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Verisign says Afilias tried to “rig” $135 million .web auction

Kevin Murphy, December 17, 2018, Domain Services

Verisign has jumped back into the fight for the .web gTLD, all guns blazing, with a claim that Afilias offered millions in an attempt to “rig” a private auction for the string.

The .com behemoth accused Afilias last week of “collusive and anti-competitive efforts to rig the [.web] auction in its favor”.

It claims that Afilias offered rival bidder — and secret Verisign stooge — Nu Dot Co up to $17 million if it would participate in a private auction, and then tried to contact NDC during the auction’s “Blackout Period”.

The claims came in an amicus brief (pdf) filed by Verisign as part of Afilias’ Independent Review Process proceeding against ICANN.

The IRP is Afilias’ attempt to overturn the result of the July 2016 .web auction, in which NDC paid ICANN $135 million of Verisign’s money in exchange for the exclusive rights to .web

While neither Verisign nor NDC are parties to the IRP, they’re both attempting to become amicus curiae — “friends of the court” — giving them the right to provide evidence and arguments to the IRP panel.

Verisign argues that its rights would be seriously impacted by the proceeding — Afilias is looking for an emergency ruling preventing .web being delegated — because it won’t be able to bring .web to market.

But it’s also attempting to have the IRP thrown out altogether, on the basis of claims that Afilias broke the auction rules and has “unclean hands”.

Verisign’s brief states:

Afilias and other bidders proposed that a private auction be performed pursuant to collusive and potentially illegal terms about who could win and who would lose the auction, including guarantees of auction proceeds to certain losers of the auction.

NDC CFO Jose Rasco provides as evidence screenshots (pdf) of a text-message conversation he had with Afilias VP of sales Steve Heflin on June 7, 2016, in which Heflin attempts to persuade NDC to go to a private auction.

Every other member of the contention set at that point had agreed to a private auction, in which the winning bid would be shared out among the losers.

NDC was refusing to play along, because it had long ago secretly agreed to bid on behalf of Verisign, and was forcing a last-resort ICANN auction in which ICANN would receive the full sum of the winning bid. 

In that SMS conversation, Heflin says: “Can’t give up…how about I guarantee you score at least 16 mil if you go to private auction and lose?” followed by three money-bag emojis that I refuse to quote here on general principle.

Rasco responds with an offer to sell Afilias the .health gTLD, then just weeks away from launch, for $25 million.

Heflin ignores the offer and ups his .web offer to $17.02 million.

Given that it was a contention set of seven applicants, that suggests Afilias reckoned .web was going to sell for at least $100 million.

Verisign claims: “Afilias’s offers to ‘guarantee’ the amount of a payment to NDC as a losing bidder are an explicit offer to pay off NDC to not compete with Afilias in bidding on .web.”

Rasco also provides evidence that Schlund, another .web applicant, attempted to persuade NDC to join what it called an “Alternative Private Auction”.

This process would have divided bidders into “strong” and “weak” categories, with “strong” losing bidders walking away with a greater portion of the winning bid than the “weak” ones.

Verisign and NDC also claims that Afilias broke ICANN’s auction rules when VP John Kane texted Rasco to say: “If ICANN delays the auction next week would you again consider a private auction?”

That text was received July 22, four days before the auction and one day into the so-called “Blackout Period”, during which ICANN auction rules (pdf)  prohibit bidders from “cooperating or collaborating” with each other.

At that time, .web applicants Schlund and Radix already suspected Verisign was bankrolling NDC, and they were trying to get the auction delayed.

According to Verisign, Kane’s text means Afilias violated the Blackout rules and therefore it should lose its .web application entirely.  

The fact that these rules proscribe “collaborating” during the Blackout suggests that collaborating at other times was actually envisaged, which in turn suggests that Heflin’s texts may not be as naughty as Verisign claims.

Anyway, I think it’s fair to say the gloves, were they ever on, have come off.

Weighing in at over 1,000 pages, the combined amicus briefs and attached exhibits reveal some interesting additional facts that I don’t believe were in the public domain before now and may be worth noting here.

The Verisign filing reveals, I believe for the first time, that the final Verisign bid for .web was $142 million. It only paid $135 million because that was runner-up Afilias’ final bid.

It also reveals that Verisign and NDC signed their “executory agreement” — basically, NDC’s promise to sign over .web if Verisign bankrolled its bid — in August 2015, nearly a year before the auction took place. NDC evidently kept its secret for a long time before rivals got suspicious.

The IRP panelist is scheduled to rule on Afilias’ request for a “stay of all ICANN actions that further the delegation of the .WEB gTLD” on January 28.

No .web until 2021 after Afilias files ICANN appeal

Kevin Murphy, December 6, 2018, Domain Registries

Afilias has taken ICANN to arbitration to prevent .web being delegated to Verisign.

The company, which came second in the $135 million auction that Verisign won in 2016, filed Independent Review Process documents in late November.

The upshot of the filing is that .web, considered by many the best potential competitor for .com — Afilias describes it as “crown jewels of the New gTLD Program” — is very probably not going to hit the market for at least a couple more years.

Afilias says in in its filing that:

ICANN is enabling VeriSign to acquire the .WEB gTLD, the next closest competitor to VeriSign’s monopoly, and in so doing has eviscerated one of the central pillars of the New gTLD Program: to introduce and promote competition in the Internet namespace in order to break VeriSign’s monopoly

Its beef is that Verisign acquired the rights to .web by hiding behind a third-party proxy, Nu Dot Co, the shell corporation linked to the co-founders of .CO Internet that appears to have been set up in 2012 purely to make money by losing new gTLD auctions.

Afilias says NDC broke the rules of the new gTLD program by failing to notify ICANN that it had made an agreement with Verisign to sign over its rights to .web in advance of the auction.

The company says that NDC’s “obligation to immediately assign .WEB to VeriSign fundamentally changed the nature of NDC’s application” and that ICANN and the other .web applicants should have been told.

NDC’s application had stated that .web was going to compete with .com, and Verisign’s acquisition of the contract would make that claim false, Afilias says.

This means ICANN broke its bylaws commitment to apply its policies, “neutrally, objectively, and fairly”, Afilias claims.

Allowing Verisign to acquire its most significant potential competitor also breaks ICANN’s commitment to introduce competition to the gTLD market, the company reckons.

It will be up to a three-person panel of retired judges to decide whether these claims holds water.

The IRP filing was not unexpected. I noted that it seemed likely after a court threw out a Donuts lawsuit against ICANN which attempted to overturn the auction result for pretty much the same reasons.

The judge in that case ruled that new gTLD applicants’ covenant not to sue ICANN was valid, largely because alternatives such as IRP are available.

ICANN has a recent track record of performing poorly under IRP scrutiny, but this case is by no means a slam-dunk for Afilias.

ICANN could argue that the .web case was not unique, for starters.

The .blog contention set was won by an affiliate of WordPress maker Automattic under almost identical circumstances earlier in 2016, with Colombian-linked applicant Primer Nivel paying $19 million at private auction, secretly bankrolled by WordPress.

Nobody complained about that outcome, probably because it was a private auction so all the other .blog applicants got an even split of the winning bid.

Afilias wants the .web IRP panel to declare NDC’s bid invalid and award .web to Afilias at its final bid price.

For those champing at the bit to register .web domains, and there are some, the filing means they’ve likely got another couple years to wait.

I’ve never known an IRP to take under a year to complete, from filing to final declaration. We’re likely looking at something closer to 18 months.

Even after the declaration, we’d be looking at more months for ICANN’s board to figure out how to implement the decision, and more months still for the implementation itself.

Barring further appeals, I’d say it’s very unlikely .web will start being sold until 2021 at the very earliest, assuming the winning registry is actually motivated to bring it to market as quickly as possible.

The IRP is no skin off Verisign’s nose, of course. Its acquisition of .web was, in my opinion, more about restricting competition than expanding its revenue streams, so a delay simply plays into its hands.

Donuts loses to ICANN in $135 million .web auction appeal

Kevin Murphy, October 16, 2018, Domain Registries

Donuts has lost a legal appeal against ICANN in its fight to prevent Verisign running the .web gTLD.

A California court ruled yesterday that a lower court was correct when it ruled almost two years ago that Donuts had signed away its right to sue ICANN, like all gTLD applicants.

The judges ruled that the lower District Court had “properly dismissed” Donuts’ complaint, and that the covenant not to sue in the Applicant Guidebook is not “unconscionable”.

Key in their thinking was the fact that ICANN has an Independent Review Process in place that Donuts could use to continue its fight against the .web outcome.

The lawsuit was filed by Donuts subsidiary Ruby Glen in July 2016, shortly before .web was due to go to an ICANN-managed last-resort auction.

Donuts and many others believed at the time that one applicant, Nu Dot Co, was being secretly bankrolled by a player with much deeper pockets, and it wanted the auction postponed and ICANN to reveal the identity of this backer.

Donuts lost its request for a restraining order.

The auction went ahead, and NDC won with a bid of $135 million, which subsequently was confirmed to have been covertly funded by Verisign.

Donuts then quickly amended its complaint to include claims of negligence, breach of contract and other violations, as it sought $22.5 million from ICANN.

That’s roughly how much it would have received as a losing bidder had the .web contention set been settled privately and NDC still submitted a $135 million bid.

As it stands, ICANN has the $135 million.

That complaint was also rejected, with the District Court disagreeing with earlier precedent in the .africa case and saying that the covenant not to sue is enforceable.

The Appeals Court has now agreed, so unless Donuts has other legal appeals open to it, the .web fight will be settled using ICANN mechanisms.

The ruling does not mean ICANN can go ahead and delegate .web to Verisign.

The .web contention set is currently “on-hold” because Afilias, the second-place bidder in the auction, has since June been in a so-called Cooperative Engagement Process with ICANN.

CEP is a semi-formal negotiation-phase precursor to a full-blown IRP filing, which now seems much more likely to go ahead following the court’s ruling.

The appeals court ruling has not yet been published by ICANN, but it can be viewed here (pdf).

The court heard arguments from Donuts and ICANN lawyers on October 9, the same day that DI revealed that ICANN Global Domains Division president Akram Atallah had been hired by Donuts as its new CEO.

A recording of the 32-minute hearing can be viewed on YouTube here or embedded below.

.web closer to reality as antitrust probe ends

Kevin Murphy, January 10, 2018, Domain Registries

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.

This is who won the .inc, .llc and .llp gTLD auctions

Kevin Murphy, October 19, 2017, Domain Registries

The winners of the auctions to run the gTLD registries for company identifiers .inc, .llc and .llp have emerged due to ICANN application withdrawals.

All three contested gTLDs had been held up for years by appeals to ICANN by Dot Registry — an applicant with the support of US states attorneys general — but went to private auction in September after the company gave up its protests for reasons its CEO doesn’t so far want to talk about.

The only auction won by Dot Registry was .llp. That stands for Limited Liability Partnership, a legal construct most often used by law firms in the US and probably the least frequently used company identifier of the three.

Google was the applicant with the most cash in all three auctions, but it declined to win any of them.

.inc seems to have been won by a Hong Kong company called GTLD Limited, run by DotAsia CEO Edmon Chong. DotAsia runs .asia, the gTLD granted by ICANN in the 2003 application round.

My understanding is that the winning bid for .inc was over $15 million.

If that’s correct, my guess is that the quickest, easiest way to make that kind of money back would be to build a business model around defensive registrations at high prices, along the lines of .sucks or .feedback.

My feedback would be that that business model would suck, so I hope I’m wrong.

There were 11 original applicants for .inc, but two companies withdrew their applications years ago.

Dot Registry, Uniregisty, Afilias, GMO, MMX, Nu Dot Co, Google and Donuts stuck around for the auction but have all now withdrawn their applications, meaning they all likely shared in the lovely big prize fund.

MMX gained $2.4 million by losing the .inc and .llc auctions, according to a recent disclosure.

.llc, a US company nomenclature with more potential customers of lower net worth, went to Afilias.

Dot Registry, MMX, Donuts, LLC Registry, Top Level Design, myLLC and Google were also in the .llc auction and have since withdrawn their applications.