Meltdown II: The Unilateral Right to Amend

The multi-year fight over the unilateral right to amend registry contracts is instance #1 of this series. It’s also interesting because it shows that ICANN has the power and the propensity to abuse not just weaker civil society groups, but well-off businesses as well.

One of the foundations of ICANN’s unique approach to Internet governance is the use of private contracts to implement policy. Instead of international legislation or treaties negotiated and enforced by governments, ICANN governs by means of private contracts with registries and registrars. That was supposed to be a feature, not a bug. Contractual governance was supposed to insulate DNS governance from political interference by the world’s nation-states. It was also supposed to put the power to make the policies behind these contracts directly in the hands of the Internet community.

Yet in the last few years, the re-negotiation of the Registrar Accreditation Agreement (RAA) and Registry Agreement (RA) has repeatedly led to situations where ICANN the corporation has demanded a unilateral right to amend the contract. This threatens the very foundations of contractual governance.

The essence of a contract is that both parties agree to it. The ability of one party to modify the terms of a contract unilaterally sets up an inherently unaccountable, top-down regulatory relationship. ICANN would be able to impose new obligations on registries without their consent. Such a capability would also disempower the community. ICANN would be able to implement rules and requirements without going through any policy development process.

The story starts back in October 2008 when ICANN, as part of its new top level domain program, released version 1 of the Draft Applicant Guidebook. The Applicant Guidebook (AG) was an important document because it set the rules for organizations to apply and be eligible to become a registry. Most of the policies that govern new TLDs are embedded in the AG.

In version 1, ICANN proposed contractual language that would give it a unilateral right to amend the Registry Agreement. The unilateral right to amend, ICANN claimed, would only be justified “by a substantial and compelling need related to the security or stability of the Internet or Domain Name System.”

The Registry Stakeholder Group (RySG) immediately rejected the proposal.  Discussions at the 2009 Seoul meeting led to formation of a Working Group composed of Registries, ICANN staff and ICANN’s legal counsel. The group developed a compromise which allowed for “Special Amendments” to the registry contract after being vetted and approved by a working group consisting of Registry Operators and others appointed by ICANN. This compromise was published May 27, 2010, posted for public comment, and ultimately included in the final version of the Applicant Guidebook released January 2012. The new version of the Registry Agreement (RA) based on this compromise was posted June 4, 2012. This version, too, was reviewed by the community and approved by the Board and the registries. In writing it up, ICANN wrote that “pursuant to the new provision, ICANN will have no ability to unilaterally amend the registry agreement.”

After everyone had agreed on an acceptable compromise and memorialized it in the Final Applicant Guidebook, ICANN then accepted $185,000 fees from 1,900 applications for new gTLDs based on the content of that Guidebook. A few months after those fees were in hand, and only 4 months into the reign of new CEO Fadi Chehade, ICANN jettisoned that compromise.

On February 5, 2013 ICANN suddenly and without any consultation posted a new version of the Registry Agreement. In it, the unilateral right to amend returned. Indeed, it returned in a form even more sweeping than the original. The older version justified changes by a substantial and compelling need related to the security and stability of the Internet or domain name system. In section 7.6 of the suddenly revised contract, this is changed to “a substantial and compelling reason in the public interest.” ICANN does not allow its decision to be reviewed by courts but instead proposed a form of arbitration lasting one day.

Teleconferences between the RySG, Fadi Chehade and other ICANN staff made it clear that the Registries were inalterably opposed to the reassertion of a unilateral right to amend. A public comment period on the February proposal received forty one (41) substantive comments; none of them supported ICANN’s proposed language and thirty (30) opposed it. Even the Business Constituency – historically an advocate of greater regulation of registries, commented that allowing the ICANN board to unilaterally impose a change to registry agreements “is an anathema to ICANN’s bottom up policy making roots.”

In his comments, John Berryhill made an even scarier observation: under ICANN’s bylaws, the board could vote to amend the amendment power itself, lowering the threshold from 2/3 of the Board to a simple majority. The comments of Google show the consternation among applicants:

Our calculation for participating in the new gTLD program was based on the assumption that we would be afforded the checks and balances contained in the January 2012 agreement, which provides an agreed-upon process for changing the agreement. ICANN’s eleventh-hour changes to the registry agreement violate the spirit of ICANN’s multi-stakeholder process and threaten to erode ICANN’s credibility with applicants….

A meeting of the GNSO Council on March 14, 2013 unanimously passed a resolution against ICANN’s action. As Jeff Neumann of Neustar wrote in a blog post,

the ICANN community spoke with one voice.  Registries, registrars, non-commercial interests, new TLD applicants, IP owners and businesses unanimously and unambiguously agreed that giving ICANN a ‘unilateral right to amend’ the registry and registrar agreements is not compatible with ICANN’s bottom-up processes and poses a fundamental threat to the multi-stakeholder model.  There is true consensus that this change should be rejected.

ICANN’s high-handed actions extended to registrars as well as registries. It also demanded a unilateral right to amend their basic contract, the Registrar Accreditation Agreement (RAA). The February changes in Registry agreements were proposed while ICANN was in the midst of long and arduous negotiations with registrars over the RAA. Michele Neylon, an Irish registrar, noted that ICANN’s February initiatives forced new TLD applicants to commit themselves to using only registrars who had signed the new RAA – which didn’t actually exist yet. This would have the effect of pressuring registrars in their negotiations over the terms of the new RAA. Any registrar who refused to sign the new RAA would shut themselves off from all the new business generated by new TLDs. Is ICANN “driving a wedge between registrars and new gTLD applicants,” Neylon asked?

If one reads ICANN’s summary of the public comments, one would have no idea that there was such overwhelming opposition. Instead, the staff stated merely that “The posting of a revised draft of the Registry Agreement for public comment demonstrates ICANN’s commitment to a bottom-up, multi-stakeholder model.” In response to arguments that a unilateral right to amend is fundamentally inconsistent with a bottom up, MS model, ICANN says only that “the intent of several of the revisions to the draft Registry Agreement …was to further ICANN’s ability to respond to changes and developments in a rapidly evolving DNS marketplace.”

ICANN did eventually make some minor changes – rejected by many registries as “window dressing” – to the unilateral right to amend. But the bottom line is that ICANN’s staff sought and largely retained a sweeping kind of power over the domain name industry, powers that had no support from the broader community. As argued in our analysis of ICANN’saccountability, the community got lots of “participation” but no real accountability or impact. The timing and arbitrariness of the action was evident. With only minor amendments, the unilateral right to amend is now in the Registry Agreement.

Interestingly, the U.S. government (NTIA) was one of the only commentators to express unqualified endorsement of the proposed changes in the registry agreement. And it was pressure from law enforcement interests promoted by the U.S. government that also led to the troubles in negotiating the RAA. We see accountability and responsibility for policy making migrating further and further away from the individuals and organizations who participate in ICANN’s bottom up process, and towards state actors and ICANN staff.

A key contributor to this migration is the idea of a monarchical ability of the authorities to discern “the public interest” and impose rules, top down, on the public itself to pursue that “public interest.” As an article in Domain Incite (March 29 2013) put it, ICANN’s argues that:

the RAA and RA both last for 10 years and …the RA has a presumptive right of renewal. Without the right to change the RA over the protests of the registries, it’s possible that in future proposed changes could be vetoed by registries whose interests are not aligned with the “public interest.” ICANN says that it’s impossible to know how consolidation, future new gTLD rounds and power shifts in the ICANN community will affect the balance of power, meaning it needs a way to resist a registry choke-hold should the situation arise.

The claim that registries have a chokehold is pretty ironic, given that ICANN is itself nothing but a registry at the root level. Unlike the top level registries, there are no alternatives to it. There is only a single root registry and its board is not elected. ICANN is the entity with the ultimate chokehold on all the parties.

Who is accountable for this? We can understand Fadi Chehadi’s impatience with the stalled, increasingly contentious implementation of the new gTLD program when he arrived on the scene as ICANN’s new CEO in the Fall of 2012. But we cannot forget that it was the 11^th hour interventions of the GAC, trademark holders and the US government – not the bottom up policy development process itself – that had gotten the process stuck in interminable rancor. Instead of putting an end to this nonsense and adhering to policies developed by the GNSO, Chehadi’s actions reinforced and rewarded governmental and other actors who were revising or reversing consensus. His efforts to put things in motion consistently came down on the side of those who had circumvented the process and departed from bottom-up.

Yet, given ICANN’s poorly designed structure, no one is accountable. The registries would have to wait for a very damaging decision by ICANN to test it in court and spend tons or money on a legal challenge. Applicants have sunk so much money into their applications that they will go bankrupt unless they can start operations soon, so they will sign any contract that allows them to start. Far from providing oversight or accountability, the U.S. government’s NTIA, with its elevation of an arbitrary ‘public interest’ standard over bottom up process and consensus, is most likely one of the reasons ICANN is behaving this way.

Interesting that this controversy has forced even Verisign to appeal to fundamental principles of democratic decision making and due process. In some of its comments the company notes that vague “public interest” standards are legislative in nature and should only be made by decision makers who are accountable to the public via elections, decision makers who can be thrown out of office and held to standards of judicial review.