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As ICANN meets to decide .org’s fate, California AG says billion-dollar deal must be rejected

Kevin Murphy, April 16, 2020, Domain Policy

California Attorney General Xavier Becerra has urged ICANN to deny approval of Ethos Capital’s $1.13 billion acquisition of .org manager Public Interest Registry.

The call came in a letter (pdf) dated yesterday, just a day before ICANN’s board of directors was scheduled to meet to discuss the deal.

Becerra, who started looking into the deal in late January, wrote, right out of the gate:

I urge ICANN to reject the transfer of control over the .ORG registry to Ethos Capital. The proposed transfer raises serious concerns that cannot be overlooked.

Chief among his concerns is the fact that ICANN originally granted PIR the right to run .org largely because it was a non-profit with a committment to serve non-profits. He wrote:

If, as proposed, Ethos Capital is permitted to purchase PIR, it will no longer have the unique characteristics that ICANN valued at the time that it selected PIR as the nonprofit to be responsible for the .ORG registry. In effect, what is at stake is the transfer of the world’s second largest registry to a for-profit private equity firm that, by design, exists to profit from millions of nonprofit and non-commercial organizations

He’s also bothered about the lack of transparency about who Ethos is and what its plans are. The proposed new owners of PIR are hidden behind a complex hierarchy of dummy LLCs, and Ethos has so far refused to name its money men or to specify what additional services it might offer to boost its revenue.

Becerra also doesn’t buy the business plan, which would see PIR required to pay off a $300 million loan and, as a newly converted for-profit entity, start paying taxes.

He’s particularly scathing about the fact that ICANN approved the removal of PIR’s price caps last year despite receiving over 3,000 public comments opposing the changes and only half a dozen in favor.

“There is mounting concern that ICANN is no longer responsive to the needs of its stakeholders,” he writes.

Despite saying he “will take whatever action necessary to protect Californians and the nonprofit community”, Becerra does not specify what remedies are available to him.

But it looks like ICANN faces the risk of legal action no matter which way its board of directors votes (or voted) today.

Its current deadline to make a decision is April 20.

Ethos clarifies .org price rises, promises to reveal number of censored domains

Public Interest Registry and would-be owner Ethos Capital have slightly revised the set of promises they hope to keep if ICANN approves the $1.13 billion acquisition.

Notably, in updating their proposed Public Interest Commitments (pdf), they’ve set out in plain dollar terms for the first time the maximum annual price PIR would charge for a .org domain over the coming seven years.

Applicable Maximum FeeTime Period
$9.93June 30, 2019 to June 29, 2020
$10.92June 30, 2020 to June 29, 2021
$12.02June 30, 2021 to June 29, 2022
$13.22June 30, 2022 to June 29, 2023
$14.54June 30, 2023 to June 29, 2024
$15.99June 30, 2024 to June 29, 2025
$17.59June 30, 2025 to June 29, 2026
$19.35June 30, 2026 to June 29, 2027

Previous versions of the PICs just included a formula and invited the reader to do the math(s).

The two companies are proposing to scrap price caps altogether after June 2027.

If ICANN rejects the deal, under its current contract PIR would be free to raise its prices willy-nilly from day one, though some believe it would be less likely to do so under its current ownership by the non-profit Internet Society.

The new PICs also include a nod to those who believe that PIR would become less sensitive to issues like free speech and censorship — perhaps because China may lean on Ethos’ shadowy billionaire backers. The document now states:

Registry Operator will produce and publish annually a report… This report will also include a transparency report setting forth the number of .ORG domain name registrations that have been suspended or terminated by Registry Operator during the preceding year under Registry Operator’s Anti-Abuse Policy or pursuant to court order.

A few other tweaks clarify the launch date and composition of its proposed Stewardship Council, a body made up of expert outsiders that would offer policy guidance and have a veto on issues such as changes to .org censorship and privacy policy.

The PICs now ban family members of people working for PIR from sitting on the council, and clarify that it would have to be up and running six months after the acquisition closes.

Because .org is not a gTLD applied for in 2012, the PICs do not appear to be open for public comment, but post-acquisition changes to the document would be.

ICANN currently plans to approve or deny the acquisition request by April 20, just 11 days from now.

US senators tell ICANN to reject .org deal

Kevin Murphy, March 20, 2020, Domain Registries

Five US senators have called on ICANN to not approve the acquisition of Public Interest Registry by Ethos Capital.

The senators — all Democrats — said in a March 18 letter published today that the proposed $1.13 billion deal is “against the public interest”.

The surprisingly detailed nine-page letter (pdf) was signed by Ron Wyden, Richard Blumenthal, Elizabeth Warren and Anna Eshoo, following up from a similar letter sent in January. The new letter also has Ed Markey as a signatory. They write:

We were concerned that the sale would be contrary to ICANN’s commitment to the public benefit, that it might undermine the reliability of .ORG websites, and that Ethos is unlikely to be a responsible steward of the .ORG registry. New information we have obtained in the last two months, including statements made by ISOC, PIR, and Ethos, has validated these concerns. Accordingly, we write to reiterate our view that ICANN should block the proposed change of control of the .ORG registry.

Chief among their concerns is the lack of transparency about who is actually bankrolling the deal. Ethos has confirmed it will be partially funded by loans, but the identities of its actual owners have not been confirmed.

It’s been said that two of the backers are investment firms linked to high-profile Republicans — Senator Mitt Romney and the late Ross Perot.

The senators are also worried that the business plan Ethos has publicly laid out may not be realistic, suggesting that PIR will be forced to rip off customers in order to recoup the cost of the acquisition.

They go on to say that Ethos’ promise to only increase prices by 10% per year, enforceable via a Public Interest Commitment in its ICANN contract, is “weak”, particularly given that the commitment would automatically expire seven years from now.

They’re also not buying the notion that PIR’s proposed Stewardship Council, made up of outside .org stakeholders, would have enough power to guide registry policy, calling the council “toothless”.

ICANN is of course under no obligation to take its lead from a handful of legislators, but it’s yet another voice stacked against a deal that already had very little support.

ICANN has until April 20 to make a decision about the change of control.

.org decision delayed another month

Kevin Murphy, March 18, 2020, Domain Registries

ICANN has been given another month to decided whether or not to approve Ethos Capital’s proposed $1.13 billion acquisition of Public Interest Registry from the Internet Society.

PIR said today that it has agreed to give ICANN until April 20 to give it the yay or nay on the controversial deal.

It seems the disruption and distraction caused by the coronavirus pandemic played at least a small role in the decision. PIR said:

To ensure ICANN and the California Attorney General’s office, with which we have been communicating, have the time they need to address any outstanding questions regarding the transaction, especially in light of current events, we have agreed to an ICANN deadline extension to April 20th. We look forward to ICANN’s decision by this date.

Yesterday, opponents of the deal suggested that the acquisition could interfere with the global pandemic response, but PIR has dismissed these claims today as “misleading and alarmist” and “deceiving the public”.

Meanwhile, PIR has updated the proposed contractual Public Interest Commitments that it believes will address some of its critics’ concerns.

Future changes to the PICs will be subject to ICANN’s public comment process, the company said. This is presumably designed to calm fears that the registry will simply dump the PICs next time its contract comes up for renegotiation.

Given the level of confidence in the efficacy of the public comment process — which I would argue is currently close to zero — I doubt this new promise will have its intended effect.

PIR has also taken on criticism that its proposed .ORG Stewardship Council, designed to make sure .org continues to be managed in the public interest, could easily be captured by Ethos yes-men.

Now, instead of appointing the first five members of the council itself, Ethos will instead recruit an “internationally-recognized executive search firm” to find five suitable candidates from stakeholder groups including ICANN’s Non-Commercial Stakeholder Group and At-Large Advisory Committee.

Those nominations will still be subject to final approval by the PIR board, however, so again I think the deal’s critics will still have complaints to cling to.

PIR expects to announce further details of the council selection process next Monday, March 23.

Delay .org deal because of… coronavirus? Gimme a break

Kevin Murphy, March 18, 2020, Domain Policy

Opponents of Public Interest Registry’s proposed acquisition by Ethos Capital are now claiming that ICANN should delay approval of the deal due to coronavirus.

A statement, released yesterday by digital rights group Access Now with the apparent approval of several other like-minded groups, outlines a few reasons why coronavirus means ICANN should reject, or at least delay its consideration of, the deal.

ICANN is currently working towards a March 20 deadline to deliver its verdict.

Peter Micek, general counsel for Access Now, said in the statement:

Far from routine, this transfer would further imperil crucial channels of trusted information in a precarious time. From Médecins Sans Frontières to Wikipedia to many of the world’s hospitals, organizations that disseminate accurate health information and connect affected communities with public resources depend on the .ORG domain. Now is not the time to shift the ground beneath their online activities.

Could a $0.97 increase in the cost of wikipedia.org this year see Wikipedia’s hive mind crumble and turn into the digital equivalent of Jenny McCarthy’s brain? Will it prompt MSF volunteers to retreat, screaming, from the front lines? I don’t think so.

The statement goes on to suggest that China would be able to use its substantial financial and political clout to lean on Ethos’ secretive backers to something something something coronavirus. Kenneth Roth, executive director of Human Rights Watch said:

The Chinese government routinely uses economic pressure to censor critics or inconvenient information, such as about its disastrous early cover-up of the coronavirus outbreak. Investors in the private equity firm that wants to buy the .ORG domain inevitably will have economic interests that Beijing could threaten.

While there may well be a nugget of truth in there, I fail to see how it applies to the current pandemic. Is the argument that China will pressure Ethos’ billionaire money men to close down domains belonging to organizations disseminating accurate Covid-19 information? It seems a stretch.

China already has substantial powers to shut down domains within its own borders, and requires registries operating in the country to comply with Draconian censorship rules. I’m not aware of any cases of these existing powers being exercised against domains globally.

A third argument is that ICANN is using coronavirus as a convenient smokescreen to quietly approve the acquisition while everyone else is busy ram-raiding corner stores for toilet paper.

Daniel Eriksson, head of technology at Transparency International, said in the statement:

If this transfer goes ahead during the current crisis as planned, we’ll look back on it as an example of vested interests taking advantage of the extraordinary situation created by the COVID-19 pandemic to further their own concerns at the expense of the broader good of society. We need to be vigilant against any such actions, and this is precisely the role of many civil society organizations that have a watchdog function. We need maximum transparency and integrity around the sale of .ORG, and that is simply not possible if the sale is rushed through at a moment when peoples’ attention is elsewhere.

Again, this seems like a stretch. The announcement of the acquisition predates the discovery of Covid-19 by weeks, and it has been subject to intense scrutiny, engagement, comment and unprecedented — albeit imperfect — levels of transparency ever since. This is an acquisition being negotiated to a large extent in the public square.

I’ll be generous and suggest a fourth explanation: this is probably just a poor-taste (but, let’s face it, successful) attempt to grab headlines by linking the #SaveDotOrg campaign, however thinly, to the pandemic currently occupying the world’s collective conscious.

There are plenty of good arguments that could be — and are being — made in favor of further delay and scrutiny of the deal, but I don’t think coronavirus is one of them.

ICANN chair: “all options open” on .org deal

Kevin Murphy, March 10, 2020, Domain Policy

ICANN has not yet decided to approve the acquisition of Public Interest Registry by Ethos Capital, but has not ruled out rejecting the deal either.

That’s according to chair Maarten Botterman, speaking to his Governmental Advisory Committee this evening.

At the online-only ICANN 67 meeting, he was asked by GAC chair Manal Ismail whether ICANN is considering withholding its consent for the $1.13 billion deal, which would see the .org registry return to for-profit hands for the first time in 18 years.

“At this moment all options remain open. We are open-minded to taking all input into account before it is time for us to decide,” Botterman replied.

“ICANN will consider the request based upon the totality of the information received,” he also said.

ICANN has the ability, under its registry agreement with PIR, to reject a change of control such as an acquisition, if it believes it’s not in the public interest.

Critics of the deal believe it would allow private equity firm Ethos and its anonymous backers to price-gouge non-profits such as charities, which need the money more.

But Ethos has offered to cap price increases at 10% per year on average for the next seven years, reimposing a price cap that PIR negotiated its way out of last year.

Could .org debate bring back the glory days of ICANN public forums?

Kevin Murphy, March 5, 2020, Domain Policy

ICANN is going to devote 90 minutes to discussing the controversial acquisition of Public Interest Registry by Ethos Capital on Monday, and the sparks could fly.

It’s actually going to be the first formal session of the abridged, online-only ICANN 67 meeting, which had been due to take place in Cancun but will now be carried out fully online. The customary opening ceremony has been scrapped.

Seventy minutes will be devoted to taking questions and comments from the “room”. ICANN 67 is sticking to Cancun’s time zone and the .org session starts at 1400 UTC, which would have been 0900 at the venue.

ICANN warned that the sessions is devoted to the process ICANN is using to approve, or not, the acquisition, and that it “cannot address questions and comments that relate to the ISOC, PIR, Ethos Capital, or other parties involved in the proposed transfer”.

The deal is controversial largely because critics believe Ethos, as a private equity company, is much more likely to start to rip off .org registrars with price hikes than not-for-profit ISOC. But Ethos has offered to bake conditions into its contract that limit it to 10% increases per year on average.

Given the vast amount of interest in the .org deal from outside the usual ICANN community, we could see the kind of robust debate that was common in the ICANN public forum sessions during the birth throes of the new gTLD program, but which has been sadly lacking in recent years.

Newcomers wishing to get involved might like to first familiarize themselves with ICANN’s Expected Standards of Behavior. Anyone dropping the F-bomb or calling the deal “gay”, as happened during the recent .com comment period, will very likely be kicked and banned. Just imagine you’re talking to Titania McGrath and you should be okay.

Ethos volunteers for .org pricing handcuffs

Kevin Murphy, February 25, 2020, Domain Registries

Ethos Capital has volunteered to have price caps written back into Public Interest Registry’s .org contract, should ICANN approve its $1.1 billion proposed acquisition.

The private equity firm said Friday that it has offered to agree to a new, enforceable Public Interest Commitment that bakes its right to increase prices into the contract under a strict formula that goes like this:

Applicable Maximum Fee = $9.93 x (1.10n)

The $9.93 is the current wholesale price of a annual .org registration. The “n” refers to the number of full years the current .org registry agreement has been in play, starting June 30, 2019.

In other words, it’s a 10%-per-year increase on average, but PIR could skip a year here and there and be eligible for a bigger price increase the following year.

For example, PIR could up the fee by 10% or $0.99 to $10.92 this coming June if it wanted, but if it decided to wait a year (perhaps for public relations reasons) if could increase the price to $12.13 in June 2021, an increase of $2.20 or roughly 22%.

It could wait five years before the first price increase, and up it from $9.93 to $16.53, a 66% increase, in year six.

While price increases are of course unpopular and will remain so, the formula does answer the criticism posed on DI and elsewhere that Ethos’ previous public statements on pricing would allow PIR to front-load its fee hikes, potentially almost doubling the price in year one.

But the caps have a built-in expiry date. They only run for eight years. So by the middle of 2027, when PIR could already be charging $18.73, the registry would be free to raise prices by however much it pleases.

It’s a better deal for registrants than what they’d been facing before, which was a vague commitment to stick to PIR’s old habit of not raising prices by more than 10% a year, but it’s not perfect and it won’t sate those who are opposed to increased fees in principle.

On the upside, a PIC is arguably an even more powerful way to keep PIR in line after the acquisition. Whereas other parts of the contract are only enforceable by ICANN, a Public Interest Commitment could theoretically be enforced via the PIC Dispute Resolution Procedure by any .org registrant with the resources to lawyer up. Losing a PICDRP triggers ICANN Compliance into action, which could mean PIR losing its contract.

The PIC also addresses the concern, which always struck me as a bit of a red herring, that .org could become a more censorial regime under for-profit ownership.

Ethos says it will create a new seven-person .ORG Stewardship Council, made up of field experts in human rights, non-profits and such, which will have the right to advise PIR on proposed changes to PIR policy related to censorship and the use of private user/registrant data.

The Council would be made up initially of five members hand-picked by PIR. Another two, and all subsequent appointments, would be jointly nominated and approved by PIR and the Council. They’d serve terms of three years.

The proposed PIC, the proposed Council charter and Ethos’ announcement can all be found here.

Correlation does not necessarily equal causation, but it’s worth noting that the proposal comes after ICANN had started playing hard-ball with PIR, Ethos and the Internet Society (PIR’s current owner).

In fact, I was just putting the finishing touches to an opinion piece entitled “I’m beginning to think ICANN might block the .org deal” when the Ethos statement dropped.

In that now-spiked piece, I referred to two letters ICANN recently sent to PIR/ISOC and their lawyers, which bluntly asserted ICANN’s right to reject the acquisition for basically any reason, and speculated that the deal may not be a fait accompli after all.

In the first (pdf), Jones Day lawyer Jeffrey LeVee tells his counterpart at PIR’s law firm in no uncertain terms that ICANN is free to reject the change of control on grounds such as the “public interest” and the interests of the “.org community”.

Proskauer lawyer Lauren Boglivi had told ICANN (pdf) that its powers under the .org contract were limited to approve or reject the acquisition based only on technical concerns such as security, stability and reliability. LeVee wrote:

This is wrong. The parties’ contracts authorize ICANN to evaluate the reasonableness of the proposed change of control under the totality of circumstances, including the impact on the public interest and the interest of the .ORG community.

Now, the cynic in me saw nothing but a couple of posturing lawyers trying to rack up billable hours, but part of me wondered why ICANN would go to the trouble of defending its powers to reject the deal if it did not think there was a possibility of actually doing so.

The second letter (pdf) was sent by ICANN’s new chair, Maarten Bottermann, to his ISOC counterpart Gonzalo Camarillo.

The letter demonstrates that the ICANN board of directors is actually taking ownership of this issue, rather than delegating it to ICANN’s executive and legal teams, in large part due to the pressure exerted on it by the ICANN community and governments. Botterman wrote:

It is not often that such a contractual issue raises up to a Board-level concern, but as you might appreciate, PIR’s request is one of the most unique that ICANN has received.

He noted that the controversy over the deal had even made ICANN the target of a “governmental inquiry”, which is either a reference to the California attorney general’s probe or to a letter (pdf) received from the French foreign office, demanding answers about the transaction.

It’s notable from Botterman’s letter that ICANN has started digging into the deep history of PIR’s ownership of .org, much as I did last December, to determine whether the commitments it made to the non-profit community back in 2002 still hold up under a return to for-profit ownership.

Given these turns of events, I was entertaining the possibility that ICANN was readying itself to reject the deal.

But, given Ethos’ newly proposed binding commitments, I think the pendulum has swung back in favor of the acquisition eventually getting the nod.

I reserve the right to change my mind yet again as matters unfold.

Watch: climate change denier on why she trusts .org more than .com

Kevin Murphy, February 10, 2020, Gossip

This isn’t news, but I found it amusing, irritating, and slightly confusing — a clip of a climate change denier rubbishing a scientific article because it appears on a .com domain rather than a .org.

The video below, featuring comedian Joe Rogan interviewing conservative political commentator Candace Owens, dates from May 2018, but I first came across it when it popped up on Reddit’s front page this morning.

In it, Rogan attempts to school Owens on why human-influenced climate change, which she believed is a liberal conspiracy, is a scientific fact. At one point, his producer pulls up an article from Scientific American, the respected, 174-year-old popular science magazine, which uses scientificamerican.com.

Owens responds:

What web site is this? .com though? That means it’s making money. I don’t trust that. If it was a .org I would probably take that, but this is just a random web site.

The argument has been made, in the ongoing controversy over .org’s sale to Ethos Capital, that .org domains carry a higher level of trust than other TLDs, through the mistaken belief that you need to be a not-for-profit in order to own one, but I think this is the first time I’ve ever heard that belief openly expressed in a widely-viewed forum by a public figure, albeit not a very bright one.

Confusingly, at around the 11.50 mark in the video, Owens starts banging on about how she doesn’t trust research conducted by “.orgs” such as mediamatters.org.

She appears to be someone who, in the age of fake news, pays attention to TLDs when deciding what is and isn’t true online. I can’t decide whether that’s an admirable quality or not. At least she has a filter, I guess.

Ethos’ .org pricing promise may be misleading

Kevin Murphy, February 10, 2020, Domain Registries

The more Ethos Capital protests that its plans for .org pricing are not as bad as its critics think, the less I believe it.

Since November, the would-be buyer of Public Interest Registry has being publicly committing to maintain what it calls PIR’s “historic practices” related to pricing.

PIR, under its last ICANN contract, was allowed to raise prices by up to 10% per year, but it did not always exercise that right. In fact, the wholesale price of .org has been fixed at $9.93 since August 2016.

Ethos has described its price increase plans in a very specific, consistent way. In November it said:

Our plan is to live within the spirit of historic practice when it comes to pricing, which means, potentially, annual price increases of up to 10 percent on average — which today would equate to approximately $1 per year.

Last month, chief purpose officer Nora Abusitta-Ouri wrote:

We committed to limiting any potential increase in the price of a .ORG domain registration to no more than 10% per year on average

Last week, she wrote:

Ethos has committed to limiting any potential increase in the price of a .ORG domain registration to no more than 10% per year on average

Over the weekend, she added:

we are not saying that we will raise prices 10% every year — our commitment is that any price increase would not exceed 10% per year on average, if at all.

Clearly, the talking point has been copy-pasted a few times, and it always includes the words “10% per year on average”.

On average.

What does that mean? What are we averaging out here? It can’t be across the .org customer base, as registries aren’t allowed to vary pricing by registrant, so we must be talking about time. PIR has a 10-year contract with ICANN, so we must be talking about prices going up no more than 10% per year “on average” over the next decade.

If PIR, under Ethos’ stewardship, decides to raise prices by exactly 10% every year starting in 2020, the wholesale cost of a .org domain will be $25.76 by 2029, a 159% increase on today’s rate.

Assuming for the sake of this thought experiment that .org stays flat at 10 million registrations (it’s actually a little more today, but it’s declining), Ethos would be looking at a $258 million-a-year business by 2029, up from today’s $99 million.

Over the course of the 10-year contract, .org would be worth a cumulative $1.74 billion in reg revenue, up from the $993 million it would see without price increases.

But Ethos is only promising that price increases will be no more than 10% per year on average, remember, and it’s even hinted that there could be some years with no increases at all.

I noted in November that this commitment could see Ethos raise prices in excess of 10% early on, then freeze them so the increase averages back down to 10% over time.

It would of course make the most sense to front-load the price increases, to maximize the return.

At one extreme, Ethos could raise the price to $25.76 a year immediately, then lock the price down until 2029. That would make .org a $258 million-a-year business overnight, and making the cumulative 10-year revenue around the $2.58 billion mark.

Or, it could raise prices by 20% in alternate years, adding up to $1.77 billion in total top-line and a price to registrants of $24.71 by 2028.

There’s an infinity of variations on these strategies, and Ethos’ modeling is certainly more complex than the envelope upon which I just jotted these simplified figures down, but it’s pretty clear that while the company may well stick to the letter of its promises, it gets its best returns if it raises prices hard and early.

The more I read “on average” repeated in Ethos’ literature, the more convinced I become that this is exactly what it has in mind.