Re: [ga] Option A -- "Divestiture'

[Jonathan Weinberg <weinberg@mail.msen.com>]

1.      Kent is right that Verisign has incentives to think up creative 
interpretations of the contractual language currently binding it, and that 
much of the language has room for interpretation.  It’s wrong, though, to 
suggest that therefore the language is meaningless.  In particular, I 
think, it’s wrong to suggest that there is no force to the language 
requiring that Verisign “divest[] all the assets and operations” of the 
registrar.  I *think* Kent is suggesting that Verisign and the acquirer 
might agree that on Monday the acquirer would purchase all of NSI 
Registrar’s assets, leases, employment contracts, trademarks and ongoing 
business, but that on Tuesday it would sell or license them back to 
Verisign.  But that would be a sham transaction – and as ICANN staff’s FAQ 
states, a sham transaction would not entitle Verisign to the extension it 
seeks.  Yes, the FAQ indicates that there may be close questions as to what 
constitutes the “assets and operations” of the registrar, specifically 
relating to places where the NSI Registrar currently “shares services with 
other Verisign businesses, such as engineering, customer support, or human 
resources.”  If Verisign were nominally to transfer ownership of the 
Network Solutions trademark, though, while retaining a long-term exclusive 
license to use the mark in its own business, it would *not* be a close 
question whether that satisfied its obligation to divest all of NSI 
Registrar’s assets.  It would not.  While a determined lawyer can argue 
anything, the argument that that arrangement is consistent with the 
existing contract is not an argument I could have made with a straight face 
when I was a practicing lawyer, and not an argument I would expect to get 
serious consideration from a court.

2.      Kent suggests that Verisign could simply create a new registrar to 
process registrations it takes from the public.  Indeed it could: as the 
staff FAQ makes clear, having sold the old registrar business (including 
its customer lists, trademarks, servers, 10 million or so legacy 
registrations, etc.) to the acquirer, Verisign is free to start a new 
registrar business.

3.      ICANN wants to avoid situations where it ends up in court with 
Verisign over whether a divestiture satisfies the existing contract.  But 
Verisign needs to avoid that as well: the last thing it needs is to have 
the viability of its contract extension depend on the whims of some 
judge.  So any disputes over the terms of a divestiture will end up being 
determined in negotiation between the two parties.  The most important 
factor in determining the parties' bargaining positions will be whether, if 
the matter *did* come to court, the judge would consider the deal to be 
consistent with Verisign's divestiture obligations as defined by the 
existing contract.

         I don't mean to understate the leeway that Verisign has here.  My 
point, in my earlier message, was that in considering the desirablity of 
the proposed contract, we need to keep in mind the fact that the existing 
contract allows Verisign, post-divestiture, to take registrations as a 
domain-name reseller.  But we should bottom our analysis on the actual 
provisions of the existing contract.

Jon


Jonathan Weinberg
weinberg@msen.com


At 08:53 AM 3/22/2001 -0800, Kent Crispin wrote:
>On Thu, Mar 22, 2001 at 10:35:49AM -0500, Jonathan Weinberg wrote:
> >          Brets point (unsurprisingly) is worth careful attention.  The FAQ
> > materials shed new light on the issue raised by James Seng in his post a
> > few days ago:  Materials circulated by Verisigns investment bankers seem
> > to take for granted that if Verisign does divest the registrar, it will
> > nonetheless continue as a *reseller* of domain names. It seems to me that
> > this new operation would likely differ from Verisigns existing registrar
> > business in at least three ways.  First, Verisign would have to give up 
> the
> > Network Solutions name and trademarks to the acquirer, since the existing
> > contract requires Verisign to divest[] all the assets of the registrar
> > business to the acquirer, and the Network Solutions name and trademarks 
> are
> > part of those assets.
>
>But of course, there is nothing whatsoever that prevents the new owner
>from licensing use of the NSI name back to VRSN.
>
> >  So the new Verisign reseller operation would need a
> > new name.
>
>No, it wouldn't.
>
> >  Second, the NSI Registrar employees, servers, intellectual
> > property, and so on would also be going to the acquirer - those, too, are
> > part of the 'assets' that must be divested.
>
>But  there is no way to keep VRSN from re-hiring those employees, and
>the intellectual property can all be licensed.  Moreover, the FAQ makes
>clear that there are substantial questions about distinguishing what
>part of the business can be allocated to the registry and what part to
>the registrar.
>
> > So Verisign's reseller
> > business would have to be a new business, not just NSI Registrar under a
> > different name.
>
>Please define "new business".  There are no clauses in the current
>contract that really define this, and, as the FAQ makes quite clear,
>there is large room for interpretation on the part of ICANN, VRSN, and
>DOC.
>
>Bear in mind that once VRSN commits to going down this road, there is an
>associated enforcement cost that must be born by ICANN, in dealing with
>the unique situation between VRSN and any buyer.
>
> > Third, the Verisign reseller, having taken a registration
> > from a member of the public, couldn't simply enter the name in the SRS, 
> but
> > would have to buy that service from some accredited registrar.
>
>But of course, that accredited registrar could simply be a new
>registrar created by VRSN.  And that new registrar could simply
>implement a pass-through.  VRSN doesn't need to do this, of course.
>
> >          Though James's message can be read to suggest otherwise, I think
> > it's *not* likely that any divestiture could require the acquiring
> > registrar to take registrations only from Verisign and nobody else.
>
>It doesn't need to.  The only thing that VRSN really needs to do is
>maintain its market share, and there are many many tools by which it
>can do that.
>
> >  That
> > would tie the companies together so closely as to raise the persuasive
> > argument that the divestiture was a sham, and would, I think, violate the
> > contractual language forbidding any arrangement under which Verisign would
> > be able, 'directly or indirectly, to direct . . . the operations or
> > policies' of the new registrar.  Nor does it make a lot of sense to me 
> that
> > Verisign would want to include such a restriction, which would reduce its
> > sale price with no corresponding benefit.
>
>Keeping market share seems to me like a pretty substantial benefit.
>
> > What should we think about such a result?  It would eliminate any
> > existing incentive for Verisign Registry to bend the existing equal-access
> > rules requiring it to treat all registrars equally (since any profits
> > flowing from that rule-breaking would no longer flow to Verisign
> > itself).
>
>No, that simply isn't true.  Assume a small registrar with a small
>retail side and a single enormous reseller.  Favors to that small
>registrar could easily flow through to that reseller.
>
> > I suspect that it would likely increase the number of
> > high-visibility players in the selling-domain-names-to-consumers
> > market.
>
>The FAQ notes that the retail end of the business is not particularly
>valuable.
>
> > That depends on who the acquirer is, natch, but my guess (and this
> > is only a guess) is that the acquirer is *not* likely to be one of the
> > larger existing registrars: those companies have spent too much money
> > building their infrastructure and trademarks to be willing to pay full
> > price to buy NSI's.  OTOH, this resolution won't satisfy those who want to
> > see Verisign out of the registrar or reseller business entirely.
>
>There were multiple loopholes mentioned in the FAQ.  The main point is
>that there are many, many ways that VRSN can arrange to maintain its
>market share, and it certainly has significant interest in doing so.
>
>Bear in mind that we simply don't have the same incentive that VRSN does
>to think about this creatively.
>
>--
>Kent Crispin                               "Be good, and you will be
>kent@songbird.com                           lonesome." -- Mark Twain
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