**Before the**

**DEPARTMENT OF COMMERCE**

**National Telecommunications and Information Administration**

**Washington, D.C. 20230**

*In the Matter of* )

The Continued Transition of the )

Technical Coordination and Management ) Docket No. 060519136-6136-01

of the Internet Domain Name and )

Addressing System )

> )

Notice of Inquiry )

**COMMENTS OF NETWORK SOLUTIONS, LLC**

Jonathon L. Nevett

Vice President and Chief Policy Counsel

**NETWORK SOLUTIONS, LLC**

13861 Sunrise Valley Drive

Herndon, Virginia 20171

\(703\) 668-4775

July 7, 2006

**SUMMARY**

The Notice of Inquiry issued by the National Telecommunications and
Information Administration ("NTIA") on the Department of Commerce's
Memorandum of Understanding ("MoU") with the Internet Corporation for
Assigned Names and Numbers ("ICANN") provides a crucial opportunity for
NTIA to ensure the successful transition of the management of the
Internet Domain Name System ("DNS") to the private sector. To pave the
way for the successful completion of this transition, Network Solutions,
LLC ("Network Solutions") urges the Department to both renew the MoU and
to amend its terms by requiring carefully tailored procedural reforms
that will allow ICANN to best fulfill its core values of stability;
competition; private, bottom-up coordination; and representation.

The expiration of the MoU on September 30, 2006, as well as the ongoing
follow-up policy development to last fall's World Summit on the
Information Society ("WSIS"), make this review particularly timely and
valuable. Network Solutions thanks the Department and NTIA for
addressing key policy issues related to the technical coordination and
management of the Internet DNS.

The continuation of the Department's role is necessary to prepare for
privatization. A prerequisite for full privatization remains a
demonstration of ICANN's long-term sustainability through effective
self-governance, driven by an independent Board and meaningful
stakeholder input. ICANN's ability to carry out its core values remains
central to this endeavor. Unfortunately, the transition at this time to
full private sector management would be premature because ICANN has
placed its commitments to these core values in serious doubt and has
lost a tremendous amount of credibility with the constituencies that
must be governed. This failure is exemplified by ICANN's recent approval
of a .com Registry Agreement with VeriSign that was strongly opposed by
all save one constituency (and that one was neutral), and by the
strongest long-term international supporter of ICANN (which has
withdrawn its support). ICANN's pursuit of an agreement that would award
the .com Registry Agreement to an unregulated monopoly, without
sufficient cost-based price controls and under automatic renewal terms,
illustrates the extent to which it has been unable to uphold core
values, such as competition and representation.

It is generally acknowledged that the choices of a model for conducting
business in a manner that serves the best interest of the community are
either competition or, with decreasing frequency, a regulated monopoly.
The unregulated monopoly model was cast aside as unworkable and abusive
in the United States. Thus, public policy requires competition before
deregulation of any monopoly. A clear example is the deregulation of the
telecommunications system in the United States. In the case of the
Internet, competition, in turn, is fostered by the ability of ICANN to
uphold all of its core values. To this end, Network Solutions recommends
the following amendments to the MoU renewal:

-   Establishing goals to ensure that competition is brought to the
    registry space, in line with the robust competition that has grown
    up among registrars in the past eight years. This would include a
    presumption *against* automatic renewal terms in registry contracts
    that remove ICANN's ability to seek competitive bids at a future
    date, especially in the face of demonstrated "bad behavior;"

-   *Explicitly* requiring review and evaluation of changes to registry
    agreements by the Department of Justice's Antitrust Division to
    ensure that competition values are maintained;

-   Making ICANN's bottom-up representation structure *meaningful* by
    improving accountability measures, including timely publication of
    the minutes of Board meetings;

-   Requiring greater transparency in ICANN decisionmaking, including a
    stipulation that ICANN decisions include an analytical component
    that explains how feedback from stakeholders was taken into
    consideration and how and why it was or was not implemented in the
    final decision;

-   Correcting deficiencies in ICANN oversight, including improvements
    to the existing reconsideration and independent review processes,
    and enhanced budgetary accountability;

-   Proposing changes to the budget process that increase oversight and
    ensure that ICANN is held accountable to all of its constituencies;
    and

-   Encouraging ICANN to take a proactive role in compliance efforts to
    limit abuses, particularly in light of the budgetary resources
    allocated in this area and its claim that with a larger budget it
    could address these abuses.

The outcome of last fall's WSIS in Tunis underscored the importance of
maintaining private sector management of the Internet DNS, but not
transitioning to full privatization until ICANN establishes that it has
the necessary self-governance tools at its disposal and is using them
effectively. The United States successfully argued that the present
arms-length, market-based approach to ICANN is working. The "U.S.
Principles on the Internet's Domain Name and Addressing System,"
released in advance of WSIS, emphasized the importance of ICANN carrying
out core values such as competition and representation. Recognizing
ICANN as the appropriate technical manager of the DNS, the United States
pledged that it "will continue to provide oversight so that ICANN
maintains its focus and meets its core technical mission."

Finally, Network Solutions encourages the Department to delay a final
decision regarding any proposed renewals of or amendments to registry
agreements until the important policy issues regarding the underlying
MoU have been fully addressed. Otherwise, the Department would be
attempting to execute on a strategy when the strategy is yet to be
defined.

**Before the**

**UNITED STATES DEPARTMENT OF COMMERCE**

**Washington, DC 20230**

*In the Matter of* )

The Continued Transition of the )

Technical Coordination and Management ) Docket No. 060519136-6136-01

Of the Internet Domain Name and )

Addressing System )

> )

Notice of Inquiry )

**COMMENTS OF NETWORK SOLUTIONS, LLC**

Network Solutions, LLC ("Network Solutions") respectfully submits
comments in response to the National Telecommunications and Information
Administration's ("NTIA") Notice of Inquiry on the impending expiration
of the Department of Commerce's Memorandum of Understanding ("MoU") with
the Internet Corporation for Assigned Names and Numbers ("ICANN").
Network Solutions thanks NTIA for undertaking a comprehensive
examination of policy issues connected to the transition of the
technical coordination and management of the Internet Domain Name System
("DNS") to the private sector. 

The expiration of the MoU on September 30, 2006, affords the Department
a timely opportunity to evaluate the effectiveness of ICANN's management
of the DNS and to implement procedural reforms necessary to improve
ICANN's technical performance and responsiveness to the public and
Internet stakeholders.[^1] As will be discussed further below, the core
values for ICANN remain critical. These values, as set forth in the DNS
White Paper,[^2] emerged from the consensus-based approach that the
United States originally brokered after consulting with other countries,
technical experts and the domestic and international business community
to develop a non-governmental approach to DNS management.[^3]

Continued United States stewardship over the orderly transition to
private sector management of the DNS remains the wisest course to ensure
the long-term viability of ICANN. This is fully in line with NTIA's
consistent recognition of the importance of steering away from any
course that would hamper the effective operation of the DNS. NTIA
outlined how high the stakes are in correctly balancing this policy
equation in the "U.S. Principles on the Internet's Domain Name and
Addressing System" released in advance of last fall's World Summit on
the Information Society ("WSIS").[^4]

At the United Nations' WSIS last November, the United States government
persuasively argued that the present arms-length, market-based approach
to ICANN is working. The success of this reasoned approach toward
Internet governance was critical to continued United States
technological leadership and policy interests in the free flow of
information. It was also essential to the myriad international
constituencies with an interest in healthy development of the world's
premier communications medium. As the United States noted, the outcome
of WSIS reflected the participants' recognition that "the innovation and
creativity of the Internet should not be impeded by a bureaucratic
governing structure."[^5] Thus, to ensure that this balanced governance
solution remains viable, the renewal of the MoU must contain goals for
ICANN to evolve into the stable and sustainable organization originally
envisioned.

1.  **Termination of the Department's Oversight of ICANN Is Not Yet
    Justified**

Complete privatization, without direct government oversight, is
dependent upon ICANN's faithful commitment to the four core values
outlined by the Department.[^6] Adherence to these core values---(i)
stability, (ii) competition, (iii) private, bottom-up coordination, and
(iv) representation---must ensure that the privatization of the
technical management of the DNS will be accomplished in a manner that
promotes robust competition and that facilitates global participation in
the management of the DNS.[^7] These four principles remain critical and
are consistent with both domestic and international Internet policy
objectives.

Sadly, ICANN has placed its commitment to these core values in grave
doubt, and it would be premature at this time to end the Department's
oversight of ICANN's operations. ICANN's track record to date
underscores this point. A necessary precursor for full privatization
remains the demonstration of effective self-governance, driven by an
accountable staff, an independent and transparent Board, and meaningful
stakeholder input.

ICANN's failure to adhere to its core values, particularly in the areas
of competition, transparency and representation, is exemplified by its
recent approval of a new .com Registry Agreement with VeriSign. The
terms of the proposed renewal of VeriSign's 2001 .com Registry Agreement
would have far-reaching anticompetitive effects and substantially
undermine ICANN's credibility with Internet stakeholders and the
international community. ICANN's approval of the highly controversial
agreement makes clear that the Department's oversight remains necessary
to ensure that the DNS privatization occurs in a manner that increases
competition and facilitates the participation of all Internet
stakeholders in DNS management.

The Department asks whether new or revised tasks for ICANN should be
considered in order for the transition to occur. To this end, Network
Solutions proposes several measures to ensure that ICANN remains on a
realistic trajectory to reach full corporate maturity through a
comprehensive and ongoing implementation of its core values.
Furthermore, the Department should delay consideration of any proposed
renewals of or amendments to registry agreements until after the issues
concerning the underlying MoU have been resolved. To do otherwise, would
be to execute on a strategy before the strategy is developed.

2.  **ICANN's Core Principles Remain Relevant and Must Be Fully
    Implemented**

The Department asks whether the core principles are still necessary and
relevant for guiding the transition to private sector management of the
DNS. As the Department itself has consistently recognized, these
principles remain critical to realizing this successful transition. In
congressional testimony in 2004, Acting Assistant Secretary of Commerce
for Communications and Information John M.R. Kneuer noted that by 2006,
"ICANN must execute the remaining tasks in the MoU and reach full
corporate maturity to assure the Department and the Internet community
that it is able to effectively carry out its important core technical
missions - in a stable and sustainable manner - into the future."[^8]

Thus, as when the Department first articulated these principles, a
commitment to stability remains necessary to ensure that adequate
technological safeguards are in place to prevent disruption of DNS
operations. Over the past eight years, the increased complexity and
scale of Internet operations has been accompanied by ever-more
sophisticated and diverse security threats. Indeed, Network Solutions
has played an integral role in helping our customers fend off such
threats by providing substantial service offerings to help protect
customers against threats such as viruses, spyware, spam, and
unauthorized transfers of domain name registrations.

Along with stability, competition is equally integral to the Internet's
future because it is essential to the continued viability of the
Internet as a decentralized system. The checks and balances of a
competitive marketplace are the only workable alternative to the heavy
hand of government regulation. Competition encourages innovation,
maximizes individual freedom, promotes lower costs and prices, and
enhances user choice and satisfaction. Similarly, the bottom-up
governance that has characterized the development of the Internet
enables DNS management to be flexible and responsive to the needs of the
Internet and Internet users. Finally, a representative governance
structure is necessary to ensure that the DNS is managed in a manner
that reflects the global and functional diversity of Internet users.

When taken together, these four core values are mutually reinforcing.
Ensuring stability, fostering competition, managing from the bottom up,
and responding to input from geographically and functionally diverse
Internet users will result in the type of robust competition and global
participation that the United States intended when it decided to
privatize the management of the DNS. Because the Internet functions most
effectively when all four principles are followed, no one value should
be allowed to trump the others.

It is well-understood in the United States and, indeed, among the global
Internet community, that competition and transparency are the only
acceptable substitutes for government regulation in a fully privatized
environment. In the case of ICANN, this means following a trajectory
desired by all stakeholders, including the United States government, to
an independent, fully accountable ICANN.

The trend toward deregulation worldwide in the communications sector is
illustrative. Administrations have established independent regulators as
part of their commitments under the World Trade Organization's Basic
Telecommunications Agreement. A key factor in the ability of many
countries to meet these commitments has been a demonstration that
regulators are independent from dominant, former monopolies and can
manage relationships with other government entities, industry and
consumers.[^9] "Not only does the regulator have an interest in its own
independence, but also each of these three groups also has a long term
interest in the regulator's independence as well. Three indicators of
regulatory independence are the stability of its leadership, scope of
its authority, and the independence of its funding."

3.  **Some Important Areas of Competition Have Seriously Lagged Under
    the Current MoU**

ICANN has lost sight of the core values articulated in the MoU and the
DNS White Paper. For example, although ICANN has been successful in
fostering competition among registrars (there are now more than 700),
the same cannot be said for domain name registries, which remain
dominated by .com and its registry operator, VeriSign. In fact, .com now
accounts for over 75 percent of U.S. registered domain names.[^10] The
proposed .com Registry Agreement between ICANN and VeriSign would
exacerbate these existing anticompetitive conditions by granting
VeriSign an effectively permanent monopoly and authorizing it to
implement price increases that are unjustified by any cost increases.
Michael M. Roberts, the first President and Chief Executive Officer of
ICANN, testified before the U.S. House of Representatives Committee on
Small Business recently that "ICANN has failed to make any significant
effort to subject VeriSign to competition for renewal of its dot com
agreement; marking a retrenchment from ICANN's obligation to foster
competition in the registry marketplace, for which behavior ICANN has
offered no explanation."[^11]

The MoU does not authorize ICANN to disregard one or more of its core
principles in order to maximize another. Nor are the principles in
conflict. ICANN itself saw the benefits of competition when it conducted
a competitive rebid for the .net domain name registry in 2005. The
process compelled VeriSign---the eventual winner---to install additional
system capabilities to compete with other bidders, as well as to
implement a price reduction. Importantly, a key impetus behind U.S.
telecommunications deregulation, starting with the breakup of AT&T in
1984, was the recognition that competition in the private sector
increases, rather than decreases, incentives to invest in new technology
and infrastructure, including in security improvements, and that greater
stability is thus one of the benefits of competition. There is no basis
for ICANN to justify such a blatant disregard of its core values of
competition. As a factual matter, ICANN has not demonstrated any
connection between a guaranteed monopoly and stability. Under the
existing .com agreement, in which renewal is not assured and price
increases must be cost-justified, VeriSign has made substantial
improvements in infrastructure and development without higher fees.

In fact, Senator Orrin Hatch (R-Utah), chairman of the House Judiciary
Committee's Intellectual Property Subcommittee, concluded in a recent
letter to U.S. Attorney General Alberto Gonzales that the virtually
non-existent opportunity that the proposed .com agreement provides for
future rebids is difficult to reconcile "with a strong commitment to
open competition or, arguably, with the Memorandum of Understanding
between ICANN and the DoC, which obligates both the DoC and ICANN to
abide by competitive principles."[^12]

The specter of such potentially anticompetitive behavior as is now
raised by the proposed .com agreement was first implicated in 1998 when
NTIA solicited comments on the original proposal to privatize the DNS.
Federal Trade Commission staff noted that "purchasers of domain name
registration services might be subject to supracompetitive prices in the
future if they become 'locked-in' to a particular vendor of those
services."[^13]

**ICANN's Options Limited By Automatic Renewal**: As the Notice points
out, the MoU establishes a series of core tasks for ICANN, including
"establishing appropriate relationships with the organizations that form
the technical underpinnings of the Internet DNS." Thus, upholding
competition as a core value in registry agreements is a central aspect
of ICANN's mission from both a policy *and* a technical perspective.
Automatic renewal provisions alter the contractual checks and balances
that otherwise help to ensure that ICANN retains a minimum baseline of
registry oversight.  Registry operators should justify their renewal and
meet certain continuing qualifications and standards, a process the
.aero, .coop, and .museum registry operators have recently undergone. 

This is a key concern of the proposed .com Registry Agreement, but
unfortunately this trend is not limited to the .com proposal. Recent
developments show that the proposed .com Registry Agreement has
galvanized other registry operators to seek similar automatic renewal
terms. ICANN recently has posted for public information proposed renewal
agreements for the .biz, .org and .info domain registries, all of which
contain automatic renewal provisions similar to those in the .com
agreement.[^14] In fact, the .tel Registry Agreement that ICANN recently
finalized in May provides that Telnic Limited will operate the registry
for a ten-year term, and includes an "automatic renewal" provision
virtually guaranteeing that it will be renewed after the ten-year
period.[^15]  The only limitation on renewal in these provisions is if
there is a material breach of one of just three sections of the
agreement, and then only if an arbitrator has ruled that the registry
operator has breached and it has not cured the breach within a
reasonable time after the arbitrator's award.  Therefore, the registry
operators' control over the registry is of a potentially infinite
duration, a highly questionable condition from any standpoint. 

 

Given the absence of robust registry competition, guidance under the
renewed MoU concerning ICANN's responsibilities for facilitating
competition is critical to the transition to full privatization. As
former NTIA Associate Administrator Becky Burr has noted, "'Competition'
is at the heart of the ICANN mission, and it is a highly complex issue,
but the community is clearly not satisfied with the 'leave it to the
anti-trust authorities to intervene if they don't like it'
approach."[^16]

Sound public policy requires competition before deregulation. Further,
sound public policy requires effective regulation of a monopolist, in
situations in which competition does not discipline pricing. The lifting
of cost-based requirements for price increases under the proposed .com
Registry Agreement would not retain a meaningful role for ICANN over the
registry operator as a regulated monopoly. Representative Rick Boucher
(D-Va.) noted in a letter to Assistant Attorney General for Antitrust
Thomas Barnett, "Management of a TLD registry is a natural monopoly.
Periodic market testing in the form of competitive bidding through which
other companies seek to operate the TLD is an effective way to assure
reasonable pricing of .com domain names."[^17]

Telecommunications policy in the United States and in other countries
has not followed this flawed model of attempting to deregulate a
monopolist such as the .com registry operator before competition has
been established. Congress has not deregulated first and then hoped that
competition would emerge. Similarly, ICANN was created to administer the
DNS in a manner that advances competition. Renewal terms that set
objectives for ICANN regarding competition milestones are critical to
ensure that the transition to privatization follows -- rather than
precedes -- the realization of robust registry competition.

[Recommendations]{.underline}: The MoU renewal process should set goals
that would ensure competition is brought to the registry space, in line
with the core value articulated in ICANN's Bylaws of "introducing and
promoting competition in the registration of domain names where
practicable and beneficial in the public interest."[^18] These
objectives should include a presumption against automatic terms that
remove ICANN's ability to seek competitive bids at a future date at its
discretion.

In order to assure that ICANN properly considers competition in
performing its responsibilities -- in particular when dealing with
VeriSign, the dominant registry operator -- the Department should
*explicitly* require review and evaluation of changes to registry
agreements by the Department of Justice's Antitrust Division. Both ICANN
and NTIA have acknowledged their need for expert advice on competition
issues, but ICANN has felt free not to solicit or to even ignore DOJ's
views. Further demonstrating the importance of such external expertise
on competition issues, ICANN's new Registry service approval process
requires input from a competition authority if there are outstanding
competition issues.[^19] Giving the expert competition agency an express
role under the terms of the MoU will better ensure that competition
values are maintained.

Congress has recognized that the Antitrust Division should expressly be
included in competition review, so that these vital issues are not left
to agencies that can be captured by the industries -- and in particular,
the dominant companies -- they regulate. For example, in Section 271 of
the Telecommunications Act of 1996, Congress required the FCC to notify
the Attorney General of Bell operating company applications to provide
interLATA service, consult with the Attorney General, and "give
substantial weight to the Attorney General's evaluation."[^20]
Similarly, Congress has required the federal banking agencies to seek
the advice of the Antitrust Division before approving bank mergers,[^21]
and further requires the banking agencies to notify the Attorney General
of its actions on bank merger applications, and generally allow the
Attorney General 30 days to challenge the transaction.[^22]

4.  **ICANN's Transition to Private Self-Governance Should Be Based on
    Effective Bottom-Up Policy Generation, Representation, and
    Transparency**

Before the transition to private governance can take place, ICANN also
must demonstrate its commitment to managing the DNS in a responsive
manner that considers the input of all Internet stakeholders. The MoU
demands nothing less, by stipulating that it "is intended to result in
the design, development, and testing of a private coordinating process
that is flexible and able to move rapidly enough to meet the changing
needs of the Internet and of Internet users."[^23]

The White Paper emphasized that the new entity's processes "should be
fair, open and pro-competitive, protecting against capture by a narrow
group of stakeholders." The White Paper also indicated that this meant
"decision-making processes should be sound and transparent," the basis
for decisions should be recorded and made publicly available, and that
"super-majority or even consensus requirements may be useful to protect
against capture by a self-interested faction."

To fulfill its commitment to representative participation, ICANN must be
responsive to the comments and concerns of all Internet stakeholders and
consistently engage in transparent decision-making. This can only be
achieved by ensuring that ICANN remains committed to maintaining its
accountability to Internet stakeholders. Records of ICANN Board votes
indicate that Board members rarely dissent and, in the vast majority of
instances, approve staff positions unanimously.

Transparent decision-making is not an option for ICANN:  The ICANN
Bylaws require it to "operate to the maximum extent feasible in an open
and transparent manner . . . ."  [Article III (Transparency), Section
1](http://www.icann.org/general/bylaws.htm).  Notwithstanding this
transparency obligation, it is often difficult to determine what
information ICANN Board members considered in making a decision.  The
Board's decision-making process is more transparent at the front end,
than the back end.  Public comments are often posted in a timely manner
on ICANN's Web site. 

ICANN has departed from its commitment to conduct honest dialogue with,
and be accountable to, all Internet stakeholders, as exemplified in how
it arrived at the proposed .com Registry Agreement, in its attempt to
depart from financial accountability, and it disregard of constituency
organizations. ICANN's disregard of constituency concerns regarding key
decisions is symptomatic of more deeply seated governance weaknesses.

Contrary to the MoU's expectations for stakeholder involvement, ICANN
has consistently demonstrated a lack of regard for feedback offered by
the Internet community. A review of more than 100,000 postings by
members of the Internet user community to online ICANN public forums and
e-mail lists demonstrated that "public commentary for or against a given
proposal before the Board does not correlate strongly to an outcome
either for or against that proposal."[^24] The analysis of this data
indicated that the ICANN Board "has been more likely to rely heavily
upon staff recommendations . . . than on the broad-based input from the
Internet user community."[^25] Such a failure by ICANN to consider input
from the diverse community of Internet stakeholders is not only at odds
with ICANN's required commitment to representation and bottom-up
coordination, but also inadequately addresses the task outlined in
Section V.C(6) of the MoU, which requires ICANN to "collaborate on the
design, development and testing of a process for affected parties to
participate in the formulation of policies and procedures that address
the technical management of the Internet."

As a case in point, the approval by ICANN's Board of the settlement
agreement with VeriSign by barely a majority vote is flatly inconsistent
with that commitment to representation, and has only further fueled the
arguments against ICANN's and the United States' role in Internet
governance. For example, in an Open Letter to ICANN, the Canadian
Internet Registration Authority ("CIRA") objected to the lack of
transparency and accountability in the process through which ICANN
renewed the .com Registry Agreement.[^26] In protest, CIRA withdrew all
financial and logistical support for ICANN and suggested several
structural and procedural changes. CIRA emphasized that "ICANN's
accountability to its stakeholders, including to the global Internet
community is critical because ICANN's legitimacy is premised on
stakeholder trust. When ICANN is seen to be unaccountable it loses
stakeholder trust and therefore its legitimacy."[^27] CIRA's position is
particularly striking given that CIRA had previously provided extensive
support for ICANN---including voluntary financial contributions and
sponsorship of ICANN meetings---and that Canada strongly supported the
United States' effort to retain leadership in Internet governance at the
WSIS meetings.

Effective involvement of all Internet stakeholders requires not only
that their comments be solicited, but also that ICANN consider those
comments as part of a transparent decision-making process. ICANN's
approval of the proposed .com Agreement also demonstrates its disregard
in practice of this bottom-up approach. All of ICANN's constituencies,
with the exception of the gTLD Registries Constituency, to which
VeriSign belongs, voiced concerns about the proposed renewal of the .com
Registry Agreement with VeriSign. Those constituencies that voiced
concerns about the proposal represent all aspects of the Internet user
community, including the Commercial and Business Constituency, the At
Large Advisory Committee, registrars, the Country Code Names Supporting
Organization, the Generic Names Supporting Organization, the ISP
Constituency, and the Non-Commercial Constituency. As Board Member Susan
Crawford, who dissented on the .com vote, asserted in a separate
statement: "ICANN has often appropriately claimed that its legitimacy is
founded on its bottom-up private policy generation. To sidetrack this
experiment in private rule-making by allowing a single litigious
registry to get a better deal than others undermines ICANN\'s core
mission."[^28]

The ICANN Board members who voted to approve the proposed .com Registry
Agreement essentially abdicated ICANN's responsibility to uphold the
core value of bottom-up coordination. Moreover, although ICANN solicited
public comments regarding the proposed agreement, its deliberations were
non-public, it did not disclose the details of staff's advice to the
ICANN Board, and it refused to consider advice from the Department of
Justice after learning that the DOJ was investigating the ramifications
of the proposal. While ICANN published Board statements explaining the
approval of the agreement, it did not release a decision document that
is backed by *legal* and *economic* analysis to explain how and whether
specific comments were addressed. 

The principle of representation requires that ICANN be responsive to the
input of the functionally and geographically diverse group of Internet
stakeholders. Indeed, the United States' leadership in Internet
governance through oversight of ICANN has recently drawn criticism from
organizations eager to establish international control over the Internet
at the WSIS and in other forums. Attempts to establish multilateral
oversight of the Internet were averted when the United States convinced
WSIS participants that its oversight of ICANN is preferable to a complex
multinational governance structure. Department oversight, and
concentration of DNS management in ICANN, is clearly preferable to
multinational control of the Internet DNS. The United States can only
retain its position of leadership in Internet governance, however, if
ICANN is committed to soliciting and responding to a multitude of
opinions.

**[Recommendations]{.underline}**: ICANN should be held accountable for
meaningful compliance with certain basic decision-making procedures,
including public deliberations, the disclosure of staff advice to the
ICANN Board and timely publication of minutes of Board meetings.

The Department should require that ICANN's decisions include an
analytical component that explains how comments were factored into a
final decision. This is a routine practice within United States federal
agencies, which typically evaluate comments received as a result of the
Notice of Proposed Rulemaking and incorporate the evaluation of those
comments into the final decision document. Consultation, coupled with
reasoned feedback and transparent decisions, is also increasingly the
norm in analogous regulatory and policy oversight circumstances
worldwide. Although ICANN may not be subject to the U.S. Administrative
Procedure Act, principles contained in the MoU, including transparency,
bottom-up decision-making, and accountability, demand a similar level of
explanation to make public comment periods meaningful.

Consideration should be given to several CIRA recommendations, including
a proposal for a veto of Board decisions by a super-majority of
Supporting Organizations and a required justification for holding
non-public meetings.

Other examples in which ICANN has fallen far short of upholding the
values of bottom-up policy generation, transparency, and representation
include:

**Public Review of Proposed Contracts:** The ICANN Board approved the
final .net Registry Agreement without soliciting public feedback, in
violation of ICANN's Bylaws. To address these concerns, the ICANN
Generic Names Supporting Organization ("GNSO") in September 2005
recommended that the Board adopt a proposed ICANN Bylaw change that
would specifically require public comment prior to ICANN approval of a
material contract. For the past 10 months, however, the ICANN Board has
not acted on this proposed change.

**GNSO Task Force on Contract Issues**: Another example of ICANN's
processes not working is its disregard to date of the GNSO policy making
process regarding contract issues. The GNSO has a Task Force on contract
issues for registry renewals. As noted, ICANN recently has posted for
public information proposed renewal agreements for the .biz, .org and
.info domain registries, all of which contain automatic renewal
provisions similar to those in the .com agreement.[^29] Thus, instead of
waiting for the outcome of the GNSO policy recommendations, ICANN staff
has moved forward to try to reach agreement on the same issues being
considered by the GNSO, thereby effectively circumventing that process.
This raises particular concern with regard to the .org Registry
Agreement, which does not expire until 2009.

**[Recommendation]{.underline}:** ICANN should be required to publish
all material contracts for comment before approval. ICANN also should be
prohibited from using contracts, including renewals of registry
agreements, to effectuate policy changes that would circumvent ongoing
review by the GNSO, which is specifically tasked to promote the
development of ICANN policy.

5.  **Effective Oversight of ICANN Is Necessary to Ensure Stability,
    Self-Sufficiency**

The effective involvement of all Internet stakeholders requires that
ICANN be held accountable to its constituencies, in regard to both its
governance activities and budgetary responsibilities. To this end,
reforms are needed in ICANN's procedures and governance structure to
ensure that the organization remains a credible and fully accountable
overseer of the Internet DNS.

**[Deficiencies in ICANN Board Oversight]{.underline}**: The ICANN
Board's voting record, and lack of dissenting votes, calls into question
the effectiveness of its role to provide independent review of staff
decisions. Among the options that could be considered to provide an
effective counterweight to the substantial deference typically given by
the Board to staff decisions would be avenues for reconsideration of
Board decision that focused on substance, as well as process. For
example, under the current approach, a Board decision may only be taken
up on reconsideration if a petitioning party demonstrates that the
decision was made in violation of ICANN policies or without
consideration of material information.[^30] Such concerns are
long-standing. In a 2002 study, researchers from the Center for
Information Technology and Dispute Resolution found that of 31 requests
for reconsideration of Board decisions made between 1999 and 2002, ICANN
responded to 26 cases and only one petitioner received a favorable
response.[^31] "If there are problems with the process, the problem is
more with ICANN than with any users of the process," the study found.

Similarly, ICANN's Bylaws authorize "a separate process for independent
third-party review of Board actions alleged by an affected party to be
inconsistent with the Articles of Incorporation or Bylaws."[^32] Such
requests are to be referred to an Independent Review Panel (\"IRP\")
operated by an international arbitration provider appointed by ICANN. 
Importantly, the IRP's decision is simply a recommendation for the Board
to stay an action or decision or to take an interim action; the IRP's
decision is *not* binding on ICANN's Board. Declarations of the IRP,
"where feasible," are to be considered at the next meeting of the
Board.[^33]

To date, however, there is no evidence that this Independent Review
procedure is effective at all inasmuch as this mechanism does not appear
to have been allowed to work by ICANN, essentially obviating its value
as a realistic tool for any challenge of a Board decision. For example,
travel expert Ed Hasbrouck initiated an Independent Review in April 2005
to challenge the ICANN Board's approval of the .aero and .travel Top
Level Domains ("TLDs"), the registry operators' acceptable use policy
and ICANN's general lack of transparency concerning these TLDs.[^34]
ICANN did not act on Hasbrouck's Independent Review request for 8
months. In a January 2006 letter, ICANN General Counsel John Jeffrey
stated that earlier e-mail communications from Mr. Hasbrouck did not
"meet the guidelines" for a formal IRP as required by International
Centre for Dispute Resolution ("ICDR") procedures.[^35]

**Budgetary Accountability is Critical**: Stability and accountability
in ICANN's budgetary procedures -- including through external reviews --
is critical to its future self-sufficiency. Such budgetary
accountability has, until now, been limited to registrar approval of
fees that they pay to ICANN. Registrars have exercised this review
responsibly and have always approved the fees. Unfortunately, ICANN now
seeks to eliminate the registrar funding approval process under the
proposed .com Registry Agreement, which would remove any ICANN budgetary
oversight. Specifically, the .com proposal would let ICANN and VeriSign
agree on higher fees, thus increasing both of their revenues without
broader review. Budgetary oversight should be increasing, not
decreasing, and the budgetary oversight function should be shared with
more members of the community, not just registrars. The elimination of
any external review of ICANN's budget or funding gives ICANN an
overwhelming self-interest in perpetuating VeriSign's monopoly and in
bolstering VeriSign's profitability, compromising ICANN's responsiveness
to its constituencies. Basically, under the proposed .com agreement,
ICANN and VeriSign will enter into a self-interested arrangement, in
which VeriSign, with ICANN's explicit authorization, will be able to
extract unjustified monopoly profits, which will then be shared with
ICANN. Such self-dealing is a betrayal of the public trust the
Department placed in ICANN.

More broadly, the lack of oversight over ICANN's budget is particularly
distressing given its enormous revenue growth. Between 1999 and 2006,
ICANN's revenue has risen from \$5.9 million to \$34.2 million. By
comparison, this is nearly twice the Administration's proposed annual
budget for NTIA of \$18 million for fiscal year 2007. In the past four
years alone, ICANN's budget has nearly *quadrupled*, without adequate
changes in oversight and accountability that reflect these vastly
expanded resources. The consistent increases in ICANN's budgetary
resources have drawn concerns from Internet stakeholders over how ICANN
accounts for increased expenditures and the lack of justification for
these expanded funds.[^36] Stakeholders also are concerned that the
ICANN Budget Advisory Group, comprised of various constituency
representatives, purportedly to provide input to ICANN on its budget,
has no power and has not been called to a meeting in over a year.
Adequate budget oversight is a critical component to ICANN's
self-governance capabilities.

**[Compliance Measures Needed]{.underline}**: Troublingly, to date,
ICANN has often chosen not to effectuate its compliance role to limit
abuses, despite being given the budgetary means to do so. ICANN must
play a critical role in policing bad actors and predatory practices. In
fact, ICANN has been moving toward a limitation of its termination and
renewal rights in registry agreements, thereby reducing its leverage to
require compliance. For example, under the terms of the .tel Registry
Agreement, ICANN may only terminate the Agreement if Telnic is found by
an arbitration panel to have been "repeatedly and willfully in
fundamental and material breach" of one of just three sections (Sections
3.1, 5.2, and 7.2) and the arbitrators "repeatedly have found Registry
Operator to have been in fundamental and material breach of this
agreement, including in at least three separate awards."  Importantly,
ICANN gave up certain termination rights that are contained in the .jobs
and .travel Registry Agreements,[^37] in which ICANN may terminate the
agreements if:

> "There was a material misrepresentation, material inaccuracy, or
> materially misleading statement, made with knowledge of its falsity,
> inaccuracy, or misleading nature or without reasonable cause to
> believe it was true, accurate, and not misleading, of then-existing
> fact or of Registry Operator's intention in its application for the
> Registry TLD or any written material provided to or disclosed to ICANN
> by the Registry Operator in connection with the application."

Similarly, in recent registry agreements, ICANN has removed termination
provisions that focused on financial improprieties by the Registry
Operator.  For example, until the recent round of registry agreements,
ICANN has had the right to terminate the contracts if the registry
operator is convicted of a felony or other serious financial offense; is
disciplined by the government for dishonesty or misuse of others' funds;
or if any officer or director is convicted of a felony or misdemeanor
related to financial activities, is judged by a court to have committed
fraud or breach of fiduciary duty or is the subject of a judicial
determination that ICANN deems as the substantive equivalent of any of
these.[^38]  No such language appears in the recent registry
agreements. 

This inexplicable relinquishment of such leverage in contracts with
registry operators handcuffs ICANN, essentially enabling "bad actors" to
proceed unchecked.

This also has even been the case with registrars, whom ICANN accredits
and against whom it can use the leverage of contractual obligations to
mitigate abusive behavior. Such abuses include "domain hijacking,"
failure to follow Whois requirements, cybersquatting and other
fraudulent activities. ICANN lacks a compliance mechanism in its
contracts with registrars other than de-accreditation, which is a
"nuclear option" that ICANN has not yet opted to use, even among the
worst actors. Despite provisions in accreditation agreements that guard
against predatory practices, lack of compliance efforts have meant that
enforcement has lagged, and the bad behavior is, in effect, encouraged.

**[Recommendations:]{.underline}** The MoU should prevent ICANN from
entering into the kinds of self-dealing arrangements that have surfaced
with regard to the proposed .com Registry Agreement. The MoU also should
require ICANN and its constituencies to develop a transparent,
broad-based approach to future ICANN funding. To increase accountability
and transparency regarding ICANN's management of its financial
resources, ICANN should be required to conduct and release the results
of audited financial reports. Finally, the MoU renewal terms also should
require the reformation of a constituency-based Budget Working Group,
which would have more than advisory power and could replace the current
system of registrar fee approval.

Because the Independent Review process has not been utilized as a
mechanism to successfully challenge Board decisions, ICANN has failed to
demonstrate that its IPR process is viable. Thus, the amended MoU should
include terms that require a re-evaluation of this process and
objectives for changing it in a way that provides an actual venue for
challenging Board decisions. ICANN should be required to institute a
formal, user-friendly process for seeking an IPR. These changes should
include enforceable timelines by which ICANN will respond to and provide
a decision on an IPR request.

Finally, given that enforcement mechanisms become even more critical in
privatized and fully competitive markets, the MoU should ensure that
ICANN takes steps to incorporate compliance mechanisms into its
contracts with registrars and registries.

6.  **Conclusion**

It is critical that the Department renew and amend the MoU with ICANN in
a manner that establishes a path for successful privatization of this
corporation by ensuring full implementation of its core principles. Then
Assistant Secretary of Commerce Nancy Victory told Congress in 2003,
when testifying regarding the last MoU renewal process, that "the
Department desires to see ICANN evolve into a stable and sustainable
organization that is well equipped to weather a crisis."[^39] ICANN is
not there yet.

Therefore, the Department is obligated to renew and amend the MoU. The
Department faces a tension between refining a blueprint for the advanced
stages of ICANN's evolution toward privatization and doing so in a
manner that hones ICANN's corporate governance structure for long-term
self-governance. In a post-MoU environment, ICANN's success in
implementing its core values to the protection and advancement of all
Internet community interests will provide the most potent safeguard that
the Department's current arms length arrangement will not be replaced in
the future with a more hands-on approach by multinational stakeholders.
This consideration is particularly critical in light of the ongoing
follow-up work to last fall's WSIS meeting.

The limited United States oversight role over ICANN in the short-term is
better than more bureaucratic, long-term alternatives proposed at the
recent WSIS and must be allowed to continue to work to see through to
completion the transition of ICANN to private sector management. But, to
resist future challenges and, most importantly, to ensure continued
development of the Internet as the world's premier communications and
information network, a careful transition to the next step of ICANN
autonomy must be defined through this NTIA proceeding. Key adjustments
must be made to the terms of the current MoU and to the way that it has
been implemented by ICANN over this current MoU's lifecycle.

When drafting the terms of the renewed MoU, the Department must give
serious consideration to *all* reasonable alternatives for ensuring that
ICANN abides by, and facilitates, the principles of stability,
competition, bottom-up coordination, and representation.

We thank the Department for initiating this proceeding to review and, as
needed, to improve Internet governance structures and procedures.
Network Solutions looks forward to working with the Department of
Commerce and NTIA to this end.

**Network Solutions, LLC Comments**

**Appendix A**

**Testimony of J. Beckwith Burr**

**Wilmer Cutler Pickering Hale and Dorr LLP**

**House Small Business Committee**

**Wednesday, June 7, 2006**

Mr. Chairman, and Members of the Committee:

It is a pleasure to appear before you to provide some background on the
origins and purpose of the Department of Commerce approval provisions in
the Registry Agreement between ICANN and Verisign. Prior to returning to
private practice in October of 2000, I was an Associate Administrator of
NTIA and director of its Office of International Affairs. I do not
represent Network Solutions or any members of the registrar community.
Neither do I represent Verisign, though most of my ICANN-related work in
the past five years has been for members - and prospective members - of
the registry constituency, of which Verisign is a member. Most recently
I represented the successful applicants for the .mobi sTLD, and less
successfully to date, ICM Registry. I appear before this Committee not
as an advocate for any client, however, but as a long time supporter of
private sector management of the Internet domain name system (DNS) and a
long-standing member of the ICANN community.

[DNS Management Before the White Paper]{.underline}

In the spring of 1992, the non-military "Internet" was still largely a
creature of the academy. There was no "world wide web" or user-friendly
browser. Network Solutions

Inc. (NSI) operated registries for the non-military Internet top-level
domains, and provided end-user registrations services for those
registries under a cooperative agreement (the Cooperative Agreement)
with the National Science Foundation (NSF).

(In the hopes of avoiding unnecessary confusion, I will refer hereafter
to the successor to

NSI's registry services business - Verisign.[^40]) But by the time the
Cooperative Agreement was scheduled to expire in 1998, that situation
had changed radically. Given its research orientation, NSF determined to
end its role in management of the Domain Name System (DNS) by simply
permitting NSI to "carry on" after the contract expired. Had everything
proceeded as expected, the Cooperative Agreement might have expired
without anyone noticing. Instead, of course, the growing global
commercial importance of the Internet produced a commensurate increase
in Internet related IPOs and put "e-commerce" on the front page of every
newspaper. Along with this increased commercial activity came increased
commercial conflict, and investors, businesses, and policy makers around
the world noticed.

As the Cooperative Agreement's final expiration date - September 30,
1998 - approached, it became clear that the structures in place to
manage the DNS were not going to scale.

-   Policy authority resided, in significant part, with a single -
    albeit revered -- human being. Dr. Jon Postel's consensus building
    skills - legendary in the technical community - were less suited to
    a litigious commercial setting. Complicating matters, Dr. Postel
    provided a variety of DNS related services, not only as a government
    contractor, but also as a member of the global, private sector
    Internet engineering community. This combined role made the source
    of Dr. Postel's authority unclear - was it DARPA, the Internet
    Architecture Board/Internet Engineering Task Force (IAB/IETF), the
    "Internet community," something else, or all of the above? The
    answer to that question inevitably depended on who was asked.

-   Meanwhile, a publicly traded U.S. company - VeriSign - appeared to
    control the most valuable commercial assets associated with the
    public Internet - the .com, .net, and .org top-level domains (TLDs).
    Some objected to the company' s trademark dispute resolution
    procedures; some to the amount of money it was making from a
    government granted monopoly; and still others to the commercial
    dominance of the generic TLDs it managed, especially compared to the
    then much smaller country code TLDs (ccTLDs), such as .uk; .fr; .ca;
    .jp, .nz, .au.

-   A number of governments found themselves in the midst of ccTLD
    disputes - generally involving ccTLDs for their territories. For
    example, the British government was concerned about management of
    .pn (Pitcairn Island) and demanded redelegation.[^41] And no one was
    sure why someone in Florida was marketing the ccTLD for Moldova -
    .md - to members of the medical professions in North America.

On the one hand, it seemed an inopportune moment for the U.S. government
to walk away from the DNS management problem. On the other hand, it was
clear that a U.S. mandated solution was likely to backfire. The U.S.
government stepped in to develop a consensus among key players around
the world in support of a non-governmental approach to DNS management.

After extensive consultation with other governments, the U.S. and
international business community, the engineering community, and
others - including quite a few members of this body - the Commerce
Department codified the emerging consensus in a document commonly
referred to as the "White Paper." Using existing statutory authority,
NSF transferred the Cooperative Agreement to the Department of Commerce,
which the

Administration then charged with overseeing an orderly transition to
private sector management of the DNS.

[The Orderly Transition]{.underline}

Arranging an "orderly transition" turned out to be a bit of a challenge.
Verisign, having fiduciary obligations to its shareholders, was not
enthusiastic about relinquishing its profitable role as the exclusive
registry and registrar for the generic TLDs. The allocation of rights
and responsibilities under the Cooperative Agreement was as murky as the
sources and limits of Dr. Postel's authority for the collection of
activities that came to be known as the "Internet Assigned Number
Authority" (IANA). Ultimately, the Cooperative Agreement was a less than
fully satisfactory vehicle, from many perspectives, for managing the
explosive, global growth of the commercial Internet that took place only
a few years later. The Commerce Department used Amendment 11, which
extended the Cooperative Agreement for two years, to tidy up a bit.
Verisign agreed to get on board the privatization train, and gave the
Commerce Department effective control over the authoritative root.[^42]

In the months that followed, the Commerce Department "recognized" ICANN,
and began what might best be called the transition back to private
sector management of the Internet. The agreement between Verisign and
ICANN was a critical piece of this transition. And the Commerce
Department was at the table in those negotiations for several reasons:

-   First, any agreement between ICANN and Verisign would necessarily
    involve some termination or suspension of Verisign's obligations to
    the government under the Cooperative Agreement.

-   Second, the US government had an interest in ensuring on behalf of
    **all** of the stakeholders - including our international partners
    in the transition - that the agreement between ICANN and Verisign
    did not undermine any of the contractual concessions obtained in
    Amendment 11.

-   Third, the U.S. government had an interest in making sure that
    something was in place in the event that the agreement between
    VeriSign and ICANN fell apart.[^43]

-   Fourth, the Commerce Department was at the table in the role of an
    honest broker. These negotiations proceeded as ICANN was being
    organized, and suffice it to say, by the time every one got to the
    negotiating table, VeriSign did not trust ICANN and ICANN did not
    trust VeriSign.[^44]

For all of these reasons it made sense at the time to give the Commerce
Department an approval right in the registry agreement during the
transition period. The Department's role was twofold: First, it was
necessary to protect the newly achieved legal clarity about the registry
operator's lack of authority with respect to the A root; and second,
both

VeriSign and ICANN felt that the Commerce Department could facilitate
the VeriSign/ICANN relationship by playing the "honest broker" role. In
both of these roles, the Commerce Department would serve as a trustee
for the interests of the global Internet community in a successful
transition to private sector management of the DNS, based on
implementation of the principles set forth in the White Paper -
preservation of stability, promotion of competition, and bottom-up
policy development by an organization reflecting the global and
functional diversity of Internet users and their needs.

It may help to consider the approval role of the Department of Commerce
in the VeriSign/ICANN agreement in comparison to the Department's
residual control over the authoritative root. Recall that when ICANN and
VeriSign negotiated the registry agreement in 1999, the Commerce
Department had only recently eliminated the registry operator's ability
to manipulate the transition through its possession of the A Root.

Commerce was appropriately reluctant to hand that kind of leverage to
ICANN until it demonstrated some capacity to accomplish the goals
outlined in the White Paper. Even so, the role of the United States
government was as a trustee for the transition outlined in the White
Paper: the retained authority over the root was (a) temporary, and (b)
only to be used on behalf of the global community to facilitate the
transition.

Having leveled the playing field by circumscribing VeriSign's ability to
control the root, the parameters of justified intervention remained to
be determined. Some things were immediately clear. As a trustee, any use
of this authority had to be consistent with the White Paper principles.
Given that the transition to private sector management was - as it so
clearly remains today - dependent on the support of the global Internet
community, the retained authority should not be used in ways that would
be objectionable to stakeholders - including our governmental partners -
in this transition. And finally, any use of that authority had to be
faithful to the first principle of Internet "regulation" articulated
nearly a decade ago - recognizing that any government's regulation of
the Internet could have global consequences, individual governments
should generally avoid regulatory intervention in favor of letting the
market, industry self-regulation, and bottom-up consensus policy
development work.

Over time, a general consensus emerged that the United States government
should unilaterally exercise its retained authority over the A Root only
to respond to a true threat to the stability of the Internet or DNS
requiring immediate action. Any other use of that retained authority, as
we have seen, undermines ICANN and jeopardizes the transition to private
sector management, and the United States has - with some notable
exceptions - confined its role accordingly.

The contract approval clause has a slightly different pedigree. There,
the role of the

Commerce Department was primarily that of the trustee and honest
broker - in the event that one party thought the other was abusing its
power or contravening the White Paper principles it could appeal to the
Commerce Department, which could, in turn, attempt to facilitate a
sensible outcome consistent with White Paper blueprint.

The question of how this approval authority might be appropriately
exercised has not been the subject of much debate in the community. But
ultimately, the contract approval clause must serve to facilitate
private sector management of the DNS in accordance with the principles
articulated in the White Paper. So two questions become relevant: First,
is the proposed contract inconsistent with the White Paper principles,
particularly if that inconsistency reflects some imbalance in bargaining
positions. Second, where the answer to the first question is yes, will
intervention further - and not undermine - the success of the ICANN
experiment? This question must be addressed on both a substantive and a
procedural level.

It is worth noting that the approval authority we are discussing today
is not the only avenue for government input. Competition authorities
with jurisdiction over this agreement - both in the United States and
elsewhere - are entitled to determine whether the agreement complies
with applicable law. Individual governments are always entitled to take
positions on ICANN matters, so long as their input is transparent and,
of course, consistent with any applicable limits on government
activities. Within the four corners of the ICANN Bylaws, the ICANN
governmental advisory committee (GAC) also serves as a mechanism through
which governments may express their concerns about and/or support of
this agreement. With respect to the GAC, two important caveats must be
made: First, that participation must be subject to reasonable procedures
and timelines established with community input. Second, it is a matter
of great concern to ICANN watchers in the United States and abroad that
the U.S. appears to be increasingly willing to use its unique
authority - whether with respect to the root, contract approval, and/or
the independence and autonomy of ICANN to elicit, stifle, or direct GAC
input for purposes unrelated to the success of the ICANN process.

No matter where one comes out on the merits or deficiencies of the .com
agreement and the appropriate use of the Commerce Department' s contract
approval authority, I know of no one who admires the process used to get
here. Like other ICANN decisions, a relatively short list of
deficiencies generates a fairly large amount of frustration in the
community. The following changes are needed to improve the ICANN process
and preserve private sector management of the DNS:

-   The ICANN community must articulate and enforce agreed-upon roles
    assigned to various constituencies in its deliberative process.

-   The ICANN community must clarify and articulate ICANN's
    responsibilities with respect to competition. "Competition" is at
    the heart of the ICANN mission, and it is a highly complex issue,
    but the community is clearly not satisfied with the "leave it to the
    anti-trust authorities to intervene if they don't like it" approach.

-   The ICANN community must clarify and articulate the role of
    governments in its processes. Governments are a part of the process,
    but they should not be permitted to derail innovative approaches on
    vaguely articulated "public policy" grounds. ICANN has no ability to
    diminish sovereign authority, so there is no reason to exempt
    governments from rules regarding participation adopted by the ICANN
    community.  

-   ICANN must be more forthcoming about explaining its controversial
    decisions. The ICANN community, including those most directly
    affected by the Verisign settlement, received very confusing
    information about how this negotiation was conducted, who insisted
    on what provisions, and how these negotiations related to the policy
    development underway within ICANN' s Generic Names Supporting
    Organization. This kind of confusion breeds mistrust among both
    governments and members of the broader ICANN community, and
    undermines ICANN in the eyes of the community.

I appreciate the Committee's time, and am happy to answer any questions
you may have.

**Network Solutions, LLC Comments**

**Appendix B**

**Testimony Submitted for the Record**

**Michael M. Roberts\***

**Before the Committee on Small Business**

**United States House of Representatives**

**June 7, 2006**

**"Contracting the Internet: Does ICANN create a barrier to small
business?"**

Mr. Chairman and Members of the Committee:

Having been closely involved with ICANN since its inception in 1998, I
welcome an opportunity to share my views on contracting by ICANN and its
impact on small businesses. My testimony will focus on the proposed
contract between ICANN and VeriSign regarding renewal of the .com
registry agreement. My testimony is submitted for the record and
addresses key areas where I believe that small businesses are harmed by
the contractual conditions in the present agreement.

One of the key principles articulated by the Department of Commerce in
its 1998 White Paper on technical coordination and administration of the
domain name system and related Internet functions was that the process
of privatization should result in enhanced opportunities for competition
in the DNS marketplace, including an emphasis on innovation of Internet
products and services.

Subsequent to its formation, ICANN worked with the Department of
Commerce in accordance with the terms of the MOU to take several steps
to improve competition and lower barriers to market entry. These
included: separation of registry and registrar functions in dot com, dot
net, and certain other top level domains under ICANN\'s jurisdiction;
the creation of an accreditation process for new name registration
companies that permitted many small companies to qualify to enter the
domain name registrar market \[e.g. through creation of competitive
registrars\]; the creation of a dispute resolution process that resolved
many outstanding trademark infringement/cyber-squatting problems
associated with generic top level domain names, thus reducing the
litigation burden on small companies with trademarked names and on the
small registrars themselves; and the competitive creation of new top
level domain name registries to respond to market interest and need
through the introduction of the first round of new gTLDS, such as .info;
.biz, .museum, .name, etc.

In general, many results of these actions on the users and providers of
domain names, both nationally and internationally, have been
overwhelmingly positive. The user experience in registration of names
has been enhanced, and the cost of annual domain name registration fees
has declined substantially.

Unfortunately, the positive aspects of the operation of the domain name
system enumerated above do not extend to the relationship between ICANN
and VeriSign, and VeriSign and the Department of Commerce.

Going back to the original cooperative agreement between VeriSign\'s
predecessor corporation, Network Solutions, and the National Science
Foundation, the company now known as VeriSign has enjoyed a monopoly as
the registry operator for dot com and other top level domains. It still
enjoys that monopoly today, accounting for more than half of all domain
names in use worldwide, inclusive of country code names and over 85% of
the gTLD names under management. Through this entire period, VeriSign
and its predecessor have aggressively defended their view of their
commercial rights to operate the registry and derive a profit there
from. Having inherited a government granted monopoly, VeriSign has
pushed its monopoly through a variety of actions designed to maintain
that position, despite modifications to its agreements with the
government and with ICANN.

It is indisputably both the right and the obligation of a corporation in
our economic system to maximize profits. However, when such corporate
behavior crosses over into anti-trust territory, remedial measures are
required under U.S. law. VeriSign has successfully evaded anti-trust
scrutiny for many years by virtue of its agreements with the Department
of Commerce, and its agreements with ICANN, which were directed by
ICANN's own agreements with the Department of Commerce.

Therefore, special attention must be paid to any registry agreement, or
renewal terms of a registry agreement, between ICANN and VeriSign, since
normal anti-trust protections do not apply.

There are, I believe, four major issues with the proposed contract
regarding the re-award of dot com that warrant the Committee\'s
attention prior to any Department of Commerce approval of the agreement.
For the sake of brevity, I omit a wealth of detail on the contract and
the process leading to it in this testimony.

1\. No price competition. No one disputes that VeriSign is well
qualified to operate the dot com registry. But whether it should do so
under permanent price protection from ICANN and the Department of
Commerce is very much an issue. The technical services which VeriSign
uses in operating dot com are readily available on a competitive basis
within the Internet Registry services industry. Many of the registry
services players possess the size, technical expertise and financial
resources of the type needed for management of dot net, and dot com.

In spite of the strong urging of the Internet community that ICANN's
bylaws require, ICANN has failed to make any significant effort to
subject VeriSign to competition for renewal of its dot com agreement;
marking a retrenchment from ICANN's obligation to foster competition in
the registry marketplace for which behavior ICANN has offered no
explanation.

Further, the proposed new agreement awards annual price increases for
which no need is shown, and in a situation where both the growth in
registration of dot com names and the continuing decline in the
underlying costs of technology related to operation of the registry is
resulting in substantial unit price declines. The agreement creates a
situation where the supplier, VeriSign, need not even offer an
explanation to those who pay the increased fees of the rationale for the
price increase.

2\. Commercialization of rights in data. The proposed agreement grants
new rights in data associated with registry information that effectively
opens new lines of business to VeriSign while closing such opportunities
to others, especially small enterprises that might employ innovative
techniques to establish value added user services.

3\. Permanent renewal. The preferential renewal language in the previous
registry agreement has been expanded and strengthened to the point where
VeriSign will no longer face any competition for operation of the dot
com registry. This is an unprecedented anti-competitive action,
especially for an enterprise that has already adroitly leveraged its
market position into control of more than 85% of the generic TLD (gTLD)
registry business segment.

4\. Packaging of registry agreement with litigation agreement. During
the course of ICANN\'s open forum discussions with its constituencies
about the proposed registry agreement with VeriSign, various statements
have been made by ICANN and by VeriSign that wrapping settlement of
pending litigation into a single package along with the registry
agreement was advantageous to ICANN and to the community. Extensive and
widespread public comment disagreed with this. Unfortunately, because of
the confidentiality of the details of any litigation settlement, and
because the ICANN staff extend confidentiality to an extreme degree even
when litigation is not the issue, no impartial and arms length
assessment of the validity of these assertions is possible. However,
this lack of transparency is inimical to the basic commitment to
community consultation which is a foundation stone of ICANN\'s mission.
Judged not only from the perspective of American standards of fairness,
but in this case from international standards as well because of
ICANN\'s global reach, the appearance of abuse of process is obvious.

In closing, I would like to refer to an argument being made both
publicly and privately to the effect that the United States must award
this contract to VeriSign for national security reasons. Having myself
worked with top secret materials for many years as a Captain in the U.S.
Naval Reserve, I am very much aware of the need to maintain the security
and integrity of the domain name system against attacks from any source.
However, the government has employed for many years, through the height
of the Cold War, competitively awarded contracts with companies that are
qualified to work in a security environment. Security is not
inconsistent with competition. If competition is allowed to work in the
registry business, security concerns are easily manageable.

Thank you for the opportunity to provide this perspective to the
committee. I welcome receiving any questions regarding my statement.

Michael M. Roberts

Principal, The Darwin Group, Inc.

339 La Cuesta Drive

Portola Valley, CA 94028

650-854-2108

• President and Chief Executive Officer

Internet Corporation for Assigned Names and Numbers

1998-2001

**Network Solutions, LLC Comments**

**Appendix C**

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height="7.594444444444444in"}

![](media/image2.wmf){width="5.996527777777778in"
height="4.405555555555556in"}

**Network Solutions, LLC Comments**

**Appendix D**

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height="7.741666666666666in"}

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height="3.723611111111111in"}

[^1]: Periodic updates of the original MoU have been driven by
    substantive, and continuing, industry and technical changes with
    impacts for DNS management. For example, as of July 1998, 1.88
    million .com domain names were registered. As of July 2006, the .com
    registration figure stands at 52 million names.

[^2]: Management of Internet Names and Addresses, 63 Fed. Reg. 31,741
    (June 10, 1998).

[^3]: *See* Testimony of J. Beckwith Burr, Wilmer Cutler Pickering Hale
    and Dorr LLP, before the House Committee on Small Business, June 7,
    2006 ("Burr Testimony"), attached as Appendix A.

[^4]: *See* "U.S. Principles on the Internet's Domain Name and
    Addressing System,"
    <http://www.ntia.doc.gov/ntiahome/domainname/USDNSprinciples_06302005.htm>.

[^5]:
    ###  *See* Statement, "No New Oversight for Internet Management, Summit Agrees, U.S. says WSIS conference must focus on bringing Internet to developing world" at [**http://usinfo.state.gov/gi/Archive/2005/Nov/16-857624.html**](http://usinfo.state.gov/gi/Archive/2005/Nov/16-857624.html).

[^6]: *See* Statement of Policy, 63 Fed. Reg. 31,741, 31,749 (June 10,
    1998); MoU art. II, § C.

[^7]: *See* 63 Fed. Reg. at 31,749.

[^8]: *See* Testimony of John M.R. Kneuer, Deputy Assistant Secretary
    for Communications and Information, U.S. Department of Commerce,
    before the Senate Commerce Committee's Subcommittee on
    Communications, September 30, 2004,
    <http://commerce.senate.gov/hearings/testimony.cfm?id=1324&wit_id=3863>.

[^9]: *See* FCC International Bureau Working Paper Series, "Traits of an
    Independent Communications Regulator: A Search for Indicators," June
    2004, Irene Wu,
    <http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-248467A1.pdf>.

[^10]: *See* WebHosting.info data, current as of July 7, 2006,
    <http://www.webhosting.info/registries/country_stats/US>.

[^11]: *See* Testimony of Michael M. Roberts, Principal, The Darwin
    Group, Inc., Before the House Committee on Small Business, June 7,
    2006, attached as Appendix B.

[^12]: *See* Letter from Senator Orrin Hatch (R-Utah) to U.S. Attorney
    General Alberto Gonzales, May 24, 2006, attached as Appendix C.

[^13]: *See* In the Matter of Improvement of Technical Management of
    Internet Names and Addresses, Comment of the Staffs of the Bureaus
    of Economics and Competition of the Federal Trade Commission, March
    23, 1998, <http://www.ftc.gov/os/1998/03/ntia.fin.htm>.

[^14]: *See* Draft Proposed Registry Agreement by NeuStar for the .biz
    Domain at
    [www.icann.org/tlds/biz/biz-proposed-agreement-27jun06.pdf](http://www.icann.org/tlds/biz/biz-proposed-agreement-27jun06.pdf);
    Proposed Registry Agreement by Afilias for the .info Domain at
    <http://www.icann.org/tlds/info/info-proposed-agreement-27jun06.pdf>;
    and Proposed Registry Agreement by Public Interest Registry for the
    .org Domain at
    <http://www.icann.org/tlds/org/org-proposed-agreement-27jun06.pdf>
    ("Draft Proposed Registry Agreements").

[^15]: *See* .tel Registry Agreement, May 30,2006,
    <http://www.icann.org/tlds/agreements/tel/tel-agreement-07apr06.htm>.

[^16]: *See* Burr Testimony.

[^17]: *See* Letter from Representative Rick Boucher (D-Va.) to
    Assistant Attorney General for Antitrust Thomas Barnett, February
    17, 2006, attached as Appendix D.

[^18]: *See* Bylaws for Internet Corporation for Assigned Names and
    Numbers, as amended effective 28 February 2006, Section 2 (6),
    <http://www.icann.org/general/bylaws.htm>.

[^19]: See "Procedure for use by ICANN in considering requests for
    consent and related contractual amendments to allow changes in the
    architecture or operation of a gTLD registry," Final Report, June
    30, 2005,
    <http://gnso.icann.org/issues/registry-services/final-rpt-registry-approval-10july05.htm>**.
    "**In the event ICANN reasonably determines during the 15 calendar
    day 'preliminary determination' period that the change might raise
    significant competition issues, ICANN shall refer the issue to the
    appropriate governmental competition authority or authorities with
    jurisdiction over the matter within five business days of making its
    determination, or two business days following the expiration of such
    15 day period, whichever is earlier, with notice to Registry
    Operator."

[^20]: 47 U.S.C. § 271(d)(2)(A).

[^21]: 12 U.S.C. § 1828(c)(4).

[^22]: 12 U.S.C. § 1828(c)(6).

[^23]: *See* Memorandum of Understanding, Section C (3).

[^24]: John Palfrey et al*.*, Public Participation in ICANN, A
    Preliminary Study, *at*
    <http://cyber.law.harvard.edu/icann/publicparticipation/>.

[^25]: *Id*.

[^26]: Letter from Canadian Internet Registration Authority to ICANN
    (Mar. 17, 2006) <http://www.cira.ca/news-releases/171.html>.

[^27]: *Id.* CIRA noted that "ICANN must change its structures, formally
    and publicly (including its by-laws), to ensure that ICANN and its
    Board are accountable to stakeholders, and that Board decisions are
    subject to formal checks and balances. A veto of Board decisions by
    a super-majority of Supporting Organisations would be an acceptable
    change."

[^28]: *See* Individual Statements from Board Members, Separate
    Statement by Susan Crawford, March 2, 2006,
    <http://www.icann.org/topics/vrsn-settlement/board-statements-section2.html>.

[^29]: *See* Draft Proposed Registry Agreements.

[^30]: *See* ICANN Bylaws, [Article IV, Section
    2(2)(b).](http://www.icann.org/general/archive-bylaws/bylaws-25mar03.htm#IV-2.2)

[^31]: *See* "Three Years of Experience: A Report on ICANN's "Request
    for Reconsideration" Policy, Professor Ethan Katsh, Co-Director of
    the [Center for Information Technology and Dispute
    Resolution](http://www.umass.edu/dispute), University of
    Massachusetts at Amherst, and Dr. Alan Gaitenby, Assistant Director,
    [Center for Information Technology and Dispute
    Resolution](http://www.umass.edu/dispute),
    <http://www.ombuds.org/reconsideration/>.

[^32]: See ICANN Bylaws, Article IV, Section 3.

[^33]: ^?^ *Id*.

[^34]: See Request for Independent Review of .travel,
    <http://hasbrouck.org/blog/archives/000554.html>.

[^35]: See letter from ICANN General Counsel and Secretary John Jeffrey
    to Edward Hasbrouck concerning IRP request, January 17, 2006,
    <http://hasbrouck.org/icann/E-mail_to_Edward_Hasbrouck_17_January_2006.pdf>.

[^36]: See "How Much Does It Cost to Oversee the Internet," Kieren
    McCarthy, The Register, March 17, 2003,
    <http://www.theregister.co.uk/2003/03/17/how_much_does_it_cost/>.
    "Considering that last year, we [pointed
    out](http://www.theregister.co.uk/2003/03/17/how_much_does_it_cost/)
    that ICANN\'s budget made it comparatively more expensive than every
    other similar organisation by around a third, this new double-budget
    appears to be unsupportable."

[^37]: *See* .jobs Registry Agreement, May 5, 2005,
    <http://www.icann.org/tlds/agreements/jobs/jobs-agreement.htm>, and
    .travel Registry Agreement, May 5, 2005,
    <http://www.icann.org/tlds/agreements/travel/travel-agreement-12apr06.htm>.

[^38]: *See e.g.,* .com Registry Agreement, May, 25, 2001, Section 16.C,
    <http://www.icann.org/tlds/agreements/verisign/registry-agmt-com-25may01.htm>;
    .biz Registry Agreement, May 11, 2001, Section 5,
    <http://www.icann.org/tlds/agreements/biz/>; and .info Registry
    Agreement, May 11, 2001, Section 5,
    <http://www.icann.org/tlds/agreements/info/>.

[^39]: *See* Testimony of Nancy J. Victory, Assistant Secretary for
    Communications and Information, Before the Subcommittee on
    Communications, Committee on Commerce, Science and Transportation,
    U.S. Senate, On the Internet Corporation for Assigned Names and
    Numbers, July 31, 2003,
    <http://www.ntia.doc.gov/ntiahome/congress/2003/nvicann_07312003.htm>.

[^40]: The functions and activities are now split between Verisign and
    Network Solutions. After the

    NSI/ICANN registry agreement was entered into, Verisign acquired
    NSI. Following that acquisition,

    Verisign spun off the registrar (retail) elements of the former NSI
    business. Currently, Verisign performs

    registry services for .com and .net. Network Solutions, on the other
    hand, provides registrar services for a

    variety of top-level domains (TLDs).

[^41]: Her Majesty' s government quickly grasped the situation and
    resolved the conflict by submitting a

    petition signed by 45 of the 47 adult residents of Pitcairn.

[^42]: This is an important point, which is often overlooked in the
    debate. At the time it was in

    VeriSign' s strategic interest to let the Cooperative Agreement
    expire - a move that would have left NSI in

    (at least temporary) possession of the gTLD registration system, as
    well as the Internet' s authoritative root,

    while creating a great deal of uncertainty about legal authority
    over the DNS, the resolution of which would

    take years of litigation. I am not suggesting that VeriSign " gave
    up" anything, but simply recalling that in

    the summer of 1998, litigation would have left NSI in control of
    .com, .net, and .org for a good long while.

    As it happened, however, VeriSign was simultaneously facing a trial
    in a high stakes anti-trust lawsuit.

    The company elected not to play its strong hand in the negotiations
    in order to preserve its best antitrust

    defense - its status as a government contractor.

[^43]: This explains the " springing" nature of VeriSign' s obligations
    under Part II of the Cooperative

    Agreement.

[^44]: Anyone who attended early ICANN meetings, including the meetings
    in Singapore, Berlin, and

    Santiago will recall the level of tension between ICANN and
    VeriSign.