DotKids doesn’t want .kids auction to go ahead

One of the applicants for the .kids gTLD has asked ICANN to stop the planned last-resort auction.
DotKids Foundation is competing with Amazon for .kids and, because the two strings were ruled confusingly similar, with Google’s application for the singular .kid.
ICANN last month set a January 25 date for the three contenders to go to auction, having unfrozen DotKids’ application back in October.
DotKids’ bid had been put on hold due to it losing a Community Priority Evaluation — which found overwhelmingly that the organization did not represent a proper community — and its subsequent appeals of that ruling.
But the foundation now says that its application should be treated the same as .music, .gay, and a few others, which are currently on hold while ICANN waits for the results of a third-party review of the CPE process.
DotKids filed a Request for Reconsideration (pdf) with ICANN yesterday, immediately after being told that there were no plans to put the contention set back on hold.
Tomorrow is the deadline for the three applicants to submit their information to ICANN to participate in next month’s auction.
An ICANN last-resort auction sees the winning bid being placed in a fund for a yet-to-be-determined purpose, as opposed to private auctions where the losing bidders share the loot.

Donuts rolls the dice with $22.5 million .web lawsuit

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

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.

.web could already be a record-breaker as auction enters day two

It seems likely that .web has already smashed through the $41.5 million record sale price for a new gTLD at ICANN auction.
The auction, which kicked off properly at 1300 UTC yesterday, seems to have ended its first day of bidding at around 2300 UTC last night without a winner.
That suggests, based on the rules and how previous auctions have played out, that we’re probably already looking at high bids over $50 million.
The previous top price for a gTLD at ICANN auction was .shop, which sold to GMO for $41.5 million earlier this year.
The signs are that .web will go for more.
Be warned, this is mostly informed guesswork. I don’t know what the current bids are.
ICANN auctions work in rounds. In each round the minimum bid is either $1 (for round one) or the previous round’s maximum bid (for all subsequent rounds).
The maximum bid in each round is set by the auctioneer, who has broad discretion, based on the action at the time.
The range between minimum and maximum bids seems to get bigger in each passing round, based on previous auction results.
According to ICANN auction rules (pdf) each bidding round lasts 20 minutes and is immediately followed by a 20-minute recess.
This schedule is somewhat flexible. It could be slowed down or sped up with the consent of all bidders.
The .web auction was due to kick off at 1300 UTC yesterday, according to court papers, though it seems probable that round-one bids were accepted the previous night.
The first day’s bidding was due to end at 2330 UTC yesterday.
So that’s over 10 hours of bidding yesterday, which works out to about 15 rounds if they stuck to the 40-minute round schedule.
When .shop sold for $41.5 million, it did so in just 14 rounds, carried out in a single day.
The final round of that auction saw an acceptable bidding range of $36.8 million to $46 million — an almost $10 million spread.
So, if we can assume that there were at least 15 rounds in the .web auction yesterday and we can assume that the auctioneer is following a similar playbook to the .shop auction, the maximum bid when the auction paused overnight was likely well over $50 million.
By the time you read this, this guesswork could be moot anyway. I expect we’ll find out later today whether those assumptions were accurate. It seems unlikely that a third day’s bidding will be required.
The applicants for .web are NDC, Radix, Donuts, Schlund, Afilias, Google and Web.com. Vistaprint’s bid for .webs is also in the auction.

Donuts denied! .web auction to go ahead today

A California judge had denied Donuts’ eleventh-hour attempt to delay today’s .web gTLD auction.
In a ruling late yesterday, Judge Percy Anderson rejected the company’s request for an emergency temporary restraining order preventing ICANN from selling off the premium gTLD.
This means the auction is pretty much certain to go ahead starting at 1300 UTC — that’s 6am local time for ICANN — today.
Donuts had sought the TRO because it claims ICANN failed in its duty to investigate whether rival bidder Nu Dot Co is now backed by a new big-money controlling party.
Its ultimate goal appears to have been to somehow force .web to private settlement, where all the unsuccessful applicants could get a multi-million dollar pay-off.
Anderson dismissed the request for a multitude of largely technical legal reasons surrounding the timing of Donuts’ request.
He said that, had ICANN not already filed its opposition to the TRO, he would have ruled against Donuts simply for failure to formally serve ICANN in a timely fashion.
But on the merits, he ruled that there was not a strong likelihood of Donuts winning a full trial, due to the statements of two NDC executives, who swore on oath there had been no change to the company’s ownership or management.
Anderson wrote (pdf):

Based on the strength of ICANN’s evidence submitted in opposition to the Application for TRO, and the weakness of Plaintiff’s efforts to enforce vague terms contained in the ICANN bylaws and Applicant Guidebook, the Court concludes that Plaintiff has failed to establish that it is likely to succeed on the merits, raise serious issues, or show that the balance of hardships tips sharply in its favor on its breach of contract, breach of the implied covenant of good faith and fair dealing, and negligence claims. Moreover, because the results of the auction could be unwound, Plaintiff has not met its burden to establish that it will suffer irreparable harm in the absence of the preliminary injunctive relief it seeks. The Court additionally concludes that the public interest does not favor the postponement of the auction.

He did give Donuts leave to amend its request, but given that the auction is due to start today before California office/court hours, that courtesy seems moot.
It’s likely that by the end of the day we will know how much the .web, and possibly .webs, domains fetched. We’re certainly looking at eight figures for .web, in my view.
Some have guessed prices in the ballpark of $50 million, based on the $41.5 million paid for .shop earlier this year.
It seems at least seven of the eight applicants in the auction will be bidding blind, strategically speaking.
Circumstantial evidence suggests that NDC does indeed have one or more secret sugar daddies supporting its bid, insulated from public view by NDC’s corporate structure.
The applicants for .web are NDC, Radix, Donuts, Schlund, Afilias, Google and Web.com. Vistaprint’s bid for .webs is also in the auction.
ICANN currently has over $100 million in a bank account, segregated from its operating funds, from previous last-resort auctions.

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 files $10 million lawsuit to stop .web auction

Donuts has sued ICANN in an attempt to block the auction of the .web gTLD this Wednesday.
The gTLD portfolio registry filed a lawsuit in California on Friday, seeking over $10 million in damages and a temporary restraining order to stop the auction going ahead.
The complaint alleges breach of contract, negligence and unfair competition and seeks a court declaration that the covenant not to sue signed by all new gTLD applicants is unenforceable.
According to Donuts, ICANN breached its duties by not fully investigating the allegation that rival .web applicant Nu Dot Co has undergone a change of control and has a new, wealthier owner.
NDC is the only applicant in the eight-strong .web/.webs contention set that refuses to resolve the contest privately.
A private auction would enrich all losing applicants to the tune of many millions of dollars.
By forcing a “last resort” ICANN auction, NDC has ensured that ICANN will be the only party to benefit from the auction proceeds.
Last-resort auction funds are placed in a separate ICANN account, currently worth over $100 million, which will be spent according to a currently undecided policy created by the ICANN community.
But Donuts’ complaint strongly implies that ICANN is forcing the auction to go ahead because it stands to benefit financially.
Donuts repeats the allegation from its recent joint Request for Reconsideration with Radix that NDC should be forced to disclose to ICANN, via a gTLD application change, the names of its alleged new directors.
It cites again a redacted email from NDC director Jose Ignacio Rasco which talks about fellow listed director Nicolai Bezsonoff no longer being involved with the application but that “several” new directors were.
It adds a quote about Rasco talking about “powers that be”, which Donuts takes to mean he is answering to someone else.
NDC is not listed in the lawsuit, which focuses on ICANN’s obligations under the new gTLD program application contract.
Donuts alleges, for example, that ICANN has a duty to fully investigate whether NDC has indeed changed directors.
ICANN’s Board Governance Committee said last week that ICANN staff had talked to and emailed Rasco about the allegations. Donuts says it should have at least talked to Bezsonoff too.
Donuts also claims that ICANN is not allowed to go ahead with a last-resort auction while there are still outstanding “accountability mechanisms” — including the RfR, which has not yet been formally closed out by the full ICANN board.
The lawsuit also reveals that Donuts simultaneously filed a complaint using ICANN’s less legally formal Independent Review Process, though documentation for that is not yet available.
ICANN’s most recent statement on .web, which just confirms that the .web auction will go ahead this coming Wednesday, was also posted on Friday. It’s not clear if that was posted before or after ICANN became aware of the lawsuit.
All new gTLD applicants had to agree not to sue ICANN when they applied, but Donuts argues that this is unfair and unenforceable.
DotConnectAfrica has had some success with this argument, though Donuts does not cite that case in its own complaint.
There’s been some speculation about the motives of Donuts and others in trying to delay the auction.
The lawsuit will not force NDC into a private auction, but it might buy Donuts and the other applicants more time to consider their strategies.
I’m getting into speculative territory here, but if NDC’s strategy is to win the .web auction as a Trojan horse for its alleged new owner, perhaps revealing the identity of that new owner would make it less likely to insist on a last-resort auction.
If NDC’s alleged new owner has a time-sensitive need for the revenue .web could bring (which could be the case if, for example, the owner was Neustar) perhaps the prospect of a long lawsuit and IRP case could make it more likely to accept a private auction.
If the alleged new owner was revealed to be Verisign — a company more likely than most to acquire .web simply in order to bury it — perhaps that revelation could spur remaining applicants into pooling their resources to defeat it.
It it was a big tech firm from outside the domain industry, perhaps that would strengthen Google’s resolve to win the auction.
That’s all just me talking off the top of my head, of course.
I have no idea whether or not NDC even has new backers, though its behavior in avoiding private auction goes against character and certainly raises eyebrows.
The Donuts complaint, filed as its subsidiary Ruby Glen LLC, can be read here (pdf).

.web auction to go ahead after ICANN denies Donuts/Radix appeal

The new gTLD .web seems set to go to auction next week after ICANN rejected an 11th-hour delay attempt by two applicants.
ICANN’s Board Governance Committee said yesterday that there is no evidence that applicant Nu Dot Co has been taken over by a deep-pocketed third party.
The BGC therefore rejected Donuts’ and Radix’s joint attempt to have the July 27 “last resort” auction delayed.
Donuts and Radix had argued in a Request for Reconsideration earlier this week that Nu Dot Co has changed its board of directors since first applying for .web, which would oblige it to change the application.
Its failure to do so meant they auction should be delayed, they said.
They based their beliefs on an email from NDC director Jose Ignacio Rasco, in which he said one originally listed director was no longer involved with the application but that “several others” were.
There’s speculation in the contention set that a legacy gTLD operator such as Verisign or Neustar might now be in control of NDC.
But the BGC said ICANN had already “diligently” investigated these claims:

in response to the Requesters’ allegations, ICANN did diligently investigate the claims regarding potential changes to Nu Dot’s leadership and/or ownership. Indeed, on several occasions, ICANN staff communicated with the primary contact for Nu Dot both through emails and a phone conversation to determine whether there had been any changes to the Nu Dot organization that would require an application change request. On each occasion, Nu Dot confirmed that no such changes had occurred, and ICANN is entitled to rely upon those representations.

ICANN staff had asked Rasco via email and then telephone whether there had been any changes to NDC’s leadership or control, and he said there had not.
He is quoted by he BGC as saying:

[n]either the ownership nor the control of Nu Dotco, LLC has changed since we filed our application. The Managers designated pursuant to the company’s LLC operating agreement (the LLC equivalent of a corporate Board) have not changed. And there have been no changes to the membership of the LLC either.

The RfR has therefore been thrown out.
Unless further legal action is taken, the auction is still scheduled for July 27. The deadline for all eight applicants (seven for .web and one for .webs) to post deposits with ICANN passed on Wednesday.
As it’s a last resort auction, all funds raised will go into an ICANN pot, the purpose of which has yet to be determined. The winning bid will also be publicly disclosed.
Had the contention set been settled privately, all losing applicants would have made millions of dollars of profit from their applications and the price would have remained a secret.
NDC is the only applicant refusing to go to private auction.
The applicants for .web are NDC, Radix, Donuts, Schlund, Afilias, Google and Web.com. Vistaprint’s bid for .webs is also in the auction.
The RfR decision can he read here (pdf).

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.

.web has an auction date

The .web gTLD will go to auction July 27, according to ICANN.
The organization released an updated auction schedule (pdf) on Wednesday night that also slates .kids/.kid for an auction on the same day.
Both auctions have confusing “indirect contention” elements, where two strings were ruled confusingly similar.
With .web, it’s lumped in with Vistaprint’s application for .webs, which lost a String Confusion Objection filed by Web.com.
Under ICANN rules, .webs is confusingly similar to to Web.com’s .web, but not to the other six .web applications.
This means that Vistaprint and Web.com basically are fighting a mini contention set auction to see who gets their applied-for gTLD.
If Web.com wins the auction for .web, Vistaprint cannot have .webs. However, if any other .web applicant wins, Vistaprint can go ahead with .webs.
Either way, there will be a .web delegated this year. Google, Donuts, Radix, Afilias, Schlund Technologies, Nu Dot Co are all contenders.
In the case of .kids/.kid, the one applicant for .kid — Google — won SCOs against DotKids Foundation and Amazon by default because both .kids applicants failed to respond to the complaints.
DotKids Foundation recently lost a Community Priority Evaluation, enabling the auction to go ahead.
Because Google is in contention with both .kids applicants, only one of the two strings will ultimately be delegated — .kids and .kid will not coexist.
The only other scheduled auction right now is that of .doctor, which is planned for May 25. Radix, Donuts and The Medical Registry will fight it out in this rather less complex battle.
It’s worth noting that if any of these contention sets unanimously choose to resolve their differences via private auction, none of the ICANN auctions will go ahead.