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<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black">Thanks Jim. Comments in line with your notes below.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black">Best,<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black">Paul<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black"><o:p> </o:p></span></p>
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<p class="MsoNormal"><b>From:</b> Gnso-newgtld-wg <gnso-newgtld-wg-bounces@icann.org>
<b>On Behalf Of </b>Jim Prendergast<br>
<b>Sent:</b> Monday, July 27, 2020 6:28 AM<br>
<b>To:</b> gnso-newgtld-wg@icann.org<br>
<b>Subject:</b> [Gnso-newgtld-wg] Additional thoughts on Proposal 5<o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal"><span style="font-size:12.0pt">Apologies in advance. I will not be able to join the call later today as I am cohosting a workshop at RightsCon at the same time. I will review the notes and recording and respond on list as necessary.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">As Jeff noted during the last call, this is complicated because we are now allowing the resolution of contention sets in ways that were not allowed in the 2012 round. A very simple, clean way to settle contention
sets without these measures is to have them all go to an ICANN auction of last resort or a random draw. But some people insist that losers should get paid so those are off the table.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">I also believe that we have to address BOTH Board concerns -
<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
<p class="MsoNormal"><b><span style="font-size:12.0pt">Board Concern #1 - applications submitted for the sole purpose of receiving a payout for losing private auctions</span></b><span style="font-size:12.0pt"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt"> <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">We have made good progress in addressing #1 and I think we can get there with some tweaks.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">Transparency requirements are good but they should not be rolled back for the creation of JVs. Not suggesting trade secrets be divulged but we should know who the operator of the JV is and we should also
know the circumstances around what caused members of the contention set who are not part of the JV to drop out.
<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black"><o:p> </o:p></span></p>
<p class="MsoNormal"><b><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black">The operator of the JV will be in the application update, so that is a red herring. As for parties that are not in a JV, there is no way for a JV to know
why other applicants dropped out and no way for the JV or its constituent elemental parties to issue discover to determine why a third party dropped out.
<o:p></o:p></span></b></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">I also believe that the Bona Fide proffers should be reviewed and enforced by ICANN, not just the outside evaluators. Rationale is that at some point, the evaluators will disappear. They are temporary help.
ICANN has the ultimate responsibility to administer this program so they should be the ones reviewing theses Bona Fide requirements.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black"><o:p> </o:p></span></p>
<p class="MsoNormal"><b><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black">I don’t disagree, but unless we want to create the entire framework now instead of having the IRT do it (as Jeff suggested) we need to build out details around
how ICANN would enforce these.<o:p></o:p></span></b></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">And along these lines – ICANN should oversee all auctions, not just the Auction of Last resort. As currently constructed in Paul’s edit – there are too many steps for revealing the results of private auctions.
With ICANN overseeing this, it’s a much cleaner process. ICANN involvement also adds a level of assurance that these auctions are being conducted in an aboveboard manner.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt;color:black"><o:p> </o:p></span></p>
<p class="MsoNormal"><b><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black">This has been debated extensively. ICANN overseeing private auctions makes them ICANN auctions not private auctions. There is no stomach for the elimination
of private auctions.<o:p></o:p></span></b></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">As far as penalties for violations of the Bona Fide requirements – loss of registry has to be there. That is a major deterrent and should not be cast aside.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt;color:black"><o:p> </o:p></span></p>
<p class="MsoNormal"><b><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black">This doesn’t make any sense. If the concern is that a party is losing to get money, how do you take away a registry from a party that didn’t win it in an
auction? Even if you could, the disruption to any second level registrants would be intense.
<o:p></o:p></span></b></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black"><o:p> </o:p></span></p>
<p class="MsoNormal"><b><span style="font-size:12.0pt">Board Concern #2 - gaming for the purposes of financing other applications.</span></b><span style="font-size:12.0pt"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">The base Proposal 5 does nothing to address Concern #2. Donna stated that she’s “not convinced that means we have to address it.” I couldn’t disagree more.
<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
<p class="MsoNormal"><b><span style="font-size:12.0pt;color:black">Proposal 5 does address this by requiring a bona fide intention to run the registry.<o:p></o:p></span></b></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">If we fail to address this now, there is a strong likely hood that the Board will either 1) come back to us and ask us to develop a plan (slowing things down again) or 2) develop a solution themselves. Neither
is an ideal outcome so we have to do something to stop the gaming for purposes of financing other applications. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black"><o:p> </o:p></span></p>
<p class="MsoNormal"><b><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black">Perhaps, but there are other items, such as Closed Generics, where the Board instructed us to find a solution and we aren’t going to do so. Also, sometimes
the Board doesn’t get what it wants – that is what the bottom up process is all about.<o:p></o:p></span></b></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">I and others believe that the Bona Fide requirements do not go far enough here. Others believe my sealed bid requirement goes too far. So what are alternative solutions that are enforceable and prevent this
type of activity?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">Auction proceeds held in escrow? All auction conducted at once?
<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black"><o:p> </o:p></span></p>
<p class="MsoNormal"><b><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black">All auctions conducted at once won’t work as all contention sets aren’t on the same timeframe (objections, etc.). Holding auction proceeds in escrow hurts
smaller players who may not be able to borrow against the escrowed funds in time, sure, but would do nothing to hinder large corporations. These ideas sound good, but don’t actually accomplish anything other than ICANN interfering in private auctions.<o:p></o:p></span></b></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">Timing on when these auctions happen is the key to stop this gaming and that is why I proposed the submission of all bids upfront. With bids upfront, auctions could be conducted whenever but there is a constraint
on the ability to roll funds over and over.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black"><o:p> </o:p></span></p>
<p class="MsoNormal"><b><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black">All bids up front has been discussed extensively and rejected repeatedly. It doesn’t work. Applicants cannot know the bid amounts until all public comments,
GAC Early warnings, objections, etc. are over. We can’t deconstruct the entire New gTLD program to solve a problem that only a fraction of the WG even think is a problem.<o:p></o:p></span></b></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
<p class="MsoNormal"><b><span style="font-size:12.0pt">ICANN’s right to refer to competition authority.
<o:p></o:p></span></b></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">We never got around to discussing why Paul felt the need to delete this section completely and since the call there was a brief discussion on list about whether ICANN has this as an inherent right or whether
it should be spelled out.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">My proposal was based upon the RSEP process which is already in force of all registry operators and will be required for all future operators. It specifically calls out competition authority referral if ICANN
makes a determination such referral is necessary. I was surprised how representatives of contracted parties reacted so negatively to that since it is in existing registry agreements.
<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">My rationale for including this provision and calling it out specifically is simple – if a JV or other form of private resolution raises competition concerns for ICANN, they should have the right to refer
it to relevant competition authorities to ensure they are ok with it. This protects ICANN the institution from charges that it is fostering anticompetitive behavior.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black"><o:p> </o:p></span></p>
<p class="MsoNormal"><b><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:black">We actually discussed this for a large portion of a call that you were on. I deleted it from the draft because we came to a conclusion on the call that there
will be a general notice in the AGB that ICANN can refer whatever it wants whenever it wants to whatever competition authority it chooses – and not just for private auctions. So, this comment leaves me befuddled.
<o:p></o:p></span></b></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">Jim Prendergast<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">The Galway Strategy Group<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt">+1 202-285-3699<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt"><o:p> </o:p></span></p>
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