The Internet Isn’t Privatized Until .com Is Put Out for Bid

CircleID CircleID: Part 3 of The Netizen’s Guide To Reboot The Root: Rampant dysfunction currently plagues the Internet’s root zone where a predatory monopolist has captured ICANN and is bullying stakeholders. This harms the public interest and must be addressed — here’s how.

Introduction: Whose Registry Is It Anyway?

Previously, this series tackled the terribly awful Amendment 35 to the NTIA-Verisign cooperative agreement and also made the case that the tainted presumptive renewal currently included in registry agreements is inherently anti-competitive. But renewing legitimacy and integrity of Internet governance requires accurately understanding the unique and significant role retained by the U.S. government following the IANA transition.

Much of what ails DNS governance can be traced to the fever dream of entitlement that grips the monopolists operating and overseeing the vast bulk of the DNS — Verisign, which operates .com and .net, the Internet Society (ISOC), which operates .org, and ICANN which oversees them both as well as the rest of the DNS. This sense of entitlement is evident, for example, in ISOC’s attempted monetization of the billion-dollar value of .org and which is curiously similar to Verisign’s proprietary attitude towards .com and .net.

These registries, together with .gov, mil, .edu, and .int, are the Internet’s first registries and were originated solely by the U.S. government in the mid-1980s — long before the Internet Society, ICANN, and Network Solutions (Verisign’s predecessor-in-interest) entered the picture. Logic follows, therefore, that any rights, interest, and control in these registries is vested solely in the U.S. government, if for no other reason than because nobody else was there.

This means that .com, .net, and .org must be viewed in much the same way as .gov and .mil — which are controlled by the U.S. government. The difference, of course, is that the U.S. government and military reserve the latter two for their exclusive use while the other three are made available to the public. Much of the rest of the world already seems to understand this intuitively, and this is demonstrated by the fact that, outside of the U.S., .com is already considered to be the de facto U.S. ccTLD.

Another critical factor is Article IV of the U.S. Constitution, which requires Congressional authorization for divestment of Federal property. U.S. law already treats domain names as “property.” The Anti-Cybersquatting Protection Act allows trademark owners to bring in rem legal actions against domain names in order to seize the names and adjudicate the rights associated with them. Using this premise, the Department of Homeland Security has seized tens of thousands of domain names involved in copyright infringement.

Lawyers will argue this many different ways, but it seems bizarre to even suggest that domain name registries valued in the billions and that throw off free cash flow like it’s going out of style are some sort of special class of valuable things which aren’t assets or property and, therefore, aren’t subject to Article IV.

It is precisely this sort of nonsensical thinking, abetted by the U.S. government’s misguided diplomatic deference to so-called “middle states” and pretense of arms-length disinterest, which is causing a vacuum of legitimate control pertaining to these registries. This has resulted in circumstances markedly similar to deterioration that occurs from disuse and neglect by an absentee property owner. Such circumstances often attract squatters and can presage a neighborhood going to hell. In this case, rushing into the void of control left by U.S. government absenteeism are the organizations operating these registries but also nation-states pursuing their own agendas, particularly China with its preoccupation with both centralized control and censorship.

Notwithstanding wishful thinking, these original registries — which comprise a majority of the global Internet — share the fundamental attribute of having been originated solely by the U.S. government which, absent an Act of Congress, retains one hundred percent of any rights to them. This makes .com, .net, and .org no different than .gov and .mil except that they aren’t restricted to U.S. government and military use.

With this frame of reference, let’s dive into the final part of saving the Internet in three simple steps.

Ctrl-O: Open the Internet’s Largest Registry to Market Competition

The Internet’s largest registry has never been subjected to anything resembling a market, and correcting this is the unavoidable last remaining step of the Internet’s privatization. It is possible, perhaps probable, and likely even desirable that Verisign will continue operating .com, but only after competitive bidding has rationalized the economics associated with the most popular DNS real estate.

Similar to a tax cut, market-based wholesale pricing would permit .com registrants to reallocate resources to something other than stock buybacks benefitting the world’s richest and most powerful institutional investors. This would have an outsized impact on portfolio registrants such as brands and investors — the job creators, small- and medium-sized businesses, and other productive economic engines that, by and large, provide the wealth that is transferred to pay for those stock buybacks.

Also, just as idle hands are the devil’s workshop, the monopolist’s outsized free cash flow finds pernicious purpose. Right-sizing the economics of .com will reduce the resources available to corrupt the entire ecosystem.

Although mostly forgotten now, introducing .com to the virtues of market economics was always envisioned as part and parcel of privatization. The language of the base cooperative agreement, which was signed by the U.S. government and Network Solutions in 1993, anticipated this by empowering the U.S. government, in its sole discretion, to terminate the .com registry agreement and initiate a competitive action for selecting a successor registry operator.

It may be useful to consider that the continued existence of a cooperative agreement for the only remaining sole-source registry is tacitly admitting that “one of these things is not like the others” and that privatization remains incomplete. Significantly, the cooperative agreement maintains a harmful fiction that the U.S. Department of Commerce conducts oversight that, historically speaking, has been irresponsibly half-hearted at best. Intentionally or not, this pretense has the effect of putting .com “out of scope” for any regulatory activity other than that of NTIA. This causes systemic complacency from other governance stakeholders, including competition regulators at the U.S. Justice Department, ICANN, and the broader stakeholder community.

Such complacency is seen by the lack of any updated Justice Department empirical competition review since 2012 and ICANN’s newfound aversion to anything that might paint it as a regulator. This has deleterious consequences to the integrity of governance — one example of which is ICANN’s recent decision to sell pricing power to Verisign for $20 million over the unanimous objection of more than 9,000 stakeholders.

Despite what Verisign, ISOC, ICANN and certain others may wish for, privatization isn’t achieved by NTIA’s laissez-faire approach. Although seemingly counter-intuitive, a strong argument can be made that the single greatest beneficiary of NTIA’s previous attempt at consumer protection — the 2012 .com price cap — was actually Verisign. This is because the price cap removed one of the two codependent conditions that the 9th Circuit of the U.S. Court of Appeals had found in 2011 plausibly indicated a conspiracy for the illegal restraint of trade. Thus, NTIA actually gave Verisign de facto immunity from further antitrust litigation while preserving presumptive renewal and kicking the can on pricing power down the road. In retrospect, it is clear that Verisign didn’t need the ability to raise prices in order to become the darling of Wall Street — it managed to produce the requisite quarterly growth from organic zone expansion and expense reductions. Far more dangerous was the risk posed by further private party antitrust litigation or government enforcement — both of which are again possible since pricing power has been reinstated.

Privatization also wouldn’t be achieved by merely terminating the cooperative agreement, which would irreparably damage the DNS by enshrining the currently weakened and dysfunctional governance in place with something approaching permanence. Recent actions by NTIA — including recent letters to Verisign blocking the auction of and to Congress regarding the failed effort to replace WHOIS — seem to indicate renewed engagement and regulatory focus. This is a step in the right direction, and NTIA should leverage this recent progress and continue building momentum towards renewal of legitimate multistakeholder Internet governance.

The continuing existence of the cooperative agreement clearly signals that work remains to be completed. The U.S. government seemed to acknowledge this with an air of resignation by making the cooperative agreement automatically renew every 6 years with changes made by Amendment 35. The reality is that the ludicrously outsized power, profits and prominence of .com make enhanced oversight necessary for the foreseeable future.

In any event, the concession rights for operating the .com registry must be subjected to a fair, legitimate, and transparent competitive bidding process. The many amendments to the cooperative agreement since 1993 have made this rather more complex, but not impossible. Whereas, before, the U.S. government could act at its sole discretion, now it must request and obtain a final judgment from a federal court before it can terminate the .com registry agreement and initiate a “competitive action” for selecting a successor registry operator.

Justifying such a request might be the Second Amendment to the .com Registry Agreement, which pertains to an auction of that was requested by Verisign and approved by ICANN. Given that NTIA has halted the impending auction because of concerns about violating the cooperative agreement, perhaps the intent evidenced by having already amended the registry agreement without seeking or receiving prior written authorization from NTIA is sufficient grounds for obtaining final judgment. Admittedly, devising the best and most appropriate path for accomplishing this will require talented lawyers. However, allowing the current dysfunction to persist is a recipe for existential disaster and a fundamental betrayal of multistakeholder Internet governance.

But besides being already deficient in some key areas, the current model for .com oversight also doesn’t anticipate many of the potential development paths that future circumstances may take. Far from winning the future, the status quo is already losing today and there is a serious need for reevaluating preconceived notions as well as planning for potential new realities.

One such potential reality may be that Verisign is acquired and taken private. While the Committee on Foreign Investment in the United States, or CFIUS, might block an acquisition by a foreign entity, it wouldn’t prevent a purchase by U.S.-based private equity, nor would a management-led buyout necessarily face many regulatory hurdles. The transparency of quarterly financial reporting is likely a constraint that Verisign — and the malefactors of great wealth owning it — wish ardently to escape.

Verisign’s rotten behavior is prima facie evidence of the harmful consequences of allowing .com to continue on its present course. Remaining sole-source in a privatized Internet is like trying to be half-pregnant — it doesn’t work that way and the U.S. government needs to stop procrastinating, dump the wishful thinking, and hit Ctrl-O to open up .com to competition by asking a judge for the final judgment required for terminating the .com registry agreement and initiating a “competitive action” for selecting a successor registry.

Finally, addressing the structural defects laid out in this series won’t be easy, but there are simple solutions that can significantly help restore legitimacy and integrity to governance at the global Internet’s root. The consequences of the rot at the root are compounding at an accelerating pace, and left unaddressed will go parabolic. Internet freedom and human lives — to say nothing of truth, justice, and fair play — demand decisive action now.
Written by Greg Thomas, Founder of The Viking Group LLCFollow CircleID on TwitterMore under: Censorship, DNS, Domain Names, ICANN, Internet Governance, Policy & Regulation, Registry Services, New TLDs, Whois

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