[Gnso-newgtld-wg] Reaction to Proposal 5 on auctions

Sat Jul 18 21:43:35 UTC 2020

Hi Jim,

Thanks so much that you have put so much time and energy in this. You must
have spent quite some time. THANKS! And the result is impressive -
especially that private auctions would be executed by ICANN as well (we had
some suggestion like that before) in order to prevent auction proceed
rollovers at portfolio applicants. GOOD!

A question in regard to:

In the event ICANN reasonably determines during any resolution of a
contention set, might raise significant competition issues, ICANN shall
refer the issue to the appropriate governmental competition authority or
authorities with jurisdiction over the matter within five business days of
making its determination, with notice to the potential Registry Operator.
(highlighted RED be me in your text)

Many portfolio applicants chose offshore jurisdictions. So what if the
applicants are in offshore havens? I don't think anybody in the BVI has any
interest in investigating anything in such regard. 

In regard to prevent auction profits being used to finance other auctions
you wrote:

All private auctions would be conducted using sealed bids and all bids,
regardless of whether they be used for ICANN Auction of last resort or for
ICANN administered "private auctions" would be due on the same day.  Any
bids not used would be destroyed and not revealed.  (highlighted RED be me
in your text)

Very good idea! We would have to "batch" auctions (private and ICANN). So
initially we wait a bit until all clear cut cases are ready to be resolved
(no objections, etc). I assume the majority of private and ICANN auctions
would be ripe for execution quite quickly. The "auction" is in reality just
a reveal anymore - the only "action" is that those who wish to participate
would be asked to provide the deposit: So ICANN announces which contention
sets go to (private or last resort) auction; the contention set members pay
their deposit within X days, afterwards all results are being made public
for both private and auction of last resort. Only the strings who are still
in objection (or other mechanisms) won't participate. We then wait again a
while until a sufficient amount of contention sets are ready to be resolved
and do the next batch (which again is just a reveal). Then at some time we
do the last ones whenever they become ripe for auction.

Private auction and auction of last resort are essentially the same - only
in the one case the proceeds go to the contention set and in the other they
go to ICANN. Which is important: all the applicant entities that I manage
for the respective communities will only chose the ICANN auction of last
resort. Anything else would just invite free-riders. My communities need
their strings as these are their identities - and announcing early to only
participate in the ICANN auction deters extortionists. 

Thanks,

Alexander

From: Gnso-newgtld-wg [mailto:gnso-newgtld-wg-bounces at icann.org] On Behalf
Of Jim Prendergast
Sent: Saturday, July 18, 2020 2:45 PM
To: gnso-newgtld-wg at icann.org
Subject: [Gnso-newgtld-wg] Reaction to Proposal 5 on auctions

Thanks to Leadership and Staff for working to pull together Proposal 5.  I
am adding a link to it here for those who were not on the call.
https://docs.google.com/document/d/1X8F8zHkgMzQg2WqGHpuoEP78rhpDkFOjD2qKrZZz
jHw/edit#
<https://docs.google.com/document/d/1X8F8zHkgMzQg2WqGHpuoEP78rhpDkFOjD2qKrZZ
zjHw/edit> 

During the discussion on Thursday 16 July - there was a comment about the
group being overly responsive to the Board's concerns about gaming of the
system.  For reference, the Board language is below, with my emphasis added:

"Regarding question 2.7.4.e.2 on 'gaming' or abuse of private auction, the
Board believes that applications should not be submitted as a means to
engage in private auctions, including for the purpose of using private
auctions as a method of financing their other applications. This not only
increases the workload on processing but puts undue financial pressure on
other applicants who have business plans and financing based on their
intention to execute the plan described in the application. In particular,
we are concerned about how gaming for the purpose of financing other
applications, or with no intent to operate the gTLD as stated in the
application, can be reconciled with ICANN's Commitments and Core Values."

Distilled to its essence - the Board is not comfortable with 1) applications
submitted for the sole purpose of receiving a payout for losing private
auctions nor are they comfortable with 2) gaming for the purposes of
financing other applications.  Two related but distinct concerns.

It is imperative the group recognize the only way to completely eliminate
the gaming of contention resolution to provide enrichment to applicants with
no intention of operating a TLD or gaming to finance other applications is
to ban all private resolutions.  Not just private auctions, but all private
resolutions.  I am still in favor of a Vickery Auction as the most equitable
and efficient way to accomplish what the Board is asking for.  But as my
Compromise Proposal indicated, we all have to learn to compromise.  

As currently drafted, Proposal 5 fails to adequately address both concerns
the Board has.  But It has good elements that can be built upon.

Board Concern #1 - applications submitted for the sole purpose of receiving
a payout for losing private auctions

A lot of attention has been paid to the first concern.  After all - that's
where a large chunk of the tens of millions changed hands in the 2012 round.
It's what drove earnings releases and blog headlines.

I appreciate the Bona Fide requirements as put forth by Paul and that is why
I incorporated them into my Compromise proposal.  But on their own, they
simply do not go far enough.  So how can we make this stronger?

ICANN has a responsibility to oversee this program in its entirety.  Unlike
2012, it simply cannot encourage resolutions of contention sets and then
turn a blind eye to how that it accomplished.  

Proposal 5 added some much needed disclosure requirements to private
auctions.  That will help.  But the private auction process itself still
needs be overseen by ICANN.  If ICANN is going to stand by the results of
these auctions, they should oversee them.  As this group experienced
firsthand - getting any information out of private auction providers is
impossible.  That alone is reason for ICANN oversee this effort.
Additionally, how can we expect ICANN to enforce the Bona Fide requirements?
We can't rely on the outside evaluators as listed in Proposal 5 as they will
disappear once their project is done. This is the responsibility of ICANN
Org, specifically compliance, to monitor this.  Anything short of full ICANN
oversight is merely suggestive.  

We need enhanced disclosure around JVs and other "creative forms of private
resolutions."  Why? As one observer noted to me, "A private auction is just
a negotiation with binding bids."   I'm not suggesting we need trade secrets
but we do need to know full ownership, percentages of ownership and what
other conditions are attached to the formation of the JV.  For example.,
were other parties compensated for not participating in the JV and
withdrawing?  We can determine the exact information needed during
implementation but for purposes of high level concepts, we should err
towards more transparency rather than less.

As mentioned on the call, one element of my Compromise Proposal which adds
assurance is Competition Authority review.  Paul suggested that mandatory
referral may be difficult.  That doesn't mean it should be dismissed. At a
minimum ICANN should reserve the right to refer contention resolutions,
whether through auction or other methods, to competition authorities.
Following is suggested language based on the RSEP Policy to which all
current and future registries abide.  It is familiar and instructive to
where the oversight policy should be.

In the event ICANN reasonably determines during any resolution of a
contention set, might raise significant competition issues, ICANN shall
refer the issue to the appropriate governmental competition authority or
authorities with jurisdiction over the matter within five business days of
making its determination, with notice to the potential Registry Operator.

Any such referral communication shall be posted on ICANN's website on the
date of transmittal.

If such a referral occurs, the potential Registry Operator's application
will placed on hold until (XX) calendar days following the referral, unless
earlier cleared by the referred governmental competition authority.

With ICANN overseeing all the auctions as well as fulsome disclosure, this
clause will likely not be triggered very often, if ever.  However, for the
protection of ICANN, it should have the ability to do so if a situation does
arise that raises competition concerns.  They cannot be seen as facilitating
anticompetitive behavior and this provides a safety valve.

Board Concern #2 - gaming for the purposes of financing other applications.

Nothing in Proposal 5 addresses this concern.  As crafted, Proposal 5 would
return us to the wild west of 2012 where parties are off doing auctions
shrouded in NDAs, rolling proceeds from losing one application to another
and supported applicants or single applicants stand little chance against
deep pockets and portfolio players.  Sure we eventually will find out who
paid how much but we have no assurances funds were not being rolled from one
to the next.  

How do we accomplish this while addressing Susan's concern about without
holding up contention sets?  It's quite simple.  

All private auctions would be conducted using sealed bids and all bids,
regardless of whether they be used for ICANN Auction of last resort or for
ICANN administered "private auctions" would be due on the same day.  Any
bids not used would be destroyed and not revealed.  

Again - ICANN oversight and collection of bids at one time is critical to
satisfying the concerns of the Board.  Anything less, is toothless.

Thanks for making it this far.  As I said on the outset - there are good
elements in Proposal 5 but it comes up short - Without the reinforcements
outlined above it will fail to meet the Board concerns and we risk having
this sent back to us in a year's time.

In summary, 

-Include competition authority oversight

- Sealed bids submitted at a single point in time

- ICANN oversight of auctions

-Full transparency of all contention resolution 

Jim Prendergast

The Galway Strategy Group

+1 202-285-3699

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