ICANN has won the first round of its legal battle over the introduction of a controversial “wait list service” run by VeriSign.
On Wednesday, District Court Judge John F Walter denied a preliminary injunction by registrars Dotster, Go Daddy and eNOM over the WLS.
The registrars had argued that the service broke ICANN rules over building consensus and damaged competition in the Internet market. It asked the court to put a stop to the service until a court case in December.
The judge’s decision to deny the motion came in two parts. One demonstrated just how cleverly ICANN’s bylaws have been written by deciding that ICANN wasn’t in fact accountable to registrars in its decision- making, so long as it doesn’t “compel registrar action”.
The judge argued that although the WLS will see VeriSign gain control of all lapsed domains, it doesn’t actually compel other registrars to do anything and so ICANN is free to decide as it chooses.
The second part - which is far more damaging to the Dotster case - denied that the WLS will damage competition. Instead, the judge argued, the service would open up the market for all registrars to offer a domain reservation service.
His judgement read: “It would appear that because all of the approximately 170 registrars would be able to offer WLS to consumers, as opposed to the approximately 50 that currently offer their own wait-listing services now, the options available to consumers of Internet domain names could greatly increase. Accordingly, it appears that the implementation of WLS has the potential to benefit registries, registrars who do not currently offer wait-listing services, and, most importantly, the public.”
All is not lost
This does not bode well for the case. However, it is still going to court and the judge had earlier got ICANN's word that the service would not go live before the court case (otherwise the judgement would have read very differently) so the injunction denial is far from fatal. Plus, there are several other strong arguments that can still be used to stop the service and it may be that Dotster’s lawyers simply chose the wrong legal approach.
The strongest argument is that by approving the WLS unchanged the public will in fact be worse off, despite the apparent increase in competition. VeriSign will be granted a monopoly over all expiring .com and .net domains if the service goes ahead. It has come up with a per-domain cost of $35 for the service - an extremely high figure which it has consistently failed to explain. The same service is currently offered by competitors at a fraction of the cost.
The terms of the deal will also automatically make VeriSign the dominant player in the market. The cost of registering and renewing a domain is currently $6. Under the WLS, VeriSign will give other registrars a “discount” of $7 for the first 250,000 subscribers, meaning they pay VeriSign $28 for the service, plus the $6 to renew the service - a total of $34.
Therefore, with VeriSign offering the service to the public at $35, registrars will make only $1 per domain. Since VeriSign seems to think that the cost of setting up such a service (with a reasonable profit) will cost it $31, it is inconceivable that other registrars will manage to do it for $1. Hence, just to compete with VeriSign, they will have to run at a heavy loss.
Once the 250,000 initial subscribers are dealt with and VeriSign has taken the lead in the market, the discount will be increased to $11. This gives everyone else an extra $4 to play with and will probably just cover the costs of the service. So we have a situation where VeriSign makes money hand-over-fist while squeezing the rest of the market. Even if other registrars take the plunge, advertise aggressively and steal some of the market, VeriSign still makes a whopping profit every time.
How this can be seen to increase competition or be in the public’s interest is anybody’s guess.
The profitable raffle
The other extremely potent argument is that the new service is actually worse for all concerned. The existing market for expiring domains is haphazard but it has been settling down and a variety of different schemes are available. Some charge a non-returnable fee which lets you decide which domain you want if/when it becomes available. If you don’t get it, you are able to chose another domain without having to pay extra. Others offer the fairer service that you only pay the agreed fee if you manage to actually get the domain.
The proposed WLS imposes a worse system than both of these on the entire market. It will also be more expensive. Subscribers will be required to pay the fee even if they don’t actually get the domain. Rather than be offered a professional service, customers will find they are simply buying a raffle ticket for their chosen domain. It is hard to think of a worse way to make expired domains available.
But don’t take our word for it. The most remarkable thing about the whole WLS controversy has been that every single body asked to look at it has come out against it.
The whole thing started in December 2001 when VeriSign decided it would be nice if it reasserted its complete control over the .com and .net domains by being giving exclusive ownership of all domains that expire. It released its proposals in January 2002 to widespread criticism.
Later that month, it released a “revised” version which was exactly the same as the original except the cost per domain had been reduced by $5 to $35. Again, it was widely criticised.
In response to this, a fortnight later VeriSign released a justification document which failed in every respect to answer pertinent questions, stating only that the service would be a failure “if costs exceed revenue”.
Verisign claimed registrars would most benefit from the WLS, so its case was somewhat undermined when the Registrars Constituency put out an unprecedented resolution opposing it. VeriSign countered this by released a letter in which 18 registrars said they supported the plan. Five of these were owned by VeriSign, two of them are very closely tied with the company that VeriSign would have given the monopoly to and at least two denied they had actually signed the letter.
VeriSign continued with its misinformation campaign by releasing an “analysis” in March in which it claims 57.5 per cent of registrars favoured WLS. Close inspection revealed it to be no more than a statistical manipulation and hopelessly inaccurate.
That famed decision-making process
In April, ICANN farmed the question out to a “task force” to look at the proposal. Two months later, the task force gave it a unanimous thumbs-down. As often happens with ICANN when it wants something passed, just a week after the task force’s report came out, a second report mysteriously appeared in front of the ICANN Board giving broad approval to the plan.
A second report from the DNSO - which can usually be relied upon to give the right answer - was then commissioned. Perhaps surprisingly, it came down heavily against VeriSign’s WLS with a 6-1 vote against.
So with two reports from within ICANN highly critical of the WLS and with the body representing those supposedly due to benefit making a public statement denouncing it, what did the ICANN Board do? Approved it.
This is what immediately led to the Dotster lawsuit, quickly joined by other registrars. Within a few weeks, two Congressmen proposed a review of ICANN’s decision-making processes quoting the WLS saga as the main driver.
But, so far, ICANN has again managed to avoid allowing transparency and accountability into its secret and elitist decision making. There is some movement under new CEO Paul Twomey and the fact that ICANN has posted all the case documents on its site is certainly a positive step forward.
With a judge effectively agreeing with ICANN’s self-written carte blanche when it comes to making decisions, it has come out of another tussle stronger. While there is little chance it will back down in face of the court case because it cannot afford to lose face, it should use this boost in its authority to force VeriSign into heavily reducing its proposed costs in return for handing it an unjustifiable monopoly. That way it shows its strength, keeps VeriSign happy, and builds confidence in its new structure.
If it doesn’t do that, this issue is certain explode in its face in the not-too-distant future. ®