Consideration of Final Declaration in the Afilias Domains No. 3 Limited (Afilias) v. ICANN Independent Review Process (.WEB)

Seven applicants submitted applications for the right to operate .WEB, including Afilias Domains No. 3 Ltd. (Afilias),3 Nu Dotco LLC (NDC), and Ruby Glen LLC, a Donuts subsidiary (Ruby Glen), and, as they did not privately resolve contention, the applicants went to an ICANN auction of last resort. An auction was held on 27-28 July 2016, which concluded with NDC prevailing with a bid of US$135 million. Shortly thereafter, Verisign Inc. (Verisign) publicly disclosed that, pursuant to an agreement it had entered with NDC, Verisign provided the funds for NDC's bid in exchange for, among other things, NDC's future assignment of the .WEB registry agreement to Verisign, subject to ICANN's consent.

Prior to and since the auction, Ruby Glen and Afilias made numerous allegations regarding NDC and Verisign (including alleging an undisclosed change of ownership or control of NDC and alleging a violation of the Guidebook's prohibition of assignment of an application to a third party), and requested that ICANN disqualify NDC's application, reject its winning bid, and then recognize Afilias as the winning bidder (which had the second highest bid in the auction).4 Further background information is available in the accompanying Reference Materials.

Afilias initiated an Independent Review Process regarding .WEB (.WEB IRP) in November 2018, alleging that NDC had violated the Guidebook as a result of its arrangement with Verisign and that ICANN had violated the Bylaws by failing to disqualify NDC. In particular, Afilias alleged that NDC violated the Guidebook by: (a) "omitting material information from and failing to correct material misleading information in its .WEB application"; (b) "assigning [NDC's] rights and obligations in its .WEB application to VeriSign"; and (c) "agreeing to submit bids on VeriSign's behalf at the .WEB Auction." With regard to ICANN, Afilias alleged that: (a) "ICANN's failure to disqualify [NDC] breaches ICANN's obligation to apply documented ICANN policies neutrally, objectively and fairly"; (b) "ICANN's decision to finalize a registry agreement while knowing of [NDC's] arrangement with VeriSign violates ICANN's mandate to promote competition"; and (c) "ICANN violated its Bylaws in Adopting Rule 7 of the Interim [Supplementary] Procedures," which allows participation in an IRP by a party with a material interest in the proceedings.

NDC and Verisign asked to participate as amici curiae in the IRP, which Afilias opposed. The Panel granted amici participation allowing them to attend hearings, submit written briefings on the dispute or on questions the Panel might ask, and have access to all materials related to the IRP except for commercially sensitive or privileged material. The merits hearing took place on 3-11 August 2020, and the IRP Panel issued its Final Declaration on 20 May 2021, which the Panel later corrected for certain typographical errors, effective 15 July 2021.

In the Final Declaration, the IRP Panel designated Afilias "as the prevailing party in relation to the above declarations, decisions, findings and recommendations [noted in the Final Declaration]" and dismissed Afilias' "other requests for relief in connection with its core claims." In particular, the Panel denied Afilias' requests for: (a) a binding declaration that ICANN must disqualify NDC's bid for .WEB for violating the Guidebook and Auction Rules; and (b) an order directing ICANN to proceed with contracting for .WEB with Afilias. The Panel noted that: "it is for [ICANN], that has the requisite knowledge, expertise, and experience, to pronounce in the first instance on the propriety of the [Domain Acquisition Agreement] under the New gTLD Program Rules, and on the question of whether NDC's application should be rejected and its bids at the auction disqualified by reason of its alleged violations of the Guidebook and Auction Rules."

The Panel declared that ICANN had violated its Articles of Incorporation (Articles) and Bylaws by not applying documented policies objectively and fairly in that: (a) ICANN staff failed to decide whether the Domain Acquisition Agreement (DAA) between NDC and Verisign (pursuant to which Verisign financially supported NDC's bidding in the .WEB auction) violated the Guidebook and Auction Rules, and moved forward toward contracting with NDC in June 2018 without first having made that decision; and (b) the ICANN Board did not prevent staff from moving forward toward contracting in June 2018 or decide whether the DAA violated the Guidebook and Auction Rules, once pending accountability mechanisms had been resolved.

The Panel also declared that ICANN violated its Articles and Bylaws by not operating in an open and transparent manner and consistent with procedures to ensure fairness when it failed to communicate to Afilias in November 2016 that the ICANN Board would not be evaluating Afilias' complaints while accountability mechanisms were pending.

In addition, while finding Afilias' claim that ICANN failed to enable and promote competition in the DNS was premature, the Panel stated that it "accepts the submission that ICANN does not have the power, authority, or expertise to act as a competition regulator by challenging or policing anticompetitive transactions or conduct."

The Panel further declared that Afilias' challenge to the validity of IRP Interim Supplementary Procedures Rule 7 about amici participation is moot since the Panel previously ruled that NDC and Verisign could participate, and "no useful purpose would be served by the Rule 7 Claim being addressed beyond the findings and observations contained in the Panel's Decision of Phase I."

The Panel denied the majority of Afilias' request for cost shifting of legal fees, but did grant legal fees in connection with the Request for Emergency Interim Relief (related to whether the contention set would remain on hold during the pendency of the IRP) in a reduced amount of US$450,000. The Panel further indicated that ICANN "shall reimburse [Afilias] the full amount of its share of [the IRP costs] that Afilias has advanced, in the amount of USD 479,458.27," the vast majority of which ICANN had already agreed to pay.5

The Panel recommended that ICANN "stay any and all action or decision that would further the delegation of the .WEB gTLD until such time as the [ICANN] Board has considered the opinion of the Panel in this Final Decision, and, in particular (a) considered and pronounced upon the question of whether the DAA complied with the New gTLD Program Rules following [Afilias'] complaints that it violated the Guidebook and Auction Rules and, as the case may be, (b) determined whether by reason of any violation of the Guidebook and Auction Rules, NDC's application for .WEB should be rejected and its bids at the auction disqualified."

Subsequently, on 21 June 2021, Afilias submitted a request to the Panel for "interpretation and correction" of the Final Declaration under Article 33 of the ICDR Arbitration Rules (Request). On 21 December 2021, the Panel unanimously denied Afilias' Request in its entirety, finding the Request to be "frivolous" and awarding ICANN the legal fees it incurred in responding to the Request (in the amount of US$236,884.39). With the Panel's denial of Afilias' Request, the Final Declaration in the .WEB IRP remains intact and is deemed "final" as of 21 December 2021. In accordance with Article 4, Section 4.3(x) of the operative Bylaws,6 the Board is now considering the Panel's Final Declaration in the .WEB IRP.

The Board appreciates that both the parties and the amici participated in good faith in the IRP, and acknowledges that a neutral third-party Panel designated Afilias as the prevailing party, declared that ICANN violated its Articles of Incorporation and Bylaws in the manner set forth in the Final Declaration, and declared that ICANN should reimburse Afilias for its legal costs relating to the Request for Emergency Interim Relief and for its share of the IRP costs as set forth in the Final Declaration. The Board is therefore adopting this resolution so as to not delay the reimbursement of Afilias for these costs, while the Board continues to consider the Panel's recommendation and/or next steps relating to the .WEB application(s).

The Board recognizes the importance of this decision and wants to make clear that it takes the results of all ICANN accountability mechanisms very seriously, which is why the Panel's recommendation is being referred to the Board Accountability Mechanisms Committee (BAMC) for thorough consideration and formulating a recommendation to the Board on next steps.

This action is within ICANN's Mission and is in the public interest as it is important to ensure that, in carrying out its Mission, ICANN is accountable to the community for operating within the Articles of Incorporation, Bylaws, and other established procedures. This accountability includes having a process in place by which a person or entity materially and adversely affected by a Board or organization action or inaction may challenge that action or inaction.

Taking this decision is expected to have a direct financial impact on ICANN in the amount the Panel declared ICANN should reimburse the prevailing party, which can be absorbed under the current budget. Further review and analysis of the Panel's recommendation will not have any direct impact on the security, stability or resiliency of the domain name system.

This is an Organizational Administrative function that does not require public comment.