Revised .Com Registry Agreement Rejects URS While Maintaining Existing Price Increase Limitations

 

On March 27th ICANN published a proposed revision of the .Com registry agreement to govern VeriSign’s continued management of the most populous gTLD registry from December 1, 2012 through November 30, 2018. The announcement filled us with a sense of déjà vu tinged with nostalgia, as the ICA was established in reaction to the controversy that ensued when the 2006 .Com agreement, now being renewed, was unveiled as the negotiated settlement of litigation brought against ICANN by VeriSign. The Department of Commerce had recently signed off on the agreement and it had just taken effect when we attended our first ICANN meeting in Sao Paulo, Brazil in December 2006 – and the raw wounds within the ICANN community from that long-running debate were very much and very vocally in evidence.

In contrast, we have yet to see much outcry since ICANN posted the renewal announcement. This may be due, in part, to the fact that the expiring contract assured that VeriSign would be awarded the renewal unless it committed intransigent and unrepentant malfeasance, and that the renewed agreement would be largely identical to the expiring one. We have seen this movie before and we know how it ends. (For the record, ICA filed an amicus brief with the 9th Circuit Court of Appeals that played a critical role in a June 2009 revival of the Coalition for Internet Transparency’s (CFIT’s) antitrust litigation against VeriSign that challenged the .Com contract terms (see http://internetcommerce.org/node/191) but CFIT settled that case with VeriSign in May 2011 and once it essentially abandoned the litigation the critical terms of the successor agreement were predetermined.)

In addition to the agreement’s predictability, the lack of objection may also be due to major changes in the Internet as a whole over the past six years that have resulted in domains sharing an ever more crowded stage with other available user platforms. In the last half dozen years the economics of domain investing and monetization have been substantially altered as PPC ad rates declined,  SEO assumed greater importance, domain development gained more emphasis compared with ‘parking’,   and Internet users took to an on-the-go web using iPhones, iPads and other smart mobile devices. In December 2006 Facebook was a 2-year old startup still competing with MySpace for social network dominance, whereas today it has about 850 million registered users (almost quadruple the number of existing domains) – and Twitter was then a 6-month old venture whose impact was yet to be felt. While we can’t predict all the transformative changes likely over the next six Internet years (including the coming rollout of thousands of new gTLDs) we presume they will be just as rapid, significant, and virtual terrain altering.

We also presume that .Com will still be the dominant gTLD six years hence, but there’s no telling what its relevant share will be or whose DNS fortunes will rise and fall as the rapid evolution of the IT sector leads to a cycle of boom-and-bust “information empires” (The latest example being BlackBerry, which dominated the smart phone sector in 2006 and is today struggling to survive and remain relevant.)

Nonetheless, domains retain critical importance as the Internet platform over which a registrant user can exercise maximum control for purposes of speech, business, and overall online presence — and .Com remains the dominant gTLD and the one most valued by domain investors. So ICA will certainly comb through the details and file comments by the initial April 26th deadline – and depending on how the first round of comments reads, perhaps file a reply comment by the due date of May 17th.

Let’s start with the best news in ICANN’s announcement – that no attempt will be made to impose URS or other new gTLD rights protection mechanisms (RPMs) on .Com through the renewal process — and that this decision has been made in a way that effectively closes the door on attempts of trademark interests to foist these untested mechanisms on incumbent gTLDs through a backdoor that avoids ICANN’s multi-stakeholder policy process.

On this point, ICANN’s announcement states:

New trademark protections: The .com renewal proposal does not include a requirement to comply with the rights protection mechanisms (RPMs) developed for new gTLDs: Uniform Rapid Suspension (URS), Post-Delegation Dispute Resolution Process (PDDRP), and the Trademark Clearinghouse. Taking them in reverse order, the Trademark Clearinghouse currently works in the period of a registry operational start-up and so would not be applicable to .com.

URS and PDDRP have so far only been approved in the context of new gTLDs. The URS and PDDRP are new and untested, and arguably should enjoy a “ramp-up” period to ensure that they are robustly designed and implemented before they are asked to absorb the full workload of the entire gTLD namespace. Secondly, registrants have procured domain names in existing gTLDs with an understanding of the landscape of existing RPMs. New RPMs affect registrants, as well as registries and registrars. They should arguably be introduced in existing gTLDs after a bottom-up discussion. Finally, these RPMs are not in any other existing registry agreement, and ICANN has no basis for requiring them – as described above, the renewal agreement should be similar in terms with the other largest registries.

The malicious conduct and rights protections were added because the community stated that ICANN should implement new gTLDs in order to make sure that there is as little harm as possible caused by the introduction of new gTLDs. When creating the new gTLD rules, existing registrants (and registries) were not consulted with the idea that those protections would be implemented in existing gTLDs without further community discussion. (Emphasis added)

ICA is particularly gratified by ICANN’s recognition that registrants in .Com and other incumbent gTLDs acquired their domains with an expectation of being subject to UDRP, but not these new and untested mechanisms; that “new RPMs affect registrants”; and that any consideration of imposing URS on new gTLDs should occur after they have been tested – and then “after a bottom-up discussion” that is the hallmark of ICANN’s policy development process. These are all points that ICA has made on a consistent basis over an extended period of time.

ICA spoke out against a similar attempt to require URS in the renewed 2011 .Net contract (see http://internetcommerce.org/ICA_Tells_ICANN_No_URS_at_dot_Net); and has objected to it
s consideration for .Com at multiple ICANN gatherings  and in our recent comment letter on defensive registrations at new gTLDs (see
http://internetcommerce.org/Defensive_Registrations_Second_Level). In addition to public statements and written filings, our concerns have been conveyed in conversations with ICANN Board members and staff – as well as to senior VeriSign executives. We are pleased that the message has gotten through.

The very same trademark interests who pushed for URS to be imposed on .Com successfully lobbied to delay initiation of a UDRP reform process until mid-2014, which means that any proposal to consider URS for incumbent gTLDs won’t be on the table until the middle of the decade. They will now will have to live with the UDRP reform deferral they advocated. Meantime, we are hopeful that ICANN will finally initiate the implementation process for URS this month so that we can understand how it is expected to operate, and see whether any credible arbitration body can be secured to administer it at the ultra-low pricing promised to trademark owners.

Turning to the renewal and pricing provisions of the agreement, one is reminded why the 2006 contract engendered so much enmity – because ICANN had effectively agreed to tie its own hands in regard to future renewal negotiating leverage (and this self-imposed restraint has subsequently been written into other existing gTLD agreements).

In regard to presumptive renewal – that is, near automatic re-award of the contract to VeriSign – ICANN’s notice states:

The registry agreement precludes a competitive bidding process to provide .com registry services. The renewal provisions in the current .com Registry Agreement are consistent with all the other ICANN gTLD agreements. All ICANN’s gTLD registry agreements essentially provide that they will be renewed absent a serious breach of the agreement. These renewal provisions encourage long-term investment in robust TLD operations, and this has benefitted the community in the form of reliable operation of the registry infrastructure. ICANN does not have the right under the current .com Registry Agreement to unilaterally refuse to renew the agreement or to bifurcate registry functions. Breaching the renewal provision would expose ICANN to liability under the contract. (Emphasis added)

While we don’t know of any material breach of the contract committed by VeriSign (indeed, their .Com operations has been consistently reliable and quite secure), and don’t have a major argument with the notion that an existing gTLD registry operator should have a leg up on competition when it is being renewed, the contract ICANN entered into makes it nearly impossible for a registry operator to lose it unless it both commits a material breach and then refuses to cure it upon notification. And, as ICANN notes, refusing to award the renewal to VeriSign – or even putting the contract out for rebid to provide market testing of its pricing levels and other key provisions – would expose it to litigation and significant potential damages. Anyone thinking about a challenge to the renewal terms would be asking ICANN to breach its existing agreement with VeriSign – a most unlikely scenario.

So far as those pricing levels, here’s the relevant description:

Registry services pricing: Both the current .com registry agreement and the proposed renewal agreement permit Verisign to increase the price it charges registrars for domain names registrations four times during the six-year term with each increase being no greater than 7%. This provision was substantially negotiated between Verisign on the one hand, and the U.S. Department of Justice and the U.S. Department of Commerce, on the other. The current agreement (Section 4.2) specifies that the pricing and renewal provisions (among others) are not subject to change through the agreement renewal process. If the .com pricing provisions were to be changed to be similar to the other large gTLDs then that would most likely allow Verisign to raise prices by 10% per year in each of the six years of the agreement, as in the .biz, .info, .net, and .org agreements. Note: ICANN’s registry agreement for new gTLDs and registry agreements for sponsored gTLDs (.aero, .asia, .cat, .coop, .jobs, .mobi, .museum, .post, .pro, .tel, .travel, and .xxx) do not include any price controls. (Emphasis added)

In other words, the old contract requires that the new contract have identical pricing provisions – a 7% wholesale increase allowed in four out of the six contract years – with no requirement for VeriSign to provide any justification for the price hike. For its part, VeriSign would undoubtedly point out that .Com continues to have the most restrictive pricing caps of any gTLD – with the other significant gTLDs allowed to raise wholesale prices by 10% every year, and with the less significant ones – and all the coming new gTLDs – subject to no price caps at all. VeriSign would probably also note that .Com will face competition from a slew of new gTLDs over the next six years (although we don’t yet know for how many it will be either registry operator or backend technical services provider).

It will be several years before we can gauge whether a .Web or other lower price point general purpose generic gTLD operated by a party other than VeriSign can gain market share from .Com. While VeriSign is not required to exercise its price increase capability, it is a public company and its management has a duty to maximize shareholder value – so we presume that it will use all four of the increase opportunities unless there is at least a significant decline in .Com registry growth, much less an unprecedented decline in overall .Com registrations. On the other hand, .Com registry revenues will not immediately grow by 7% each time pricing is increased, as many registrants have or will take advantage of their ability to lock in current pricing for up to ten years.

Other significant aspects of the renewal contract include:

  • General modernization to be consistent with post-2006 policy changes, including cybersecurity (implementation of IPv6 and DNSSEC), IDN compliance, and point of abuse contact designation.
  • Prohibition of universal wildcard services (such as last decade’s controversial ‘Sitefinder’ proposal).
  • Required cooperation with registrar compliance actions, including suspension.
  • Deferral of “thick WHOIS” implementation, with that matter shunted to the GNSO policy process.

Again, ICA will be wading through the contract details and plans to file a comprehensive comment letter by the April 26th deadline. So far, our initial read is that we’re gratified by ICANN’s recognition of registrant rights and expec
tations and its clear message that any imposition of URS on incumbent gTLDs will only occur as an end result of a community-wide, bottom-up policy discussion based upon actual experience with it and other new RPMs. As for the presumptive renewal and permissible price increases, ICANN effectively tied its own hands on these matters in 2006 so the current proposal, albeit unpalatable, was utterly predictable.

Since we are not to have any market testing of .Com pricing through a contract rebid process, it is all the more important that the new gTLD program is managed in a way that maximizes the probability that one or more new general purpose generic gTLDs brings outside pricing pressure to bear on .Com and other incumbent registries. Competition, after all, is the one of the promised benefits from new gTLDs. We’ll have more to say on that subject soon.

 

(ICANN’s announcement of the .Com renewal and public comment period can be found at http://www.icann.org/en/news/public-comment/com-renewal-27mar12-en.htm . It links to all the relevant documents – and for those inclined to get into details we recommend starting with the Summary and explanation of changes from the 2006 to the proposed 2012 .com Registry Agreement .)

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