PIR Deal Said Unlikely to Get Antitrust Scrutiny but Could Involve Concessions
As the clamor over the proposed sale of the Public Interest Registry to a private equity firm grows, stakeholders said the deal is unlikely to be stopped via antitrust or other legal avenues, but ICANN could force concessions from the buyer. The transaction, announced Nov. 13, involves the sale of PIR's assets to Ethos Capital. Despite assurances from the buyer and the seller, the Internet Society (ISOC), opposition continues to grow (see 1912090002), with several Democratic members of Congress seeking answers Monday to a lengthy list of questions by early next year. In his year-end blog, ICANN Board Chair Maarten Botterman stressed the organization "takes its responsibility in evaluating this proposed transaction very seriously" and again urged the parties to behave openly and transparently.
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The congressional letter to ISOC, PIR and Ethos, from Democratic Sens. Ron Wyden, Oregon; Richard Blumenthal, Connecticut; and Elizabeth Warren, Massachusetts; and Rep. Anna Eshoo, D-Calif., questioned "whether nonprofit groups, free speech and internet users would be harmed selling control of .ORG domain to a private equity firm." Lawmakers said they want answers by Jan. 6 on such queries as how the parties will protect the content neutrality of the registry; what assurances they will give that Ethos won't relocate its place of incorporation to a foreign country with a history of suppressing speech; and how they will ensure that any .org domain name price increases are reasonable..
More than 500 organizations and 18,000 people have urged ISOC to stop the sale, the Electronic Frontier Foundation blogged Dec. 19. But those we spoke with said it's more likely that ICANN will require the parties to make some changes to their agreement to address concerns raised by the .org community. These include possible price increases for .org domain names and censorship.
Under its registry agreement with PIR, ICANN "has the power to deny Ethos authority over ORG," emailed Wayne State University law professor Jonathan Weinberg, a long-time ICANN observer. Consummation of the sale would happen via ICANN terminating the current .org agreement and re-bidding the registry, he said. But the contract bars ICANN from denying consent "unreasonably." If the internet body demands concessions and Ethos refuses to grant them, Ethos can file suit arguing that ICANN's refusal or termination of the agreement under those circumstances is "unreasonable," ICANN will counter that by saying the step is reasonable unless Ethos grants the concessions.
"What strikes me is how malleable a term 'reasonable' is in this context," Weinberg said. At first glance, it seemed that it would be hard for ICANN to argue that termination was a reasonable response to the sale," but "as events have unfolded, I think the argument looks better and better that it's 'unreasonable' for ICANN to withhold consent absent concessions." That's important, he said because any negotiations between ICANN and Ethos "will take place in the context of their assessment of how litigation would go."
One litigation avenue might involve antitrust, but Public Knowledge Senior Vice President Harold Feld dismissed the idea. Several cases in the late 1990s and early 2000s found antitrust law inapplicable to ICANN and the management of top-level domains, he emailed. But that might not stop state attorneys general from asserting jurisdiction and examining the transaction anyway, he said. "It's hard to say 'no' when a state AG says: 'mind if we look at this?'"
Another angle might involve how to classify the sale under ISOC's tax-exempt status, said Feld. Here, the question is whether it should be treated as related taxable income or nontaxable revenue. The law on this, usually referred to as the "museum gift shop cases," is complicated, he said. State AGs usually have oversight of nonprofits, so again this provides a mechanism for investigation.
But it's "not clear that a state AG is going to want to dig into this for something this big, messy and complicated," Feld said. Their offices have limited resources and without strong political pressure from a powerful nonprofit in a relevant state it's unlikely AGs would want to step in. Moreover, it's "helpful to ICANN that NTIA is in total disarray and Congress is obsessed with impeachment." There's no one in the U.S. government to pay attention to this situation unless someone can get the FTC or DOJ interested, and the precedent against applying antitrust law to top-level domain names "is likely to dissuade them."