[ga] Loopholes and Ambiguities in Contracts that ICANN Oversees

[George Kirikos <gkirikos@xxxxxxxxx>]

Hi folks,

ICANN oversees the creation of many contracts. Its highest paid contractor has 
historically been the law firm of Jones Day, and of course ICANN has many 
lawyers on staff. In the past I've identified loopholesin proposed contracts, 
and those were corrected before they were exploited.

http://www.circleid.com/posts/icann_tiered_pricing_tld_biz_info_org_domain/


However, are there other loopholes sitting in existing contracts waiting to be 
exploited, or ambiguities with major financial consequences depending on their 
interpretation?

While doing some background research for some comments on a story by Mike 
Berkens of TheDomains.com concerning IFFOR:

http://www.thedomains.com/2013/01/09/after-collecting-at-least-1-4-million-iffor-funded-by-xxx-finally-gives-2-grants-of-5k-each/


the non-profit that receives $10 per .XXX domain name, I looked at the 
Sponsoring Organization Agreement which ICANN had posted in August 2010. 
Paragraph 1 states that ICM agrees to:

http://www.icann.org/en/news/public-comment/xxx-revised-icm-agreement-24aug10-en.htm


"Pay to IFFOR the sum of US$10 per ***resolving registration*** in the .xxx 
sTLD per year (or, ****in the event of a price change of the regular wholesale 
price to registrars from US$60 per resolving registration, a sum of no less 
than 15% of the regular wholesale price****) for IFFOR to develop policies in 
furtherance of the Policy Goals, to administer the Grants Program, and to 
provide ombudsman, labeling, and monitoring services in accordance with and as 
detailed in this Agreement</blockquote>

(emphasis added)

This section seems straightforward, but is it? Consider the following:

1. If ICM Registry dropped the wholesale price from $60/domain per year to 
$59.99 (or raised it to $60.01), it would allow them to reduce the payment to 
IFFOR from $10/domain per year, to $9/domain per year. By lowering the price to 
registrars by a penny, they'd get back a dollar in savings on payouts to IFFOR. 
On 100,000+ domain names, that's a significant annual savings for ICM Registry. 
 Over 10 years, that's a 7-figure cumulative savings, that goes straight to 
their bottom line. This "loophole" existed because the $10 was 16.67% of $60 
price, not 15%, and thus there's an elegant arbitrage opportunity that could be 
immediately exploited by ICM, simply by making a minor adjustment to the 
wholesale price. If one wanted to be aggressive, one could conceivably try to 
make that change retroactively (i.e. going back to the launch date of the 
registry).


2. What is a "resolving registration"? ICM has boasted about having more than 
250,000 .xxx domains under management,

http://www.thedomains.com/2012/04/22/lawley-tells-bloomberg-there-are-250k-xxx-domains-under-management-applied-for-sex-porn-adult-to-protect-holders/


however a large number of those were paid defensive blocking registrations (in 
the sunrise period, names like verizon.xxx). There are also a large number of 
domain names that the registry reserved without payment, for example names of 
politicians, celebrities, or ICANN staff (e.g. BarackObama.xxx, DonaldTrump.xxx 
and RodBeckstrom.xxx). Here's where things get interesting -- unlike other 
registries where reserved domains don't resolve (e.g. g.com doesn't resolve, 
and is reserved because it's a 1-character domain in the .com TLD), ICM has 
created a parked page for all their reserved domains (paid sunrise defensive 
blocking registrations, and unpaid reserved names), and has been doing so since 
they launched). All parked domains *resolve* in the DNS, and one might argue 
are **resolving registrations**. These reserved domains each have a WHOIS 
record and are thus arguably "registrations", and definitely resolve. Since 
there might be roughly 100,000 or more of
 these kinds of names, ICM might be on the hook for a 7-figure annual payout to 
IFFOR, if they owed $10 for each of those domain names per year. Since IFFOR 
has yet to make public their financial statements, it's unclear what ICM has 
actually paid them. Obviously if ICM had to pay out that amount (and wasn't 
already paying IFFOR for these resolving reserved domains), they'd immediately 
stop those names from resolving. But, critics of ICM and ICANN (e.g. Manwin) 
could definitely have a field day over whether a 7-figure payout was due for 
*past* reserved registrations that ICM had allowed to resolve, and whether ICM 
had met its obligations to IFFOR. 


Strictly speaking, the above is a contract between ICM and IFFOR, but ICANN had 
some overisght when it was created, and should have spotted these issues before 
they took effect.

In conclusion, ICANN needs to do a much better job in examining contracts for 
loopholes and ambiguous language, especially given the huge financial 
consequences of errors. If each new gTLD operator is allowed to create custom 
contracts with ICANN, the opportunities for even more loopholes to slip through 
the cracks will multiply.

Sincerely,

George Kirikos
http://www.leap.com/