The .com and .net Registry Agreements between ICANN and VeriSign, Inc. contain provisions establishing the maximum price that the registry may charge to ICANN-accredited registrars for registering domain names in that registry. The Registry Agreements also contain the initial form of registry-registrar agreement (including the price charged to registrars), and provide procedures under which VeriSign Global Registry Services (VGRS) can seek to change that price.
The Registry Agreements provided that VGRS would initially charge the maximum permitted price, $6, for each name registered. The procedures for VGRS to change the price require that (a) 30 days notice be given to ICANN and all accredited registrars, (b) a uniform price be charged to all registrars, and (c) the price cannot exceed the maximum price provided in the Registry Agreement. Registry operators other than VGRS may extend uniform volume discounts, but VGRS agreed not to do so without ICANN's authorization. This provision was the result of concerns raised by some unaffiliated registrars that VGRS could unfairly advantage its affiliated registrar, NSI Registrar, by offering volume discounts that only NSI Registrar could qualify for. Therefore, these agreements prevent VGRS from offering even non-discriminatory volume discounts without prior approval by ICANN.
In addition, the Registry Agreements require notice to and approval by ICANN before VGRS introduces new terms into its provision of registration services to registrars.
On October 17, 2001, VGRS introduced a new promotional/marketing initiative that sought to encourage additional efforts by ICANN-accredited registrars to market name registrations in .com and .net. This program sought to create incentives for registrars to increase their marketing efforts of .com and .net names by offering placement fees on a per-name basis under a graduated scale. Various additional requirements were also introduced for sales by registrars through the program. The method used to calibrate the amount of placement fees was to compare the number of names registered during the promotion period by a particular registrar with the number of names registered by that same registrar during a previous baseline period. The higher the percentage increase in names registered in the promotion period compared to the baseline period, the higher the placement fee. Thus, if the increase was 100% or greater, VGRS would rebate the registrar a fee of $1.50 per name. The program was open to all ICANN-accredited registrars, and was scheduled to operate from 1 November 2001, until 31 December 2001.
VGRS did not provide the required prior notice to ICANN of changes in its registry prices that is required by the .com and .net Registry Agreements, nor did it give notice and seek approval for the additional terms under which registrations are provided through the program. ICANN learned of the program only upon a registrar complaint. When ICANN became aware of the program, it notified VGRS that, since the practical effect of this program was to reduce the cost of registered names on a per name basis measured by volume, the program was inconsistent with various provisions of the .com and .net Registry Agreements.
When ICANN raised this matter with VGRS, VGRS stated that it believed that the program was in conformity with its agreements with ICANN because: (1) it was not a price change, but simply involved payment for promotion and marketing services by the registrars; measurement on a per-name basis was simply an effective way of determining the value of the promotion and marketing services provided by each registrar; (2) it was not a volume discount because it measured the relative amount of change in the number of registrations by a registrar, not simply the volume of those registrations; and (3) the NSI Registrar was not even participating in the program, so there could be no argument that this program was somehow advantaging VGRS's affiliated registrar over non-affiliated registrars. (On the last point, however, it should be noted that another VGRS-affiliated registrar is participating in the promotion.) In addition, VGRS noted that it should be permitted to engage in performance-based marketing programs.
While these are reasons why some features of the VGRS program should be permitted to go forward, the contractual language is absolute and requires prior notice of any registration price change and prior approval for any volume discount. Accepting VGRS's analysis would mean that the prohibition on volume discounts could be easily evaded by simply labeling it as a promotional/marketing payment. In this case, appropriate prior notice to ICANN and all ICANN-accredited registrars might have resulted in no objections from either ICANN or registrars, and under those circumstances, it certainly is possible that ICANN would have authorized this or some similar marketing program. In the absence of such notice or approval, however, and given the unambiguous language of both Registry Agreements, it is not appropriate to allow this program to continue in its present form.
Despite this conclusion, all parties should try to minimize the commercial disruption required to deal with this apparent violation. This is especially true here, where these are still relatively new Agreements, where this particular issue has not previously arisen, and where (because of the lack of participation by NSI Registrar and the percentage increase feature) permitting some type of compensation based on volume improvement is not likely to present the problems that the prohibitory language of the Agreements was designed to protect against. It is also relevant that this particular program has less than a month to run, and that 31 registrars have agreed to participate in the program and have been operating within its terms for over a month. Thus, after consultation with ICANN, VGRS has agreed to modify its program to establish a calculation mechanism that incorporates a fixed participation fee and a placement fee based on a series of seven different performance levels, ranging from a 5% increase to a 120% increase over the baseline performance. ICANN believes that this accommodation is the best outcome in the current circumstances.
Even where a registry operator in good faith does not believe that its Registry Agreement prohibits or should prohibit a particular action it proposes to take, but there is a possible reading of the Agreement's language that indicates the action may be prohibited, prior consultation will likely eliminate (or certainly significantly reduce) situations like the present, where an ongoing program must be modified. VGRS has indicated it understands this point. Accordingly, in view of the modifications VGRS is making in the program, ICANN does not plan to take any further action on this issue.