Breaking: ICANN rejects .org sale to private equity firm

ICANN denies controversial $1.135 billion sale.

ICANN’s Board of Directors today decided to withhold consent on the sale of the .org registry to private equity firm Ethos Capital.

The deal would have seen the .org registry transfer from non-profit Internet Society (ISOC) to private equity firm Ethos Capital for $1.135 billion.

In a decision posted on its website, the non-profit domain overseer stated:

Following completing its evaluation, the ICANN Board finds that the public interest is better served in withholding consent as a result of various factors that create unacceptable uncertainty over the future of the third largest gTLD registry. Factors that were considered in determining reasonableness include, but are not limited to:

* A change from the fundamental public interest nature of PIR to an entity that is bound to serve the interests of its corporate stakeholders, and which has no meaningful plan to protect or serve the .ORG community.
* ICANN is being asked to agree to contract with a wholly different form of entity; instead of maintaining its contract with the mission-based, not-for-profit that has responsibly operated the .ORG registry for nearly 20 years, with the protections for its own community embedded in its mission and status as a not-for-profit entity.
* The US$360 million debt instrument forces PIR to service that debt and provide returns to its shareholders, which raises further question regarding how the .ORG registrants will be protected or will benefit from this conversion. This is a fundamental change in financial position from a not-for-profit entity.
* There are additional uncertainties, such as an untested Stewardship Council that might not be properly independent, or why PIR needs to change its corporate form to pursue fresh business initiatives.
* The transaction as proposed relies on ICANN as a backstop for enforcement of disputes between the .ORG community and the registry operator in an untested manner.

The notice states that “The entire Board stands by this decision.”

This is a remarkable turn of events from two weeks ago. ICANN’s board planned to decide the matter at a special meeting on April 17. But on April 15, California Attorney General Xavier Becerra wrote a letter to ICANN telling it that it ought to reject the deal. (ICANN is incorporated in California.) Becerra raised concerns regarding the deal in January, delaying the deal by a number of months.

Proponents of the deal—as well as some defenders of ICANN—have taken to the press lately to share concerns regarding the California Attorney General meddling in ICANN.  ICANN has done a lot to remove U.S. government oversight of the organization to avoid a splintering of the internet and internet governance. Many people will be concerned regarding California’s government asserting control.

Vint Cerf was Chairman of the Board of ICANN when it decided to contract with Internet Society, through Public Interest Registry, to run .org in 2003. He was also one of the founders of Internet Society. In a letter (pdf) to ICANN this stretch, he warned:

The communication with the California AG’s office is a good example of the dangers ICANN faces. Even if well intended and producing additional and beneficial provisions for protecting registrant interests, the additional delay may be used by inimical interests to argue that ICANN’s processes are easily disrupted and therefore responsibility ought to be moved elsewhere.

Of course, ISOC decided to put ICANN in this situation by choosing to sell .org for $1.135 billion.

One source who was opposed to the deal to sell .org to Ethos Capital told me that he hoped the deal would be approved since it would have resulted in more scrutiny of ICANN.

“In my opinion, there is corruption going on over there that runs much deeper than this and it needs a light shined on it,” he stated.

ICANN would have had the light shined on it had it approved the deal over the California AG’s objection.

Still, going through this process might cause ICANN to rethink decisions going forward. It’s been a long time since ICANN has made decisions in the public interest rather than financial. That could change with this decision.

It’s uncertain how Ethos Capital and Internet Society will move forward. The Board resolution withholding consent leaves open the possibility of reconsideration:

Resolved (2020.04.30.02), the above decision is without prejudice to PIR to submit a fresh notice of indirect change of control and entity conversion for consideration if PIR successfully achieves an entity conversion approval in Pennsylvania through the Pennsylvania Court, which the ICANN Board and org will consider when evaluating any fresh notice.

Pennslyvania probably won’t decide ahead of May 4, the board noted in its resolution.

Ethos could also sue ICANN. ICANN might have weighed the challenge of battling Ethos Capital in court compared to Becerra.

Ethos Capital, ISOC and Public Interest Registry released statements following the decision. Ethos Capital stated that the decision “sets a dangerous precedent with broad industry implications” and stated it is evaluating its options. ISOC and PIR struck a somewhat more conciliatory tone.