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Supplemental Declaration of Louis Touton in Opposition to Plaintiffs' Motion for Preliminary Injunction in Smiley v. ICANN

(5 October 2001)


SUPPLEMENTAL DECLARATION OF LOUIS TOUTON

I, Louis Touton, declare:

1. I am the Vice-President, Secretary and General Counsel of the Internet Corporation for Assigned Names and Numbers (ICANN). I have personal and first-hand knowledge of the facts set forth in this declaration. If I appeared as a witness, I could and would testify competently to those facts. I make this supplemental declaration in connection with ICANN's opposition to plaintiffs' motion for preliminary injunction.

2. The purpose of this declaration is to provide additional information based on the Court's inquiries during the September 26, 2001, hearing on plaintiffs' motion for preliminary injunction. In addition to providing two documents concerning ICANN's relationship with the U.S. Department of Commerce, I discuss primarily the start-up plans for the ".biz", ".info" and ".name" top-level domains (TLDs), as well as ICANN's authorization of the $2.00 application-processing fee charged by NeuLevel, Inc.

Documents Concerning ICANN's Relationship with the U.S. Department of Commerce

3. In my September 14, 2001, declaration in this matter, I described the joint participation of ICANN and the U.S. Department of Commerce in a project devoted to working toward privatization of coordination of certain aspects of the Internet, including the domain-name system (DNS). That participation is based on a Memorandum of Understanding between ICANN and the Commerce Department based on the Commerce Department's "joint project" authority under 15 U.S.C. § 1525, under which it is authorized to enter into joint projects with nonprofit, research, or public organizations on matters of mutual interest, the cost of which is equitably apportioned. A copy of the Memorandum of Understanding is available at http://www.icann.org/general/icann-mou-25nov98.htm.

4. The initial term of the Memorandum of Understanding was to conclude on September 30, 2000. In the summer of 2000, ICANN presented a report to the Commerce Department (available at http://www.icann.org/general/statusreport-30jun00.htm) on the status of the joint project. Based on that status report, ICANN and the Department of Commerce entered an amendment (Amendment 2) to the Memorandum of Understanding focusing the list of tasks to be completed and extending the term for one year, until September 30, 2001. As refocused, task 7 under the Memorandum of Understanding stated:

ICANN will continue the process of implementing new TLDs including proceeding with a proof of concept or testbed period and continuing design, development, and testing to determine future policy and action, continuing to consider:

a. The potential impact of new TLDs on the Internet root server system and Internet stability.

b. The creation and implementation of minimum criteria for new and existing TLD registries.

c. Potential consumer benefits/costs associated with establishing a competitive environment for TLD registries.

d. Recommendations regarding trademark/domain name policies set forth in the Statement of Policy; recommendations made by the World Intellectual Property Organization (WIPO) and recommendations made by other independent organizations concerning trademark/domain name issues.

A copy of Amendment 2 is attached to this declaration as Exhibit A.

5. In the summer of 2001, ICANN presented another status report to the Commerce Department (available at http://www.icann.org/general/statusreport-03jul01.htm). Based on that status report, ICANN and the Commerce Department entered another amendment (Amendment 4) extending the Memorandum of Understanding (and the joint project) for another year, until September 30, 2002. A copy of Amendment 4 is attached to this declaration as Exhibit B.

6. The agency of the U.S. Department of Commerce responsible for the joint project with ICANN is the National Telecommunications and Information Administration (NTIA). A copy of the NTIA's Annual Report for 2000, which discusses its work with ICANN, is attached as Exhibit C.

The Start-Up Plans

7. In deciding to proceed with an initial introduction of new TLDs in July 2000, ICANN's Board of Directors authorized a call for proposals for those wishing to operate new TLDs as well as establishment of guidelines for assessing which proposals to select for negotiations toward entry of agreements. On August 15, 2000, prior to the submission of the applications for the new TLDs, ICANN posted on its web site "Criteria for Assessing TLD Proposals" (available at http://www.icann.org/tlds/tld-criteria-15aug00.htm). Two important criteria were maintenance of the Internet's stability through orderly and reliable assignment of domain names during the initial period of the TLD's operation (item 1(g)), and protection of third-party rights in connection with domain name registration (item 8). Protection of third-party rights involves, among other things, the discouragement of abusive registration practices and the implementation of systems for the assertion and resolution of intellectual-property claims to specific domain names.

8. ICANN reviewed and received extensive public comment on the 44 completed proposals that were received and not withdrawn. (Contrary to assertions made by the plaintiffs in the reply papers, ICANN did not retain application fees for the three proposals not reviewed.) Throughout the review process, the proposed methods for dealing with landrush and intellectual-property issues received intense scrutiny. For example, at ICANN's November 2000 open meeting in Marina del Rey, representatives of various intellectual-property interest groups met with many of the applicants to discuss and suggest alterations to their proposals. This input led to refinement of the start-up plan submitted by NeuLevel (then known as JVTeam LLC) for the ".biz" TLD, as well as those submitted by other applicants.

9. To date, ICANN has completed agreements with the registry operators for ".biz", ".info", and ".name," and those TLDs have been added to the authoritative root-zone file of the Domain Name System (DNS). Under the registry agreements, all three operators have employed or will employ random-selection processes during the initial registration phase, and then, after the surge in demand for registrations subsides, transition to the first-come/first-served allocation method. The use (in a large TLD) of a batch process with random selection during the initial surge in applications was broadly supported both by those companies that proposed to operate large new TLDs and the community generally. The reason for this approach is the absence of practical alternatives for large, new TLDs. As I explained in my first declaration, a first-come/first-served system could jeopardize the stability of the TLD's registration system in that it likely would be overwhelmed by the initial surge in applications for a large, new TLD. In my earlier declaration, I mentioned two similar circumstances where stability problems have been encountered due to registration volume surges, involving introduction of international-language domain names and re-registration of expiring names. Since my September 14 declaration, the operator of ".info", Afilias, has transitioned from its start-up phase (involving a sunrise period followed by a landrush period) to the first-come/first-served allocation mechanism. Soon after introducing first-come/first-served registration, Afilias experienced stability problems with its registry system related to the surge and took the registry offline for approximately one-and-one-half days. I have attached a news story entitled ".info land grab overwhelms registry" as Exhibit D.

10. As described in my earlier declaration, registration of domain names through auction also has very serious disadvantages. In addition to the significant logistical problems of operating auctions for a large number of names (several hundred thousand names are registered during the start-up phase of a large TLD), the Internet community is generally antagonistic to use of auctions for fairness and other reasons, as described in my previous declaration. In view of the need to obtain community support of their applications, the proposers of TLD registries did not generally propose auction schemes, and in my opinion acceptance of such a proposal for inclusion on the initial introduction through the ICANN process would have been very unlikely.

11. The widespread support for random-selection processes during start-up also reflects a view that, while no system is perfect, random-selection processes tend to provide fair outcomes. One issue that has arisen is whether it would be possible to prevent multiple applications by the same party. To my knowledge, no available system exists that would ensure this result for a large TLD. Because millions of applications are received from around the world, applicants cannot be screened effectively by name, address, or a unique identifier such as a social security number. Submission of applications via the Internet (as these applications are submitted) precludes fully effective verification of this information. At best, screening for multiple applications could be accomplished, but this would have limited effectiveness and would be at considerable cost. Even if multiple applications from the same person could be prevented through a screening method, there would be no good way to prevent applications through "straw men," or, similarly, duplicative applications from every employee of the same business enterprise. Thus, screening for multiple applications would be least effective to prevent multiple applications by the most determined and unscrupulous applicants. These represent a few of the significant obstacles to preventing multiple applications.

12. Consistent with the "proof of concept" approach to the initial introduction of new TLDs, during which ICANN is testing the addition of a total of seven new TLDs, the random selection processes for ".biz", ".info" and ".name" are not identical. During the recently completed landrush phase for ".info", the registry operator, Afilias, organized domain-name applications into separate batches according to the registrars from which they were received. Afilias then randomly ordered the applications within each batch and processed applications from each batch using a "round robin" mechanism, so that no more than one application from each registrar's batch was processed in each round. The registry agreement for ".name" calls for a multi-step randomization process in which each registrar submits a batch of applications, a randomization process is used to limit each registrar's batch to one application per name, and then the registrar batches are combined and random selections are made. By contrast, for ".biz" all applications were to be combined in a single batch and processed in random order. However, NeuLevel has separated out the unique applications (this should not bias the result of the random selection), and the corresponding names went "live" on October 1, 2001.

13. Another aspect in which the various start-up plans employ diverse procedures involves the methods for resolving intellectual-property issues. As noted above, providing appropriate protections for intellectual property is, along with ensuring a stable introduction, a major goal for the introduction of new TLDs described in both the ICANN-Commerce Department Memorandum of Understanding (see ¶ 4 above) and the August 15 criteria for selection of TLDs published by ICANN (see ¶ 7 above). The various mechanisms for dealing with intellectual property issues are described in the news article entitled "Registries prepare for domain crush," which I have attached as Exhibit E.

14. Many of the registry applicants proposed using a "sunrise" period to address intellectual-property concerns. A "sunrise" period is a special period at the beginning of a TLD's operation in which trademark owners (usually only holders of registered trademarks) are authorized to register their marks as domain names. Afilias implemented this type of plan for the ".info" registry under which owners of registered trademarks or service marks with national effect had thirty days to apply for domain names corresponding to their trademarks. In the event that two or more applicants claimed marks corresponding to the same domain name, priority was determined using the same type of randomization process as in the later landrush phase. Only registered trademark holders were authorized to apply for names during the Afilias sunrise period. The start-up plan also set forth a procedure through which the legitimacy of a sunrise-period registration could be challenged.

15. Sunrise registration periods have been criticized by some members of the public and the Internet community because they advantage registered trademark owners (many of which are large businesses) over other businesses and individuals that may seek to make lawful use of domain names that correspond to registered trademarks. (For example, a domain name corresponding to a registered trademark might lawfully be used by another in connection with a type of business unrelated to that for which the trademark registration was obtained.) In proposing ".biz", therefore, NeuLevel fashioned a system that avoided use of a "sunrise" period but still sought to provide an appropriate mechanism for resolving trademark issues. In particular, the NeuLevel proposal included an elaborate system in which intellectual-property claims are collected, applicants and claimants are notified of each others' positions, and all parties are encouraged to resolve contending claims to domain names when they first arise. In this way, NeuLevel's proposal offered the Internet community a very attractive alternative means of intellectual-property protection that could avoid the criticized features of sunrise mechanisms.

16. In the first step of NeuLevel's procedures for handling intellectual-property claims, it accepted formal claims from parties asserting intellectual property rights (whether based on a registered trademark or other claimed rights) to specific domain names. If during the subsequent landrush phase a party applied to register a domain name subject to an intellectual property claim, that party received an e-mail notification detailing the existence of the intellectual property claim, the information provided by the intellectual property claimant, a hyperlink to a secure website where the applicant could notify NeuLevel of its decision to withdraw or continue with the application, and the procedure to be followed if the applicant chose to continue.

17. In the event that an applicant elects to proceed notwithstanding the existence of an intellectual property claim, its application will be processed along with all others. If selected through NeuLevel's randomization procedures, then the applicant will be permitted to register the domain name, but activation in the DNS will be postponed for thirty days. During this period, the intellectual property claimant will receive e-mail notification of the registrant's identity. This e-mail will include a hyperlink to the "Start-Up Uniform Dispute Resolution Process" through which the claimant can contest the registration. The domain name will become active after thirty days but will remain "locked," meaning that changes to the domain name information (e.g., identity of registration holder and contact information) will not be permitted until completion of the dispute resolution process.

18. A detailed flowchart of the ".biz" process for intellectual property claims and notifications is presented in Exhibit F.

19. The start-up plan for ".name" contains unique intellectual-property-protection features as well as some aspects that resemble the ".info" and ".biz" plans. Prior to the landrush phase, owners of trademarks or service marks with national effect can submit "defensive registrations" for corresponding domain names. Unless successfully challenged under recognized dispute resolution procedures, domain names subject to defensive registration will not resolve in the DNS - neither the registrant nor a third party will be able to use the name. The registry operator also is to provide a "NameWatch Service," through which subscribers can be notified if specified names are registered by third parties.

20. The proposed .pro (for professionals) TLD would use a sunrise period to address intellectual property concerns. The registry agreement for .pro has not yet been completed.

21. The three other of the initial group of TLDs - ".aero", ".coop", and ".museum" - are specialized TLDs intended to have registration restrictions and naming conventions that will limit them to relatively small numbers of domain names. Thus, the considerations surrounding the introduction of these TLDs are quite different from the much larger TLDs such as ".biz", ".info", and ".name".

22. As evidenced by the variety of these start-up plans, ICANN did not attempt to identify the "best" method for addressing the landrush and intellectual-property issues implicated by domain name registration. The ICANN Board selected proposals embodying various approaches with sufficient promise to be tested during the "proof of concept" phase for the introduction of new TLDs. It is anticipated that the implementation of these approaches will provide ICANN and its constituents with valuable information from which to develop start-up plans for introduction of TLDs in the future.

The $2.00 ".biz" Application Processing Fee

23. As noted above and shown by the flowchart in Exhibit F, the ".biz" start-up intellectual-property provisions are, from the registry operator's perspective, significantly more elaborate and costly to perform than the registry procedures involved in "sunrise" systems. This complexity had an important role in the negotiations of the registry agreement between ICANN and NeuLevel under which NeuLevel is designated as registry operator for the ".biz" TLD.

24. The three registry agreements establish maximum fees that the registry operators may charge registrars for performing registry services. This is done to prevent the registry operators, which are placed in a sole-source position as a result of their designation by ICANN, from levying inappropriately high charges for these services. ICANN sought to negotiate the fees that would support the investment and efforts required for stable registry operation while not permitting registry operators to abuse their positions. In this regard, ICANN scrutinized registry proposals for maximum fees for particular services in light of the likely cost of providing those services competently and reliably.

25. The three completed registry agreements allow the registry operators to charge registration fees paid by successful applicants in the range of $4.75 to $5.75 per year. Other types of fees differ among registries based on the nature of those services. The three registry agreements also establish various maximum fees for registry services that are intended to address intellectual property issues. The ".info" process for challenges to sunrise registrations by intellectual property claimants, for example, involves a $295 fee for each challenge. The ".name" start-up plan authorizes fees of up to $250 for a specific defensive registration ("louis.touton.name"), up to $6,000 for a broader defensive registration (covering any first name combined with "touton.name"), and up to $50 per year for the NameWatch Service.

26. Due to its notification method for addressing intellectual-property issues, NeuLevel expected to incur substantial expenses during its start-up phase. Rather than simply processing applications in a certain manner and notifying the applicants of the results, NeuLevel was required to establish systems: (1) to accept intellectual-property claims and to build a database of them, (2) to match "landrush" applications to intellectual property claims, (3) to notify and provide information to those applicants seeking names for which one or more intellectual property claims were filed, (4) to offer those applicants the choice, through a secure web site, to abandon or continue their applications, (5) to implement the choices of such applicants, (6) to notify and provide information to intellectual property claimants if the applicants seeking corresponding names elect to proceed, (7) to postpone activation of such names in the DNS for thirty days, (8) to allow and track the initiation of dispute-resolution proceedings in these circumstances, and (9) to "lock" the names until completion of dispute resolution procedures. This process is quite elaborate, requiring active efforts by NeuLevel to educate registrars, registrants, and intellectual-property claimants, as well as a significant customer-service function to answer inquiries regarding the process. There is also the potential for claims that the process has not been followed appropriately in particular cases, possibly leading to litigation expenses.

27. In view of all these required procedures, it was apparent that NeuLevel would be required to expend very substantial processing costs in following its "sunrise-less" program for addressing intellectual-property issues. Accordingly, the ".biz" Registry Agreement authorized NeuLevel to charge additional processing fees up to $90.00 for each intellectual property claim and $2.00 for each application. Based on the nature of these procedures and estimates of the total number of intellectual property claimants and applicants, the combination of the $90.00 and $2.00 fees appeared likely to generate revenue that reasonably approximated the likely cost of performing the various procedures intended to address intellectual-property concerns that were entailed in the name-allocation process.

28. In entering their registry agreement, ICANN and NeuLevel concluded that it was appropriate for the expenses of the intellectual property claim notification system to be shared by intellectual-property claimants and applicants for domain-name registrations. Because such processes are designed and implemented for the protection of the intellectual-property claimants, the more substantial $90.00 fee was reasonable yet not prohibitive of legitimate claims. At the same time, the notification method is in some ways more favorable to most applicants because the ".biz" start-up plan, unlike plans employing a "sunrise", does not include a "sunrise" period in which registered trademark owners are accorded preferences in domain-name registration. Also, the number of notices to be sent and the number of domain names subject to special procedures increase in proportion to the total number of applications received by NeuLevel. It therefore was reasonable to spread a portion of the cost widely by charging a nominal $2.00 fee for each application for registration.

29. ICANN never viewed the $2.00 fee to be anything other than a legitimate processing fee to cover NeuLevel's estimated expenses. Certainly, ICANN did not consider the fee to be payment for the opportunity to win a prize in a game of chance. During the application phase for new TLD registries in late 2000, thousands of public comments were received on the many proposals to use random-selection processes during the landrush. These proposals included that of JVTeam LLC (now NeuLevel), which the group of reviewing experts described as a proposal to "effectively select names for registration randomly from registrars." Despite the obvious fact that registration expenses would need to be recovered through the imposition of fees, to my knowledge, ICANN received no comments during the selection process (the period leading up to and including the November 2000 ICANN meeting) suggesting that fees charged in connection with a random-selection registration process could be viewed as an entry fee for an illegal lottery.

30. In the first half of 2001, ICANN solicited public comments on drafts of the ".biz" registry agreement that provided for the $90.00 and $2.00 fees. Drafts of Appendix G to that agreement, containing the maximum price schedule, were posted on ICANN's website on February 28, April 23, and April 26, 2001. All of these drafts set forth the $90.00 and $2.00 maximum fees. The relevant part of Appendix G states:

"5. Maximum Fee for Start-Up Intellectual Property Notification and Domain Name Application Service

During the Start-Up phase of the Registry TLD, NeuLevel will provide an Intellectual Property Notification and Domain Name Application service. This service is described in detail in Appendix J to the Registry Agreement. This service shall be made available on a fee basis with maximum fees as follows:

US $ 90.00 Per Trademark Claim Form

US $ 2.00 Per Domain Name Application Submission"

Drafts of Appendix J, containing the start-up plan, were posted on March 5 and April 22, 2001. After an extensive opportunity for public comment (and various comments were, indeed, made on the agreements), and based on the general support for these agreements in the Internet community, the ICANN Board approved entry of the ".biz" Registry Agreement on May 7, 2001, and it was formally signed on May 11, 2001. (I am not aware of any suggestions, prior to its approval, that the ".biz" allocation method constituted an unlawful lottery. To my best recollection, I became aware of some assertions that it might constitute a lottery sometime in early May.)

31. For practical reasons, random-selection processes such as those employed for the ".biz", ".info" and ".name" registries are essential to the rollout of large, new TLDs. It was appropriate for registry operators to recoup the costs of developing and implementing these processes as well as other mechanisms for addressing intellectual property concerns. ICANN approved the processing $2.00 fee for ".biz" applications because, based on available estimates, the fee was reasonably related to NeuLevel's expected costs. ICANN would not have approved the fee if it had appeared to provide NeuLevel the ability to profit by operating a game of chance for a fee.

I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. This declaration was signed on October 5, 2001, at Marina del Rey, California.

__________________________
Louis Touton


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