ARIN stumbles into the Nortel-Microsoft IP address deal

Something extraordinary happened today in the Internet economy. It is now official: legacy IPv4 address holders – that is, organizations and companies who received their IP addresses before ARIN existed and are not under one of its Registration Services Agreement contracts – have property rights in their v4 address blocks. They can sell them to whoever they like. And the institution that insists that no such property rights can ever exist – the American Registry for Internet Numbers (ARIN) has been incorporated into an agreement that legally ratifies this.

Background: in March, as part of its bankruptcy proceedings, Nortel announced a $7.5 million deal in which Microsoft agreed to acquire a group of IPv4 address blocks that Nortel had picked up from various companies that it had acquired over the years. The Nortel-Microsoft deal was a shock to the Regional Internet Registries, the nonprofit entities that currently govern address allocation. After all, it is a cardinal tenet of certain members of this community that IP addresses are not property and cannot and should not be traded privately. This community does recognize, after three years of battle, that IPv4 addresses must be traded now that they have become scarce. But trades, they believe, should only occur through ARIN's own “specified transfer policy.” Many of us warned ARIN that its transfer policy was too bureaucratic and required the transacting parties to put at risk too much control over valuable assets. But these warnings could not overcome the general hostility to market trades within ARIN.

The Nortel-Microsoft deal appeared to confirm the critics' doubts about the viability of ARIN's transfer policy. Why didn't these major players make their deal through ARIN? Many people assumed that ARIN would object and stop the deal, or find a way to pull it into its own transfer process. If so, the old regime of IP address governance would be preserved – and even strengthened. 

Well, ARIN did intervene. But it is now evident that ARIN had almost no leverage over the process. It was so desperate to prevent a private market from developing that it bent or broke its own policies in an effort to insert itself into the deal in whatever minimal way it could.

ARIN did not actually object to the deal, as it lacked the standing required to change the agreement. ARIN was not able to get Nortel to sign a contract with ARIN so that it could participate in its transfer process. ARIN did not succeed in getting Nortel to give up any claim of ownership rights over the legacy blocks. ARIN did not even require Microsoft to prove that it “needed” the addresses.

What, then, did ARIN get? It got Microsoft – the buyer of the addresses – to sign a Legacy Registration Services Agreement (LRSA).

An LRSA is a contract designed to gradually bring legacy address holders into ARIN's contractual regime. It makes the holder a dues-paying member of ARIN. And though section 9 of the contract makes the signatory agree that “Legacy Applicant does not have any property rights in or to the Included Number Resources,” in fact it does convey stronger than normal property rights because, compared to the RSA, the LRSA strictly limits the conditions under which ARIN can take the address resources away from the holder. As ARIN's own web site says, “Note that ARIN will not reclaim unutilized address space from legacy
holders who sign this [L]RSA, nor will ARIN attempt to take away legacy
resources from organizations who choose not to sign it.”

In getting MS to sign an LRSA, ARIN can claim some kind of a minor, tactical victory. The resources it received from Nortel are now more or less in the contractual regime, and the transaction did not sideline ARIN entirely. ARIN has not been entirely excluded from the emerging private market for IPv4 addresses.

But at what cost was this victory achieved? Numerous aspects of ARIN's policies and procedures were broken in this hasty attempt to insert itself into the transaction. First, ARIN's transfer policy stipulates that recipients (buyers) are supposed to sign an RSA, not an LRSA. The RSA is a much more powerful instrument of ARIN, allowing it to reclaim resources that are not needed (although that power is almost never used). By giving Microsoft an LRSA, it gave it a virtual property right over the transferred address resources. Moreover, language in the contract gives Microsoft “Sellers Rights,” which strengthen its rights even further (see below). There are very few imaginable circumstances under which ARIN could reclaim the transferred addresses, or prevent MS from onselling them. Furthermore, the recipient of a transfer is supposed to go through a needs assessment. MS did not go through a needs assessment. It just bought the addresses.

Perhaps for this reason, ARIN's news release announcing the deal misleadingly announced that Microsoft has signed an RSA. While it's true that RSA can be a generic term for any contract within ARIN, Microsoft signed an LRSA, not an RSA, and the difference is huge.

The contracts and legal documents surrounding the Nortel bankruptcy transactions are all online, so there need be no mystery about what happened today. The key facts are in a document called Exhibit D, BLACKLINE AMENDED PURCHASE AGREEMENT, which is in Docket 5252. In that agreement, it says that “the sale will vest the Purchaser with all of Seller’s Rights in and to the Legacy Number Blocks.” Seller's rights are defined as “Seller’s exclusive right to use the Legacy Numbers Blocks, Seller’s exclusive right to transfer the Legacy Number Blocks, and any other legal and equitable rights that Seller may have in and to, the Legacy Number Blocks.” While it doesn't say “property rights,” it uses the economic definition of what property rights do, instead.

The documents also make it clear that the Nortel deal was brokered by a company called Addrex. Addrex is engaged in a broader campaign to transform the structure of IP address governance, in a way that would subject ARIN to competition in some of its services. A representative of Addrex and a representative of ARIN will participate in what now promises to be an even more exciting discussion at the GigaNet conference May 5.


6 comments

  1. Anonymous

    Milton –
    There's such a multitude of errors with your posting that one wonders where to start in responding. For sake of the readers, I'll focus on one matter for now, specifically your assertion that “Legacy IPv4 address holders … have PROPERTY RIGHTS” in their v4 address blocks.” (emphasis added)
    To be clear, ARIN has never asserted that registrants have no rights with respect address blocks registered to them; that would actually run contrary to one of the key goals of the registry itself in making address blocks available for exclusive use of the registrant. As part of the registry services offered by ARIN, address block holders have various rights (such as the right to be the exclusive registrant, to update their registration information, and even the right to transfer their address blocks to another party), all in compliance with policies developed by the community. The rights to do these things in ARIN”s registration database are quite real, but do not create a “personal property interest” in the IP addresses.
    Arguing that one “owns” IP addresses is akin to arguing that you “own” the number on the coat check tag you were given; you were actually assigned the unique number for a particular purpose, and while one might argue that you have certain rights to it, the tag becomes meaningless when removed from the system.
    As a result of our involvement, the references in the documents filed by the parties have been changed accordingly, e.g. “all of the Seller’s right, title and interest in and to the Legacy Number Blocks” is now “Seller's Rights in and to the Legacy Number Blocks”. ARIN's intervention was simply to clarify the status of IP addresses, and we are pleased that the parties will perform the transfer in compliance with the community developed policies.
    Despite your rhetoric to the contrary, the ARIN community encourages a limited *market-based* approach to improving utilization of IP number resources, including developing the specified transfer policy to allow qualified recipients to obtain additional address space from other registrants as needed. This is a perfect example of how private-sector, community-based leadership can evolve Internet policy as needed to adapt to changing circumstances yet still maintain the Internet stability that we all value.
    ARIN remains quite able and willing to intervene in the future if it should prove necessary to protect these principles.
    /John
    John Curran
    President and CEO
    ARIN

  2. Anonymous

    What economists call “property rights” involve the right to use, the right to benefit from use, the right to exclude and the right to transfer (sell) . True, ARIN's policies have always upheld exclusivity of use (as it must), but it has sought to deny or severely limit the right to sell. ARIN's recent transfer policy was in many respects a good faith effort to fix that. But now you have to ask yourself why major players in the internet economy have refused to use it. Running out in front of the parade and issuing a press release claiming that the parties did use your policy, when they manifestly did not, constitutes a form of denial that does not bode well for ARIN.

  3. Anonymous

    Milton –
    We've had only this one major use of the specified transfer policy because we are still issuing IPv4 address space in the region. Organizations that have documented need can still obtain an address block from ARIN in accordance with community-developed policy. We'll start seeing an increase in transfers over the coming months, and should be able to see how successful these policies are.
    Whereas it's very difficult to extrapolate a trend line with only one data point, I applaud your innovation in this area.
    /John
    John Curran
    President and CEO
    ARIN

  4. Anonymous

    John,
    Stop pretending. This was not a use of the specified transfer policy.

  5. Anonymous

    Milton –
    As I indicated in your other post, this transfer did not start out as a use of the specified transfer policy, but today as revised is definitely making use of that policy.
    Best wishes,
    /John
    John Curran
    President and CEO
    ARIN

  6. Richard Sexton

    “You can’t sell IP addresses”

    Uh-huh. You can’t fucking steal them either.

    Mankind evolved from mob rule to governance, and Internet policy will as well; when “service to the community” ends up being a justification for theft, you know it’s long overdue.