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Former ICANN CFO sues Sedari over €100k deal

Kevin Murphy, December 5, 2011, Domain Services

Kevin Wilson, who joined new gTLD consultancy Sedari as chief financial officer earlier this year, was fired in October and is now suing the company over a €100,000 investment deal gone bad.

Wilson, who spent four years as ICANN’s CFO, was one of a number of familiar domain name industry faces to join UK-based Sedari when it came out of stealth mode this summer.

But he was let go in October after falling out with CEO Liz Williams over financial matters.

Wilson claims that even as CFO he had to fight for access to Sedari’s financial records, and that when he finally questioned the company’s accounting he was terminated.

His termination letter said that Sedari had “very serious concerns” about his performance.

He had agreed to invest €100,000, in two €50,000 installments, and was fired shortly after deciding not to make the second payment, according to his legal complaint.

Wilson claims that he agreed to become an investor after being told about paying clients, including Cloud Registry, that he came to believe may not have existed.

He also alleges that “substantial sums” were taken from the company coffers by Williams for spa treatments and other personal expenditures.

The lawsuit alleges “fraud” on this basis, and seeks the return of Wilson’s initial €50,000 stake.

Wilson also wants the court to declare that, as a resident of California, he is not bound by the post-employment non-compete clauses of his contract.

He’s currently an independent new gTLDs consultant.

Sedari, through its solicitor Faegre & Benson, said in a statement:

Mr. Wilson has reneged on his legally binding obligations to Sedari both in relation to the payment by him of certain sums and his agreement not to act contrary to the best interest of the company. As a result, the Board has forfeited Mr. Wilson’s shares and taken further action to enforce its rights against him.

The statement notes that Sedari has not yet been formally served the complaint – which was filed in the Superior Court in Los Angeles on October 25 – adding:

In the event that Mr. Wilson proceeds with his complaint, it will be defended comprehensively.

The claim is devoid of merit, wrong in fact and all material allegations are rejected. Mr. Wilson will also be pursued for any further loss his actions may cause the alleged defendants.

Wilson said in a statement that he wants to “resolve matters amicably”.

According to exhibits filed with the lawsuit, Sedari’s other investors include Williams, with a majority 53.7% stake, as well as director Dennis Jennings and policy chief Philip Sheppard.

Registry services provider Afilias paid $375,000 for a 27.4% stake in the company, according to these documents. Its chairman, Philipp Grabensee, sits on the Sedari board.

Here’s the complaint.

Clash over new gTLD risk fund

Kevin Murphy, December 4, 2011, Domain Policy

The ICANN community is split along predictable lines – domain registries versus intellectual property interests – in the latest controversy to hit the new top-level domains policy-making.

ICANN’s board of directors will meet this week to decide the fate of its new gTLD failure risk fund, an expensive buffer designed to protect registrants if new gTLD registries go bust.

The current plan is to ask each new gTLD applicant to front the entire cost of three years’ operation with a Continuing Operations Instrument – either a letter of credit or cash in escrow.

The idea is that if they go out of business, funds will be available to pay an emergency registry operator to, in the worst case scenario, gracefully wind down the gTLD.

Registries and some potential applicants are not happy about this idea. They say that the COI imposes too great a cost on start-up registries, which could lead to more failed businesses.

Since smaller businesses may not be able to secure letters of credit, they’ll have to escrow hundreds of thousands of dollars, rather than using the money to make sure they don’t fail in the first place.

Registries have proposed an alternative – a Continued Operations Fund – which would see all applicants deposit a flat fee of $50,000 into a central risk pool that ICANN would manage.

An ICANN public comment period on the COF that closed on Friday revealed the anticipated level of opposition from business and IP interests.

The main concern is that the COF represents a transfer of wealth from rich companies, which would easily and cheaply qualify for a letter of credit, to less well-funded applicants.

The COF “seeks to subsidize certain registry operators instead of allowing the market itself (via letter of credit based upon applicant viability) to determine the level of risk for each applicant”, Claudio DiGangi of the International Trademark Association wrote.

Steve Metalitz, president of ICANN’s Intellectual Property Constituency, echoed INTA’s concerns, adding the IPC’s suspicions about why the COF has been proposed:

[The COF] allows more underfunded applicants into the application pool which will in turn lead to more registry failures, cost to ICANN, and poor outcomes for registrants. While this may be good in the short term for members of the Registry Stakeholder Group (RySG) who desire to provide backend services to such underfunded applicants, the short term economic gain of members of one SG should not be prioritized over the risks to registrants and ICANN that the COF represents

One member of the IPC has suggested that if ICANN were to introduce a COF now, it would give opponents of the new gTLD program grounds to sue, under California insurance law, to put it to a halt.

On the pro-COF side, .org manger the Public Interest Registry said that the current COI plan discourages companies for applying for new gTLDs, which is at odds with ICANN’s goals of increasing competition in the registry space.

PIR’s director of policy Paul Diaz also points out that letters of credit will be hard to come by for companies in certain countries, which may lead to less geographically diverse applicants.

Somewhat surprisingly, Minds + Machines CEO Antony Van Couvering, perhaps sensing which way the wind is blowing at ICANN, has reluctantly backed the original COI model, but suggests a “simple short-term fix” to reduce the cost to applicants.

When determining the amount of the COI, applicants should be free to base it on their own “worst case scenario” registration volume projections, rather than their “most likely” models, on the basis that registries are unlikely to go out of business if they meet their revenue targets:

Presumably if you’re hitting your numbers you’re in good shape financially. It’s the low numbers you have to worry about. Setting the amount of the COI at this more reasonable and likely threshold will take care of the vast majority of failures.

ICANN only received comments from eight people on the COF proposal, and unsurprisingly they’re all (with one possible exception) looking out for their own financial interests.

Without a crystal ball, deciding which model will be “best” for the new gTLD program is a very tough call, but ICANN’s board of directors is expected to do so on Thursday.

US Senate to hold new gTLDs hearing

Kevin Murphy, December 2, 2011, Domain Policy

A US Senate committee is to hold a hearing into ICANN’s new generic top-level domains program next Thursday.

The Committee on Commerce, Science, and Transportation will “examine the merits and implications of this new program and ICANN’s continuing efforts to address concerns raised by the Internet community.”

It will be webcast on the Committee’s web site.

It is believed to have been scheduled due to lobbying by the Association of National Advertisers, which has an ongoing campaign to put a stop to the new gTLD program.

It will follow a similar hearing by the House Subcommittee on Intellectual Property, Competition and the Internet in May, which was used to vent outrage about the program but ultimately delivered nothing.

(Note: this story has been updated from the originally posted version to reflect information contained in the official announcement.)

DotGreen hires former Neustar exec

Kevin Murphy, December 2, 2011, Domain Registries

New gTLD applicant DotGreen has tapped former Neustar vice president Tim Switzer to be its new chief operating officer and chief financial officer.

Switzer was vice president of registry services at Neustar. It’s the first example I can recall of a senior exec from a registry services provider joining a single-gTLD applicant.

DotGreen, naturally enough, plans to apply to ICANN for the .green top-level domain next year. It’s a not-for-profit company that hopes to channel funds into environment projects.

Bulgaria told to forget about .бг

Kevin Murphy, December 1, 2011, Domain Policy

ICANN CEO Rod Beckstrom has advised Bulgarians to admit defeat in their ongoing campaign to have .бг approved as a local-script top-level domain to match .bg.

The country’s application for the Cyrillic label was rejected by ICANN’s IDN ccTLD Fast Track program last year because it was found to look too similar to Brazil’s .br.

Nevertheless, the local government and domain name groups have continued to press for the right of appeal, and have indicated they may apply again.

But in an interview with Novinite published today, Beckstrom says:

I would advise the Bulgarians to go for something else. The initial application for .бг was unsuccessful.

The job of ICANN, the organization, is to implement the policies that are developed by the global communities. Those communities did not allow the initial application to go through because of potential visual confusion. So I think the Bulgarians can go back and they can choose what they want to apply for.

The Bulgarians can apply for a three-character name, they can apply for .българия in Cyrillic, it’s really up to the local community.

He goes on to say that Bulgarians could wait for a change in policies then apply again, they could change their desired string, or they could abandon their plans altogether.

However, surveys have found little appetite among the Bulgarian public for alternative strings such as .бгр, .българия, .бя or .бъл.

It’s a tricky problem for ICANN, which is first and foremost tasked with ensuring DNS stability and security.

Confusingly similar TLDs lend themselves to security risks such as phishing, and my understanding is that if .бг were to be approved it would face opposition from interests in Brazil.

The Novinite interview also touches on the possibilities of .софия and .Пловдив, to represent the Bulgarian cities of Sofia and Plovdiv.

The .бг issue was the subject of some apparently heated discussion during the recent Domain Forum new gTLDs conference in Sofia, but I understand Beckstrom had left before that part of the agenda.

You can now watch the entire Domain Forum, including Beckstrom’s introductory keynote, for free on YouTube.

Wanted: somebody to object to new gTLDs

Kevin Murphy, November 23, 2011, Domain Policy

ICANN is looking for somebody to object to new top-level domain applications.

It’s put out a call for an Independent Objector, whose job it will be to file formal objections to new gTLDs that he or she determines may not be in the public interest.

ICANN is looking for somebody with an in-depth knowledge of the new gTLD program and extensive experience in multinational organizations.

The IO has been a planned component of the new gTLD program for a couple of years.

The role is designed to provide a way to kill off “highly objectionable” applications in cases where the affected community may lack the resources or organization to pay for an objection.

Essentially, the IO looks at public comments filed with ICANN and decides whether opposition to a gTLD is substantial enough to warrant a formal objection.

The IO may only use two of the Applicant Guidebook’s objection mechanisms – the Community Objection and the Limited Public Interest (formerly “morality and public order”) Objection and not trademark or string confusion grounds.

My view is that we’re likely to see very few “highly objectionable” applications. And now that ICANN has agreed to fund some government objections, the IO is likely to wind up being a bit of an easy ride for whoever successfully applies for the job.

Interested parties have until December 22 to apply. The job description can be found here.

GMO wins .tokyo deal

Kevin Murphy, November 21, 2011, Domain Registries

GMO Registry says it has won local government backing to apply to ICANN for the city top-level domain .tokyo.

The company revealed the news on its Twitter feed today, linking to this Tokyo metropolitan government announcement confirming the story.

While perhaps best-known for its planned .shop application, GMO is probably the registry services company with the most announced new gTLD back-end contract wins to date.

It is also on board to provide the registry for the Japanese regional gTLDs .okinawa and .ryukyu, as well as the brand gTLDs .hitachi and .canon. It already runs Somalia’s .so and Indonesia’s .id ccTLDs.

GMO Registry parent GMO Internet is a pretty big deal in its native Japan. Publicly listed on the Tokyo Stock Exchange, it has annual revenue of well over half a billion dollars.

CADNA asks for new gTLDs second round

Kevin Murphy, November 18, 2011, Domain Policy

The Coalition Against Domain Name Abuse, having spent quite a lot of time and effort opposing ICANN’s new top-level domains program, wants ICANN to name the date for a second round.

In a letter to president Rod Beckstrom today, which was inspired by discussions at the recent What’s At Stake conference, CADNA president Josh Bourne writes:

We ask that the ICANN Board request an Issues Report to formally initiate a policy development process to determine when the next round of new gTLD applications will occur, thereby affirming its commitment to opening a second round in a timely manner.

As I’ve noted previously, ICANN has not named the date for the second round so far because it’s promised the Governmental Advisory Committee that it will review the first round first.

But businesses from outside the domain name industry are feeling like they’re being pressured into making a decision whether to apply for a gTLD they don’t necessarily want, Bourne says.

By not disclosing when it will open future rounds of new gTLD applications, ICANN is creating a condition of scarcity that will inevitably result in a massive land rush, where entities will scramble to apply for new gTLDs for the sole purpose of hypothetically “future-proofing” their identities in the new domain name space, without any immediate intentions to use their new gTLDs for innovative means.

Disclosing when it will open a second application round will not only alleviate the anxiety that businesses are feeling, it will give ICANN the chance to quell the animosity that has developed toward it among the business community.

The whole letter is worth a read. No matter what you think of CADNA, it’s difficult to argue with Bourne’s points (though please do so in the comments if you disagree).

Scare sales tactics are already a key source of mainstream hatred for the domain name industry at the second level. Now would be a good time to prevent the same thing happening at the top level too.

It will look very bad for ICANN in a few years’ time if the root is cluttered with useless, unused gTLDs created just because companies felt pressured into defensive applications.

YouPorn challenges new gTLDs with review demand

Kevin Murphy, November 17, 2011, Domain Registries

YouPorn operator Manwin is demanding a review of .xxx, and ICANN’s top-level domains program by association, in a new Independent Review Panel request.

It becomes only the second company ever, after .xxx manager ICM Registry, to file an IRP request with ICANN. The filing came at the same time as Manwin sued ICANN and ICM in California.

The IRP demand ostensibly focuses on .xxx, but it also suggests that the forthcoming new gTLD program has many of the same flaws as the process that led to .xxx’s approval.

IRP is the final, and most expensive, appeals process available within ICANN for companies that believe they’ve been wronged by the organization’s decisions.

It was first used by ICM in 2008-2009 to have the rejection of its .xxx application overturned.

To win an IRP, complainants have to convince an International Centre for Dispute Resolution panel (probably three retired judges) that ICANN violated its own bylaws when it made a harmful decision.

The only reason .xxx is in the root today is that an IRP decided by majority that ICANN broke the bylaws when it approved and then rejected the .xxx bid filed in the 2004 new gTLD round.

Manwin’s IRP claims that ICANN failed to “adequately address issues including competition, consumer protection, malicious abuse and rights protection prior to approving the .xxx TLD”.

It also claims that ICANN failed to enforce ICM’s compliance with its registry contract, allowing it to engage in “anticompetitive conduct” and help violate IP rights.

The company is basically miffed that it felt it was being forced to spend money in ICM’s sunrise period, and that it was not allowed to block its trademarks and variations of its trademarks.

One of its oddest claims, which is in the IRP as well as the lawsuit, is that ICM was selected in a “closed process” that did not consider alternative .xxx operators.

The 2004 gTLD round was of course open to any applicant, so there was nothing stopping anybody else from applying for .xxx. One gTLD, .tel, did in fact have multiple bidders.

Essentially, the IRP demand cuts to the heart of the domain name industry and the new gTLD concept in general, challenging many practices that have become norms.

Sunrise

Sunrise is “extortion”, according to Manwin.

As well as being opposed to the idea of paying for defensive registrations in general, Manwin also thinks that typos and brand+keyword domains should be eligible for blocking, presumably for free.

It also believes that porn companies should have been able to defensively block some .xxx domains (which ICM called “Sunrise B”) and register others for active use (“Sunrise A”).

Speculation

Manwin’s IRP says that ICM did not act in the best interests of its sponsored community (ostensibly the porn industry) when it sold premium .xxx domains to “known domain name speculators”.

Well-known domainers Frank Schilling and Mike Berkens have invested millions in .xxx, but Manwin says their profit motives show ICM broke its commitment to serve the adult industry only.

Schilling, who signed up to buy domains 33 domains including amateur.xxx before ICM’s registry contract had even been approved, is reportedly already leasing out some of his .xxx names to porn companies for five figures a month.

New gTLDs

Manwin seems to support what you might call a ‘string first, registry later’ model for delegating gTLDs.

It states in its lawsuit and IRP that ICANN should have opened up .xxx for competitive bidding, apparently ignoring the fact that the .xxx string was proposed by ICM, not ICANN.

In the IRP demand, it suggests that allowing gTLD applicants to select their own strings is in violation of ICANN’s bylaws. The complaint states:

[ICANN] gave ICM a permanent monopoly over the .XXX TLD without considering other candidates for registry operator and without making provision for considering other potential registry operators at the end of the initial term of the .xxx Registry Agreement.

If Manwin wins, ICANN could be forced into a situation where it must ask for string proposals from new gTLD applicants and then open up each proposed string to competitive bidding.

That’s not necessarily a bad idea, but it’s pretty much exactly the opposite of how the ICANN-approved new gTLD program is going to work.

The IRP and the lawsuit are also notable in that they target the alleged lack of economic studies that support .xxx and new gTLDs in general.

It states that ICANN “failed to conduct proper economic studies of the impact of the introduction of new TLDs, including the .xxx TLD”.

This is a frequent criticism leveled at ICANN by opponents such as the Association of National Advertisers and the newly formed Coalition for Responsible Internet Domain Oversight.

Manwin is being represented in the suit and IRP by the law firm Mitchell Silberberg & Knupp, the employer of Steve Metalitz, a well-known figure in ICANN’s intellectual property constituency.

Screen Actors Guild opposes new gTLDs

Kevin Murphy, November 16, 2011, Domain Policy

While it does not appear to be a member of the new Coalition for Responsible Internet Domain Oversight, the Screen Actors Guild has come out in opposition to new top-level domains.

The membership organization, which represents over 200,000 Hollywood actors, has asked US Secretary of Commerce John Bryson to persuade ICANN to delay the gTLD program until it can “demonstrate convincingly” that it will be in the public interest.

SAG national executive director David White wrote:

The ICANN proposal would unduly burden a diverse range of public and private brand holders, companies with whom our members are associated. This also presents an undue burden on our organization, as a globally recognized brand. Under this rule, many brand-holders would be forced to spend ever-greater amounts of time and resources simply to protect their brands.

Like many other opponents of the program, White also raises the conflicts-of-interest question that emerged following Peter Dengate Thrush’s move from ICANN’s chair to new gTLD applicant Minds + Machines.

SAG was not listed as a member of CRIDO, the huge cross-industry lobby group that formed to oppose new gTLDs last week, although its arguments are identical.