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Afilias Asks ICANN To Disqualify Nu Dot Co’s $135 Million Winning Bid for .Web

Posted on the 15 August 2016 by Worldwide @thedomains

Afilias has written ICANN asking that it disqualify Nu Dot Co’s $135 million winning bid for .Web, which as we now know would give Verisign (VRSN) control of what many consider to be the best of the new gTLD.

Afilias also asked ICANN to conduct an investigation, and has also filed a complaint with the Ombudsman.

This is in addition to the amended lawsuit filed last week by Donuts’ after it unsuccessfully sought to stop the auction on the basis of an undisclosed third party working with NDC

Here is the letter from Afilias:

“”Afilias Domains No. 3 Limited, a wholly-owned subsidiary of Afilias pie, is an applicant for the .WEB top-level domain under the ICANN new gTLD program.

On 27-28 August 2016, ICANN conducted an auction (the “Auction”) for the .WEB string per the rules and procedures set forth in the New gTLD Applicant Guidebook (the Guidebook”). As announced by ICANN on 28 August 2016 ( 6-07-28-en),the successful bidder in the Auction was Nu Dot Co LLC (NDC”).

Subsequent to the conclusion of the auction, it has been publicly disclosed that VeriSign, Inc. acquired rights in the NOC application for .WEB.

VeriSign’s press release, dated  August 1st 2016, states VeriSign entered into an agreement with Nu Dot Co LLC wherein the Company provided funds for Nu Dot Co’s bid for the .web TLD. We are pleased that the Nu Dot Co bid was successful. We anticipate that Nu Dot Co will execute the .web Registry Agreement with the Internet Corporation for Assigned Names and Numbers (ICANN) and will then seek to assign the Registry Agreement to Verisign upon consent from ICANN.”

Further, in its 10-Q for the quarter ended 30 June 2016, filed with the U.S. Securities and Exchange Commission on 28 July 2016, VeriSign states Subsequent to June 30, 2016, the Company incurred a commitment to pa y approximately $130.0 million for the future assignment of contractual rights, which are subject to third-party consent. The payment is expected to occur during the third quarter of 2016.

Paragraph 10 of the Terms and Conditions set forth in the Guidebook includes in part the following language:

“Applicant may not resell, assign or transfer any of applicant’s rights or obligations in connection with the application.”

We have not been able to review a copy of the agreement(s) between NOC and VeriSign with respect to this arrangement, but it appears likely, given the public statements of VeriSign, that DNC and VeriSign entered into an agreement in the form of an option or similar arrangement with respect to the rights and obligations of NOC regarding its .WEB application.

An option to acquire a string won at auction,together with a promise to fund the auction, is exactly the type of transfer of rights and obligations in connection with an application that ICANN was attempting to stop by including this language in the Terms and Conditions. Otherwise, such language would have no real purpose. The language of paragraph 10 precludes not only a transfer of all rights or obligations in an application, but of any rights or obligations. There is no materiality threshold, and no procedure to seek consent or waiver of these terms.

It is an absolute prohibition of this type of arrangement in clear and unambiguous terms.

The purposes of a prohibition on transferring rights and obligations in an application are obvious.

ICANN and the community spent years engaged in a stakeholder driven process to develop the important processes and procedures by which one could submit an application for a new gTLD. These procedures were developed to endure a level playing field for gTLD applicants and to protect the integrity of the process. The application requirements and associated filing deadlines were clear and strictly enforced from the beginning. To allow third parties to circumvent the entire Guidebook process simply by buying rights in an application once filed renders the entire Guidebook and ICANN process mere folly and negatively impacts to a material degree the rights and expectations of applicants that have played by the rules.

There is no cure provided in the Guidebook for violations of paragraph 10 of the Terms and Conditions. The only reasonable and fair solution is to disqualify the NDC application and proceed to the next highest bidder in the auction to contract for the string, at the price at which the third highest bidder exited the auction.

Further, section 1.2.7 of the Guidebook provides:

If at any time during the evaluation process information previously submitted by an applicant becomes untrue or inaccurate, the applicant must promptly notify ICANN via submission of the appropriate forms. This includes applicant­ specific information such as changes in financial position and changes in ownership or control of the applicant.

ICANN reserves the right to require a re-evaluation of the application in the event of a material change. This could involve additional fees or evaluation in a subsequent application round.

Failure to notify ICANN of any change in circumstances that would render any information provided in the application false or misleading may result in denial of the application.

Clearly, an agreement to provide at least $135 Million to an applicant constitutes a material change in that applicant’s financial condition.

Further,the type of option agreement that apparently exists between NDC and VeriSign likely constitutes a change in control of the applicant.

A change in control can be effected by contract as well as by changes in equity ownership.

It is our understanding that NDC never notified ICANN of these changes per the terms of the Guidebook. In the interest of fairness to the other .WEB auction participants, ICANN should exercise its right under paragraph 1.2.7 and deny NDC’s application.

We request that ICANN promptly undertake an investigation of the matters set forth in this letter and take appropriate action against NDC and its .WEB application for violations of the Guidebook as we have requested.

In addition to this letter,we are filing a complaint with the ICANN Ombudsman with regard to this matter.

We strongly urge ICANN to stay any further action in this matter with respect to NDC, including entering into a registry agreement for .WEB with NDC, or acting on any request of NDC or VeriSign to assign such agreement to VeriSign, until the Ombudsman has had an opportunity to investigate and report on this matter.”

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