[Chapter-delegates] Response to Richard Hill’s analysis of PICs vs previous Ethos position

Fri Feb 28 10:19:09 PST 2020

Hi Richard,

per our conversation in today's webinar, please find below the answers I had promised to you questions.

Cheers,

Gonzalo

In response to expressed concerns about .ORG, Ethos Capital made certain commitments (including limiting annual price increases to no more than 10% per year) that they were prepared to place into their corporate governing documents. This received negative feedback partly, we think, because it was an obscure mechanism many did not understand, and, we think, because it was possible for Ethos to change their governing documents unilaterally (though not easily). After listening to additional feedback and concerns, Ethos responded with a different mechanism: Public Interest Commitments (PICs) that will be attached to the .ORG registry agreement and will be legally enforceable and not subject to unilateral modification.

Your analysis of the PICs concluded they are not acceptable to you and you have asked the ISOC Board of Trustees to comment.  We hope this message addresses your concerns.

Does the PIC replace the plan for a B-Corp?

Not really.  Ethos still intends to work within a Public Benefit Corporation framework and to consider seeking B Corp certification.  The specific commitments in the PICs will not be part of the benefit corporation, but the Public Benefit Corporation will make other additional public benefit commitments. We believe the complaints that the previous approach did not provide enforcement through the ICANN community convinced Ethos that using a PIC mechanism would better address the community’s concerns. Details about the plans for a Public Benefit Corporation and B Corp certification are best directed to Ethos.

What do the PICs actually say?

It is important to be clear about one detail. In your analysis, section II.A, you describe the ceiling on prices in every year. Ethos is not saying that that prices will rise with that schedule; this simply sets forth maximum prices. PIR’s experience is that it was not always desirable to raise prices.  The other sections of your analysis describe the commitments plainly.

Is Ethos “reneging” on its commitment?

In fact Ethos is responding to the feedback regarding the Public Benefit Corporation approach by putting the commitments into a mechanism that are enforceable by the community, and that cannot be altered by Ethos.  Because this changes the enforcement mechanism, the proposal itself is different.

Ethos is prepared to commit to this framework for 8 years.  That is longer than the period of price caps in the only other gTLDs with such a cap, .COM and .NET.  The commitment in the PIC is also greater contractual price protection than what any .ORG registrant has today. As the Internet Society said when we announced the sale, we always believed in the market price mechanism to keep .ORG prices from rising unreasonably, but we are pleased to see Ethos make this offer. Moreover, since registrants can renew their registrations at current prices for up to 10 years, they can build in protections for themselves that will live longer than the period Ethos is offering and in fact past the end of the life of the current .ORG registry agreement. Ethos says it is confident that its actions in the 8 years of this commitment will assure people of their desire to be a responsible operator that will not enact wild and indiscriminate price increases, and we believe them.

Is the Stewardship Council effective?

It is hard to understand the complaint that the “concerned communities” were not consulted, since the PIC is a direct result of Ethos listening to and addressing objections to the approach Ethos had previously proposed.

It is true that the Stewardship Council will initially be populated by Ethos, although two of the members will be picked by the Council itself. This is a bootstrapping mechanism, and it is not clear why other mechanisms would be more legitimate. After that, the Council members must indeed be confirmed by PIR’s Board. It is hard to see how any corporation, including today’s PIR or Internet Society, could agree to give control over certain key policies without board confirmation: it would violate the duties of the board members.

In your comments, you suggest that only a full algorithm defining how Council members are selected, and how they will consult, would be acceptable. However, the fact that the details are not spelled out gives the Council a great deal of latitude.  They could consult however they wanted, and could select new members in any way they saw fit, thereby allowing this tool to adjust to changing circumstances. You also seem to have preferences about how to define the power of the Council, but don’t appear to argue for why your approach is better.

In regards to the worry that “applicable law” might not be restricted to US law, that should not be surprising. When PIR does business in Europe, for instance, it is subject to EU law as well as to US law. As an example, PIR must comply with EU privacy laws that protect EU residents.  There is no change in this respect compared to today and it is not acceptable for businesses working internationally to ignore the laws of the countries they do business in.

Will Ethos need to report beyond its PIC reporting commitments?

Your note seems to suggest that there is reporting beyond the commitments made in the PICs that you would like. It is not clear what the desired outcome of the reporting that you want is; but since Ethos is planning to create a Public Benefit Corporation and seek B-Corp status anyway, the reporting mechanism for such corporations is clearly stated in the governing laws.

How does enforcement work?

You are correct that, by moving the commitments from the Public Benefit Corporation to the PIC, the mechanism of enforcement changes. The community was pretty vocal in preferring something attached to ICANN contracts that would be enforceable by ICANN community members, so that’s what Ethos has done. If the complaint is now that ICANN does not enforce its contracts, then why did people want the ICANN contract to be the mechanism of enforcement in the first place?

What about consultations?

Given that Ethos is listening to its critics and addressing many of their concerns, the claim of non-consultation is odd. The reference to George Sadowsky’s proposed meeting is particularly strange, as it was explicitly not supposed to be a consultation that would lead to changes (i.e. not a negotiation). It was also not something you were willing to attend and not something that would have qualified as an open consultation.

Conclusion

While there might have been a bumpy start, Ethos is listening to the community and squarely addressing many of their concerns. It is also pretty obvious that there are many people who will not accept the transaction regardless of what commitments are made.

Many of our chapters don’t have information on how PIR operates or the Domain Name marketplace. Part of the reason some oppose it is because they don’t like the way the transaction has been handled, and we understand that.

We recognize the importance of having an open dialogue with our community where concerns can be raised and opinions shared. We welcome the diverse range of opinions, but we also want to ensure that everyone understands how this transaction will help us all continue our work together in support of our common mission. We remain convinced that this transaction will bring long-term value to the Internet Society, the work of our members, and ultimately the Internet.

From: Richard Hill <rhill at hill-a.ch>
Sent: Tuesday, February 25, 2020 19:44
To: Gonzalo Camarillo <gonzalo.camarillo at ericsson.com>; 'Chapter Delegates' <Chapter-delegates at elists.isoc.org>
Subject: RE: Call on 28 February re PIR sale

Please find below my comparison of Ethos' recently announced ICANN Public
Interest Commitments (PIC) with their previously announced Benefit
Corporation (B-Corp) commitments.

The Ethos announcement does not state explicitly whether the PIC is
replacing the B-Corp commitments, but, for the reasons given in section
III(a) below, it appears to me that the PIC is intended to replace the
B-Corp commitments. I would appreciate clarification on this point,
because, as explained below, it appears to me that the PIC is walking back
the B-Corp commitment regarding price increases.

The PIC does have a stronger commitment regarding freedom of speech and
use of data, but it is a process commitment, not a substantive commitment,
and, for the reasons given in section III(b) below, it appears to me to be
an inadequate commitment.

All things considered, I find that the PIC does not meet my expectations:
it was not consulted with the concerned communities, the price protection
is insufficient, the composition of the Stewardship Council remains
problematic, the powers of the Stewardship Council are inadequate, the
reporting requirements for the new PIR are inadequate, and the enforcement
mechanism (ICANN) is not sufficiently transparent nor strong.

Therefore, I continue to oppose the proposal to sell PIR/.ORG to Ethos.

Warning: what follows is long. It is structured as follows:

I - Benefit Corporation Commitments
II - Public Interest Commitments
III - Comparison of the two commitments
(a) Pricing
(b) Stewardship Council
(c) Reporting
(d) Enforcement
IV - Comments on the press release
V - Pennsylvania Benefit Corporation reporting requirements

I - Benefit Corporation commitments
Ethos had previously stated that it would incorporate public benefit
commitments in the new PIR's Certificate of Formation as a Pennsylvania
Benefit Corporation (B-Corp). I copy-paste in section V below the
reporting requirements for such a corporation.

Ethos' statement is at:

https://www.keypointsabout.org/blog/commitments-in-certificate-of-formatio
n

The B-Corp commitments can be summarized as follows:

1) PIR will promote and support the purpose-driven and other organizations
and individuals that use the .ORG top-level by committing to: (a) provide
high-quality domain services and related products and services, (b) found
and support a charitable foundation and (c) promote a culture of
accountability and transparency for the registry, employees and customers.

2) PIR will not increase annual fees a .ORG domain name by more than 10%
per year on average.

3) PIR will establish a Stewardship Council from which it will seek
strategic advice and recommendations to help guide PIR management and the
board in considering the interests of .ORG stakeholders. PIR will delegate
to the Stewardship Council rights to oversee and appropriate a portion of
the PIR charitable foundation's funds to finance initiatives undertaken in
support of the .ORG community.

II - Public Interest Commitments
Ethos has now announced that it will add Public Internet Commitment (PIC)
to the contract between PIR and ICANN. The PIC is at:

https://www.keypointsabout.org/s/20200220-PIC.pdf

The commitments in the PIC can be summarized as follows:

A) The annual fees for a .ORG domain name will be capped for eight years,
as follows:

Maximum price
2019: 9.93
2020: 10.92
2021: 12.02
2022: 13.22
2023: 14.54
2024: 15.99
2025: 17.59
2026: 19.35
2027: 21.29
2028: No cap, that is, no limitation on price increases

B) There will be a Stewardship Council. No employee, director or member of
PIR shall serve on the Council. The Council shall gave the binding right
to veto modifications
of PIR policies regarding censorship and freedom of expression, and use of
.ORG registrant and user data.

C) PIR will establish a community enablement fund. Grants from the fund
will be approved by the PIR Board upon recommendation of the Stewardship
Council.

D) PIR will produce and publish annually a report that assesses its
compliance with A), B), and C) above.

III - Comparison of the two commitments
The recent Ethos announcement does not explicitly say whether the new PIC
is replacing the previous B-Corp commitment. For the reasons given below,
I suspect that it is.

a) Pricing
In the B-Corp commitment price increases would be limited to 10% per year,
on average, with no time limitation.

In the PIC, the price increases are capped until 2027, unlimited after
that.

So it appears to me that Ethos is reneging its B-Corp commitment and that
price increases may be larger than what it said it would commit to.

This leads me to believe that the B-Corp commitments have been withdrawn.

b) Stewardship Council
The Charter of the Stewardship Council is at:

https://www.keypointsabout.org/s/20200220-ORG-Stewardship-Council-Charter.
pdf

As far as I can tell, there was no consultation with the concerned
communities regarding this charter.

Responsibility 2 refers to "Recommendwations" [sic] which makes me wonder
whether this document was slapped together in a hurry, without careful
review.

According to Responsibility 3, the Stewardship Council cannot provide
advice or recommendations regarding day-to-day operational matters,
financial or budgeting matters, or pricing of PIR services.

From the information provided to date, it appears that the initial members
of the Stewardship Council will be appointed by Ethos (and might include
people such as Vint Cerf or Steve Crocker). The Council will then renew
its own composition as members leave it. This is spelled out in Principle
4: the inaugural Council will consist of 5 members appointed by the PIR
Board (which will be controlled by Ethos) and 2 members nominated by the
PIR Board and a to-be-established Nominating Committee.

The PIC states that no employee, director or member of PIR shall serve on
the Council. I'm not sure what is meant by "member of PIR", however it
appears that the principals of Ethos, or the owners of the owners of PIR
and/or Ethos could serve on the Council.

We don't anything more about how the members of the Council will be
selected, nor how they will consult the concerned communities (in
particular the .ORG registrants).

The PIC gives veto rights to the Stewardship Council with respect to
changes in policies regarding censorship and freedom of expression, and
use of .ORG registrant and user data. But the veto requires a two-thirds
majority of the Council, see Principle 12 of the Council's Charter.

Note that this is a process commitment: Ethos commits to submit any such
changes to a process, but the changes can take place unless they are
blocked by a two-thirds majority of the Stewardship Council.

It seems to me that a substantive commitment would have been more
appropriate, something like "PIR will not modify current policies
regarding censorship and freedom of expression, and use of .ORG registrant
and user data."

The Stewardship Council's veto powers are limited by Principle 12, which
states that PIR and the PIR Board reserve the right at all times in their
sole judgment to take actions consistent with PIR's Anti-Abuse Policy and
to ensure compliance with applicable laws, policies and regulations.

Note that this clause does not refer to US law. Maybe I'm being paranoid,
but it seems to me that this clause would authorize PIR to, say, revoke
the registration of a domain name for a Chinese entity if the entity had
violated Chinese restrictions on freedom of speech, or violated Russian
obligations to register as a non-profit entity, or violated US sanctions
against Iran, Cuba, Venezuela, etc.

I conclude that the proposed Stewardship Council is not an effective
mechanism to safeguard the interests of the concerned communities: it has
nothing to say about operational matters or prices, it requires a
two-thirds majority to veto a change in freedom of speech or data
protection policies, and anyway PIR reserves its right to comply with laws
that may be different from US law.

c) Reporting
Under the B-Corp commitments, PIR would have to publish a pretty
comprehensive annual report, see section V below.

Under the PIC, PIR only has to report with respect to pricing, changes in
policies, and the community enablement fund.

d) Enforcement
B-Corp commitments can be enforced in the Pennsylvania courts, where
proceedings are public.

Enforcement of PIC is up to ICANN, and not all parts of its proceedings
are public.

I know the PIC, and its enforcement process, fairly well because I was one
of the first PIC DRP panelists. I did not hear any cases: there have been
only two cases to date.

Here is information on the PIC and its enforcement:

https://icannwiki.org/Public_Interest_Commitments

https://newgtlds.icann.org/en/applicants/agb/base-agreement-specs-pic-faqs

https://www.icann.org/resources/pages/picdrp-2014-01-09-en

As can be seen from the FAQ, the decision of a PICDRP panel is not
binding. It is a recommendation to ICANN, who will then decide what, if
anything, to do about the alleged violation of the PIC. That is, the
PICDRP panel's role is essentially to provide advice to ICANN, who may
(normally will) tell the offending registry to comply with its PIC. If the
offending registry fails to comply ICANN could, as a last resort, revoke
its registry contract.

It appears to me that enforcement of B-Corp commitments in the
Pennsylvania courts would be preferable to enforcement of PIC through the
ICANN PICDRP.

IV - Comments on the press release
Regarding Ethos' announcement, Andrew Sullivan has stated: "They [Ethos]
listened, and responded."

I disagree. One of the key points that has been made repeatedly by many
critics of the proposed deal is that there was insufficient consultation
with the concerned communities, and that nothing should be cast in stone
until it was consulted with the communities.

I'm not aware of any consultations prior to Ethos publishing the PIC.

It's worth recalling that George Sadowsky attempted to organize a
consultation, but that Ethos finally declined, on the grounds that a
weekend-long meeting was not feasible given schedules and other events
already in motion. I infer that given schedules and other events were more
important than the consultation that George was trying to organize. To me,
this provides an unflattering view of the importance that Ethos gives to
hearing the views of the concerned communities.

Regarding the PIC, Andrew Sullivan has stated: "With this in place, and as
the Internet Society and PIR advance their missions, the Internet will
become stronger, more secure, and more accessible."

Since the deal in question involves the sale of one gTLD, I fail to see
how it it could make the Internet stronger or more secure.

Regarding accessibility, the main issue is lack of affordable access in
much of the developing world.

The reasons for the relatively high cost of access include lack of
competition, lack of infrastructure, and the high cost of international
connectivity.

I fail to see how moving the PIR/.ORG revenue stream from the non-profit
sector to the private equity sector will make the Internet more
accessible, but perhaps I'm missing something.

V - Pennsylvania Benefit Corporation reporting requirements
The reporting requirements for Pennsylvania Benefits Corporations are
outlined here:

https://www.dos.pa.gov/BusinessCharities/Business/Resources/Pages/Pennsylv
ania-Benefit-Corporation.aspx

Each year, the benefit corporation must prepare and distribute to its
shareholders an Annual Benefit Report describing its efforts to create
public benefit during the preceding year. The report must be filed with
the Department of State, thus making it a matter of public record. The
report must also be posted on any public website maintained by the
corporation. The fee for this filing is $70. The report must:

Describe the general public benefit and any specific public benefit
pursued and created during the year and any circumstances that may have
hindered the creation of these benefits;

Assess the overall social and environmental performance of the benefit
corporation against a third-party standard and state the process and
rationale for selecting the third-party standard;

Give the name and contact information of the benefit director and the
benefit officer, if any;

Provide the compensation paid to each director;

Give the name of each person that owns 5% or more of the outstanding
shares of the benefit corporation; and

Contain the annual compliance statement of the benefit director
described in Section 3322(c)

Contain a statement of any connection between the organization that
established the third-party standard and the benefit corporation, or their
directors, officers or any holder of 5% or more of the governance
interests/outstanding shares in either organization, including any
financial or governance relationship which might materially affect the
credibility of the use of the third-party standard

If the benefit corporation has restricted the powers of the board of
directors, a description of the persons who exercise those powers and of
the benefit director.
On February 25, 2020 6:13:19 PM GMT+01:00, Gonzalo Camarillo <gonzalo.camarillo at ericsson.com<mailto:gonzalo.camarillo at ericsson.com>> wrote:

Hi Richard,

sure, we can talk about all that. Could you please summarize the criticism on the PIC you would like to discuss?

Cheers,

Gonzalo

-----Original Message-----
From: Richard Hill <rhill at hill-a.ch<mailto:rhill at hill-a.ch>>
Sent: Monday, February 24, 2020 09:17
To: Gonzalo Camarillo <gonzalo.camarillo at ericsson.com<mailto:gonzalo.camarillo at ericsson.com>>; 'Chapter
Delegates' <Chapter-delegates at elists.isoc.org<mailto:Chapter-delegates at elists.isoc.org>>
Subject: Call on 28 February re PIR sale

Dear Gonzalo,

Would it be possible for you to comment, during the call on 28 February, on
the advice that the Chapters Advisory Council has submitted regarding the
sale of PIR and the role of Chapters, and also to comment on the criticism
that has been posted regarding Ethos' proposed Public Interest
Commitments (PIC)?

Thanks and best,
Richard

--
Sent from my Android device with K-9 Mail. Please excuse my brevity.
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