The curious tale of ICANN, Verisign, claims of subterfuge, and the $135m .Web dot-word

DNS overseer faces probe over decision to award TLD to dot-com giant

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Analysis An ugly struggle over the .Web top-level domain may soon spill into public view again, after one of the companies vying for control of the dot-word demanded an independent review of DNS overlord ICANN's handling of the saga.

More than two years ago, the internet infrastructure industry was agape when an unknown company paid $135m for the rights to sell .web internet addresses: the sum paid was three times the previous record paid for a new dot-word, and seven times the average auction price for a top-level domain.

All that money went directly into the coffers of ICANN, a financial sum that was more than double its annual budget. That was unusual since the vast majority of previous similar dot-word auctions had been decided in private between the bidders themselves with the proceeds split among them.

It soon emerged that the unknown winner – a company called Nu Dot Co – had been secretly funded by the owner of the dot-com registry, Verisign. But before that information emerged, many in the industry were astonished when Nu Dot Co refused to agree to a private auction and insisted all the money go to ICANN.

There were seven bidders for the valuable internet extension, including many of the industry's largest players and search giant Google.

One of those bidders, Donuts, appealed directly to ICANN, and asked for a delay in the auction until it could be discovered who was behind Nu Dot Co. ICANN refused the request in record time, taking just four days to come to a decision when in the past such decisions have taken a month or more.

Donuts then sued the DNS overseer in an effort to get a temporary restraining order on the auction, claiming it wasn't clear who was really in charge of the mysterious Nu Dot Co. Senior bosses at Nu Dot Co and ICANN signed affidavits claiming that only the people listed as being Nu Dot Co executives were in charge of the company.

The restraining order was refused, the auction went ahead with the record price of $135m, and less than a week later Verisign admitted it was behind the company in SEC filings in which it noted it had acquired the rights to a new top-level domain for nearly $150m.

Investigation

Unsurprisingly, the other bidders were furious, and the US government was suspicious too: several months later Verisign's CEO told financial analysts on an earnings conference call that the biz was being investigated by the US Department of Justice over the deal.

Donuts went through ICANN's notorious appeals processes, and when that provided no results, it sued again. It would have received $22.5m had Verisign – through its secretive shell company – gone through the usual dot-word auction process for .web, so Donuts had a lot of reasons to stay in the game.

But in October this year – 15 months after the auction took place – the Ninth Circuit Appeals Court decided that Donuts has no grounds to sue ICANN because it had signed a contract at the beginning of the process saying it wouldn't sue the organization. Donuts had argued that clause wasn't valid given the strange circumstances.

Two weeks after that lawsuit was dismissed, the US Department of Justice announced it had extended Verisign's contract to run the globe's dot-com registry until 2024 and had also approved a price increase for dot-com domains that will bring in an additional $993m for the company. Verisign's share price jumped 16 per cent.

Now it's the turn of Afilias – a company that runs dozens of other top-level domains – to try to stop the deal from moving ahead. Afilias has applied [PDF] for an independent review of the whole situation, claiming that Nu Dot Co had "entered into a secret agreement with a non-applicant, VeriSign, which enabled VeriSign was able to secretly participate in and win an ICANN-administered auction for .Web."

That, it says, went against the rules decided by ICANN for the new top-level domains. And it accuses Nu Dot Co of "subterfuge and violation of the New gTLD Program rules." It also argues that the company "lied to, misled, and intentionally concealed material information."

Bye-bye bylaws

And it accuses ICANN of failing to follow its own bylaws by repeatedly refusing to provide any information about what is going on, particularly when it decided to take off a "hold" on the dot-word.

"ICANN has steadfastly refused to provide any information as to the justification for removing the hold on the .WEB contention set or, indeed, any information on its investigation of and interactions with NDC and/or VeriSign regarding .Web," complained Afilias.

Although ICANN's independent review process (IRP) is not really independent – its panel of retired judges reports to ICANN and ICANN is allowed to ignore its recommendations – the IRP has repeatedly proven to be unafraid of criticizing the organization and has even exposed some of its worst behavior, including staff fixing decisions and the ICANN management board's failure to hold the organization to account.

Afilias will now be seeking to find out what ICANN knew and what it did in the months leading up to and following the contentious auctions. The IRP may finally shed some light on one of the most surprising decisions ever made in the DNS world.

Verisign's $993m dot-com price-bump bonus is subject to ICANN approval. Despite initially claiming that community approval would be required before spending money in the gTLD auction fund – which currently stands at $236m – in October, ICANN's board asserted that it "maintains legal and fiduciary responsibility over the funds" and that it is "not required to apply for the proceeds." In other words, it can spend the money from how and when it wishes.

In the past few years, ICANN's executives and board members have awarded themselves pay raises ranging from 12.5 to 26 per cent. Board members serving on non-profit organizations are typically uncompensated. In 2018, ICANN board members received [PDF], on average, $76,000 a year in compensation and reimbursements.

ICANN and Nu Dot Co had no comment at time of publication. ®

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