Private Equity Firm Loses Its Billion-Dollar-Bid to Control Dot.Or​g Website Domains

Private Equity Firm Loses Its Billion-Dollar-Bid to Control Dot.Or​g Website Domains

A regulatory body that oversees the address book of the internet has put the kibosh (at least for now) on a private equity firm's efforts to purchase control of all dot-org domains for more than $1 billion.

The Internet Corporation for Assigned Names and Numbers (ICANN) said late Thursday that its board had voted to reject the proposed change in ownership, which would have impacted 10.5 million registered domain names, including Farm Aid, The Sierra Club, Amnesty International, Girl Scouts of the USA, The Associated Press and ProPublica.

"ICANN entrusted to PIR (Public Interest Registry) the responsibility to serve the public interest in its operation of the .ORG registry, and now ICANN is being asked to transfer that trust to a new entity without a public interest mandate," ICANN said. Their conclusion was "the public interest is better served in withholding consent."

It's the final chapter in a complex, technical discussion that's taken place over the last few months about the future of a critical segment of the internet, which has included letters from lawmakers, petitions and a subpoena for information and review by California Attorney General Xavier Becerra's office. The decision by ICANN was praised by digital rights advocates.

In November, Boston-based Ethos Capital publicly announced the deal to acquire the nonprofit Public Interest Registry (PIR), which manages the dot-org domain, setting off public debate over the appropriateness of such a deal.

The purchase would have given The Internet Society, a nonprofit that controls and created PIR, a $1.135-billion endowment to continue its other good works it engages in to strengthen the internet, without having to rely solely on fees from dot-org registry users.

In its rationale for the decision, the board stated that its decision to not bless the deal is "both reasonable and in the public interest" and that the board had determined 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 (generic top level domain aka dot-org) registry."

The board said that if it had consented to the deal being made, it would have to trust that the new proposed for-profit entity, which would lack embedded nonprofit protections and now have fiduciary obligations to its new investors to repay $360 million in debt, would serve the same benefits to the dot-org community.

More than 21,000 people, 660 organizations and six members of Congress have written letters to say they oppose the deal, which internet governance experts worried would lead to unsavory efforts to make back the more than $1 billion to please investors at the expense of nonprofits doing good or monetize the data's registry at the expense of the public.

Ethos called the decision by ICANN a "dangerous precedent with broad industry implications" in a statement released late Thursday and said it was evaluating its options.

Ethos has tried to address concerns about it being a private equity firm by releasing initiatives to assuage concerns, including a stewardship council, measures to limit prices, safeguard against censorship and protect personal data. But none appeared to assuage concerns about the overall structure of the deal.

"ICANN has overstepped its purview enabling it to unilaterally reject future transfer requests based on agenda-driven pressure by outside parties," Ethos said. "This decision will suffocate innovation and deter future investment in the domain industry."

Their statement was also sent out with statements from PIR and ISOC. PIR called the decision "disappointing" and a failure by ICANN to follow its bylaws, processes and contracts. ISOC also echoed that disappointment and questioned ICANN's actions as inconsistent and not in line with what the regulatory body was meant to be.

But the Electronic Frontier Foundation, a nonprofit that advocates digital rights, hailed ICANN's decision as a "stunning victory." Its staff has pushed for months against the deal, organizing letter-writing campaigns and protesting outside ICANN's Playa Vista, Calif. offices.

U.S. Democratic senators Ron Wyden of Oregon, Elizabeth Warren of Massachusetts, Edward J. Markey, of Massachusetts, and Anna Eshoo of California, who earlier wrote a letter to ICANN's board urging them to block the potential sale, praised their decision in a statement released on Friday.

"ICANN made the right decision," Wyden said, adding that the deal would have put the dot-org registry in an "unstable position during this current economic crisis, solely to enrich a private equity firm at the expense of users and nonprofits. The .org registry is too important to be at the mercy of wealthy investors."

Warren called the decision "good news for nonprofits and everyone who relies on a free and open internet" while Eshoo called it a "big win for the internet."

California's AG had previously waded into the issue, writing a letter to ICANN's board, informing them that in his authority to speak for California's public interest in the dot-org registry as the home to noncommercial entities that the public interest would be better served by ICANN withholding its approval of a change in control. ICANN said it considered the AG's letter as one reason to withhold its approval.

Because PIR is incorporated in Pennsylvania, the state's AG also has a role in oversight and approving the proposed conversion of PIR from not-for-profit to for-profit entity. ICANN's board said the lack of approval by Pennsylvania, which won't complete its process before May 4, remains an area of concern and also influenced the decision to withhold consent.

The ICANN board left open the possibility of approving such a deal in the future if PIR is able to provide additional information that resolves concerns raised by the board.


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