Ten Year Renewal In Advance of Domain Name Fee Increases Is Inadequate Protection

In the past month, one of the most controversial topics in the domain name world has been the proposal by ICANN to permit unlimited fee increases for .ORG domain names, compared to the current generous allowance of 10% annual fee increases (far above inflation). My own submission in the public comment period can be read in a prior blog post.

Yesterday, PIR, the registry operator, wrote an open letter to the .ORG community that can be summarized in 2 words, “trust us.” That is insufficient. Organizations have a tendency to change their minds, especially when it serves their interests. What matters is what’s
in the contracts, as what is allowed to happen often does happen.

ICANN itself raided the new gTLD auction proceeds piggybank,
after saying they wouldn’t. Contracts hold people and organizations accountable, and the precise language does matter. If “trust us” was good enough, there wouldn’t be any need for contracts at all.

I trust what’s written down in the contracts, rather than statements made outside the contracts. Statements made outside the contracts are simply self-serving public relations, rather than binding. Section 7.10 of the draft agreement says:

7.10 Entire Agreement
This Agreement (including those specifications and documents incorporated by reference to URL locations which form a part of it) constitutes the entire agreement of the parties hereto pertaining to the operation of the TLD and supersedes all prior agreements,understandings, negotiations and discussions, whether oral or written, between the parties on that subject.

PIR knows this, and that anything it says outside the contract is
meaningless and unenforceable in a legal sense.

PIR has said  “In fact, we currently have no specific plans for any price increases for .ORG.”

That sounded very familiar. As Konstantinos Zournas reported in 2017:

Donuts isn’t in a position to comment on a competitor’s pricing
decisions. Speaking for ourselves, however, we have no plans to
increase prices for existing registrants — this is not part of our
business plan.

But then later Donuts changed their mind and raised prices.  Donuts had a change in control, and of course the new owners wanted to make more money. The current CEO of PIR is John Nevett, previously of Donuts.  A change in control, an assignment of the .org registry to private equity, for example, is a risk that I outlined in my submission to the public comment period. One doesn’t need a change of control to change one’s stated “plans”, though. Uniregistry announced massive price hikes, despite claiming in their applications to ICANN that they would not raise fees for 5 years.

18.C.2 Cost Structure and Increases

Uniregistry will offer flat-rate, affordable pricing. It intends to offer certain co-marketing rebates and incentives to all registrars, some of which may be returned to registrants as introductory or bulk registration discounts at the discretion of the registrar.

While not a ʺcommunityʺ application, Uniregistry views its prospective domain registrants as a community to be served, and not exploited. Uniregistry intends to make a contractual commitment to registrants and their registrars not to increase registry prices above cost of inflation for the first five years after launch of the registry. Our initial pricing model allows registry prices to find a market value that may be substantially below our projections, which are based on conservative assumptions of registration volume, rather than locking in a captive market with a deceptively low initial registration cost.

Uniregistry does not believe that registry fees should rise when the costs of other technology services have uniformly trended downward, simply because a registry operator believes it can extract higher profit from its base of registrants. While competition in registrar services by ICANN caused an initial and substantial drop in retail domain registration prices, the fees for registry services have increased over the same span of time. Those increases have not been justified by increased Internet traffic, and thus zone server operational cost, since the cost the underlying technology has trended down while performance has increased. We do not believe registry fees should follow a different trend than comparable technological services. Uniregistryʹs management includes individuals who participated in anti-trust litigation which was brought to combat increases in existing TLD registry charges they believed to be unjustified, and we have no intention of following that path. We believe our best opportunity for prosperity is to offer a reliable, differentiated TLD which will attract increasing numbers of registrants. [from the “Download Public Portion of Application” link]

While Uniregistry later decided to backtrack after the huge public outrage, nothing obligated them to do so. An organization that would be all too happy to take the heat (cough, Verisign, Sitefinder, cough) would simply point to the contract and say “we’re doing what is allowed.”

Both PIR, in their open letter, and ICANN have attempted to argue that the ability to renew for 10 years is adequate protection for registrants. That’s simply untrue, and ignores economic reality. Eventually the bill will come due.

Consider a hypothetical mortgage offering by a bank, which promises a 30-year fixed term with a floating interest rate, currently at 2%. There would be no prepayment option for the borrower (even in the case of a sale or default), though, so one would have to commit for the entire 30 years. But, the “floating interest rate” isn’t set by competition or with reference to a benchmark rate (like LIBOR, etc.), but would be entirely at the discretion of the bank, with 30 days notice. The bank also gives you the option to lock in the rate at any time for 10 subsequent years.

Would any rational person accept such an offering? I would hope not! After 1 year, the bank can say “Your interest rate is now 25%, as allowed by our contract. Have a nice day!” A borrower, under such a one-sided contract would be left with few choices. While the borrower could lock in the 2% until year 11, from year 12 to year 30 they’re entirely at the mercy of the bank. And banks tend to be merciless, doing whatever is allowed by contract. So, one is left with the choice of defaulting and walking away from one’s home now (allowing the bank to repossess it), paying for 10 more years and then walking away from one’s home in year 11 (and whatever equity has been built up in that home) at year 11. Or one can pay up and owe more than the home is really worth (which is truly irrational). Whatever happens, the bank nearly always wins! As recent history in the financial crisis demonstrated, parties who entered bad contracts eventually saw those contracts explode in their faces.

As Nat Cohen correctly observed:

The rationale that “don’t worry, you can move” that is clearly absurd in the example from the physical world is being touted as reasonable when applied to the virtual world of domain names. Indeed, the disruption may be even greater in the virtual world of the Internet where one’s domain name is indistinguishable from one’s online brand.

ICANN and PIR’s argument is silly, arguing that simply allowing one’s domain name to be repossessed, just like a home owner walking away from a mortgage contract with bad terms by defaulting on the loan, is an acceptable “compromise.” It’s simply not. It’s really insulting people’s intelligence to even suggest that. Fortunately, the outpouring of public opposition to these contracts shows that the public hasn’t been fooled. They know a bad deal when they see one.

If ICANN accepts such a bad deal, then they will be actively working against the public interest, and should face consequences.

One major improvement would be to allow a 50 or 100 year prepayment  (or even perpetual) option for domain name fees (with a discount, reflective of the time value of money). Such fees would need to be deposited with a trusted custodian, set apart from the registry operator, to ensure that the registry operator doesn’t run off with the money after 1 year. This would create a much stronger safeguard in protecting registrants from abusive fees from registry operators.

Ultimately, though, registry fees should be set via a regular tender process (for fixed terms, every 5 or 10 years), with the elimination of the presumptive renewal that currently keeps registry fees artificially high and stifles competition between registry operators.