On April 30, after many months of consideration, the Internet Corporation for Assigned Names and Numbers (ICANN) finally rejected the sale of the .ORG domain name by the Public Interest Registry (PIR).
While ICANN’s headline reasons for withholding consent to the change of control related to the size of the domain and its not-for-profit status, the topic du jour was also mentioned – namely the financial impact of COVID-19 on the future viability of the domain. Additionally, ICANN’s discussions with stakeholders who voiced strong dissenting opinions, including a letter from the attorney general of California, who supervises ICANN as a Californian non-profit corporation, were material to its decision.
With today’s economically volatile and uncertain landscape, registrars may find themselves contemplating transfer of large domains as part of wider restructuring procedures. Although a number of variables associated with ICANN’s decision on the .ORG domain are specific to the transaction, the decision sheds light on various relevant factors that may be worth evaluating in connection with obtaining consents from ICANN under registrar accreditation agreements (RAAs).
To begin with – what are domain names, and who manages them?
To understand why the potential transfer of the .ORG top-level domain was so controversial, it is important to start with an explanation of basic internet infrastructure. When surfing the web, computers use internet protocol (or IP) addresses; each webpage has a unique string of numbers that a computer can identify to connect you to the relevant webpage.
Humans unfortunately lack the same sophisticated numerical competency that computers have, so instead we typically use domain names to navigate the internet. Domain names can be any combination of letters and numbers – like freshfields.com – and they must be registered and formed in accordance with the rules of the domain name system (DNS). ICANN, a not-for-profit organization established in 1998, helps to coordinate the DNS.
The taxonomy of domain names under the DNS is organized in levels. At the top is the DNS root zone, which is nameless and is overseen by ICANN alone. The first level below the DNS root zone is the top-level domains, which includes both generic top-level domains (gTLDs) such as .COM, .NET, .EDU and .ORG, and country code top-level domains such as .US and .UK. Along with ICANN, the top-level domains are managed and operated by administrative organizations accredited by ICANN. These organizations do so through RAAs; these give ICANN select rights over registry management, such as approving a change of control.
In the early 2000s, ICANN put the RAA for the .ORG gTLD to tender. The Internet Society (ISOC) successfully bid for the registry, and created the bespoke PIR as a new not-for-profit corporation charged with operating the .ORG gTLD from 2003 onwards. Now, .ORG is the third-largest gTLD, with over 10.5 million registered domains.
What were the reasons behind ICANN’s decision, and what implications might it have?
ICANN’s ultimate decision to withhold consent to change of control for the transfer of the .ORG domain was influenced by a number of factors, including:
- the change from non-profit to for-profit status moving the .ORG domain away from its purpose in serving non-profit organizations;
- the PIR taking on a $360m debt obligation, and this being cause for concern of the domain’s future financial viability, especially in light of current economic uncertainty; and
- insufficient confidence that the commitments offered would provide true independence from the buyer, a private equity firm lacking in transparency regarding its minority investors.
As ICANN noted, the current economic climate is particularly volatile due to the effects of the coronavirus pandemic. As a result, many businesses large and small across global industries are in various stages of contemplating restructuring or may become subject to bankruptcy proceedings. Accredited registrars of large domains are not immune from these economic shocks.
In the event that registrars may find themselves in a position where restructuring or change of control is being considered, the following factors from ICANN’s decision may be relevant to obtaining necessary consents under RAAs.
Ongoing structure and purpose of the domain
Does the domain serve a specific purpose, be it a special-interest group or otherwise? ICANN and other concerned parties wrote about the potential loss of public faith in the .ORG domain if transferred to for-profit interests, given its use by non-profit organizations.
If divesting a large domain that has historically performed a specific function, it is important to consider any impact a sudden change may have, and how gradual transition plans may benefit both the registrar and the wider group of users of the domain.
What effect, if any, will deal financing structures have on the longevity of the domain or registrar? ICANN’s specific nod to the economic impact of coronavirus, as well as the impact that future debt obligations would have on the management of the domain, suggests that questions of whether the future registrar will be sufficiently financially secure should be at the forefront of dealmakers’ minds.
Identity and experience of buyers
ICANN took issue with the relatively recent incorporation of the private equity buyer, noting that while the firm had previously acquired domains, it had little practical experience of operating one – particularly of the scale of .ORG.
It may be important to consider both the level of skill and the public face of any potential purchasers when envisaging the future operators of a large domain.
If a straightforward transfer of assets will compromise the domain’s or registrar’s viability, what upfront contingency planning can be put in place prior to transactions being signed? Because registrars play an important role in managing domains that may be seen as public goods, ICANN has an interest in examining opinions of other stakeholders on the domain’s future management.
As a result, it may be necessary to consult with such relevant stakeholders in advance to gauge opinion, aid in the preparation of commitments – such as bespoke governance or conflict resolution structures – and ensure a smoother path to completion than the .ORG example.
For further information, see ICANN’s board resolution here, and its summary of the decision in a blog post here.