Could VeriSign be banned from new TLDs?

Governments have proposed stricter background checks on new top-level domain operators that could capture some of the industry’s biggest players.
Top-five registrar Network Solutions and .com manager VeriSign may have reason to be concerned by the latest batch of Governmental Advisory Committee recommendations.
The GAC wants checks on new gTLD applicants expanded to include not only criminal convictions and intellectual property violations but also government orders related to consumer fraud.
The GAC advised ICANN, with my emphasis:

The GAC believes that the categories of law violations that will be considered in the background screening process must be broadened to include court or administrative orders for consumer protection law violations. If an applicant has been subject to a civil court or administrative order for defrauding consumers, it should not be permitted to operate a new gTLD.

This is not new – the GAC has proposed similar provisions before – but it seems to be the only GAC advice on applicant screening that ICANN has not yet adopted, and the GAC is still pushing for it.
Why could VeriSign and NetSol be worried by this?
One reason that springs to mind is that, back in 2003, NetSol was officially barred by the US Federal Trade Commission from the practice known as “domain slamming”.
Domain slamming, you may recall, was one of the dirtiest “marketing” tactics employed by the registrar sector during the early days of competition.
Registrars would send fake invoices with titles such as “Renewal and Transfer Notice” to the addresses of their rivals’ customers, mined from Whois data.
The letters were basically tricks designed to persuade customers ignorant of the domain name lifecycle to transfer their business to the slamming registrar.
Respectable registrars have nothing to do with such practices nowadays, but a decade ago companies including NetSol and Register.com, the two largest registrars at the time, were all over it.
At the time NetSol was carrying out its slamming campaign, it was part of VeriSign. It was spun off into a separate company earlier in 2003, before the FTC entered its order.
The order (pdf) was approved by a DC judge as part of a deal that settled an FTC civil lawsuit, alleging deceptive practices, against the company.
NetSol was not fined and did not admit liability, but it did agree to be permanently enjoined from any further slamming, and had to file compliance notices for some time afterward.
It seems plausible that this could fall into the definition of a “civil court or administrative order for defrauding consumers” that the GAC wants added to the Applicant Guidebook’s background checks.
Whether the GAC’s advice, if implemented by ICANN, would capture NetSol and/or VeriSign is of course a matter of pure speculation at the moment.
I think it’s highly unlikely that ICANN would put something in the Guidebook that banned VeriSign, its single largest source of funding (over a quarter of its revenue) from the new gTLD program.
Sadly, I think I may also be unfairly singling out these two firms here – I’d be surprised if they’re the only companies in the domain name industry with this kind of black mark against their names.
Existing background checks in the Applicant Guidebook governing cybersquatting are already thought to pose potential problems for registrars including eNom and Go Daddy.
UPDATE: It looks like NSI and VeriSign are probably safe.

VeriSign drops $150,000 on ICANN Singapore

VeriSign, which signed up for an unprecedented $500,000 sponsorship package for ICANN’s meeting in San Francisco, has spent a rather more modest amount for the June meeting.
The company is currently listed as a Platinum Elite sponsor for the Singapore meeting, which kicks off June 19. This tier has a list price of $150,000, though I believe ICANN’s prices are negotiable.
VeriSign’s two main registry services competitors, Neustar and Afilias, had already signed up for cheaper sponsorship tiers, with lower visibility.
It would be my guess that the company waited for its rivals to show their hands before deciding to how much it needed to spend to trump them.
The Singapore meeting may see the approval of the Applicant Guidebook for the new top-level domains program.
(UPDATE: Thanks to the reader who pointed out that ICANN will almost certainly vote to approve the renewal of VeriSign’s .net contract in Singapore.)
There are 19 sponsors for Singapore so far, but currently no takers for the two available top-tier Diamond packages, which are listed at $250,000.
The amount VeriSign coughed up for San Francisco is believed to have largely contributed to the speaking fees of former US president Bill Clinton.
ICANN expects to make about $1.2 million from its three fiscal 2011 meetings, which is less than the cost of a single meeting.

What happened to ICANN’s .net millions?

Questions have been raised about how ICANN accounts for the millions of dollars it receives in fees from .net domain name registrations.
The current .net registry agreement between ICANN and VeriSign was signed in June 2005. It’s currently up for renewal.
Both the 2005 and 2011 versions of the deal call for VeriSign to pay ICANN $0.75 for every .net registration, renewal and transfer.
Unlike .com and other TLDs, the .net contract specifies three special uses for these fees (with my emphasis):

ICANN intends to apply this fee to purposes including:
(a) a special restricted fund for developing country Internet communities to enable further participation in the ICANN mission by developing country stakeholders,
(b) a special restricted fund to enhance and facilitate the security and stability of the DNS, and
(c) general operating funds to support ICANN’s mission to ensure the stable and secure operation of the DNS.

However, almost six years after the agreement was executed, it seems that these two “special restricted funds” have never actually been created.
ICANN’s senior vice president of stakeholder relations Kurt Pritz said:

To set up distinctive organizations or accounting schemes to track this would have been expensive, complex and would have served no real value. Rather — it was intended that the ICANN budget always include spending on these important areas — which it clearly does.

He said that ICANN has spent money on, for example, its Fellowships Program, which pays to fly in delegates from developing nations to its thrice-yearly policy meetings.
He added that ICANN has also paid out for security-related projects such as “signing the root zone and implementing DNSSEC, participating in cross-industry security exercises, growing the SSR organization, conducting studies for new gTLDs”.
These initiatives combined tally up to an expenditure “in excess of the amounts received” from .net, he said.
It seems that while ICANN has in fact been spending plenty of cash on the projects called for by these “special restricted funds”, the money has not been accounted for in that way.
Interestingly, when the .net contract was signed in 2005, ICANN seemed to anticipate that the developing world fund would not be used to pay for internal ICANN activities.
ICANN’s 2005-2006 budget, which was approved a month after the .net deal, reads, with my emphasis:

A portion of the fees paid by the operator of the .NET registry will become part of a special restricted fund for developing country Internet communities to enable further participation in the ICANN mission by developing country stakeholders. These monies are intended to fund outside entities as opposed to ICANN staff efforts.

That budget allocated $1.1 million to this “Developing Country Internet Community Project”, but the line item had disappeared by time the following year’s budget was prepared.
Phil Corwin from the Internet Commerce Association estimates that the $0.75 fees added up to $6.8 million in 2010 alone, and he’s wondering how the money was spent.
“We believe that ICANN should disclose to the community through a transparent accounting exactly how these restricted funds have actually been utilized in the past several years,” Corwin wrote.
He points out that the contract seems to clearly separate the two special projects from “general operating funds”, which strongly suggests they would be accounted for separately.
Given that .net fees have been lumped in with general working capital for the last six years, it seems strange that the current proposed .net registry agreement still calls for the two special restricted funds.
The oddity has come to the attention of the ICA and others recently because the new proposed .net contract would allow VeriSign for the first time to offer differential pricing to registrars in the developing world.
The agreement allows VeriSign to “provide training, technical support, marketing or incentive programs based on the unique needs of registrars located in such geographies to such registrars”, and specifically waives pricing controls for such programs.
It seems probable that this amendment was made possible due to the .net contract’s existing references to developing world projects.
Corwin said ICA has nothing against such programs, but is wary that existing .net registrants may wind up subsidizing registrants in the developing world.

VeriSign settles CFIT lawsuit for free

VeriSign has settled its five-year-old antitrust lawsuit with the Coalition For ICANN Transparency. What’s more, it’s done so without having to sign a big check.
The company has just released a statement to the markets:

Under the terms of the Agreement, no payment will be made and the parties immediately will file a dismissal with prejudice of all claims in the litigation. Further, the parties executed mutual releases from all claims now and in the future related to the litigation.
CFIT voluntarily agreed to dismiss its claims in their entirety with prejudice in view of recent developments in the case, including the Amended Opinion of the United States Court of Appeals for the Ninth Circuit, the subsequent orders of the United States District Court for the Northern District of California, San Jose Division dismissing the claims regarding .Net and for disgorgement, and VeriSign’s motion for summary judgment.

On the face of it, this looks like a huge win for VeriSign, which has been facing questions about the CFIT suit from analysts on pretty much every earnings call since it was filed.
The original complaint alleged that VeriSign and ICANN broke competition law with their .com and .net registry agreements, which allow the company to raise prices every year.
Had CFIT won, it would have put a serious cramp on VeriSign’s business.
In February, a California judge dismissed the case, saying that CFIT’s membership did not having standing to sue. CFIT was given leave to amend its complaint, however, but that does not seem to have been enough to save its case.
According to a Securities and Exchange Commission filing, CFIT’s members were: iRegistry, Name Administration, Linkz Internet Services, World Association for Domain Name Developers, Targeted Traffic Domains, Bret Fausett, Howard Neu and Frank Schilling.

ICANN gets Boing-Boinged over URS

Boing-Boing editor Cory Doctorow caused a storm in a teacup yesterday, after he urged his legions of readers to complain to ICANN about copyright-based domain name seizures and the abolition of Whois privacy services in .net.
Neither change has actually been proposed.
The vast majority of the comments filed on VeriSign’s .net contract renewal now appear to have been sent by Boing-Boing readers, echoing Doctorow’s concerns.
Doctorow wrote: “Among the IPC’s demands are that .NET domains should be subject to suspension on copyright complaints and that anonymous or privacy-shielded .NET domains should be abolished.”
Neither assertion is accurate.
Nobody has proposed abolishing Whois privacy services. Nobody has proposed allowing VeriSign to seize domain names due to copyright infringement complaints.
What has happened is that ICANN’s Intellectual Property Constituency has asked ICANN to make the Uniform Rapid Suspension policy part of VeriSign’s .net contract.
URS is a variation of the long-standing UDRP cybersquatting complaints procedure.
It was created for the ICANN new gTLD Program and is intended to be cheaper and quicker for trademark holders than UDRP, designed to handle clear-cut cases.
While the URS, unlike UDRP, has a number of safeguards against abusive complaints – including an appeals mechanism and penalties for repeat reverse-hijacking trolls.
But the domainer community is against its introduction in .net because it has not yet been finalized – it could still be changed radically before ICANN approves it – and it is currently completely untested.
The IPC also asked ICANN and VeriSign to transition .net to a “thick” Whois, whereby all Whois data is stored at the registry rather than with individual registrars, and to create mechanisms for anybody to report fake Whois data to registrars.
Not even the IPC wants Whois privacy services abolished – chair Steve Metalitz noted during the Congressional hearing on new gTLDs last week that such services do often have legitimate uses.

Rules for registry-registrar mergers proposed

ICANN has revealed how it intends to enable incumbent domain name registries to also become registrars, ending a decade of cross-ownership restrictions.
The industry shake-up could allow companies such as VeriSign, Neustar and Afilias to become accredited registrars in their own top-level domains later this year.
Hypothetically, before long you could be able to go directly to VeriSign for your .com domains, to Afilias and Public Interest Registry for .info and .org, or to Neustar for .biz.
The changes could potentially also kick off a wave of consolidation in the industry, with registry operators buying previously independent registrars.
ICANN’s proposed process is straightforward, requiring just a few amendments to the registries’ existing contracts, but it could also call for governmental competition reviews.
Registries will have to agree to abide by a Code of Conduct substantially the same as the one binding on wannabe registries applying later this year under the new gTLD program.
The Code is designed to stop registries giving their affiliated registrars unfair advantages, such as lower prices or preferential access to data, over other ICANN-accredited registrars.
Registries would also have the option to adopt the registry contract from the new gTLD Applicant Guidebook wholesale, although I expect in practice this is unlikely to happen.
ICANN would be able to refer vertical integration requests to national competition authorities if it determined that cross-ownership could cause “significant competition issues”.
VeriSign would be the most likely to be hit by such a review, but it’s also the only registry that does not appear to have been particularly hamstrung over the years by the forced separation rules.
The proposed process for registries to request the contract changes has been posted to the ICANN web site and is now open for public comment.

Registries could become registrars by summer

The big incumbent top-level domain registry operators could apply to also become registrars as early as June this year, according to a just-passed ICANN resolution.
Last November, ICANN decided to dump its longstanding policy of generally not allowing TLD registries to also own and operate registrars.
While the rule was designed primarily for TLDs won under the new gTLD program, it will also retroactively apply to operators of existing gTLDs.
Neustar (.biz) has already publicly stated its intention to vertically integrate, and is keen for ICANN to lift its current 15% registrar ownership restriction before the new gTLD program kicks off.
According to a resolution passed by ICANN’s board of directors on Thursday, Neustar is not the only registry operator to make such a request.
The board last week…

RESOLVED (2011.04.21.13), the Board directs the CEO to develop a process for existing gTLD registry operators to transition to the new form of Registry Agreement or to request amendments to their registry agreements to remove the cross-ownership restrictions. This process would be available to existing operators upon Board approval of the new gTLD Program.

ICANN currently plans to approve the gTLD program June 20 at its meeting in Singapore.
That gives CEO Rod Beckstrom and his team just two months to come up with a process for allowing the likes of VeriSign, Neustar and Afilias to either amend their contracts or move to the standard contract outlined in the new TLD program’s Applicant Guidebook.
I see a potential source of tension here.
The registry agreement template in the Guidebook has been described by some as an “adhesion contract” due to its heavy balance in ICANN’s favor.
Existing registries will very likely prefer to simply delete the cross-ownership restrictions in their current contracts and incorporate the new proposed Code of Conduct rules.
On the other hand, some have suggested that registries should be obliged to adopt the new Guidebook agreement in full, rather than amend their existing deals, in the interests of equitable treatment.
Registrars still signed up to ICANN’s 2001 Registrar Accreditation Agreement only get the option to upgrade wholesale to the 2009 agreement, it has been noted.

ICE domain seizures enter second phase

The US Immigration & Customs Enforcement agency seems to be consolidating its portfolio of seized domain names by transferring them to its own registrar account.
Many domains ICE recently seized at the registry level under Operation “In Our Sites” have, as of yesterday, started naming the agency as the official registrant in the Whois database.
ICE, part of the Department of Homeland Security, has collected over 100 domains, most of them .coms, as part of the anti-counterfeiting operation it kicked off with gusto last November.
The domains all allegedly either promoted counterfeit physical goods or offered links to bootleg digital content.
At a technical level, ICE originally assumed control of the domains by instructing registries such as VeriSign, the .com operator, to change the authoritative name servers for each domain to seizedservers.com.
All the domains pointed to that server, which is controlled by ICE, resolve to a web server displaying the same image:

(The banner, incidentally, appears to have been updated this month. If clicked, it now sends visitors to this anti-piracy public service announcement hosted at YouTube.)
Until this week, the Whois record associated with each domain continued to list the original registrant – a great many of them apparently Chinese – but ICE now seems to be consolidating its portfolio.
As of yesterday, a sizable chunk — but by no means all — of the seized domains have been transferred to Network Solutions and now name ICE as the registrant in their Whois database records.
Rather than simply commandeering the domains, it appears that ICE now “owns” them too.
But ICE has already allowed one of its seizures to expire. The registration for silkscarf-shop.com expired in March, and it no longer points to seizedservers.com or displays the ICE piracy warning.
The domain is now listed in Redemption Period status, meaning it is starting along the road to ultimately dropping and becoming available for registration again.
Interestingly, most of the newly moved domains appear to have been transferred into NetSol from original registrars based in China, such as HiChina, Xin Net and dns.com.cn.
After consulting with a few people more intimately familiar with the grubby innards of the inter-registrar transfer process than I am, I understand that the names could have been moved without the explicit intervention of either registrar, but that it would not be entirely unprecedented if the transfers had been handled manually under the authority of a court order.
If I find out for sure, I’ll provide an update.

.xxx domains go live

Click here: icmregistry.xxx, then come back.
That’s right. After ICM Registry’s almost 11 years of campaigning, and almost $20 million in legal and other expenses, .xxx domain names are actually live in the domain name system.
ICANN, IANA, the US government and VeriSign, in that order, have all agreed to delegate the internet’s newest gTLD, and the first few .xxx domains went live within the last couple hours.
The domains sex.xxx and porn.xxx are now also resolving to placeholder sites. They’re currently “safe for work”, but possibly not for much longer.
IANA has a .xxx page, complete with a lengthy delegation report (in a snazzy new pdf format) that broadly explains the convoluted process ICANN used to ultimately, albeit reluctantly, approve the TLD.

Feds seize billion-dollar poker domains

Five domain names associated with online poker sites have been seized by the FBI as part of an investigation that has also seen 11 people indicted.
The principals of PokerStars, Absolute Poker and Full Tilt Poker, along with third-party “payment processors”, stand accused of engaging in a massive money laundering scheme in order to accept billions of dollars of payments from American gamblers in violation of US laws.
The charges carry possible maximum sentences of between five and 30 years in prison, along with substantial monetary fines. Two men have been arrested, a third is due to be arraigned, and the remainder are currently outside of the US, according to a press release (pdf).
The US Attorney for the Southern District of New York said five domain names have been seized by the FBI in connection with the prosecutions.
It’s not yet clear which domains have been seized.
From where I’m sitting in London, absolutepoker.com already shows an FBI warning banner, but pokerstars.com and fulltiltpoker.com both resolve normally. I may be receiving cached DNS data.
Blogger Elliot Silver, sitting behind a resolver on the other side of the pond, reports that ub.com is among the seized domains.
Unlike previous recent seizures, which were carried out by the US Immigration and Customs Enforcement agency, this time the FBI appears to be the responsible agency.
And this time, these aren’t two-bit file-sharing forums or Chinese knock-off merchandise sites, we’re talking about businesses that are perfectly legal in many jurisdictions, clearing billions in revenue.
But according to US Attorney’s charges, the companies carried out an elaborate plan to cover up the sources of their revenue through third parties and phoney bank accounts.
The companies are even alleged to have made multi-million dollar investments in failing banks in order to get them to turn a blind eye to the illicit gambling activities.
It appears that the FBI went straight to the .com registry, VeriSign, as some of the affected domains appear to be registered through UK-based corporate registrar Com Laude.
If you’re wondering whether this is yet another confirmation that all .com domains are subject to US jurisdiction, this is your takeaway sentence, from Manhattan US Attorney Preet Bharara:

Foreign firms that choose to operate in the United States are not free to flout the laws they don’t like simply because they can’t bear to be parted from their profits.

The suits seek $3 billion in allegedly ill-gotten gains to be returned.