General Counsel's Analysis of VGRS's Request for Amendment to Registry Agreement
17 April 2002

General Counsel's Analysis of VeriSign Global Registry Services' Request for Amendment to Registry Agreement

To the Board:

On 21 March 2002, I received the following request from VeriSign Global Registry Services (VGRS), the division of VeriSign, Inc., that operates the registry for the .com and .net top-level domains:

Subject: Appendix G Amendments
Date: Thu, 21 Mar 2002 12:10:16 -0500
From: "Gomes, Chuck" <cgomes@verisign.com>
To: touton@icann.org
CC: tjohnson@verisign.com, phils@verisign.com

Louis,

I would like to request amendments to appendix G for the .com and the .net registry agreements to allow for a 12-month trial of the VGRS Wait Listing Service proposal as defined in the attached proposal. A copy of our analysis of comments received regarding the WLS proposal is also attached. Both of these documents will be posted at http://www.verisign-grs.com/wls.html.

It is hoped that the amendments can be executed expeditiously so that we can quickly notify registrars of specific milestone dates. We will cooperate however possible to work with you in this regard. In case I am unreachable, please feel free to contact Phil Sbarbaro.

Thanks, Chuck
[Vice President, Policy & Compliance
VeriSign Global Registry Services]

This memorandum summarizes my initial analysis of VGRS's request for an amendment to Appendix G to the .com and .net registry agreements and recommends a process for considering the request.

Background: The VGRS Wait Listing Service Proposal

VGRS's request grows out of a proposal for a Wait Listing Service (WLS) that it sent to the DNSO Registrars Constituency on 30 December 2001. After comments from that constituency and others, VGRS revised its proposal on 28 January. After additional discussions with registrars and others, VGRS revised the proposal a second time and submitted it with the 21 March 2002 request for amendment to Appendix G.

The proposed WLS would be offered at the registry level by VeriSign using technology supplied by SnapNames, a company that currently has arrangements with registrars to provide a roughly similar service at the registrar level. In summary, the WLS currently proposed by VGRS would operate as follows:

1. Acting on behalf of customers, accredited registrars could place reservations for currently registered domain names in the .com and .net top-level domains. (In view of its impending reassignment, .org would not be included.) Only one reservation would be accepted for each registered domain name. Each reservation would be for a one-year period. Registrations for names would be accepted on a first-come/first-served basis, with the opportunity for renewal.

2. VGRS would charge the registrar a fee, which would initially be set at $35.00 for a one-year reservation, but would go down in stages to $24.00 once specified volume thresholds were reached.

3. The registrar's fee to its customer would be established by the registrar according to market conditions.

4. In the event that a registered domain name is deleted from the registry (after all grace periods expire), VGRS would first check to determine whether a reservation for the name is in effect.

a. If there is a reservation, VGRS would assign the name to the registrar, charging the $6.00 annual registration fee to the registrar. The registrar would register the name to the customer, charging a fee determined by agreement of the registrar and customer.

b. If there is no reservation, VGRS would delete the name from the registry, so that the name is returned to the pool of names equally available for re-registration through all registrars on a first-come/first-served basis.

5. There would be no change in the conditions under which names are deleted. In other words, names would only be deleted from the registry when a registrar explicitly deletes them.

VGRS has proposed to implement the WLS for a one-year trial. At the end of the year, ICANN and VGRS would evaluate whether the service should be continued. In the event the WLS is not continued, reservations extending beyond the trial would be honored.

As noted above, several registrars are providing wait-listing services of various kinds at the registrar level. Some of these services are being provided by arrangements between registrars and SnapNames; others are being provided by competitive offerings. In essence, under all of these services the registrars watch for a desired name to be deleted and immediately seek to register it. With respect to registrars currently offering this type of service through SnapNames' "SnapBack" service, VGRS proposes a special transitional arrangement:

"On the WLS launch date, any domain name that has an existing SnapBack subscription would be excluded from the WLS system, meaning that no one, including SnapNames or registrars who license SnapNames' technology, can take out a WLS subscription for that domain names so long as an active SnapBack subscription is in place. SnapNames, the registrars, and any individuals interested in a particular domain name would continue to compete for it as they do today."

VeriSign GRS Responses to Domain Name Wait Listing Service Questions (15 Feb. 2001), response 18.

VGRS has not proposed to exclude names presently involved in non-SnapNames services from the WLS.

Background: Discussion of WLS Proposal to Date

VGRS first made its WLS proposal by sending it to the Registrar Constituency. The reaction from the members of the Registrar Constituency was overwhelmingly negative. Although not initially consulted by VGRS, on 18 January 2002 the Intellectual Property Constituency sent VGRS various questions about the proposal. There also was some discussion on the DNSO general assembly mailing list.

On 28 January 2002, VGRS issued a revised WLS proposal. Significant revised features included:

• VGRS's price for the service was lowered from $40.00 for a one-year reservation to the presently proposed levels of $35.00 at the time the service is introduced and then falling to $24.00 upon meeting volume thresholds.
  
  
• Possible terms for registrars' agreements with their customers were included based on feedback from the Intellectual Property Constituency.

The 28 January revised proposal also included procedural guidelines and a schedule for continued discussion of the proposal, including a question-and-answer period. VGRS received many questions from various persons and groups, and on 15 February VGRS posted responses.

Discussion continued, primarily within the Registrars Constituency and on the general assembly mailing list. Various registrars and others posted position papers in connection with the Registrars Constituency's consideration of its position on the proposal. On 10 March 2002, the Registrars Constituency adopted a resolution opposing implementation of the WLS and urging ICANN to withhold permission for its implementation. A minority of the registrars submitted a statement supporting implementation of WLS (18 registrars were listed as signatories of this statement, but the support of some of these registrars has been disputed).

At the Accra meeting, the DNSO General Assembly and Names Council Transfer Task Force conducted a meeting on a variety of issues concerning deletes, including the WLS. The Names Council Transfer Task Force is scheduled to submit its final report for public comment in May, so that the Names Council can provide a final report to the Board in June.

New Registry Services Under uTLD Registry Agreements

VGRS has requested that Appendix G to the .com and .net Registry Agreements be amended. That appendix specifies the maximum price that VGRS may charge for "Registry Services." Registry Services are defined as those that are "provided as an integral part of the operation of the Registry TLD". In essence, "Registry Services" are those that a registry operator is enabled to provide on a sole-source basis by virtue of its appointment as such by ICANN, rather than services that are provided on a freely competitive basis. The proposed WLS is a registry service because, unlike the wait-listing services provided competitively by registrars, it is implemented by bypassing the normal return of deleted names to the available pool and by instead assigning them to the registrar and customer holding the reservation. In this way, the proposed WLS would become integrated into the operation of the .com and .net registries.

Special Role of U.S. Commerce Department in the VeriSign Agreements

Under Amendment 3 to its Memorandum of Understanding with the U.S. Department of Commerce, ICANN must obtain approval of changes to its registry agreements with VeriSign:

1. The agreements entitled ".com Registry Agreement," ".net Registry Agreement," and ".org Registry Agreement" between ICANN and VeriSign, Inc. and relating to the provision of registry services for the .com, .net, and .org registries are hereby approved by the DOC in substitution for the Registry Agreement between ICANN and Network Solutions, Inc., effective date November 10, 1999. ICANN will not enter into any material amendment of, or substitution for, said agreements, nor will said agreements be assigned by ICANN, without prior approval of the DOC.

(This approval requirement does not apply to ICANN's agreements with the new TLDs.)

Considerations in Evaluating Proposed New Registry Services

ICANN has not yet developed a well-defined procedure for considering requests by registry operators to amend Appendix G to allow charging for an additional registry service. Because action on VGRS's proposal may serve as a model for future actions, it is important to carefully consider the process that should be followed.

On one hand, the registry operator is in a sole-source position in providing registry services; this position carries with it the potential for various types of harm to the legitimate interests of others.

On the other hand, requiring a consensus-development process for every new registry service could stifle innovation. Registry operators should be encouraged to introduce new services to the marketplace where no legitimate interests of others are being materially harmed.

To accommodate these countervailing considerations, in considering requests to amend a registry agreement to authorize charging for additional registry services, my judgment is that a preliminary "quick-look" evaluation should be made to determine whether it is plausible that the legitimate interests of others could be harmed by the proposed amendment. If no legitimate interest appears in danger of being harmed, then a streamlined procedure for approval should be followed. If, however, there are specific reasons to conclude that the legitimate interests of others are likely to be harmed, then ICANN's existing obligation to seek consensus whenever possible before acting suggests that it should invoke the formal consensus development mechanisms that currently exist prior to any decision by the ICANN Board.

Recommended Process for Consideration

In the case of VGRS's request for an amendment allowing charging for WLS on a one-year trial basis, several concerns have been raised by the Registrar Constituency and others. Some of these concerns are:

1. Displacement of existing registrar-level competition. Currently, different registrars offer a variety of services to customers waiting for domain-name registrations to be deleted. These different services, which are currently offered on a competitive basis, all work on the basis of promptly registering names once they are returned to the available pool after deletion. Because the registry-level WLS would divert deleted names from being returned to the available pool, it would "trump" all of the competitive registrar-level services.

In general, the introduction of registrar-level competition has been extremely successful, and care should be taken before a registry operator is allowed to displace that competition by exercising abilities it has acquired by virtue of being designated the registry operator.

In the specific case of WLS, however, it is quite possible that some of the technically harmful effects of the registrar-level services (such as the high registry loads caused by "add storms") may justify instituting a registry-level WLS. It is also quite possible that the consumer benefits of having a guaranteed effective reservation (which can not be done at the registrar level) make it appropriate to allow registry-level WLS. It does not appear to me that a consensus position on these issues has yet developed in the community.

2. Serious objections have been raised to the preferential transition arrangements proposed for the current SnapBack service, but not for any of the current services with which it competes. Since only some registrars are currently offering the SnapBack service, this proposed preference raises questions as to whether equivalent access would be accorded to all registrars.

3. Many in the community believe that the price for the proposed WLS service should be limited to a cost-plus-reasonable-profit basis. Registrars, in particular, have indicated that the proposed price is several times likely costs. Maximum-price limits are intended to ensure that a registry operator does not abuse the sole-source position it achieves through its registry agreement with ICANN. Making judgments about appropriate maximum prices requires consideration of many factors, such as whether any effective market-based mechanism will be present for constraining price. On the other hand, the argument that the only true market test of the appropriateness of the product and its costs is its reception by potential purchasers would support VGRS's suggestion for a trial period after which a more informed evaluation could be made.

Under these circumstances, and given the existing conceptual approach of ICANN to seek consensus where possible, it is my judgment that the Board should not seek to decide how to deal with this request without invoking the formal consensus development processes currently established within ICANN.

This judgment is reinforced by the Registrars Constituency vote opposing implementation of WLS and the fact that the Names Council Transfer Task Force is currently considering the WLS issue, with a report to the Board expected in June.

Thus, I recommend that the Board establish the following procedure for obtaining public comment to illuminate its consideration of the VGRS WLS proposal:

1. The proposal and related documents should be posted for public comment for a thirty day period.

2. The DNSO Names Council should be requested to provide any recommendations concerning the WLS proposal at least three weeks before commencement of the Bucharest meeting.

3. Time should be devoted to the WLS issue at the Public Forum in Bucharest.

The Board could then act on the merits of the WLS proposal at Bucharest (or after, if additional issues requiring more time arise). If ultimately the Board's decision is that the amendment should be made, then a suitable request can be made to the U.S. Department of Commerce for approval.

Respectfully submitted,

Louis Touton
General Counsel

Page Updated 23-Feb-2003
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