[CPWG] NTEN .ORG Call & My Evolving Thoughts on the PIR Pending Sale

Fri Dec 6 04:14:38 UTC 2019

Well, the Cowboys are pretty bad...

Jonathan Zuck
Executive Director
Innovators Network Foundation
www.Innovatorsnetwork.org<http://www.Innovatorsnetwork.org>
________________________________
From: CPWG <cpwg-bounces at icann.org> on behalf of Michael Palage <mike at palage.com>
Sent: Thursday, December 5, 2019 8:15:09 PM
To: 'ICANN GTLD WG list' <gtld-wg at atlarge-lists.icann.org>; 'CPWG' <cpwg at icann.org>
Subject: [CPWG] NTEN .ORG Call & My Evolving Thoughts on the PIR Pending Sale

Hello All,

I would encourage everyone to listen to the NTEN recording on the pending PIR sale to Ethos.  It was a very informative session. Here are my two cents for what it is worth.  I think Jon and the Ethos folks did a fairly reasonable job fielding some very pointed questions, however, I was less impressed with Andrew Sullivan's performance for the reasons cited  below.

I know a lot of people are passionate about the future stewardship of .ORG. I have to admit I was a bit surprised and disappointed when I heard the news, especially having worked with ISOC as part of the Afilias team back in 2002.  However, the lawyer in me is trained to remove emotion and look at the legal and economic basis of the transaction.  I original took no position on the pending sale until the sale price was made public.  Non Profits such as ISOC buy and sell assets all the time, although the circumstances of how ISOC/PIR prevailed in the original .ORG RFP is still something that I am struggling with. The sale for over a billion makes economic sense, as a 1 billion dollar trust should produce on average return of 50 million dollars a year which was what PIR was providing to ISOC.  Given some of the uncertainty about the future of the gTLD market, e.g. declining .ORG sales, increased legal and regulatory compliance costs.  I can see why the ISOC trustees would have approved the sale and why it would likely pass legal review.

What does cause me some concern is the process of how ISOC went about this sale, and this is where I was disappointed by Andrew's responses to some of the pointed questions asked by the non profit legal types. He repeated referenced the ISOC "trustees" and one time referenced that is why we call them trustees. Hopefully after this deal is concluded, ISOC could engage an external professional (this time hopefully someone from the non-profit sector - any suggestions NTEN) to provide a public accountability of what really happened. There was several references to NDAs, perhaps after the deal is concluded there can be more transparency if the parties agree to selectively waive parts of the NDA that seemed to prevent the public consultation that most feel is lacking.  And if appropriate, suitable changes can me made to prevent that from happening again in the future. I think the ISOC Trustees owe that to its community which I have been part of for a while.

Back to the performance of Jon (PIR) and Ethos. Jon could someone please work with Erik and tell him how "technical glitch" is a dirty word from the last round of new gTLDs. While it seems that Ethos was receptive to some type of price restraints as opposed to the other bidder(s), the key thing that stuck out to me was Erik's repeated use of the term we intend to comply with the "spirit" of the price increase. The repeated use of the term "spirit" was very notable.  As a lawyer I always like to argue compliance with both the ‘spirit” and the “letter.” So taking off my engineer and lawyer hat for a minute, this is what I think this means.

Listed below is a table that represents what compliance with the “letter” and “spirit” of the agreement if PIR was permitted to raise prices 10% each year.

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

9.68

10.648

11.7128

12.88408

14.17249

15.58974

17.14871

18.86358

20.74994

22.82493

25.10743

Now if Ethos wanted to comply with the “spirit” of the agreement they could raise the prices of a .ORG domain name to $25 and then state we will not raise prices for the remaining term of this Registry Agreement. Now I do not think Ethos which has been incredibly savvy to date that would do that, and I am sure Jon and the PIR staff would advise against the suicide nature of that move. However, a price increase is coming. If I was in Ethos’ shoes I would go with $14.50 price increase, just under a 50% price increase.  Then in a couple of years as the next round of new gTLD are rolling out, I would bump the price again upwards to $20 based upon the dynamics of the first increase.  Ethos is not going to run into the ground an asset they have agreed to purchase for over a billion dollars.

Now while this will upset a lot of people, the economic reality is a newly formed non profit is not going to be priced out of doing good work when paying for a .ORG domain name in the $20 retail price range, versus $15 today. In connection with existing non-profits, the ability to lock in at today’s prices before the PIR price increase for a total of ten years is another perhaps more important safeguard for existing non-profits using an .ORG domain.

So the issue that I am still struggling and which I hope Lyon and the other ICANN Board members will focus on is the following.  In the current baseline registry agreement, Section 1.3. (a)(i) states in relevant part that “ Registry Operator represents and warrants to ICANN as follows: all material information provided and statements made in the registry TLD application, and statements made in writing during the negotiation of this Agreement, were true and correct in all material respects at the time made, and such information or statements continue to be true and correct in all material respects as of the Effective Date except as otherwise previously disclosed in writing by Registry Operator to ICANN.”

Now when PIR executed their latest agreement, there was an addendum that removed the reference to the “application” and instead substituted representations made during the current negotiation, see https://www.icann.org/sites/default/files/tlds/org/org-agmt-addendum-html-30jun19-en.htm  This is what still gives me pause.  I personally view TLDs as global infrastructure and I believe there are certain responsibilities that must be followed when operating this important critical infrastructure. To be clear, I am not opposed to a Registry Operator changing a business plan based upon representations made 17 years ago. In fact ICANN has already approved the ability of a Registry Operator to make changes to representations made in Specification 12, and ICANN is currently evaluating the ability for Registry Operators to make changes to their representations made in Specification 11.  So I recognize and support the ability of a business to evolve/innovate.

When you look at the .INFO and .BIZ Registry Agreements which have a similar addendum, I think there is one major difference from .ORG.  Afilias and Neustar literally built their respective TLD operations from the ground up, as opposed to PIR which was rewarded an installed user base of 2 million plus registrations, PLUS a 5 million dollar grant from VeriSign based upon them being a non-profit. Now on the NTEN phone call today Ethos and PIR made repeated references about staying true to the operation of the .ORG.  I think the sweat spot that Ethos will have to find with the help of Jon and the PIR staff is what if any of the representations they have been making publicly are they willing to hard code into Specification 11 via an amendment. This is where the rubber will hit the road in my opinion.

Hopefully the ICANN Board will look more closely at how they go about ensuring that representations made by original TLD applicants are not forgotten when the Registry Agreement is transferred to an new entity, or at the time of renewal.  Please note approximately 1,000 plus registry agreements with that language are coming due in the next couple of years. Will ICANN be giving them a free pass to walk away form the representations they made or will they have a predicable process to provide trust and predictability to the Internet community as well as the Registry Operators.

I actually have some additional thoughts but those will have to wait until after the holiday season.  Hopefully people found this post insightful, now off to watch Thursday night football where I hope the Cowboys lose to the Bears ??

Best regards,

Michael Palage

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