[Gnso-newgtld-wg] FW: proposed Language for those Getting Applicant Support

[Aikman-Scalese, Anne]

Well, for some reason I thought the principals had to be disclosed in registry applications?

From: Gnso-newgtld-wg <gnso-newgtld-wg-bounces at icann.org> On Behalf Of Alexander Schubert
Sent: Wednesday, June 10, 2020 9:24 AM
To: gnso-newgtld-wg at icann.org
Subject: Re: [Gnso-newgtld-wg] FW: proposed Language for those Getting Applicant Support

[EXTERNAL]
________________________________
“I suppose folks are concerned about the possibility of a .web style transaction in this Applicant Support context.  The simple way to deal with that is just to bar transfers and get rid of any “secondary market” except in situations of failure of the registry to be able to continue to operate…”


The problem is:

As far as I understand the transfer of ownership can be easily facilitated in a way that it’s perfectly concealed: if you plan it upfront!

Per today only ownership shares larger than 15% (please correct me if I am wrong) have to be reported. So all you need to do: You establish an applicant entity that is owned by 7 shell companies, each holding 14.29% ownership. In some jurisdictions shell companies cost next to nothing to establish, and almost no fees to annually renew. If you want to transfer ownership, you simply transfer the ownership of each of the 7 shell companies. This way the applicant entity has still the SAME 7 owners, none of which owns more than 15%. Sounds like a hell of administrative work, but in many poor countries it is not much difference to set up 1 plus 7 companies, instead of just one. The outside won’t know anything about the owner change, as the applicant entity is still owned by the same 7 companies.

How far people go in that respect you can see in the list of ICANN accredited registrars (www.internic.net/alpha.html<http://www.internic.net/alpha.html>):
1020 (one thousand and twenty) LLCs, all owned by “dropcatch.com”; only set up and maintained to exercise “drop catching”:

DropCatch.com 345 LLC

DropCatch.com 346 LLC

DropCatch.com 347 LLC

DropCatch.com 348 LLC

DropCatch.com 349 LLC

DropCatch.com 350 LLC

DropCatch.com 351 LLC

DropCatch.com 352 LLC

DropCatch.com 353 LLC

DropCatch.com 354 LLC

DropCatch.com 362 LLC
:::::
:::::  IT GOES ON AND ON ! ::::::::
:::::  Sparing you over a thousand rows here! :::::::::
:::::

DropCatch.com 1037 LLC

DropCatch.com 1536 LLC

DropCatch.com 1537 LLC

DropCatch.com 1538 LLC

DropCatch.com 1539 LLC

DropCatch.com 1540 LLC

DropCatch.com 1541 LLC

DropCatch.com 1542 LLC

DropCatch.com 1543 LLC

DropCatch.com 1544 LLC

DropCatch.com 1545 LLC



They own 1,020 out of 2,450 accredited registrars. Probably even more through affiliates. It’s of course only ONE company – they need the accreditations so they have “more shots” when going to war over expired domains.

Thanks,

Alexander


From: Gnso-newgtld-wg [mailto:gnso-newgtld-wg-bounces at icann.org] On Behalf Of Aikman-Scalese, Anne
Sent: Mittwoch, 10. Juni 2020 18:58
To: gnso-newgtld-wg at icann.org<mailto:gnso-newgtld-wg at icann.org>
Subject: [Gnso-newgtld-wg] FW: proposed Language for those Getting Applicant Support

Not sure how I missed sending this to the list but please see below.
Anne

From: Aikman-Scalese, Anne
Sent: Wednesday, June 10, 2020 8:02 AM
To: 'trachtenbergm at gtlaw.com' <trachtenbergm at gtlaw.com<mailto:trachtenbergm at gtlaw.com>>; alexander at schubert.berlin<mailto:alexander at schubert.berlin>
Subject: RE: [Gnso-newgtld-wg] proposed Language for those Getting Applicant Support

I don’t think the transfer discussion is at all “fruitless”.  It is occurring in the context of policy relative to auction processes.  The question of verification of a bona fide application deserving Applicant Support status and the nature of the support involved is actually a separate question.

Assume we will deal with validity of Applicant Support criteria separately and that happens before you ever get to auction bidding.  Right now we are discussing auctions and the % bid credit or multiplier for a VALID  & VERIFIABLE Applicant Support application.  I personally would support no transfer for the entire contract period unless there is an EBERO or other severe problem.  Jeff is trying to strike a balance by saying that only certain circumstances merit transfer before the five year mark and was trying to respond to Marc’s suggestions.  There is going to have to be some way to verify that there is no secret deal to transfer prior to the verification of Applicant Support status.  I suppose folks are concerned about the possibility of a .web style transaction in this Applicant Support context.  The simple way to deal with that is just to bar transfers and get rid of any “secondary market” except in situations of failure of the registry to be able to continue to operate.

The notion that Applicant Support will only be a gaming mechanism needs to be addressed separately, e.g. application won’t qualify for Applicant Support if ownership and control is not transparent and cannot be verified based on the legal entity that is the Applicant.

Anne

From: Gnso-newgtld-wg <gnso-newgtld-wg-bounces at icann.org<mailto:gnso-newgtld-wg-bounces at icann.org>> On Behalf Of Marc Trachtenberg via Gnso-newgtld-wg
Sent: Wednesday, June 10, 2020 6:02 AM
To: alexander at schubert.berlin<mailto:alexander at schubert.berlin>; gnso-newgtld-wg at icann.org<mailto:gnso-newgtld-wg at icann.org>
Subject: Re: [Gnso-newgtld-wg] proposed Language for those Getting Applicant Support

[EXTERNAL]
________________________________
I agree that this entire discussion is essentially fruitless and time should be focused on other more important aspects.

Marc H. Trachtenberg
Shareholder
Greenberg Traurig, LLP | 77 West Wacker Drive | Suite 3100 | Chicago, IL 60601
Tel 312.456.1020
Mobile 773.677.3305
trac at gtlaw.com<mailto:trac at gtlaw.com> | www.gtlaw.com<http://www.gtlaw.com/>

[Greenberg Traurig]

From: Gnso-newgtld-wg [mailto:gnso-newgtld-wg-bounces at icann.org] On Behalf Of Alexander Schubert
Sent: Wednesday, June 10, 2020 7:10 AM
To: gnso-newgtld-wg at icann.org<mailto:gnso-newgtld-wg at icann.org>
Subject: Re: [Gnso-newgtld-wg] proposed Language for those Getting Applicant Support

Obviously the entire “flipping” issue (and hence measures against it) depends very much on the way we grant applicant support – and to whom.

I lost track; but do we enforce a connection between applicant entity and string? E.g.: an applicant from a country applying for their own language community? Or would we also support an applicant who just happens to be incorporated in a country that we deem worthy of support, but they could apply for commercial strings like .app or .shop?

If the latter; then I tend to not support Marc’s otherwise very intelligent solution – that the applicant has to repay the support if they sell the registry. Because if you manage to win a string that has a huge secondary market value – and you have flipped it to a third party: paying back applicant support is your least concern as you are flush with cash.

If we haven’t established the limitations (policies) around application support eligibility – then in my mind this entire discussion is essentially fruitless. Currently  “2.5.4 Applicant Support” states:
“ICANN may put in place a fee reduction scheme for gTLD applicants from economies classified by the UN as least developed.”.
Oh well. So I find a couple of straw men in an underdeveloped country, rent an office, staff it with 2 (for almost zero cost as everything is inexpensive in that country, especially outside big cities), that “company” then outsources the application process to a U.S. “consultancy” (all quotation marks to highlight that they are only “so called”) – and that’s all you need to get applicant support and an auction multiplier? The consultancy might be the real beneficiary – but nobody knows: officially they are just the consultancy. Conveniently in these countries often ownership can be easily shielded from being identified (try to identify the owner of a company in a tax haven: good luck).

Instead of trying to fix this via policing efforts that investigate after the fact; why not creating eligibility criteria that will eliminate potential fraud right away? So my question is: would we want to grant applicant support for high value generic strings that have no association to the applicant’s community (example of association would be: geo, language, culture, etc)? In other words: shouldn’t we restrict applicant support to strings that are tied to the respective community? A tribe applying for their language. A city community applying for their city in their country?

In 2012 a lot of applicants artificially established their headquarters in countries which they have zero affiliation with. We don’t even have to fantasize of applicants sitting in the U.S. – but acting as company incorporated in tax havens: that happened already in 2012. With lots of strings.

Who would support to formulate the eligibility criteria in a way that there isn’t any incentive to abuse the applicant support program?
THANKS,

Alexander


From: Gnso-newgtld-wg [mailto:gnso-newgtld-wg-bounces at icann.org] On Behalf Of Aikman-Scalese, Anne
Sent: Dienstag, 9. Juni 2020 21:22
To: Jeff Neuman <jeff.neuman at comlaude.com<mailto:jeff.neuman at comlaude.com>>; trachtenbergm at gtlaw.com<mailto:trachtenbergm at gtlaw.com>; mike at rodenbaugh.com<mailto:mike at rodenbaugh.com>
Cc: gnso-newgtld-wg at icann.org<mailto:gnso-newgtld-wg at icann.org>
Subject: Re: [Gnso-newgtld-wg] proposed Language for those Getting Applicant Support

Is that 3 years from winning the auction or three years from contract signing?

From: Jeff Neuman <jeff.neuman at comlaude.com<mailto:jeff.neuman at comlaude.com>>
Sent: Tuesday, June 9, 2020 7:54 AM
To: trachtenbergm at gtlaw.com<mailto:trachtenbergm at gtlaw.com>; Aikman-Scalese, Anne <AAikman at lrrc.com<mailto:AAikman at lrrc.com>>; mike at rodenbaugh.com<mailto:mike at rodenbaugh.com>
Cc: gnso-newgtld-wg at icann.org<mailto:gnso-newgtld-wg at icann.org>
Subject: RE: [Gnso-newgtld-wg] proposed Language for those Getting Applicant Support

[EXTERNAL]
________________________________
Thanks Marc.   I have tried to work your language in.

Re:  Highlighted language: How do we word allowing assignments/change of control through the normal course of business (changing corporate entities, death or retirement of owners, etc.).  If we just use the standard, you can assign to parents or subs, then that will allow reverse triangular mergers which gets around the whole no assignment/change of control rules.

“If the Applicant getting Applicant Support prevails in an auction, there should be restrictions placed on the Applicant from assigning the Registry Agreement, and/or from any Change of Control for a period of no less than three (3) years.  This restriction is in place to prevent gaming of the applicant support program whereby an applicant immediately transfers its ownership of a registry to a third party in exchange for any form of financial gain.  However, legitimate assignments (e.g., changing of ownership due to death or retirement, etc., assignments to subsidiaries, etc.) shall be permitted.  All assignments after such time shall be governed under the then-current Registry Agreement standard provisions; provided that any Assignment or Change of Control after the third year, but prior to the seventh (7th) year, shall require the applicant to repay the full amount of financial support received through the ASP Program plus an additional ten percent (10%).


Jeff Neuman
Senior Vice President
Com Laude | Valideus
D: +1.703.635.7514
E: jeff.neuman at comlaude.com<mailto:jeff.neuman at comlaude.com>

From: trachtenbergm at gtlaw.com<mailto:trachtenbergm at gtlaw.com> <trachtenbergm at gtlaw.com<mailto:trachtenbergm at gtlaw.com>>
Sent: Tuesday, June 9, 2020 10:18 AM
To: Jeff Neuman <jeff.neuman at comlaude.com<mailto:jeff.neuman at comlaude.com>>; AAikman at lrrc.com<mailto:AAikman at lrrc.com>; mike at rodenbaugh.com<mailto:mike at rodenbaugh.com>
Cc: gnso-newgtld-wg at icann.org<mailto:gnso-newgtld-wg at icann.org>
Subject: RE: [Gnso-newgtld-wg] proposed Language for those Getting Applicant Support

Personally I think that this is a bit of “tilting at windmills” and that if people want to “game” in this way then they will find a way.  Instead of trying to prevent this gaming via indefinite standards that are subject to various reasonable interpretations and will almost certainly result in disputes, I think it would be better to reduce the prohibition on assignments to a shorter period like 2 or 3 years and then just make the applicant pay back the money as a condition of assignment which mitigates any benefit that the applicant and/or assignee would get.  You could even make the condition payment of the benefit received plus x% as a disincentive for such behavior that would not prohibit all assignments.

Marc H. Trachtenberg
Shareholder
Greenberg Traurig, LLP | 77 West Wacker Drive | Suite 3100 | Chicago, IL 60601
Tel 312.456.1020
Mobile 773.677.3305
trac at gtlaw.com<mailto:trac at gtlaw.com> | www.gtlaw.com<http://www.gtlaw.com/>

[Greenberg Traurig]

From: Jeff Neuman [mailto:jeff.neuman at comlaude.com]
Sent: Tuesday, June 9, 2020 8:51 AM
To: Trachtenberg, Marc H. (Shld-Chi-IP-Tech) <trachtenbergm at gtlaw.com<mailto:trachtenbergm at gtlaw.com>>; AAikman at lrrc.com<mailto:AAikman at lrrc.com>; mike at rodenbaugh.com<mailto:mike at rodenbaugh.com>
Cc: gnso-newgtld-wg at icann.org<mailto:gnso-newgtld-wg at icann.org>
Subject: RE: [Gnso-newgtld-wg] proposed Language for those Getting Applicant Support

Thanks Marc for the comments.  This was designed to set forth the principles as opposed to being the contract language, but your points are well made.

The context of this discussion is that some are worried that an applicant who gets applicant support (which may include a bid credit or multiplier in an auction) get the registry and flip it for financial gain to game the system.  That is why the group wanted to prohibit assignment for a period of time.  In the scheme of things, 5 years after a registry signs an agreement is not that long of a period, especially if you assume that most registries will likely not launch until 6 months to a year after they sign.  However, as you note, there are some assignments/change of control that may be necessary and not intended to “game the system” (hence the term legitimate, but understand you concerns about that term).

Do you have some alternative language that would work in this case that achieves what we are trying to achieve?

Thanks.

Jeff Neuman
Senior Vice President
Com Laude | Valideus
D: +1.703.635.7514
E: jeff.neuman at comlaude.com<mailto:jeff.neuman at comlaude.com>

From: trachtenbergm at gtlaw.com<mailto:trachtenbergm at gtlaw.com> <trachtenbergm at gtlaw.com<mailto:trachtenbergm at gtlaw.com>>
Sent: Tuesday, June 9, 2020 8:53 AM
To: Jeff Neuman <jeff.neuman at comlaude.com<mailto:jeff.neuman at comlaude.com>>; AAikman at lrrc.com<mailto:AAikman at lrrc.com>; mike at rodenbaugh.com<mailto:mike at rodenbaugh.com>
Cc: gnso-newgtld-wg at icann.org<mailto:gnso-newgtld-wg at icann.org>
Subject: RE: [Gnso-newgtld-wg] proposed Language for those Getting Applicant Support

Sorry to be late to the party on this one.  I echo Mike’s concerns that 5 years is a long time. Additionally, I am concerned with the use of “legitimate”.  I understand the intent and the examples are helpful, but words like “legitimate” are almost certain to be disputed later.  Also, there is no exchange that would involve financial gain (another term open to interpretation) which could be “legitimate”?  And what about situations where the registry will otherwise fail if the RO does not sell?  The RO should instead fail and the TLD should go through the ICANN process – this is a better outcome?  I am also concerned with giving ICANN the ability to “reasonably” withhold its consent to an assignment.  ICANN does not always act reasonably and when ICANN even arguably has discretion to make decisions things don’t always turn out so well…

Marc H. Trachtenberg
Shareholder
Greenberg Traurig, LLP | 77 West Wacker Drive | Suite 3100 | Chicago, IL 60601
Tel 312.456.1020
Mobile 773.677.3305
trac at gtlaw.com<mailto:trac at gtlaw.com> | www.gtlaw.com<http://www.gtlaw.com/>

[Greenberg Traurig]

From: Gnso-newgtld-wg [mailto:gnso-newgtld-wg-bounces at icann.org] On Behalf Of Jeff Neuman
Sent: Tuesday, June 9, 2020 7:40 AM
To: Aikman-Scalese, Anne <AAikman at lrrc.com<mailto:AAikman at lrrc.com>>; Mike Rodenbaugh <mike at rodenbaugh.com<mailto:mike at rodenbaugh.com>>
Cc: gnso-newgtld-wg at icann.org<mailto:gnso-newgtld-wg at icann.org>
Subject: Re: [Gnso-newgtld-wg] proposed Language for those Getting Applicant Support

*EXTERNAL TO GT*
Thanks Anne, you are correct that the However, sentence is not complete.  So, please find the rest of the sentence:

“If the Applicant getting Applicant Support prevails in an auction, there should be restrictions placed on the Applicant from assigning the Registry Agreement, and/or from any Change of Control for a period of no less than five (5) years.  This restriction is in place to prevent gaming of the applicant support program whereby an applicant immediately transfers its ownership of a registry to a third party in exchange for any form of financial gain.  However, legitimate assignments (e.g., changing of ownership due to death or retirement, etc., assignments to subsidiaries, etc.) shall be permitted.  All assignments must have ICANN's consent, which consent may be reasonably withheld. In the event of a change of control after the first five (5) years but during the remaining first term of the registry agreement, the applicant should be required to repay the financial support that they received.”


Jeff Neuman
Senior Vice President
Com Laude | Valideus
D: +1.703.635.7514
E: jeff.neuman at comlaude.com<mailto:jeff.neuman at comlaude.com>

From: Aikman-Scalese, Anne <AAikman at lrrc.com<mailto:AAikman at lrrc.com>>
Sent: Monday, June 8, 2020 3:17 PM
To: Mike Rodenbaugh <mike at rodenbaugh.com<mailto:mike at rodenbaugh.com>>; Jeff Neuman <jeff.neuman at comlaude.com<mailto:jeff.neuman at comlaude.com>>
Cc: gnso-newgtld-wg at icann.org<mailto:gnso-newgtld-wg at icann.org>
Subject: RE: [Gnso-newgtld-wg] proposed Language for those Getting Applicant Support

I like the five years.
The sentence that begins with “However” does not appear to be a complete sentence.

Why are we limiting the reimbursement provision to the second half of the contract?
Thanks,
Anne

From: Gnso-newgtld-wg <gnso-newgtld-wg-bounces at icann.org<mailto:gnso-newgtld-wg-bounces at icann.org>> On Behalf Of Mike Rodenbaugh
Sent: Monday, June 8, 2020 12:10 PM
To: Jeff Neuman <jeff.neuman at comlaude.com<mailto:jeff.neuman at comlaude.com>>
Cc: gnso-newgtld-wg at icann.org<mailto:gnso-newgtld-wg at icann.org>
Subject: Re: [Gnso-newgtld-wg] proposed Language for those Getting Applicant Support

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