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.