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Antitrust feds probing Verisign’s .web deal

Kevin Murphy, February 10, 2017, Domain Policy

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.

Donuts loses $22.5m .web lawsuit as judge rules gTLD applicants cannot sue

Kevin Murphy, November 30, 2016, Domain Registries

The promise not to sue ICANN that all new gTLD applicants made when they applied is legally enforceable, a California judge has ruled.

Judge Percy Anderson on Monday threw out Donuts’ lawsuit against ICANN over the controversial $135 million .web auction, saying the “covenant not to sue bars Plaintiff’s entire action”.

He wrote that he “does not find persuasive” an earlier and contrary ruling in the case of DotConnectAfrica v ICANN, a case that is still ongoing.

Donuts sued ICANN at first to prevent the .web auction going ahead.

The registry, and other .web applicants, were concerned that ultimately successful bidder Nu Dot Co was being covertly bankrolled by Verisign, which turned out to be completely correct.

Donuts argued that ICANN failed to adequately vet NDC to uncover its secret sugar daddy. It wanted $22.5 million from ICANN — roughly what it would have received if the auction had been privately managed, rather than run by ICANN.

But the judge ruled that Donuts’ covenant not to sue is enforceable. Because of that, he made no judgement on the merits of Donuts’ arguments.

Under the relevant law, Donuts had to show that the applicant contract was “unconscionable” both “procedurally” and “substantively”.

Basically, the question for the judge was: was the contract unfairly one-sided?

The judge ruled (pdf) that it was not substantively unconscionable and “only minimally procedurally unconscionable”. In other words: a bit crap, but not illegal.

He put a lot of weight on the fact that the new gTLD program was designed largely by the ICANN community and on Donuts’ business “sophistication”. He wrote:

Without the covenant not to sue, any frustrated applicant could, through the filing of a lawsuit, derail the entire system developed by ICANN to process applications for gTLDs. ICANN and frustrated applicants do not bear this potential harm equally. This alone establishes the reasonableness of the covenant not to sue.

Donuts VP Jon Nevett said in a statement yesterday that the fight over .web is not over:

Donuts disagrees with the Court’s decision that ICANN’s required covenant not to sue, while being unconscionable, was not sufficiently unconscionable to be struck down as a matter of law. It is unfortunate that the auction process for .WEB was mired in a lack of transparency and anti-competitive behavior. ICANN, in its haste to proceed to auction, performed only a slapdash investigation and deprived the applicants of the right to fairly compete for .WEB in accordance with the very procedures ICANN demanded of applicants. Donuts will continue to utilize the tools at its disposal to address this procedural failure.

It looks rather like we could be looking at an Independent Review Process filing, possibly the first to be filed under ICANN’s new post-transition rules.

Donuts and ICANN are already in the Cooperative Engagement Process — the mediation phase that usually precedes an IRP — with regards .web.

Second-placed bidder Afilias is also putting pressure on ICANN to overturn the results of the auction, resulting in a bit of a public bunfight with Verisign.

TL;DR — don’t expect to be able to buy .web domains for quite a while to come.

Verisign and Afilias in open war over $135m .web

Kevin Murphy, November 11, 2016, Domain Registries

Two of the industry’s oldest and biggest gTLD registries escalated their fight over the .web gTLD auction this week, trading blows in print and in public.

Verisign, accused by Afilias of breaking the rules when it committed $130 million to secure .web for itself, has now turned the tables on its rival.

It accuses Afilias of itself breaking the auction rules and of trying to emotionally blackmail ICANN into reversing the auction on spurious political grounds.

The .web auction was won by obscure shell-company applicant Nu Dot Co with a record-setting $135 million bid back in July.

It quickly emerged, as had been suspected for a few weeks beforehand, that Verisign was footing the bill for the NDC bid.

The plan is that NDC will transfer its .web ICANN contract to Verisign after it is awarded, assuming ICANN consents to the transfer.

Afilias has since revealed that it came second in the auction. It now wants ICANN to overturn the result of the auction, awarding .web to Afilias as runner-up instead.

The company argues that NDC broke the new gTLD Applicant Guidebook rules by refusing to disclose that it had become controlled by Verisign.

It’s now trying to frame the .web debate as ICANN’s “first test of accountability” under the new, independent, post-IANA transition regime.

Afilias director Jonathan Robinson posted on CircleID:

If ICANN permits the auction result to stand, it may not only invite further flouting of its rules, it will grant the new TLD with the highest potential to the only entity with a dominant market position. This would diminish competition and consumer choice and directly contradict ICANN’s values and Bylaws.

Given the controversy over ICANN’s independence, all eyes will be on the ICANN board to see if it is focused on doing the right thing. It’s time for the ICANN board to show resolve and to demonstrate that it is a strong, independent body acting according to the letter and spirit of its own AGB and bylaws and, perhaps most importantly of all, to actively demonstrate its commitment to act independently and in the global public interest.

Speaking at the first of ICANN’s two public forum sessions at ICANN 57 in Hyderabad, India this week, Robinson echoed that call, telling the ICANN board:

You are a credible, independent-minded, and respected board who recognized the enhanced scrutiny that goes with the post-transition environment. Indeed, this may well be the first test of your resolve in this new environment. You have the opportunity to deal with the situation by firmly applying your own rules and your own ICANN bylaw-enshrined core value to introduce and promote competition in domain names. We strongly urge you to do so.

Then, after a few months of relative quiet on the subject, Verisign and NDC this week came out swinging.

First, in a joint blog post, the companies rubbished Afilias’ attempt to bring the IANA transition into the debate. They wrote:

Afilias does a great disservice to ICANN and the entire Internet community by attempting to make this issue a referendum on ICANN by entitling its post “ICANN’s First Test of Accountability.” Afilias frames its test for ICANN’s new role as an “independent manager of the Internet’s addressing system,” by asserting that ICANN can only pass this test if it disqualifies NDC and bars Verisign from acquiring rights to the .web new gTLD. In this case, Afilias’ position is based on nothing more than deflection, smoke and cynical self-interest.

Speaking at the public forum in Hyderabad on Wednesday, Verisign senior VP Pat Kane said:

This is not a test for the board. This issue is not a test for the newly empowered community. It is a test of our ability to utilize the processes and the tools that we’ve developed over the past 20 years for dispute resolution.

Verisign instead claims that Afilias’ real motivation could be to force .web to a private auction, where it can be assured an eight-figure payday for losing.

NDC/Verisign won .web at a so-called “last resort” auction, overseen by ICANN, in which the funds raised go into a pool to be used for some yet-to-be-determined public benefit cause.

That robbed rival applicants, including Afilias, of the equal share of the proceeds they would have received had the contention set been settled via the usual private auction process.

But Verisign/NDC, in their post, claim Afilias wants to force .web back to private auction.

Afilias’ allegations of Applicant Guidebook violations by NDC are nothing more than a pretext to conduct a “private” instead of a “public” auction, or to eliminate a competitor for the .web new gTLD and capture it for less than the market price.

Verisign says that NDC was under no obligation to notify ICANN of a change of ownership or control because no change of ownership or control has occurred.

It says the two companies have an “arms-length contract” which saw Verisign pay for the auction and NDC commit to ask ICANN to transfer its .web Registry Agreement to Verisign.

It’s not unlike the deal Donuts had with Rightside, covering over a hundred gTLD applications, Verisign says.

The contract between NDC and Verisign did not assign to Verisign any rights in NDC’s application, nor did Verisign take any ownership or management interest in NDC (let alone control of it). NDC has always been and always will be the owner of its application

Not content with defending itself from allegations of wrongdoing, Verisign/NDC goes on to claim that it is instead Afilias that broke ICANN rules and therefore should have disqualified from the auction.

They allege that Afilias offered NDC a guarantee of a cash payout if it chose to go to private auction instead, and that it attempted to coerce NDC to go to private auction on July 22, which was during a “blackout period” during which bidders were forbidden from discussing bidding strategies.

During the public forum sessions at ICANN 57, ICANN directors refused to comment on statements from either side of the debate.

That’s likely because it’s a matter currently before the courts.

Fellow .web loser Donuts has already sued ICANN in California, claiming the organization failed to adequately investigate rumors that Verisign had taken over NDC.

Donuts failed to secure a restraining order preventing the .web auction from happening, but the lawsuit continues. Most recently, ICANN filed a motion attempting to have the case thrown out.

In my opinion, arguments being spouted by Verisign and Afilias both stretch credulity.

Afilias has yet to present any smoking gun showing Verisign or NDC broke the rules. Likewise, Verisign’s claim that Afilias wants to enrich itself by losing a private auction appear to be unsupported by any evidence.

Could ICANN reject Verisign’s $135m .web bid?

Kevin Murphy, September 21, 2016, Domain Registries

ICANN is looking into demands for it to throw out Verisign’s covert $135 million winning bid for the highly prized .web gTLD.

ICANN last week told the judge hearing Donuts’ .web-related lawsuit that it is “currently in the process of investigating certain of the issues raised” by Donuts through its “internal accountability mechanisms”.

Donuts is suing for $22.5 million, claiming ICANN should have forced Nu Dot Co to disclose that its .web bid was being secretly bankrolled by Verisign and alleging that the .com heavyweight used NDC as cover to avoid regulatory scrutiny.

ICANN’s latest filing (pdf), made jointly with Donuts, asked for an extension to October 26 of ICANN’s deadline to file a response to Donuts’ complaint.

It was granted, the second time the deadline has been extended, but the judge warned it was also the final time.

The referenced “internal accountability mechanism” would seem to mean the Cooperative Engagement Process — a low-formality bilateral negotiation — that Donuts and fellow .web bidder Radix initiated against ICANN August 2.

The filing states that the “resolution of certain issues in controversy may be aided by allowing [ICANN] to complete its investigation of [Donuts’] allegations prior to the filing of its responsive pleading.”

In other words, Donuts is either hopeful that ICANN may be able to resolve some of its complaints in the next month, or it’s not particularly impatient about the case progressing.

Meanwhile, fellow .web applicant Afilias has demanded for the second time that ICANN hand over .web to it, as the second-highest bidder, throwing out the NDC/Verisign application.

In a September 9 letter, published last night, Afilias told ICANN to “disqualify and reject” NDC’s application, alleging at least three breaches of ICANN rules.

Afilias says that by refusing to disclose Verisign’s support for its bid, NDC broke the rules and should have its application thrown out.

The company also confirmed on the public record for what I believe is the first time that it was the second-highest bidder in the July 27 auction.

Afilias would pay somewhere between $57.5 million and $71.9 million for the gTLD, depending on what the high bid of the third-placed applicant was.

In its new letter, Afilias says NDC broke the rule from the Applicant Guidebook that does not allow applicants to “resell, assign or transfer any of applicant’s rights or obligations in connection with the application”.

It also says that NDC was obliged by the AGB to notify ICANN of “changes in financial position and changes in ownership or control”, which it did not.

It finally says that Verisign used NDC as a front during the auction, in violation of auction rules.

“In these circumstances, we submit that ICANN should disqualify NDC’s bid and offer to accept the application of Afilias, which placed the second highest exit bid,” Afilias general counsel Scott Hemphill wrote (pdf).

Hemphill told ICANN to defer from signing a Registry Agreement with NDC or Verisign, strongly implying that Afilias intends to invoke ICANN accountability mechanisms (presumably meaning the Request for Reconsideration process and/or Independent Review Process).

While Afilias and Donuts are both taking issue with the secretive nature of Verisign’s acquisition of .web, they’re not necessarily fighting the same corner.

Donuts is looking for $22.5 million because that’s roughly what it would have received if the .web contention set had been resolved via private auction and $135 million had been the winning bid.

But Afilias wants the ICANN auction outcome to stand, albeit with NDC’s top bid rejected. That would mean Donuts, Radix, and the other applicants would still receive nothing.

There’s also the question of other new gTLD applications that have prevailed at auction and been immediately transferred to third-party non-applicants.

The most notable example of this was .blog, which was won by shell company Primer Nivel with secretive backing from WordPress maker Automattic.

Donuts itself regularly wins gTLD auctions and immediately transfers its contracts to Rightside under a pre-existing agreement.

In both of those cases, the reassignment deals predated, but were not disclosed in, the respective applications.

There’s the recipe here for a messy, protracted bun fight over .web, which should come as no surprise to anyone.

Donuts rolls the dice with $22.5 million .web lawsuit

Kevin Murphy, August 9, 2016, Domain Registries

Donuts is demanding ICANN pay up the $22.5 million it reckons it is owed from the auction of the .web gTLD, which sold late last month for $135 million.

The company yesterday amended its existing California lawsuit against ICANN to allege that Verisign tried to avoid regulatory scrutiny by secretly bankrolling successful bidder Nu Dot Co.

The updated complaint (pdf) reads:

VeriSign’s apparent acquisition of NDC’s application rights was an attempt to avoid allegations of anti-competitive conduct and antitrust violations in applying to operate the .WEB gTLD, which is widely viewed by industry analysts as the strongest competitor to the .COM and .NET gTLDs.

Donuts wants a minimum of $22.5 million, which is roughly what each of the six losing .web applicants would have received if the contention set had been resolved via private auction.

(I previously reported that number as $18.5 million, because I accidentally counted .webs applicant Vistaprint as losing .webs applicant, when in fact it won .webs, paying $1.)

The company’s claims are still based around the allegation that ICANN breached its duties by failing to root out Verisign as the puppet-master.

The complaint alleges breach of contract, negligence, unfair competition and other claims. It says:

ICANN allowed a third party to make an eleventh-hour end run around the application process to the detriment of Plaintiff, the other legitimate applicants for the .WEB gTLD and the Internet community at large.

ICANN intentionally failed to abide by its obligations to conduct a full and open investigation into NDC’s admission because it was in ICANN’s interest that the .WEB contention set be resolved by way of an ICANN auction.

The irony here is that Ruby Glen LLC, the Donuts company that applied for .web, is subject to an arrangement not dissimilar to NDC’s with Verisign.

Ruby Glen is owned by Covered TLD LLC, in turn a wholly-owned Donuts subsidiary.

It’s well-known that fellow portfolio registry Rightside has rights to acquire Covered TLD’s over 100 applied-for strings, but this is not disclosed in its .web application.

ICANN will no doubt make use of this fact when it files its answer to the complaint.

Verisign itself has not been added as a defendant, but much of the new text in the complaint focuses on its now-confirmed involvement with NDC. The suit reads:

Had VeriSign’s apparent acquisition of NDC’s application rights been fully disclosed to ICANN by NDC… the relationship would have also triggered heightened scrutiny of VeriSign’s Registry Agreements with ICANN for .COM and .NET, as well as its Cooperative Agreement with the Department of Commerce.

The fact that Verisign is allowed to collect over half a billion dollars cash every year as a result of its state-endorsed monopoly is a longstanding cause of embarrassment for the Department of Commerce.

It has taken an interest in regulating Verisign’s .com contract in the past — it’s the only reason Verisign has not been able to raise .com prices in the last few years.

But the US government is not a party to the .web contract (unlike .com, where it has a special relationship with Verisign) and is not involved in the new gTLD program’s management or policies.

The complaint also makes reference to a completely unrelated Independent Review Process declaration from last week, which slammed ICANN for its lack of accountability and transparency.

Donuts faces the additional problem that, like all new gTLD applicants, it signed a covenant not to sue ICANN when it applied for its new gTLDs.

A judge in the DotConnectAfrica v ICANN can has allowed that lawsuit to proceed, regardless, but it may prove a stumbling block for Donuts.

It all looks a bit flimsy to me, but I’ve learned not to second-guess American judges so we’ll just have to see how it plays out.

Verisign confirms it did fund $135 million .web bid

Kevin Murphy, August 1, 2016, Domain Registries

Verisign has just confirmed that it was behind the winning bid in last week’s .web gTLD auction.

Nu Dot Co won the auction after 23 rounds over two days of bidding, but Verisign was thought to be the real beneficiary.

The company has now released the following statement confirming the relationship:

The Company entered into an agreement with Nu Dot Co LLC wherein the Company provided funds for Nu Dot Co’s bid for the .web TLD. We are pleased that the Nu Dot Co bid was successful.

We anticipate that Nu Dot Co will execute the .web Registry Agreement with the Internet Corporation for Assigned Names and Numbers (ICANN) and will then seek to assign the Registry Agreement to Verisign upon consent from ICANN.

As the most experienced and reliable registry operator, Verisign is well-positioned to widely distribute .web. Our expertise, infrastructure, and partner relationships will enable us to quickly grow .web and establish it as an additional option for registrants worldwide in the growing TLD marketplace. Our track record of over 19 years of uninterrupted availability means that businesses and individuals using .web as their online identity can be confident of being reliably found online. And these users, along with our global distribution partners, will benefit from the many new domain name choices that .web will offer.

No big surprises there. Verisign had already told investors it had a $130 million payment coming up soon.

See DI’s analysis on the auction results here.

Verisign likely $135 million winner of .web gTLD

Kevin Murphy, August 1, 2016, Domain Registries

Verisign has emerged as the likely winner of the .web gTLD auction, which closed on Thursday with a staggering $135 million winning bid.

The shell company Nu Dot Co LLC was the prevailing applicant in the auction, which ran for 23 rounds over two days.

Just hours after the auction closed, Domain Name Wire scooped that Verisign had quietly informed investors that it has committed to pay $130 million for undisclosed “contractual rights”.

In its Securities and Exchange Commission quarterly report, filed after the markets closed on Thursday, Verisign said:

Subsequent to June 30, 2016, the Company incurred a commitment to pay approximately $130.0 million for the future assignment of contractual rights, which are subject to third-party consent. The payment is expected to occur during the third quarter of 2016.

There seems to be little doubt that the payment is to be made to NDC (or one of its shell company parents) in exchange for control of the .web Registry Agreement.

The “third-party consent” is likely a reference to ICANN, which must approve RA reassignments.

We speculated on July 14 that Verisign would turn out to be NDC’s secret sugar daddy, which seems to have been correct.

Rival .web applicant Donuts had sued ICANN for an emergency temporary restraining order, claiming it had not done enough to uncover the identity of NDC’s true backers, but was rebuffed on multiple grounds by a California judge.

Donuts, and other applicants, had wanted the contention set settled privately, but NDC was the only hold-out.

Had it been settled with a private auction, and the $135 million price tag had been reached, each of the seven losing applicants would have walked away with somewhere in the region of $18.5 million in their pockets.

This draws the battle lines for some potentially interesting legal fallout.

It remains to be seen if Donuts will drop its suit against ICANN or instead add Verisign in as a defendant with new allegations.

There’s also the possibility of action from Neustar, which is currently NDC’s named back-end provider.

Assuming Verisign plans to switch .web to its own back-end, Neustar may be able to make similar claims to those leveled by Verisign against XYZ.com.

Overall, Verisign controlling .web is sad news for the new gTLD industry, in my view.

.web has been seen, over the years, as the string that is both most sufficiently generic, sufficiently catchy, sufficiently short and of sufficient semantic value to provide a real challenge to .com.

I’ve cooled on .web since I launched DI six years ago. Knowing what we now know about how many new gTLD domains actually sell, and how they have to be priced to achieve volume, I was unable to see how even a valuation of $50 million was anything other than a long-term (five years or more) ROI play.

Evidently, most of the applicants agreed. According to ICANN’s log of the auction (pdf) only two applicants — NDC and another (Google?) — submitted bids in excess of $57.5 million.

But for Verisign, .web would have been a risk in somebody else’s hands.

I don’t think the company cares about making .web a profitable TLD, it instead is chiefly concerned with being able to control the impact it has on .com’s mind-share monopoly.

Verisign makes about a billion dollars a year in revenue, with analyst-baffling operating margins around 60%, and that’s largely because it runs .com.

In 2015, its cash flow was $651 million.

So Verisign has dropped a couple of months’ cash to secure .web — chickenfeed if the real goal is .com’s continued hegemony.

In the hands of a rival new gTLD company’s marketing machine, in six months we might have been seeing (naive) headlines along the lines of “Forget .com, .web is here!”.

That won’t happen now.

I’m not privy to Verisign’s plans for .web, but its track record supporting the other TLDs it owns is not fantastic.

Did you know, or do you remember, that Verisign runs .name? I sometimes forget that too. It bought it from Global Name Registry in late 2008, at the high point of its domains under management in this chart.

.name

I don’t think I expect Verisign to completely bury .web, but I don’t think we’re going to see it aggressively promoted either.

It will never be positioned as a competitor to .com.

If .web never makes $135 million, that would be fine. Just as long as it doesn’t challenge the perception that you need a .com to be successful, Verisign’s purchase was worth the money.

Donuts .web claims “discredited”, ICANN tells court

Donuts’ attempt to delay tomorrow’s .web gTLD auction is based on a now “discredited” reading of a single email from rival bidder Nu Dot Co, ICANN told a California court yesterday.

Supporting ICANN’s opposition to Donuts’ motion for a temporary restraining order, two top NDC executives also swore under penalty of perjury that the company is not under new ownership or management.

The filings were made in response to Donuts’ lawsuit, filed Friday, which seeks over $10 million damages and a TRO against the .web auction.

Donuts believes that NDC has been taken over by an as-yet unknown third party with a vested interest in keeping the auction proceeds out of the hands of its competitors by forcing an ICANN-run last-resort auction.

Its belief is based on a June 7 email from NDC CFO Jose Rasco that alludes to COO Nicolai Bezsonoff no longer being with the company and makes reference to unspecified “powers that be” that are now in charge of the company.

By not disclosing the alleged change of control to ICANN, NDC broke Application Guidebook rules, Donuts claims.

But according to ICANN and NDC, this is all nonsense. ICANN told the court:

three separate ICANN bodies – ICANN’s staff, ICANN’s Ombudsman, and ICANN’s Board – have already looked into the alleged change in Nu Dotco’s ownership or management. All three found no credible evidence that any such change had occurred within Nu Dotco, and therefore nothing supported a delay of the Auction. Plaintiff’s TRO application, filed nearly three months after the Auction was scheduled and just two business days before bidding is set to officially begin, relies solely on a strained, and now completely discredited, interpretation of the Nu Dotco CFO’s June 7 email. However, the evidence accompanying this opposition – sworn declarations from ICANN and Nu Dotco executives – confirms that Nu Dotco has not made any change in its ownership or management, much less a “disqualifying” change that should derail the Auction processes already under way or the official start of bidding.

Rasco and Nicolai Bezsonoff both swear in accompanying declarations that the managers and members (ie owners) of NDC have not changed since the original 2012 application.

NDC, according to its .web application, is owned by two Delaware shell companies — Domain Marketing Holdings, LLC and NUCO LP, LLC — both of which appear to have been created in order to provide a layer of separation between NDC and its actual investors.

Rasco and Bezsonoff say that these two companies remain the only owners of NDC requiring their identities to be disclosed to ICANN.

There’s no comment in either declaration about whether either of those two companies has undergone a change in control.

What we seem to have here, amusingly, is NDC using exactly the same legal tricks as Donuts to hide the ultimate beneficiaries of its gTLD applications.

Donuts, you may recall, applied for 307 new gTLDs via 307 distinct shell LLCs with randomly generated names. Not only that, but each of those LLCs is owned by one of two other shell companies — 201 belonged to Dozen Donuts LLC, 106 belonged to Covered TLD LLC.

Donuts never formally disclosed in its ICANN applications (or, to my recollection, publicly confirmed) that business partner Rightside had the right to buy any of the Covered TLD strings — including .web, it seems — a right Rightside has exercised many times since.

Rightside basically got the same layer of identity insulation that whoever’s pulling the strings at NDC is getting now.

That irony is not pointed out in ICANN’s latest court filing, which can be read here (pdf). The Rasco and Bezsonoff declarations can be read here and here.

The applicants for .web are NDC, Radix, Donuts, Schlund, Afilias, Google and Web.com. Vistaprint’s bid for .webs is also in the auction.

Unless Donuts gets its TRO, the auction will begin at 1400 UTC tomorrow and we could find out how much .web sold for later that day.

Donuts joins fight to delay .web gTLD auction with emergency appeal

Donuts and Radix have filed an “emergency” appeal with ICANN in an attempt to get the forthcoming auction for the .web gTLD delayed.

The companies, both of which have applied for .web, say they have evidence that one of their rival bidders recently changed ownership without telling ICANN, in breach of application rules.

They filed a Request for Reconsideration (pdf) with ICANN (pdf) on Sunday, demanding the delay and an investigation into whether Nu Dot Co LLC is under new control.

The move follows speculation, which we reported last week, that Nu Dot Co is now being controlled by a major legacy gTLD registry player such as Verisign.

The evidence for the the change of ownership comes to light for the first time in the RfR. It’s an email from Nu Dot Co director Jose Ignacio Rasco to Donuts dated June 7. It reads:

Nicolai is at NSR full time and no longer involved with our TLD applications. I’m still running our program and Juan sits on the board with me and several others.

“Nicolai” is Nicolai Bezsonoff, who is listed as an NDC director in its .web application. NSR is presumably Neustar, where Bezsonoff went to work when it acquired .CO Internet.

“Juan” is Juan Calle, the third NDC director, CEO, and former CEO of .CO Internet.

Donuts and Radix believe that Bezsonoff’s departure and the apparent appointment of the unnamed “several others” as NDC directors gave NDC the obligation, under Applicant Guidebook rules, to inform ICANN of the changes.

The Guidebook states:

If at any time during the evaluation process information previously submitted by an applicant becomes untrue or inaccurate, the applicant must promptly notify ICANN via submission of the appropriate forms. This includes applicant-specific information such as changes in financial position and changes in ownership or control of the applicant.

(With that in mind, one wonders whether the acquisition of .blog at auction was strictly legit).

Donuts and Radix now want ICANN to delay the “last resort” auction, which is currently slated for July 27, and “conduct a thorough and transparent investigation into the apparent discrepancies and/or changes in NDC’s .WEB/.WEBS application”.

NDC is believed to be the only one of the eight .web/.webs applicants to be refusing to settle the contention set via a private auction, where the losers get an equal share of the winning bid.

If the set goes to ICANN’s last-resort auction, ICANN gets all the cash.

The final price of .web could easily be in the ball park of $50 million, so each applicant stands to lose several million dollars if the July 27 auction goes ahead as planned.

Radix and fellow .web applicant Schlund had previously written to ICANN to request the delay, but were rebuffed in a letter last week.

The decision outlined in that letter is what the new RfR challenges.

RfRs have a long track record of being dismissed by ICANN’s Board Governance Committee, very often because the requester has not supplied ICANN with any new information with which to change its mind.

That’s a risk here, too, given that ICANN seems to have been in possession of the Rasco email since June 22, before decision to go ahead with the auction was made.

However, that decision seems to have been made by ICANN staff. An RfR makes sure it gets the attention of the ICANN board of directors.

Is Verisign .web applicant’s secret sugar daddy?

The fiercely contested .web gTLD is being forced into a last-resort auction and some people seem to think a major registry player is behind it.

Two .web applicants — Radix (pdf) and Schlund (pdf) — this week wrote to ICANN to demand that the .web auction, currently planned for July 27, be postponed.

They said the sale should be delayed to give applicants time “to investigate whether there has been a change of leadership and/or control” at rival applicant Nu Dot Co LLC.

Nu Dot Co is a new gTLD investment vehicle headed up by Juan Diego Calle, who launched and ran .CO Internet until it was sold to Neustar a couple of years ago.

I gather that some applicants believe that Nu Dot Co’s .web application is now being bankrolled by a larger company with deeper pockets.

The two names I’ve heard bandied around, talking to industry sources this week, are Verisign and Neustar.

Nobody I’ve talked to has a shred of direct evidence either company is involved and Calle declined to comment.

So is this paranoia or not?

There are a few reasons these suspicions may have come about.

First, the recent revelation that successful .blog applicant Primer Nivel, a no-name Panama entity with a Colombian connection, was actually secretly being bankrolled by WordPress, has opened eyes to the possibility of proxy bidders.

It was only after the .blog contention set was irreversibly settled that the .blog contract changed hands and the truth become known.

Some applicants may have pushed the price up beyond the $19 million winning bid — making the rewards of losing the private auction that much higher — had they known they were bidding against a richer, more motivated opponent.

Second, sources say the .web contention set had been heading to a private auction — in which all losing applicants get a share of the winning bid — but Nu Dot Co decided to back out at the last minute.

Under ICANN rules, if competing applicants are not able to privately resolve their contention set, an ICANN last-resort auction must ensue.

Third, this effective vetoing of the private auction does not appear to fit in with Nu Dot Co’s strategy to date.

It applied for 13 gTLDs in total. Nine of those have already gone to auctions that Nu Dot Co ultimately lost (usually reaping the rewards of losing).

The other four are either still awaiting auction or, in the case of .corp, have been essentially rejected for technical reasons.

It usually only makes sense to go to an ICANN last-resort auction — where the proceeds all go to ICANN — if you plan on winning or if you want to make sure your competitors do not get a financial windfall from a private auction.

Nu Dot Co isn’t actually an operational registry, so it doesn’t strictly have competitors.

That suggests to some that its backer is an operational registry with a disdain for new gTLD rivals. Verisign, in other words.

Others think Neustar, given the fact that its non-domains business is on the verge of imploding and its previous acquisition of .CO Internet from Calle.

I have no evidence either company is involved. I’m just explaining the thought process here.

According to its application, two entities own more than 15% of Nu Dot Co. Both — Domain Marketing Holdings, LLC and NUCO LP, LLC — are Delaware shell corporations set up via an agent in March 2012, shortly before the new gTLD application filing deadline.

Many in the industry are expecting .web to go for more than the $41.5 million GMO paid for .shop. Others talk down the price, saying “web” lacks the cultural impact it once had.

But it seems we will all find out later this month.

Responding to the letters from Schlund and Radix, ICANN yesterday said that it had no plans to postpone the July 27 last-resort auction.

All seven applicants had to submit a postponement form by June 12 if they wanted a delay, ICANN informed them in a letter (pdf), and they missed that deadline.

They now have until July 20 to either resolve the contention privately or put down their deposits, ICANN said.

The applicants for .web, aside from Nu Dot Co, are Google, Donuts, Radix, Schlund, Web.com and Afilias.

Due to a string confusion ruling, .webs applicant Vistaprint will also be in the auction.

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