2019.11.25; M November 25th, 2019: The Longest Now

Published by DB,

The Longest Now


Saturday November 23rd 2019, 6:13 pm
11/23: Updates: legal + finance details, EFF letter to ISOC, ICA letter to ICANN.
11/24: PIR posted an official public response, with no specifics.
Leave any updates & corrections in the comments.
Ethos Capital, a new commercial investment firm founded in the past few months in Boston, has 2 staff and only one major investment: a deal to acquire the 501c3 non-profit that currently runs the .org domain (valued at a few $B), for an undisclosed sum. This was initiated immediately after ICANN decided in May, over universal opposition, to remove the price cap on .org registrations with no meaningful protections for existing or future registrants.
This seems to violate a range of ethical, ICANN, ISOC, and non-profit guidelines.  It is certainly the privatisation of a not-for-profit monopoly into a for-profit one, which will benefit a few by inconveniencing millions of others.  I have questions:
  • Do affected parties have recourse?
  • Other than polite letters, is anything being done?
  • Why does Vint in particular think this is a good idea… ?
  • Has anyone currently at ICANN + ISOC made substantive comment?
For more backstory, read on…

A brief history of  .org

Details via the Namecheap complaint to ICANN, Kieren McCarthy at the Reg, the EFF + ICA letters, Jacob Malthouse, the ICANN and original wikis.  
In 1993, Network Solutions was awarded an NSF contract to run the non-governmental TLDs.  In 1998 ICANN was established to develop a competitive marketplace of registrars, and implemented the first version of vertical separation: distinguishing registries from registrars.
Verisign acquired Network Solutions, including both its registry and its consumer-facing registrars, in 2000.  At the time, ICANN required structural but not legal separation between the two.  In 2001, ICANN began requiring legal separation between registry and registrar for all new registries.
The next 7 generic TLDs were also appoved and began to be introduced in 2001.

The original non-profit registry : the Public Interest Registry

In 2003, as part of a deal with ICANN to ensure it could renew its control of the .com registry, Verisign agreed to give up .org.  A public bid and review ensued, which was won by the Internet Society (ISOC), a non-profit dedicated to the open development, evolution and use of the Internet for the benefit of all.  Their winning bid was to stand up a new 501c3 to manage the domain, which they called the Public Interest Registry (PIR).

The non-profit nature of ISOC and PIR was central to their winning the bid.

The acquisition of a plurality of registries by four people

In 2010, ICANN began pursuing a more aggressive expansion of generic TLDs, which was eventually reviewed by the US Senate in 2012.  In November 2010, ICANN decided to reverse its policy on vertical separation, allowing new registries own registrars. Separately, mega-registry Donuts.com was founded by people who had been fighting for this change, with the mission of acquiring new TLDs.
In 2012, Beckstrom stepped down, and ICANN COO Akram Atallah briefly took over as interim CEO before his childhood friend Fadi Chehadé joined as CEO from 2012-2016.
Under Chehadé, Atallah became president of ICANN’s Global Domains Division. From 2014 to 2016, the number of available gTLDs was expanded dramatically, to around 1400 in all.

Musical chairs

In 2016, Chehadé left ICANN to start his own consultancy and join Abry Partners, a Boston-based equity firm (no scare quotes) where Erik Brooks (HBS) was one of 3 managing partners. Both are well connected in academia as in business, and advisors or fellows of the Kennedy, Belfer, and Shorenstein centers.
In May 2018, ISOC appointed three new trustees to PIR, replacing outgoing trustees.  Later that month Brian Cute, PIR’s CEO of 7 years, resigned suddenly, with no explanation. One of the new trustees took over as interim CEO.
In June 2018, Andrew Sullivan, former chair of the IETF’s internet architecture board, was appointed CEO of ISOC, starting in September.
In September 2018, Chehadé (then a partner or senior advisor at Abry, depending on who you ask), helped Abry close their acquisition of a majority stake in Donuts. Donuts by then had raised $300M and spent much of it buying up some 250 TLDs. Brooks took a board seat at Donuts.
In October 2018, Donuts co-founder and chief counsel Jon Nevett (HLS), stepped down. Brooks replaced the Donuts CEO with… Akram Atallah.
In December 2018, Nevett became the new CEO of PIR, responsible for .org
The announcement highlighted his commitment to its non-profit ideals.

The .org heist

In early 2019, PIR asked ICANN to drop the price cap on .org registrations and renewals. PIR touted their non-profit status as a reason to approve.
In March 2019, ICANN pushed this idea forward, inviting comments on the proposal. They received more comments (3,300) than they had on almost any other decision, uniformly opposed to the change (with 6 exceptions, 0.2% of the total.) The oppositions came from registrars and NGOs across the globe.
In summarizing the comments later to the Register, ICANN lied boldly if not creatively, saying: "there was a group that opposed lifting price caps, but it is not true that ‘the community’ was ‘strongly opposed’ to lifting them."
On May 1st, after comments closed, PIR responded to the comments with an open letter that said [paraphrasing]: ‘We could already be raising prices 10% a year, and have not… You would get 6 months notice of any price change… We are a mission-based non-profit, and would never betray the trust that you have put into .ORG and us.‘
More realistically, the Internet Commerce Association wrote a detailed letter to ICANN summarizing the many risks, introduced fragilities, and potential worst-case scenarios involved in lifting the price caps.
On May 7th, Chehadé registered the domain for EthosCapital.com.
On May 13th, ICANN decided to lift the price caps anyway. The decision was made by ICANN staff, not its board, evading the obligation to publicly carry out due diligence and explain board decisions.
On May 14th, Ethos Capital was incorporated as a new Boston-based "investment firm", founded by Brooks – who stepped down from running the 60-person team at Abry to do so. Ethos Capital has two staff: Brooks and Nora Abusitta-Ouri, a former ICANN SVP who later worked for Chehadé.
On November 13, in a surprise move, ISOC announced that Nevett and Sullivan had approved the acquisition of PIR by Ethos, for an unspecified amount (projected to be well over $1B). It is worth noting that this was not among the modest worst-case scenarios considered by the ICA in their May letter.
Nevett states he was first approached about an acquisition in September. An email from Sullivan suggested that Ethos raised the money from three large funds: Perot Holdings, Fidelity, and Solamere Capital.
The announcement went out of its way to note the advisors behind it: ISOC + PIR had counsel from Morgan Lewis + Proskauer Rose; Ethos had counsel from MoFo.

… so now what?

Official statements came out Nov 13+14.  A raft of newswire releases, straight reports of the sale (treating Ethos as a legitimate equity firm), and concerned reactions (what does this mean for us?) came out in the tech media.
On November 22, this was picked up by the wider media as well.
On November 24, PIR published an open letter with a short Q&A to the site keypointsabout.org. It has little new information, but highlights 4 small investments made by Ethos to date, and states stolidly "The removal of .ORG’s price restrictions earlier this year was not unique to .ORG and was in no way motivated by a desire to sell PIR."

What people are saying: complaint and dismay

Namecheap renewed their complaint to ICANN, who still have to approve the sale as part of maintaining its 10-year agreement with .org
Marc Rotenberg, founding board chair of PIR: "We built the .org domain with the specific goal of promoting the noncommercial use of the Internet… transparency and accountability [will be] lost when the Public Interest Registry is acquired by a private equity firm."
The Internet Commerce Association, in a scathing letter: "ICANN should immediately exercise its right to withhold approval of the sale of the .org registry and terminate the registry agreement in respect of any consummated transaction."
The EFF, Wikimedia, and 24 other major charities wrote Sullivan of ISOC asking him to block the sale.
A letter-writing campaign was started at #savedotorg.

What people are saying: no comment

ICANN has the right to withhold approval of the proposed sale, under Section 7.5 of the .Org Registry Agreement; they have 30 days after they receive the last requested information about such a sale to consent or explicitly withhold consent.
ICANN told the Reg they were informed of the deal when it was announced publicly (so: Nov. 13), and are in the process of analyzing the specifics of the deal. They say they asked PIR to share further details, but PIR has refused on grounds of confidentiality.
In that same comment, they were nevertheless supportive of the deal, exaggerating pricing protections written into the current .org contract (registrars must give domain-holders 6 months notice of a price increase for renewals, and have the option but no obligation to offer renewals for up to 10 years at current rates. So if the registry chose to quintuple its rates, each registrar would have the option to offer its customers at most 10 years of registration at the old, unquintupled rate).

What people are saying: puppies and rainbows

Vint Cerf, founding ISOC president and former ICANN chair: "I am looking forward to supporting Ethos Capital and PIR in any way I can."
ISOC president Andrew Sullivan, believing furiously: "We believe many in the community see the long-term benefits of this deal."
PIR itself, in the vaguest plan for a $BB windfall I’ve seen all week, will "Establish a Stewardship Council… Launch a Community Enablement Fund to support initiatives by Internet organisations… Expand .ORG prizes to non-profit organizations". The latter apparently refers to $30k in small prizes given out last month, for the first time.
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