Breaking: ICANN board withholds consent for a change of control of PIR and .org

Today, the ICANN Board made the decision to reject the proposed change of control and entity conversion request that Public Interest Registry (PIR) submitted to ICANN.

What I find really interesting is that “The entire Board stands by this decision”. How come they all changed their minds?

It seems that the involvement of the California Attorney General and the Pennsylvania Attorney General played a significant role in this decision. It seems that ICANN must be a bit afraid to do the right thing. Let’s see how this works from now on.

“The ICANN Board considers the CA-AGO’s letter as one aspect of support for the reasonableness of withholding consent from the requested change of control, but the letter does not alone determine or require this outcome.”

“The Board notes that the lack of approval from the Pennsylvania authorities has remained an area of concern for the Board, and weighs towards the reasonableness of the Board’s withholding consent at this time.”

Here is what ICANN said in the announcement today:

Today, the ICANN Board made the decision to reject the proposed change of control and entity conversion request that Public Interest Registry (PIR) submitted to ICANN.

After completing extensive due diligence, the ICANN Board finds that withholding consent of the transfer of PIR from the Internet Society (ISOC) to Ethos Capital is reasonable, and the right thing to do.

ICANN’s role is to ensure the stable and secure operation of the Internet’s unique identifier systems. We are dedicated to making the right decision, knowing that whatever we decide will be well received by some, and not by others. It is our responsibility to weigh all factors from an ICANN Bylaws and policies perspective, including considering the global public interest. We have done this diligently, ensuring as much transparency as possible and welcoming input from stakeholders throughout.

On 13 November 2019, PIR announced that ISOC, its parent organization, had reached an agreement with Ethos Capital, under which Ethos Capital would acquire PIR and all of its assets from ISOC. Under the agreement, PIR would also be converted from a Pennsylvania not-for-profit corporation to a for-profit Pennsylvania limited liability company. ISOC created and agreed to the transaction details that are under review.

On 14 November 2019, PIR formally submitted to ICANN a “Notice of Indirect Change of Control and Entity Conversion” in advance of closing the proposed transaction between Ethos Capital and ISOC. Since 2003, PIR has operated the .ORG generic top-level domain (gTLD) as a not-for-profit organization, as well as six other gTLDs. Per the gTLD Registry Agreements, ICANN must either approve or withhold consent of a proposed change of control, the deadline for which is 4 May 2020.

ICANN’s role has been to evaluate the reasonableness of PIR’s request for indirect change of control and entity conversion. In doing so, ICANN evaluated an extensive amount and variety of information related to the proposed transaction, including details of the transaction structure, financing, and other funding sources of Ethos Capital, the parties involved, the role of the Pennsylvania authorities, information related to financial resources and operational and technical capability, how the new for-profit PIR under the control of Ethos Capital would be responsive to the needs of the non-commercial community, what input the .ORG community had provided to PIR or ISOC on the proposed transaction, and how that community input would be reflected in the operations of PIR following its conversion.

Throughout this process, the ICANN Board has worked thoughtfully and thoroughly to determine if it is reasonable under PIR’s Registry Agreements for ICANN to either approve or withhold consent to the proposed change of control. Before making our determination, the Board, among other things:

• Conducted thorough due diligence
• Received and reviewed hundreds of pages of documentation and responses provided by PIR, ISOC and Ethos Capital following ICANN issuing three requests for more information
• Was briefed extensively by ICANN org
• Received and considered more than 30 letters from stakeholders
• Considered input from an ICANN67 public forum, views of the community and others who weighed in after we received PIR’s Public Interest Commitments
• Considered the opinions expressed in the California Attorney General’s Office letter sent to ICANN on 15 April 2020

The Board was presented with a unique and complex situation – impacting one of the largest registries with more than 10.5 million domain names registered. After 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 about 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 new 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 entire Board stands by this decision. After thorough due diligence and robust discussion, we concluded that this is the right decision to take. While recognizing the disappointment for some, we call upon all involved to find a healthy way forward, with a keen eye to provide the best possible support to the .ORG community.

The Board would like to thank the global community and stakeholders for their engagement.

The resolution and rationale document, which expands upon this decision is available, here.