[CPWG] [GTLD-WG] Fwd: Re: [registration-issues-wg] Fwd: ISOC sells PIR

Wed Nov 20 20:37:23 UTC 2019

Regarding the question of whether “a transfer” is occurring, as I set out in my email to this list of Monday, November 18, 2019 (appended below for your ease of reference), Section 7.5 deems any change of control of the registry, to be an “assignment”. Ethos is taking control of PIR. That is therefore an assignment. ICANN has the contractual right to reasonably withhold its consent to any assignment.

What could be a reasonable basis to withhold consent? Amongst possible other reasons, it could be that;

a) there are important policy and practical reasons why the .org registry should continue to be operated by a nonprofit;

b) the original basis and presumption for awarding the .org registry was because it was being operated by a nonprofit (see https://twitter.com/bretfausett/status/1195092498395357184; From 2002 “ISOC’s global membership and heritage and PIR’s non-profit status will ensure the registry remains sensitive to non-commercial concerns.”);

c) without disclosure and approval of the funders/shareholder of the new owner and them being found to be satisfactory, there is no reasonable basis for entrusting the registry to a new and unknown for-profit company; and

d) the renewal of the agreement just a few months ago, wherein price caps were removed, was premised on a public-minded non-profit continuing to control and operate the registry.

Zak Muscovitch
General Counsel, ICA

Muscovitch Law P.C.
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From: Zak Muscovitch <zak at muscovitch.com<mailto:zak at muscovitch.com>>
Date: Mon, Nov 18, 2019 at 11:07 AM
Subject: Re: [CPWG] [registration-issues-wg] [GTLD-WG] Fwd: ISOC sells PIR
To: cpwg at icann.org<mailto:cpwg at icann.org> <cpwg at icann.org<mailto:cpwg at icann.org>>

Alan, while it is certainly an open question whether ICANN will take any action in response to the announced sale of PIR, it doesn’t appear to be debateable whether or not selling PIR would constitute a “change of control” under the .Org Registry Agreement.
Pursuant to Section 2.9(b) of the .org Registry Agreement:
“For the purposes of this Agreement…“control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person or entity, whether through the ownership of securities, as trustee or executor, by serving as an employee or a member of a board of directors or equivalent governing body, by contract, by credit arrangement or otherwise.”
ISOC clearly stated in its Press Release that “Ethos Capital will acquire PIR and all of its assets from the Internet Society”, and obviously such a sale wherein Ethos would take over PIR is a change of control, as understood by both Section 2.9(b) and as this term is widely understood in business and in law. For example, this is how the Corporate Finance Institute defines a change of control:
“In finance, a Change of Control occurs when there is a material change in the ownership of a company. The exact criteria that determine such a change can vary and are defined by law and through contractual agreements. A change of control clause is often included in creditor pacts<https://corporatefinanceinstitute.com/resources/templates/financial-modeling/debt-schedule/> and executive employment agreements to protect investors<https://corporatefinanceinstitute.com/resources/knowledge/accounting/stockholders-equity-guide/> and managers from major changes in how the company is run.” (see : https://corporatefinanceinstitute.com/resources/knowledge/deals/change-of-control/)
Indeed the change of control provision in the .Org Registry Agreement was ostensibly included precisely to provide ICANN with protection in the event that ISOC purported to sell the .Org registry, i.e. a change of control. Section 7.5, as you pointed out below, specifically prohibits any assignment of the agreement, and deems any direct or indirect “change of control” to be an assignment. The Agreement does however, only enable ICANN to “reasonably” withhold its approval. In the circumstances, it would be eminently reasonable to withhold approval, given the facts that; a) this sale was apparently unknown at the time of the recent renewal of the Registry Agreement which inter alia, removed price caps and imposed URS despite it not being a Consensus Policy; and b) selling the .Org registry to a private capital company would appear to be contrary to the original intention in awarding the .Org registry, home of nonprofits, to ISOC.
Zak Muscovitch
General Counsel, ICA
InternetCommerce.org

From: CPWG <cpwg-bounces at icann.org> On Behalf Of Eduardo Diaz
Sent: November-20-19 3:22 PM
To: John Laprise <jlaprise at gmail.com>
Cc: CPWG <cpwg at icann.org>; Alan Greenberg <alan.greenberg at mcgill.ca>
Subject: Re: [CPWG] [GTLD-WG] Fwd: Re: [registration-issues-wg] Fwd: ISOC sells PIR

I believe that there is no transfer of the .ORG domain to a new entity since it belongs to PIR and PIR is what is being sold, hence nothing you can do in that account. However, the issue may come up if PIR is turned into a for-profit company which may have contract consequences with ICANN since PRI is a registry for all purposes.

-ed

On Wed, Nov 20, 2019 at 4:05 PM John Laprise <jlaprise at gmail.com<mailto:jlaprise at gmail.com>> wrote:
See 7.6.j.iv

We may not be able to stop the transfer but may be able to make the case that the transfer is not on the public interest and get the board to amend the contract.
Sent from my Pixel 3XL

John Laprise, Ph.D.

On Wed, Nov 20, 2019, 12:43 PM Kaili Kan <kankaili at gmail.com<mailto:kankaili at gmail.com>> wrote:
Very interesting indeed.  Exactly what At-Large is for !

However, sorry that have to apologize for this meting, having a bad cold.   :(

Kaili

On Thu, Nov 21, 2019 at 1:13 AM Maureen Hilyard <maureen.hilyard at gmail.com<mailto:maureen.hilyard at gmail.com>> wrote:
Sounds like an interesting CPWG meeting coming up :)

M

On Wed, Nov 20, 2019 at 5:39 AM Bartlett Morgan <me at bartlettmorgan.com<mailto:me at bartlettmorgan.com>> wrote:
Imagine ICANN getting the pants sued off of it if it does...
-
Bart
Sent from my mobile

On 20 Nov 2019, at 11:28, Evan Leibovitch <evan at telly.org<mailto:evan at telly.org>> wrote:
That's what I mean, re-delegating it from PIR to a real nonprofit.

I will check, and maybe others can help.... but I believe that there is a clause in the registry agreement that allows ICANN to terminate if there is a major change in the status of the owner (in this case, PIR changing from nonprofit to for-profit).

Of course ICANN has rarely if ever acted on this capability, but I believe it exists.
___________________
Evan Leibovitch, Toronto
@evanleibovitch/@el56

On Wed., Nov. 20, 2019, 9:26 a.m. Eduardo Diaz, <eduardodiazrivera at gmail.com<mailto:eduardodiazrivera at gmail.com>> wrote:
Evan:

How .ORG can be re-delegated if it does not belong to ISOC but PIR?

-ed

On Wed, Nov 20, 2019 at 8:34 AM Evan Leibovitch <evan at telly.org<mailto:evan at telly.org>> wrote:

Or there could be totally new advice asking ICANN to re-delegate .ORG back to a nonprofit.
It has that authority.

https://gizmodo.com/private-equity-ghouls-buy-non-profit-that-handles-org-1839860118

On Tue, 19 Nov 2019 at 17:25, John Laprise <jlaprise at gmail.com<mailto:jlaprise at gmail.com>> wrote:
On the advice we issued on the change in contractual terms. It's within ALAC's remit to issue advice on anything and this is exactly the kind of situation that allows us to nimbly address a situation. George Kirikos mentioned the s contingency in the list but by that time I'm pretty sure he had established himself as shrill and was in the process of being report to the ombudsman. We can ask the board to examine options here because we issued advice in good faith and expectation of ISOC being a good Steward of .org. selling it off to a VC firm was not something I considered likely and had I, would not have advocated in the way I did.
Sent from my Pixel 3XL

John Laprise, Ph.D.

On Tue, Nov 19, 2019, 1:22 PM Alan Greenberg <alan.greenberg at mcgill.ca<mailto:alan.greenberg at mcgill.ca>> wrote:
On what issue John?

Alan
--
Sent from my mobile. Please excuse brevity and typos.
On November 19, 2019 1:31:18 PM EST, John Laprise <jlaprise at gmail.com<mailto:jlaprise at gmail.com>> wrote:
I agree with Evan. This is an astounding sort sighted deal by ISOC which essentially squandered the trust of it's membership for financial gain. Trust is the most precious commodity of any non profit and hard to regain once lost.

Furthermore, ALAC and CPWG should urgently amend our advice on the contractual issue to reflect new situation. I am no longer in support on this issue.

Sent from my Pixel 3XL

John Laprise, Ph.D.
Show quoted text

Sent from my Pixel 3XL

John Laprise, Ph.D.

On Tue, Nov 19, 2019, 3:58 AM Evan Leibovitch <evan at telly.org<mailto:evan at telly.org>> wrote:
On Mon, 18 Nov 2019 at 09:16, Hadia Abdelsalam Mokhtar EL miniawi <Hadia at tra.gov.eg<mailto:Hadia at tra.gov.eg>> wrote:
I would certainly assume that ISOC got a very decent amount of money from Ethos for the deal to go forward. At this point I would assume that ISOC has insured its way forward. However, what is still to be seen is the effect on the .org prices, hopefully going forward they would have special prices for non profits.

Two factors come to mind in considering the long term effects of the sale, over and above the financial-stability component of which we are all aware. Consider:

The substance:

PIR was more than just an ISOC asset. The Internet Society was custodian of the only global top-level domain that was, by nature and its very name, acting in the public interest. In a sea of TLD sharks, dot-org could be seen as a body that brought both financial stability to ISOC and social responsibility among the registries. Its size and nonprofit status would keep costs down and corporate direction serving a social mission. Its competitive presence could tamp down the excesses of the industry.

And now that's gone. More important than the divestment of PIR is its change from nonprofit to Just Another Shareholder-Value-Maximizing part of the domain ecosystem, its uniqueness vanished in an instant. In the aim of maximizing its own revenue ISOC has eliminated from the the Internet the only publicly-accessible nonprofit gTLD. Gone is this substantial voice of public-interest sanity within the registry community, replaced by an entity barely more ethically motivated than Donuts. As a dot-org "owner", this hurts personally. But as someone trying to advance Internet domains as a component of progress, this hurts on a global scale.

Stewardship of a socially-motivated registry was one of ISOC's core global functions IMO. With that gone, so is part of ISOC's value.

The process:

The path that led to the divestment of PIR, both before and after the decision had been made, has laid bare a core ISOC culture that is the opposite of the openness it asks the world to embrace. At a level of fiscal responsibility, ISOC's action was exactly what one would expect any for-profit entity to do. Maximize benefit through a secretive process that catches everyone unaware -- not just of the transaction but of the urgency to do it,
Except ISOC is not a for-profit entity. It displays itself to the world as a community body that encourages involvement at a personal, regional, institutional or national scale. It has carefully crafted and evolved a Chapters Advisory Council explicitly designed to provide management with the view from the grassroots, alongside a parallel Council for corporate participants. This was combined with global virtual events such as InterCommunity that were created to give ISOC a global awareness of what was needed to promote a more-open Internet. And it has always had an individual-membership program, which isn't really talked about these days as these "members" have neither any costs nor any benefits.
None of these mechanisms were employed, none of these entities consulted, before or after the decision, even under NDA. The community wasn't even aware that PIR was being shopped around. As a result, there was no open solicitation, no publicly-competitive process, no opportunity for any other firm to make a counter-offer that might keep PIR nonprofit. We'll never know. Or maybe it wasn't shopped around and someone just made ISOC an offer it couldn't refuse. But ISOC isn't Jack Woltz. The community had no idea of any sense of urgency to sell PIR, and certainly was never consulted about the ethics or consequences of turning PIR for-profit. The common nonprofit practice of having major decisions ratified by stakeholders at an AGM is also nowhere in sight.

So now we know the reality of ISOC's corporate culture. Promote openness and consultation when convenient, but be opaque when it matters.

I don't know if ISOC considers me a stakeholder, or for that matter anyone else on this list, any Chapter or any Organization Member. In fact right now I have no idea who ISOC considers its stakeholders to be; it certainly didn't consult any before the fact or ask for any blessings afterwards. Not even informally. So who shows up at the AGM? Just the Trustees?

In any case, the deal is essentially done. ISOC clearly appears to have assured its financial stability, which is certainly a Good Thing. But with a crown jewel of the Internet fading away and the shallowness of its commitment to openness and community exposed in the process, it is legitimate to ask whether ISOC has sold more than a registry.

We won't know the answer to that for a while
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- Evan
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