ICANN drops the bomb – registries can buy registrars

ICANN has just authorized the biggest shake-up of the domain name industry in a decade, lifting all the major cross-ownership restrictions on registrars and registries.
A surprise resolution passed on Friday at the ICANN board’s retreat could enable registries such as VeriSign to acquire registrars such as Go Daddy, and vice-versa.
The new rules will also allow registrars to apply for and run new top-level domains and, subject to additional conditions, may enable existing registries to eventually start selling direct to end users, potentially bypassing the registrar channel.
The implications of these changes could be enormous, and I expect they could be challenged by affected parties.
The board resolved that ICANN “will not restrict cross-ownership between registries and registrars”, subject to certain yet-to-be written Code of Conduct for preventing abuse.
These looser ownership restrictions will be included in the new TLD Applicant Guidebook. Existing registries will be able to transition to the new rules over time through contract changes.
ICANN will develop mechanisms for enforcing anti-abuse rules through contractual compliance programs, and will have the ability to refer cross-ownership deals to competition authorities.

These provisions may be enhanced by additional enforcement mechanisms such as the use of self-auditing requirements, and the use of graduated sanctions up to and including contractual termination and punitive damages.

The decision appears to have been made partly on the grounds that while almost all existing registry contracts include strict cross-ownership restrictions, it has never been a matter of formal policy.
A vertical integration working group which set out to create a bottom-up consensus policy earlier this year managed to find only deadlock.
ICANN chairman Peter Dengate Thrush said:

In the absence of existing policy or new bottom-up policy recommendations, the Board saw no rationale for placing restrictions on cross-ownership. Any possible abuses can be better addressed by properly targeted mechanisms. Co-ownership rules are not an optimal technique in this area.

Most members of the VI working group broadly favored some level of cross-ownership restriction, such as a 15% cap, while a smaller number favored the “free trade” position that ICANN seems to have gone for.
The companies campaigning hardest against cross-ownership being permitted were arguably Afilias and Go Daddy, though the likes of NeuStar and VeriSign also favored some restrictions.
Opponents of integrating registry and registrar functions argued that giving registrars access to registry data would harm consumers; others countered that this was best addressed through compliance programs rather than ownership caps.
The big winners from this announcement are the start-up new TLD registries, which will not be forced to work exclusively within the existing registrar channel in order to sell their domains.

Will the new TLD guidebook provide answers?

ICANN is due to publish an Applicant Guidebook for new top-level domain registries tomorrow, and there are still big question marks over its contents.
Judging from a preliminary report from the ICANN board’s most-recent official meeting, some key decisions may not have yet been taken.
Perhaps the biggest unresolved issue is whether to permit the “vertical integration” of registry and registrar functions.
Which way ICANN swings on this problem will determine which companies are eligible to apply for new TLDs, how their business models will be structured, and how realistic “.brand” TLDs will be.
The ICANN community failed to reach consensus on this issue, largely due to differing business interests and a few consumer protection concerns.
But it looks like the ICANN board did not even discuss the matter at its October 28 meeting. The preliminary report has this to say:

2. Vertical Integration
In the interests of time, the Chair adjourned this item of discussion to a later date.

That “later date” may have been last Thursday and Friday, when the board held its rescheduled “retreat”, which is not designated as an official meeting.
On “Rec6”, previously known as the “morality and public order” objections process, the board passed no resolution October 28, but seems to have endorsed further discussions with the community.
The preliminary report states:

The Board discussed staff presentation and, in conformance with staff recommendation, directed staff to provide a briefing paper to the working group and to coordinate a call with the working group to further discuss the issues.

If the Rec6 working group mailing list and the GNSO calendar are any guides, that meeting has not yet been called (at least not publically).
The report also addresses geographic domains and issues that need to be taken into account given what ICANN’s Affirmation of Commitments with the US government says about new TLDs.

The Board agreed that staff provide a paper on geographic names to the GAC, the Chair of the GAC would check on the scope of issues still requiring discussion, and then the Chairs of the GAC and the Board would discuss the process for resolution to move this issue forward prior to Cartagena.
…
The Board discussed a paper regarding the adherence to the conditions set out in the Affirmation of Commitments in launching New gTLDs, and the need for identifying objective metrics to measure ICANN’s performance. The Board asked staff to consider what known performance indicators for the New gTLD program may be, what the adequacy scale is for measuring, and try to set that out for future conversation.

With all this in mind, it seems to me that while we may have a timeline for the launch of the new TLD program, there’s still much more to do than merely cross t’s and dot i’s.
Can we expect more placeholder text in tomorrow’s Applicant Guidebook?

ICANN “intervention” needed on TLD ownership rules

ICANN’s board of directors is today likely to step in to create rules on which kinds of companies should be able to apply for new top-level domains.
Chairman Peter Dengate Thrush now says “intervention appears to be required” on the issue of registry-registrar cross-ownership, after a GNSO working group failed to create a consensus policy.
In an email to the vertical integration working group yesterday, Dengate Thrush thanked particpants for their efforts and added:

The board is faced, in the face of absence of a GNSO position, to examine what should be done. This is a matter we are actively considering.
My sense is that, while reluctant to appear to be making policy, the Board is unwilling to allow stalemate in the GNSO policy development process to act as an impediment to implementing other major policy work of the GNSO, which calls for the introduction of new gTLDS. Some kind of Board intervention appears to be required, and we are considering that.

Currently, placeholder text in the new TLD Draft Applicant Guidebook calls for a 2% cross-ownership cap and effectively bans registrars from applying to become registries.
Such a scenario would very likely make single-registrant “.brand” TLDs unworkable. Canon, for example, would be forced to pay a registrar every time it wanted to create a new domain in .canon.
It would also put a serious question mark next to the viability of geographical and cultural TLDs that may be of limited appeal to mass-market registrars.
Many in the VI working group are in favor of more liberal ownership rules, with larger ownership caps and carve-outs for .brands and “orphan” TLDs that are unable to find registrars to partner with.
But others, notably including Go Daddy and Afilias, which arguably stand to gain more economically from the status quo, favor a stricter separation of powers.
This latter bloc believes that allowing the integration of registry and registrar functions would enable abusive practices.
Dengate Thrush’s email has already raised eyebrows. ICANN is, after all, supposed to create policies using a bottom-up process.
Go Daddy’s policy point man, Tim Ruiz, wrote:

I am hopeful that you did not intend to imply that if the bottom up process does not produce the reults that some of the Board and Staff wanted then the Board will just create its own policy top down.
I hope that the Board keeps its word regarding VI as it was given to the GNSO. To not do so would make it difficult to have any confidence in the Board whatsoever.

It’s a tightrope, and no mistake.

New TLDs dominate ICANN board agenda

ICANN has published the agenda for next Thursday’s board meeting and unsurprisingly the new top-level domain process dominates.
The agenda breaks the discussion into several bullet points.
Of interest to absolutely everybody watching the new TLD process is the first bullet – “Update on Timeline”. Everyone wants to know when the Applicant Guidebook will be finalized.
Recently, it became apparent that ICANN seems to view the next draft of the guidebook as a possible candidate for “final” status. As I blogged earlier this week, it could be published in the next two weeks.
The issues of vertical integration of registry and registrar functions, the “Rec 6” objections process, and the Governmental Advisory Committee advice on geographic names are also on the agenda.
The meeting will also discuss the approval of Qatar’s internationalized domain name country-code TLD and the redelegation of the .qa ccTLD to a new entity.
Qatar’s chosen Arabic string was approved back in March, at the same time as other strings that have already been added to the root, so I can only assume that the redelegation issue was what caused the hold-up.
The perennially controversial .xxx application is also due to be wheeled out for another hearing.

Next new TLD guidebook due early November

The next version of ICANN’s Applicant Guidebook for wannabe new top-level domain registries could be published as early as the first week of November, and it could be proposed as the “final” draft.
In a note to the GNSO Council’s mailing list yesterday, ICANN senior vice president Kurt Pritz wrote:

There is a Board meeting on the 28th with new gTLDs as an agenda item, and right around that time, maybe a week later, the work on the Guidebook will be wrapped. Those two events will indicate both a Board and staff intent on whether to propose the Guidebook version as final.

In order for a 30-day public comment period to be completed prior to the start of ICANN’s meeting in Cartagena, Colombia, the Guidebook would have to be published before November 5.
That said, version four of the DAG had a 60-day comment period (and ICANN staff have yet to publish a summary and analysis of those comments three months after it closed).
As I’ve previously blogged, outstanding issues include humdingers such as the cross-ownership of registrar/registry functions, and the objections procedure formerly known as “morality and public order”.

New TLD competition group throws in the towel

The ICANN working group tasked with deciding whether registrars should be allowed to apply for new top-level domains has failed to reach agreement after over six months of talks.
This means it will be down to the ICANN board of directors to decide, possibly at its next meeting, what the rules should be on vertical integration and cross ownership in new TLDs.
It’s been pretty clear from the Vertical Integration Working Group’s recent discussions that there would be no chance of the group reaching a consensus on the headline topics in the remaining time allotted to it.
Within the last two hours, the GNSO Council has been notified that the group has failed to reach consensus.
Should ICANN-accredited registrars be allowed to apply for new TLDs? Should registries be allow to sell direct to consumers? Should registrars be able to own stakes in registries? Vice versa? How much? Whither the .brand?
All these questions will now have to be resolved by the ICANN staff and board.
Currently, the Draft Applicant Guidebook limits registry/registrar cross-ownership to 2%, effectively barring existing registrars from applying to run new TLD registries.
While the VI working group has been working on the problem since February, positions quickly became entrenched based on the commercial interests of many participants. There has been no substantial progress towards compromise or consensus in months.
But the group did manage to reach rough agreement on a number of peripheral problems that will have a lesser economic impact on the incumbent registries and registrars.
For example, the board will likely be told that “single registrant, single user” TLDs, a variant of the .brand where the registry is the only registrant, should be looked into further.
On the core issue of cross ownership, three proposals are on the table.
One, the Free Trade Proposal, would eliminate such restrictions entirely. Two others, RACK+ and JN2+, would increase the limits to 15%.
The RACK+ proposal is the closest to the status quo in terms of barring vertical integration, while JN2+ contains explicit exceptions for .brand TLDs and smaller community registries.
Given the lack of consensus, it’s quite feasible that the ICANN board may decide to cherry pick from two or more proposals, or come up with something entirely novel. We’ll have to wait and see.

ICANN to publish final new TLD rulebook before December

The ICANN board of directors said it will publish the final Applicant Guidebook for new top-level domains before the public meeting in Cartagena this December.
(UPDATE: that statement is not 100% accurate. See this post for an update.)
The decision came at the end of its two-day retreat in Trondheim, Norway yesterday, which seems to have left a number of important issues as yet unresolved.
The matters of registry-registrar cross ownership and morality and public order objections are both still unfinished business, while the intellectual property lobby has at least one bone thrown its way.
On the morality or “MOPO” problem, now known as the “Rec6” problem, the board had this to say:

The Board will accept the Rec6 CWG recommendations that are not inconsistent with the existing process, as this can be achieved before the opening of the first gTLD application round, and will work to resolve any inconsistencies.

The Rec6 working group had recommended a re-framing of the issue that would eliminate the possibility of any one government blocking a new TLD application based on its own laws and interests.
So the board resolution sounds like progress, until you realize that every decision on new TLDs made at the retreat is going to be re-evaluated in light of a shamefully eleventh hour wish-list submitted by the Governmental Advisory Committee on Thursday.
Having failed to get what it wanted through cooperation with the Rec6 working group, the GAC essentially went over the heads of the GNSO, taking its demands directly to the board.
So much for bottom-up policy making.

Resolved (2010.09.25.02), staff is directed to determine if the directions indicated by the Board below are consistent with GAC comments, and recommend any appropriate further action in light of the GAC’s comments.

In other words, the board may only accept the parts of the Rec6 recommendations that the GAC agrees with, and the GAC, judging from its latest missive, wants the first round of applications limited to purely “non-controversial” strings, whatever those may be.
The board also made no firm decision of the issue of registry vertical integration and cross-ownership. This is the entirety of what it said on VI:

The Board will send a letter to the GNSO requesting that the GNSO send to the Board, by no later than 8 October 2010, a letter (a) indicating that no consensus on vertical integration issues has been reached to date, or (b) indicating its documented consensus position. If no response is received by 8 October 2010, then the Board will deem lack of consensus and make determinations around these issues as necessary. At the time a policy conclusion is reached by the GNSO, it can be included in the applicant guidebook for future application rounds.

That’s actually borderline amusing, given that the GNSO working group on VI has recently been waiting for hints from the board about what it intends to do, rather than actually getting on with the job of attempting to create a consensus policy.
The bone I mentioned for the trademark crowd amounts to knocking a week off the length of time it takes to resolve a complaint under the Uniform Rapid Suspension policy.
The Trondheim resolutions also make it clear that the ICANN board will only be required to vote on a new TLD application in limited circumstances, such as when an objection is filed.
For all other applications, a staff mechanism for rapidly signing contracts and adding TLDs to the root will be created.

Nokia considers new TLD application

Is Nokia planning to add its name to the list of “.brand” new top-level domain applicants?
That’s the intriguing possibility that emerged during a conference call of ICANN’s vertical integration working group yesterday.
Nokia working group representative Tero Mustala said, “our company is considering the possibilities to apply for a new gTLD”.
The revelation came as one of the disclosure statements that each participant was obliged to make, and should probably not be taken as an official company position.
As far as I know, this is the first time that the mobile phone giant has been connected to a new TLD bid. But is it a .brand? Unknown.
Nokia is an old hand at TLD applications, being among the over a dozen companies that financed the successful .mobi sponsored TLD application back in 2005.
In the 2000 “test-bed” round, it applied for .mas, .max, .mid, .mis, .mobi, .mobile, .now and .own but failed on technological grounds.
Under the new TLD application process, unsuccessful 2000 applicants get an $86,000 credit towards their new application, if they apply for the same string(s). That’s not an amount of money Nokia would care too much about, obviously.
There have been very few publicly disclosed .brand applications. Canon was the first and loudest. A couple of other companies, such as IBM, have been dropping hints.

New TLD ownership rules punted to ICANN board

The ICANN board will be asked to untangle the policy mess that currently bans domain name registrars from applying for new top-level domains, after a GNSO working group failed to reach consensus.
The Vertical Integration WG was tasked with figuring out whether registrars should be allowed to own new TLD registries and vice versa, but only managed to reach deadlock.
The GNSO Council is now likely to punt the issue to the ICANN’s September 24-25 retreat, asking the board to consider the issues raised by the WG’s non-committal interim report.
It’s a dismaying case of pass-the-parcel that highlights both the trickiness of the VI problem and the limits of ICANN’s bottom-up policy-making process.
ICANN’s Draft Applicant Guidebook currently says that cross ownership between registrars and new TLD registries should be limited to 2% and that all new TLDs need to be offered to all accredited registrars.
This was in response to fears from some quarters that if a registrar also owned a new TLD registry, it would have an unfair advantage over other registrars, ultimately harming registrants.
The DAGv4 text was an overt, deliberately Draconian placeholder – it would ban all registrars and some registries, as well as making “.brand” TLDs unworkable – designed to force the GNSO find a better solution to the perceived problem.
The WG, which is ongoing, has so far failed to do so, and now seems set to pass the hot potato back from whence it came.
What all this means is that the ICANN board (and, let’s face it, staff) will be forced to assemble a workable VI policy for the first round of new TLD applications from the piecemeal suggestions of the WG; to do over two days or less what the WG failed to do over six months.
What the board will decide remains to be seen, but it could wind up governing the first round of new TLD applications, potentially making it a considerably smaller round.

Stalemate reached on new TLD ownership rules

An ICANN working group tasked with deciding whether domain name registrars should be able to apply to run new top-level domains has failed to reach a consensus.
For the last several months, the Vertical Integration working group has been debating, in essence, the competitive ground rules of the new TLD market, addressing questions such as:

• Should existing ICANN registrars be allowed to run new TLD registries?
• Should new TLD registries be allowed to own and control ICANN registrars?
• Should new TLD registries be allowed to sell domains directly to end users?
• What if an approved registry can’t find a decent registrar willing to sell domains in its TLD?
• Should “.brand” TLDs be forced to sell via ICANN accredited registrars?
• Should “registry service providers” be subject to the same restrictions as “registries”?
• Where’s the harm in allowing cross-ownership and vertical integration?

It’s an extraordinarily complex set of questions, so it’s perhaps not surprising that the working group, which comprised a whopping 75 people, has managed to reach agreement on very few answers.
Its initial report, described as a “snapshot” and subject to change, states:

It is impossible to know or completely understand all potential business models that may be represented by new gTLD applicants. That fact has been an obstacle to finding consensus on policy that defines clear, bright line rules for allowing vertical integration and a compliance framework to support it

Having lurked on the WG’s interactions for a few months, I should note that this is possibly the understatement of the year. However, the WG does draw four conclusions.

1. Certain new gTLDs likely to be applied for in the first round will be unnecessarily impacted by restrictions on cross-ownership or control between registrar and registry.

I believe the WG is referring here primarily to, for example, certain “cultural” TLDs that expect to operate in linguistic niches not currently catered for by registrars.
The operators of the .zulu and .kurd TLDs would certainly find themselves without a paddle if the rules obliged them to find an ICANN-accredited registrar that supports either of their languages.
There are other would-be registries, such as .music, that call themselves “community” TLDs and want to be able to sell directly to users, but my feeling is that many in the WG are less sympathetic to those causes.

2. The need for a process that would allow applicants to request exceptions and be considered on a case-by-case basis. The reasons for exceptions, and the conditions under which exceptions would be allowed, vary widely in the group.

There’s not a great deal to add to that: the WG spent much of the last couple of weeks arguing about “exceptions” (that they could not agree on) to a baseline rule (that they could not define).

3. The concept of Single Registrant Single User should be explored further.

An “SRSU” is a subset of what a lot of us have been calling a “.brand”. The proposed .canon TLD, under which Canon alone owns .canon domains, would likely fall into this category.
The WG’s report suggests that SRSU namespaces, should they be permitted, should not be subject to the same restrictions as a more open and generic TLD that sells to the average man on the street.
The alternative would be pretty crazy – imagine Canon owning the registry but being forced to pay Go Daddy or eNom every time it wanted to add a record to its own database.
I do not believe that a hypothetical .facebook, in which Facebook is the registry and its users are the registrants, falls into the SRSU category. Which is also pretty nuts, if you’re Facebook, forced to hand your brand over to the world’s domain name registrars.

4. The need for enhanced compliance efforts and the need for a detailed compliance plan in relation to the new gTLD program in general.

One principle that has come through quite clearly whilst lurking on the WG mailing list is that the degree of distrust between participants in this industry is matched only by the lack of confidence in ICANN’s ability to police bad actors effectively.
Domain name companies are masters of the loophole, and ICANN’s enforcement mechanisms have historically been slow enough that yesterday’s scandal often becomes today’s standard practice.
This sums it up pretty well:

Some members feel that loosening vertical integration/ownership controls may let the proverbial “genie out of the bottle that can’t be put back” should competitive harms result in the marketplace. Others believe that adopting restrictions on vertical integration or cross ownership is the wrong approach altogether, and that the focus should be on protecting against harms, and providing sanctions where harms take place.

The WG currently has six policy proposals on the table, which vary from the “no VI allowed” of the current Draft Applicant Guidebook to “some VI allowed” to “full VI allowed”.
There was a poll of WG members a few weeks back, to see which proposal had most support. It was inconclusive, but it left three proposals clearly in the lead.
The so-called Free Trade proposal, which advocates no limits on cross ownership, was originally authored by Sivasubramanian Muthusamy of ISOC India Chennai.
The proposal as it currently stands puts the focus on ICANN troubleshooting undesirable activities through compliance programs rather than ownership restrictions.
Opposed, a proposal known as RACK+, offered up primarily by Afilias, some of its partners, and Go Daddy, favours a much more restrictive policy that is more aligned with business models established under the last ten years of gTLDs dominated by .com.
RACK+ would impose a 15% ownership limit between registries, registrars and registry service operators, ostensibly in order to prevent registrars abusing privileged registry data.
But under RACK+, all TLDs, including .brands and obscure community TLDs, would be obliged to accept registrations only through ICANN registrars, on a non-discriminatory basis.
This would probably render the .brand TLD market stillborn, if adopted by ICANN, I reckon.
A third proposal, called JN2+, originally authored by representatives of NeuStar and Domain Dimensions, occupies a spot somewhere in the middle ground.
It also proposes 15% ownership caps between registrars, registries and registry service providers, but it contains explicit carve-outs for SRSU-style .brands and “community” TLDs.
Because I’m a wimp, and I have no desire to be drawn into the kinds of arguments I’ve been reading and listening to recently, I’m going to quote Milton Mueller here, saying JN2 “had the highest acceptability ranking of all the proposals” when the WG was polled.
(Sorry.)
I find it rather surprising that the WG seems to be calling for more policy work to be done on ICANN’s compliance programs before the issue of vertical integration can be fully resolved.
If anything, this seems to me to be yet another way to risk adding more delay to the new TLD program.
There’s a public comment period now open, here. And here’s the report itself (pdf)