ICANN Rejection of .ORG Sale to Ethos Capital: A Win for Public Interest?

On the 30th of April 2020, the Internet Corporation for Assigned Names and Numbers (ICANN) blocked the sale of the Public Interest Registry (PIR) to a private equity firm, Ethos Capital. The sale was announced by the Internet Society (ISOC) in November 2019. While on the face of it, the sale seemed like a routine transaction, it had much broader implications for the future of the three bodies involved, namely ISOC, PIR and ICANN and the internet in general.

Before we can unpack the implications of this refusal, we must introduce the players and set out the background to this sale.

Background

ICANN, founded in 1998, is a private not-for-profit corporation based in Los Angeles. ICANN is responsible for the management of the Domain Name System (DNS). It promotes competition in domain registrations (a domain name is a string which identifies the authority within the internet, common examples of top-level domains are dot-net, dot-com etc.) and develops policy on the internet’s unique identifiers (the address on the internet where something is located). ICANN is, therefore responsible for maintaining universal resolvability, i.e. ensuring that the internet from different countries is not separate from each other. ICANN thus helps to manage and maintain certain core infrastructure, which keeps the internet on.

ICANN operates through a unique multi-stakeholder model. Any technical changes to the internet are raised within the supporting organizations of ICANN. These suggested changes are then released for public review. The ICANN review process generally composes of at least two rounds of comments, once initial suggestions are incorporated, the proposal is then released for the second round of public review. The ICANN board, taking into account the reports made by the bodies, and the comments received, then make a decision concerning the proposed change.

ISOC is a non-profit organization which was founded in 1992 and works towards an open, globally-connected, secure and trustworthy internet for all. ISOC promotes the concept of ‘internet for all’ and is composed of both individual and organizational members. It is governed by a board of trustees composed of 13 members who are appointed by chapters, organizational members and the Internet Engineering Task Force.

ISOC currently controls the dot-org (.org) domain through the Public Interest Registry (PIR), a not-for-profit organization created by ISOC in 2002 and based out of Virginia.  PIR took over the operations and management of dot-org in 2003 and has since launched and managed the dot-NGO and dot-ONG top-level domain names as well. The PIR is responsible for maintaining the registry of all the domains in the dot-org community. PIR is also an active member of ICANN.

The other party to the sale, Ethos Capital is a specialized investment firm which focuses on companies in which technology can be used to automate and optimize traditional business models. It was founded in June 2019, just a few months before the sale.

In this post, we shall examine the details of the proposed sale of the dot-org domain, the issues which arose as a consequence of the sale and finally what the implications of the refusal by the ICANN will be on the future of dot-org.

What is dot-org (.org)

Dot-org was created in 1984 as one of the internet’s original top-level domains, other domains from this era include dot-edu, dot-net, dot-com, dot-gov. Dot-org is one of the oldest and the third largest domain on the internet. The domain is home to over 10.5 million websites and is most recognizable for hosting non-profit websites. It is managed by the PIR.

The initial term of the agreement between PIR and ICANN ended in June 2019, following which the parties renewed the agreement for a period of 10 years. The agreement is based upon the provisions of the generic top-level domain registry agreements, which is entered into between ICANN and the registry operator (the entity responsible for providing the registry services), which in this case was PIR. The renewal agreement included some important changes, including the removal of price caps and adopting public interest commitments and the Public Interest Commitment Dispute Resolution Process (PICDRP). These changes to the renewal agreement played a significant role in the proposed sale between ISOC and Ethos Capital.

The agreement between Ethos Capital and ISOC over the sale PIR would have the effect of altering the agreement between PIR and ICANN, and thus, ICANN’s would have had to consent to the sale as well. Section 7.5 of the contract between ICANN and PIR mandates that PIR must seek its approval before a change of control and that such consent cannot be withheld unreasonably by ICANN. Consequently, after the announcement of the sale by ISOC, ICANN started the process of review for the sale.

While the technical specifications of PIR, and the contract for its sale are relatively clear, the transaction itself was mired in controversy. This was, for the most part, due to the perceived value of the dot-org domain.

Before we move on to the details of the sale, and the consequences of the same, we must first examine the arguments supporting the value of dot-org.

The dot-org domain derives most of its value from the belief that it is primarily used by non-profits, and adds credibility to a hosted domain. The dot-org domain is generally thought of as being synonymous with non-profit organizations. This is also bolstered by the fact that many large international organisations and non-profits such as the United Nations, the International Committee of the Red Cross, Wikimedia Foundation, Greenpeace, YMCA, Red Cross, Human Right Watch etc. use the dot-org domain. Dot-org is the second most valuable namespace, behind dot-com. 

The dot-org domain is an ‘open’ domain, as opposed to a closed one, like dot-edu, consequently anyone can register with a dot-org domain, regardless of their for-profit status. The trust in the dot-org domain is a remnant of its historical status, and there is no evidence to support the theory that it is mostly used by non-profits. The true value of the dot-org domain is essentially the public perception of trust which is associated with it, regardless of the actual identity of the actors using the service.

The sale of dot-org (.org)

In November 2019, ISOC announced the acquisition of the PIR by Ethos Capital. PIR would continue to oversee the management and mission of dot-org, but would now come under the oversight of Ethos Capital. The proposed transaction was estimated to close by the first quarter of March, and in its statement, ISOC reaffirmed PIR’s ability to meet the ‘highest standards of public accountability and transparency’. The statement also discussed that the transaction would also infuse ISOC with a large endowment and sustainable funding which would allow ISOC to expand its work in internet governance. The sale was also said to have no disruption of service or sale to the dot-org community or any of their educational initiatives.

This sale was opposed by many immediately, due to concerns relating to increasing prices of domain registrations, therefore, subjecting many non-profit websites to large price hikes. This fear is also backed by ICANN’s decision in July 2019, which lifted the price caps on all the dot-org domains. The decision was heavily criticized, as it could potentially lead to major price hikes on domains, and also as the move had been undertaken despite almost universal opposition to the same. This removal of price caps, when taken in conjunction with the sale of PIR to a for-profit organization led to rising fears of price hikes for the dot-org domain.

The list of those opposing the sale of the dot-org domain was wide and varied. ICANN received missives from the governments of France and Germany. While France did not outright advocate for refusing the sale altogether, it questioned the commitments made by Ethos Capital, and commented upon the insufficiency of time provided to ICANN to deal with the matter. Similarly, Germany also commented upon the insufficiency of information provided and asks ICANN to conduct further reviews of the proposed transaction.

Another important opposition to this sale came from the Office of the Attorney General in the state of California, who urged ICANN to reject the transfer of PIR to Ethos Capital. It cited concerns such as the lack of transparency about the future plans of Ethos Capital, potential risks to operational uncertainty of PIR and the repayment of the 300 million USD which would be assigned to PIR after the sale. In the light of the possible risks to the non-profit community, the Attorney General suggests rejecting the sale.

The sale was also the subjected to scrutiny by a number of US senators and members of Congress. At least three letters were sent by a group of representatives to ISOC, PIR and ICANN raising concerns about the deal. In a letter to ICANN dated 18 March 2020, Senators Elizabeth Warren, Ron Wyden, Richard Blumenthal, Edward J. Markey and representative Anna G. Eshoo have advocated against the sale. The letter argues that such a sale would be contrary to ICANN’s commitment to public benefit, and would ultimately have the effect of undermining the reliability of dot-org as a whole. In addition to concerns of transparency and a potential price hike, they also argue that initiatives suggested by Ethos Capital (mentioned below) would be toothless. It therefore advocates strongly for ICANN to reject the proposed sale.

Finally, the deal saw a massive pushback including a public campaign from over 900 organisations led by Electronic Frontier Foundation (EFF). Many activists and organisations also demonstrated against the proposed sale at a rally at ICANN’s LA headquarters in January. Additionally, many others including UNESCO sent representation to the ICANN, in its public comments, asking ICANN to withhold the consent for this transaction.

While the proposed sale had more than its share of opposition, other experts took a different position regarding the sale. It was argued that the amendments proposed by Ethos, through the Public Interest Commitments, as discussed in the next section, could have been used to patch up the holes left by the new registry agreement between ICANN and PIR. 

Public Interest Commitments

Following the announcement of the sale, Ethos Capital also released a series of key initiatives, to allay the fears surrounding the sale of dot-org. These initiatives were announced as public interest commitments (PICs), which were voluntarily undertaken by Ethos, to reinforce the company commitment to the dot-org community. The company proposed that these commitments could be added to the registry agreement which exits between PIR and ICANN, thus making them legally binding.

This included measures such as enforcing a price limit to bolster the affordability of dot-org domain names, by capping the increase on the registration or renewal charges for a domain name at 10% per year on an average, for eight years. It also announced setting up a new ORG Stewardship council, which would have the power to veto any resolution passed by the PIR on the censorship of the freedom of speech and expression, or the use of user data. It also announced establishing community enablement funds to a tune of 10 million USD and releasing annual public reports to ensure transparency in the working of the PIR.

In support of the Stewardship council, Ethos released a series of updates, including the proposed charter, the nomination process and even appointed an independent search firm Heidrick & Struggles, as the agency which would handle nomination requests from the community.

The enforcement mechanism of these commitments remained vague. Since the inclusion of the PICs in the registry agreement with ICANN makes them legally binding, they could not be unilaterally amended by PIR as they were a part of the registry agreement with ICANN, and in case of any default, they were legally enforceable. However, it is uncertain to what extent the members of the community could enforce these commitments through the newly adopted PICDRP. The PICDRP is a relatively new dispute resolution procedure, and it is uncertain how effective it would be in resolving the challenges raised by community members.

Refusal by ICANN

The process leading up to the decision by ICANN has been long and time consuming. PIR formally submitted the notice of indirect change of control to ICANN on 14 November 2019, and the final deadline for ICANN to approve or reject the transaction was 4May 2020. The five intervening months have seen several rounds of questions between ICANN and the parties to the sale. ICANN’s issued three requests for additional information in December 2019, February 2020 and finally in April 2020, which were all provided by PIR. ICANN also responded to requests by the office of the Attorney General of the State of California in January 2020, by providing information regarding the proposed transfer of PIR to allow the Attorney General’s office to ‘analyse the potential impact of the same on the non-profit community, including ICANN.’

In addition to the formal consultation process undertaken with PIR, ICANN also received over 30 letters from the ICANN community, relating to the PIR transaction. The ICANN board also convened a public forum at the 67th meeting of ICANN to encourage community dialogue on the proposed transfer of ownership of the PIR.

On 30th April 2020, ICANN finally rendered its decision, refusing the sale of the PIR to Ethos Capital. The implications of this refusal are vast.

ICANN has cited several reasons for refusing the sale of PIR to Ethos Capital. These include the lack of experience on the part of Ethos, removal of protections of the not-for-profit status, and the debt of 360 million USD which the transaction would bring to PIR, especially in the current economic and fiscal uncertainty. The transaction would oblige the PIR to repay this debt of 360 million USD, post the sale, but this would not in any way benefit the dot-org community or PIR itself. While the initial sale models had shown the capacity of PIR to repay this debt, the decision argues that the current uncertainties were not taken into account in the fiscal model, and hence it could not be relied upon.

ICANN reiterated PIR’s responsibility to serve public interest, through its operations of dot-org and other domains, and held that the transfer of this mandate to another entity could not be upheld, especially without a public interest mandate on the part of Ethos Capital. The valuation of PIR was also discussed in the order. Since its inception in 2002, PIR has created a value of 1 billion USD, which the ISOC could realize through this sale, which would convert the PIR into a for-profit body.

At this point however, it is important to clarify, that the sale of PIR would not dissolve the agreements between PIR and ICANN, and that ICANN would still hold a contract with PIR, as it did before the sale. However, the board goes on to say that the changes in the form of the entity in this instance, would be so significant, that they would have to be considered in this change of control request.

On the other hand, in the response statement, ISOC has alleged that the ICANN stepped outside its remit, by essentially undertaking the role of a regulator in this transaction between ISOC and Ethos Capital, which is beyond the scope of what ICANN was intended to do. This particular transaction was a transference of indirect control, which has previously been accepted by the ICANN, much more expeditiously. The statement also commented on the delay in the decision-making process. It also alludes to the possibility of influence, wherein the statement raises concern on behalf of the internet community about ICANN’s potential susceptibility to political influence. 

Additionally, PIR and Ethos Capital have also released statements condemning the move by ICANN. PIR alleges that the decision represents a failure by ICANN to follow its bylaws and processes, while Ethos Capital describes this as a dangerous precedent which will ‘suffocate innovation and deter future investment in the domain industry’. It has described the move by ICANN as ‘agenda-driven’ and based on ‘subjective interpretation’ while overstepping its mandate.

The Next Steps

The refusal on the part of ICANN has effectively stopped the sale for now. This decision has taken a long time, with the initial deadline being pushed from 17th February to 20th April to 4th May. However, it must also be kept in mind, that in their decision ICANN reiterated, that keeping the totality of the surrounding circumstances in mind, the board has supported a denial of the request in the change of ownership at this time. The PIR may, later, provide additional information to resolve the concerns which have been raised and re-submit or initiate a new change of control request in the favour of Ethos Capital.

It is hard to see any real winners in this transaction. While blocking the sale was considered a ‘win’ for the internet, it makes no real changes to the status quo either.

On the one hand, the primary concerns that were raised during the sale, including the potential price hike, stem from the removal of the price caps in the renewed registry agreement between ICANN and PIR; with or without the sale, the possibility of price hikes for dot-org renewals remains unchanged.

Additionally, with the failure of the deal, the proposal for the Stewardship council had also fallen though, which could have potentially bolstered the participation of independent experts in preserving the right to freedom of speech and expression online. While the charter suggested by Ethos was not perfect, it is difficult to say that a better deal could not have been achieved. Another factor to consider here is the loss of an endowment valued at over 1 billion USD for the ISOC.

On the other hand, the sale still brought up many questions of transparency which were not adequately addressed. While the central debate on the sale was based around the perceived link of non-profit organizations to the dot-org domain, Ethos’s lack of real experience or history in the field of internet governance also played a role in the refusal by ICANN. Additionally, a former employee of ICANN, Nora Abusitta-Ouri who serves as Chief Purpose Officer, and Erik Brooks, the founder and CEO are the only two employees of the firm. The former CEO of ICANN Fadi Chehadé serves as an advisor to the firm, but not much more is known about Ethos capital.

Another possible factor which could have had an impact on the sale of PIR to Ethos, are the lockdowns, which were put into place post the outbreak of COVID-19. While the decision and the subsequent statements make no reference to the outbreak per se, the decision by ICANN does make reference to the financial and economic instability, and the potential impacts of the same. A large part of the value of the dot-org domain is attributable to the perceived rhetoric supporting the ‘non-profit’ nature of the domain. While this link between non-profits and the dot-org domain is factually inaccurate, it would still be bad optics for ICANN to go against the submissions of major non-profits, especially during a pandemic, where they are more visible.

Denying the current sale does not in fact, address any of the concerns which were raised during the ‘Save the Dot-Org movement’. However, it is not certain that allowing the sale to a corporation which registered its domain name, a mere week before the price caps on dot-org were removed, would have been any better. Additionally, the sale also brought up pertinent questions relating to the public’s trust in ISOC and PIR, following the unilateral announcement for sale.

There is nothing to stop another sale from being proposed in the future, but as of now, it seems that the internet is ‘safe’.

2 thoughts on “ICANN Rejection of .ORG Sale to Ethos Capital: A Win for Public Interest?

  1. Pingback: Dot-Org 2.0: The Sale, the protests and everything in between. – Youth Observatory

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