appropriately) with additional responsibilities, while Verisign is able to operate its domains unburdened from these safeguards. This incongruence is a precise demonstration of disparate treatment, and one that actually hinders effective competition and ultimately harms consumers.

It points to numerous statistics showing that .com is by far the most-abused TLD in terms of spam, phishing, malware and cybersquatting.
The Business Constituency and Intellectual Property Constituency had similar views about standardizing rules on abuse and such. The IPC comment says:

The continued prevalence of abusive registrations in the world’s largest TLD registry is an ongoing challenge. The terms of the .com registry agreement should reflect that reality, by incorporating the most up-to-date features that will aid in the detection, prevention and remediation of abuses.

The European NGO Alliance for Child Safety Online submitted a comment with a more narrow focus — child abuse material and pornography in general.
Enasco said that 41% of sites containing child abuse material use .com domains and that Verisign should at least have the same regulatory regime as 2012-round gTLDs. It added:

Verisign’s egregious disinterest in or indolence towards tackling these problems hitherto hardly warrants them being rewarded by being allowed to continue the same lamentable
regime.

I couldn’t find any comments that were in unqualified support of the .com contract renewal, but the lack of any comments from large sections of the ICANN community may indicate widespread indifference.
The full collection of comments can be found here.

New gTLDs not an illegal conspiracy, court rules

ICANN has beaten off a lawsuit from alternate root provider name.space for a second time, with a US appeals court ruling that the new gTLD program was not an illegal conspiracy.
name.space sued ICANN in 2012, claiming that the program broke competition laws and that “conflicted” ICANN directors conspired with the industry in an “attack” on its business model.
The company runs an alternate DNS root containing hundreds of TLDs that hardly anyone knows about, cares about, or has access to.
Almost 200 of the strings in its system had matching applications in the 2012 new gTLD round; many have since been delegated.
The company’s complaint asked for an injunction against all 189 matching TLDs.
But a court ruled against it in 2013, saying that name.space had failed to make a case for breaches of antitrust law.
Last week, an appeals court upheld that ruling, saying that the company had basically failed to cross the legal threshold from simply making wild allegations to showing evidence of an illegal conspiracy.
“We cannot… infer an anticompetitive agreement when factual allegations ‘just as easily suggest rational, legal business behavior.’,” the court ruled, citing precedent.
“Here, ICANN’s decision-making was fully consistent with its agreement with the DOC [US Department of Commerce] to operate the DNS and the Root,” it wrote. “In transferring control to ICANN, the DOC specifically required it to coordinate the introduction of new TLDs onto the Root. This is exactly what ICANN did in the 2012 Application Round”.
“The 2012 rules and procedures were facially neutral, and there are no allegations that the selection process was rigged,” the panel ruled.
The court further ruled that ICANN is not a competitor in the markets for domain names as registry, registrar or defensive registration services, therefore it could not be subject to antitrust claims for those markets.
A few other claims against ICANN were also dismissed.
In short, it’s a pretty decisive victory for ICANN. General counsel John Jeffrey said in a statement that ICANN is “pleased” to have won.
All the major documents in the case, including the latest opinion, can be downloaded here.
While the lawsuit has been making its way through the courts, the .space gTLD has actually been delegated and the domain name.space is owned by its new registry, Radix.
There’s some salt in the wounds.

Right Of The Dot gets legal opinion: new gTLD auctions not illegal

Right Of The Dot, one of the companies hoping to offer contention set resolution services to new gTLD applicants, has published a legal opinion arguing that auctions are not inherently illegal.
The document was issued in response to Uniregistry’s claim that the US Department of Justice has refused to give auctions a green light under antitrust law.
ROTD hired the law firm Lewis Brisbois Bisgaard & Smith, including a partner with DoJ experience, to draft the statement.
It’s aimed at lawyers, primarily, but the gist of it is that simply participating in an auction is not illegal in and of itself — participants would have to collude in some other way too.
It states:

The finding of an antitrust violation necessarily would depend on a showing that the private auction unreasonably restrained interstate trade or commerce.
The question comes down to the conduct of the parties to an auction, be it a private auction or an ICANN Last Resort Auction.
If the parties to an auction, engage in collusion such as price fixing and/or bid rigging, it constitute per se violations of Section 1 of the Sherman Act.
It’s not the auction provider that creates a violation it’s the action of the parties to an auction and those actions can take place in an ICANN Last Resort auction.

In other words, there’s no difference between an ICANN-run auction, in which ICANN gets paid, and a private auction in which the participants and the auctioneer get paid, according to these lawyers.
Uniregistry’s argument as I understand it, on the other hand, is that simply participating in an action that could constitute illegal collusion, because ICANN ends up out of pocket.
Who’s right? Who’s wrong?
I think the only person who could answer that, in light of the DoJ’s refusal to intervene, would be a judge. We’re unlikely to get an answer unless somebody sues somebody.

Company files for injunction against 189 new gTLDs

Alternate root player Name.Space has sued ICANN for trademark infringement and anti-competitive behavior, saying “insiders” have conspired to keep it out of the new gTLD program.
If successful, the suit would prevent dozens of new gTLD applicants from having their applications approved.
The lawsuit, filed in California this week, follows a warning the company fired at ICANN this March.
While only ICANN is named as a defendant, the suit alleges that the new gTLD program was crafted by and is dominated by “ICANN insiders” and “industry titans”.
It wants an injunction preventing ICANN delegating any of the 189 gTLD strings that it claims it has rights to.
It also fingers several current and former ICANN directors, including current and former chairs Steve Crocker and Peter Dengate Thrush, over their alleged conflicts of interest.
Name.Space has been operating 482 diverse TLDs — such as .news, .sucks, and .mail — in a lightly used alternate root system since 1996.
Most people can’t access these zones and are unaware that they exist.
The company applied to have 118 of these strings added to the root in ICANN’s “proof of concept” gTLD expansion in 2000, when the application fee was $50,000, but was unsuccessful.
Now, the company claims the new gTLD program is “an attack on name.space’s business model and a mean by which to create and maintain market power in the TLD markets”.
The complaint (pdf) states:

Rather than adopting a procedure to account for the pending 2000 Application and facilitate the expansion of TLD providers in the DNS, ICANN has adopted a procedure so complex and expensive that it once again effectively prohibited newcomers from competing. It instead has permitted participation solely by ICANN insiders and industry titans.

If it had applied for all 118 again in this year’s round, it would have cost almost $22 million (though it would have qualified for an $83,000 discount on a single bid).
Name.Space is asking for damages and an injunction preventing ICANN from approving 189 gTLDs that match those it currently operates in its alternate root.
The full list of affected applications is attached to the complaint.