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

Kevin Murphy, November 11, 2016, 14:26:18 (UTC), 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.

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Comments (10)

  1. Andrew says:

    One thing I noticed in Verisign’s lastest 10-Q was that the number went up to $133M. I have to assume NDC has some sort of carry in this deal.

  2. Adam says:

    Actually the post was first on the Afilias blog.
    Then it was reposted on CircleID. Why isn’t Afilias also complaining about .BLOG? Oh right, they have nothing to gain by mentioning that. 🙂
    Great reporting as always Kevin:)

    • Rubens Kuhl says:

      Verisign is also not mentioning .blog, so both seem to prefer not to escalate the PR war with a company that has a massive amount of goodwill with Internet users like Automattic. So they both publish blog posts not mentioning .blog …

  3. Adam says:

    Good point Rubens.
    I doubt Automattic reads anything about the domain industry though. 🙂

  4. John Berryhill says:

    Now, they’ve escalated to fighting it out on YouTube

  5. Chris LaHatte says:

    What is clearly needed is a mediation, rather than protracted costly litigation. There must be a solution which reflects the interests of the parties.

  6. Kevin, you end with:
    “Verisign’s claim that Afilias wants to enrich itself by losing a private auction appear to be unsupported by any evidence.”
    Is evidence needed? Common sense ought to suffice. What human being or company WOULDN’T prefer an 8-figure payday over zilch?
    Absolutely, it’s possible Afilias would prefer to win at auction and run .WEB – ideally without having had to compete with Verisign as a bidder.
    Does that contradict “Verisign’s claim that Afilias wants to enrich itself by losing a private auction”? No. In the quote you cited, there are 2 prongs to Verisign’s claim:
    (1) ‘a pretext to conduct a “private” instead of a “public” auction,’
    (2) ‘to eliminate a competitor for the .web new gTLD and capture it for less than the market price.’
    So the claim is (X or Y). The claim isn’t X. So proving Not(X) doesn’t refute the claim.

    • Kevin Murphy says:

      If Afilias were successful in having Verisign’s winning bid thrown out an itself declared the winner, there would be no private auction for it to enrich itself at.

      • Rubens Kuhl says:

        That’s why initially Verisign only claimed that Afilias wanted to get .web for below its market value. Only later when the PR war intensified the enrich theory was brought on.

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