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Line 1: − {{Glossary| − |note = This article is neutral, but is [[Sponsorship|sponsored]] by [[Verisign]],<br> the registry for [[.com]], [[.net]], & other [[TLD]]s.<br>You can learn more about their services [http://www.verisigninc.com/?loc=en_US here]. − |logo = verisignlogo.png − |link = http://icannwiki.com/index.php/Verisign − |platsponsor = ICANNWiki [[Sponsorship|Platinum Sponsor]] − }} − Line 12:
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→History of Vertical Separation
'''Vertical Integration''' ('''VI''', or '''Cross Ownership''') is a business structure in which the various functions of the [[Registry]] Operator and the [[Registrar]] are handled by a single body. This single body is either owned or is under supervision of the same company that supports the specific [[gTLD]]; alternatively, the controlling body can be a partnered company that is given the contract of the gTLD. The Registry Operator is not required to provide equivalent access and non-discriminatory access to non-affiliated registrars to sell names under its gTLD.<ref name="link2">[https://community.icann.org/display/gnsovertint/Phase+I+Interim+Report+Vertical+Integration+Final+9+November+2010+pdf Phase I Interim Report Vertical Integration], ICANN.org. Published 9 November 2010.</ref>
'''Vertical Integration''' ('''VI''', or '''Cross Ownership''') is a business structure in which the various functions of the [[Registry]] Operator and the [[Registrar]] are handled by a single body. This single body is either owned or is under supervision of the same company that supports the specific [[gTLD]]; alternatively, the controlling body can be a partnered company that is given the contract of the gTLD. The Registry Operator is not required to provide equivalent access and non-discriminatory access to non-affiliated registrars to sell names under its gTLD.<ref name="link2">[https://community.icann.org/display/gnsovertint/Phase+I+Interim+Report+Vertical+Integration+Final+9+November+2010+pdf Phase I Interim Report Vertical Integration], ICANN.org. Published 9 November 2010.</ref>
==Background==
==Background==
===History of Vertical Separation===
===History of Vertical Separation===
The [[NSF|National Science Foundation]] signed a Cooperative Agreement with [[Network Solutions]] (NSI) to be Registry Operator and Registrar for the .com, .net and .org TLDs from 1993 to 1999. The registry agreement was renewed by ICANN in November 1999. Under the new agreement, NSI agreed to create a multiple registrar system, also known as the [[SRS|SRS]]Shared Registration System]] (SRS), which allows independent registrars to access the system. Independent registrars were to pay NSI $6.00 for every registered or renewed domain name.<ref>[http://archive.icann.org/en/topics/new-gtlds/crai-report-24oct08-en.pdf Revisiting Vertical Separation of Registries and Registrars], ICANN.org. Published 24 October 2008.</ref>
The [[NSF|National Science Foundation]] signed a Cooperative Agreement with [[Network Solutions]] (NSI) to be Registry Operator and Registrar for the .com, .net and .org TLDs from 1993 to 1999. The registry agreement was renewed by ICANN in November 1999. Under the new agreement, NSI agreed to create a multiple registrar system, also known as the [[SRS|Shared Registration System]] (SRS), which allows independent registrars to access the system. Independent registrars were to pay NSI $6.00 for every registered or renewed domain name.<ref>[http://archive.icann.org/en/topics/new-gtlds/crai-report-24oct08-en.pdf Revisiting Vertical Separation of Registries and Registrars], ICANN.org. Published 24 October 2008.</ref>
In addition, ICANN encouraged competition through registry and registrar business separation, by stipulating in the agreement that NSI will only be allowed to renew its registry agreement with ICANN for four years if it sells its registrar business.<ref>[http://archive.icann.org/en/nsi/nsi-registry-agreement-04nov99.htm ICANN-NSI Registry Agreement], ICANN.org. Published 4 November 1999.</ref> In 2000, [[Verisign]] purchased NSI and re-negotiated its registry agreement for the .com, .net and .org TLDs with ICANN. ICANN did not require ownership separation but implemented structural separation. ICANN explained, ''"there is little if any additional competitive value under today's market circumstances in forbidding the registry operator from also being a registrar, so long as it is done is such a way so as not to discriminate against other competitive registrars."''<ref>[http://www.icann.org/en/news/announcements/icann-pr-01mar01-en.htm Proposed Revision to ICANN-VeriSign Agreements], ICANN.org. Published 1 March 2001.</ref><ref>[http://www.icann.org/en/about/agreements/registries/verisign Revised VeriSign Registry Agreements], ICANN.org. Published 16 April 2011.</ref>
In addition, ICANN encouraged competition through registry and registrar business separation, by stipulating in the agreement that NSI will only be allowed to renew its registry agreement with ICANN for four years if it sells its registrar business.<ref>[http://archive.icann.org/en/nsi/nsi-registry-agreement-04nov99.htm ICANN-NSI Registry Agreement], ICANN.org. Published 4 November 1999.</ref> In 2000, [[Verisign]] purchased NSI and re-negotiated its registry agreement for the .com, .net and .org TLDs with ICANN. ICANN did not require ownership separation but implemented structural separation. ICANN explained, ''"there is little if any additional competitive value under today's market circumstances in forbidding the registry operator from also being a registrar, so long as it is done in such a way so as not to discriminate against other competitive registrars."''<ref>[http://www.icann.org/en/news/announcements/icann-pr-01mar01-en.htm Proposed Revision to ICANN-VeriSign Agreements], ICANN.org. Published 1 March 2001.</ref><ref>[http://www.icann.org/en/about/agreements/registries/verisign Revised VeriSign Registry Agreements], ICANN.org. Published 16 April 2011.</ref>
In 2000, ICANN introduced [[new gTLD|new generic top level domain names]], which included [[.biz]], [[.info]], [[.name]] and [[.pro]]. On February 26, 2001, ICANN proposed a new registry agreement stipulating the legal separation between registry and registrar under section 3.5 Fair Treatment of ICANN-Accredited Registrars, wherein Registry Operators are not allowed to act as registrars with respect to the Registry TLD.<ref>[http://www.icann.org/en/about/agreements/registries/unsponsored/registry-agmt-26feb01-en.htm Proposed Unsponsored TLD Agreement], ICANN.org. Published 26 February 2001.</ref>
In 2000, ICANN introduced [[new gTLD|new generic top level domain names]], which included [[.biz]], [[.info]], [[.name]] and [[.pro]]. On February 26, 2001, ICANN proposed a new registry agreement stipulating the legal separation between registry and registrar under section 3.5 Fair Treatment of ICANN-Accredited Registrars, wherein Registry Operators are not allowed to act as registrars with respect to the Registry TLD.<ref>[http://www.icann.org/en/about/agreements/registries/unsponsored/registry-agmt-26feb01-en.htm Proposed Unsponsored TLD Agreement], ICANN.org. Published 26 February 2001.</ref>
====10 Justifications for Integration====
====10 Justifications for Integration====
The ICANN Board enumerated ten reasons to support its policy change on vertical separation:<ref>
The ICANN Board enumerated ten reasons to support its policy change on vertical separation:<ref>
[http://archive.icann.org/en/topics/new-gtlds/gac-board-registry-registrar-separation-21feb11-en.pdf ICANN Board-GAC Consultation:Registry-Registrar Separation, February 21, 2011]</ref>
[http://archive.icann.org/en/topics/new-gtlds/gac-board-registry-registrar-separation-21feb11-en.pdf ICANN Board-GAC Consultation:Registry-Registrar Separation], ICANN.org. Published 21 February 2011.</ref>
# None of the proposals submitted by the GNSO reflected a consensus opinion; as a result, the Board supported a model based on its own factual investigation, expert analysis, and concerns expressed by stakeholders and community.
# None of the proposals submitted by the GNSO reflected a consensus opinion; as a result, the Board supported a model based on its own factual investigation, expert analysis, and concerns expressed by stakeholders and community.
# ICANN's position and mission must be focused on creating more competition as opposed to having rules that restrict competition and innovation.
# ICANN's position and mission must be focused on creating more competition as opposed to having rules that restrict competition and innovation.
# Rules permitting cross-ownership foster greater diversity in business models and enhance opportunities offered by new TLDs.
# Rules permitting cross-ownership foster greater diversity in business models and enhance opportunities offered by new TLDs.
# Rules prohibiting cross-ownership require more enforcement and can easily be circumvented.
# Rules prohibiting cross-ownership require more enforcement and can easily be circumvented.
# Preventing cross-ownership would create more exposure to ICANN of lawsuits, including anti-trust lawsuits, which are costly to defend even if ICANN believes (as it does) that it has no proper exposure to such litigation.
# Preventing cross-ownership would create more exposure to ICANN via lawsuits, including anti-trust lawsuits, which are costly to defend even if ICANN believes (as it does) that it has no proper exposure to such litigation.
# Rules permitting cross-ownership enhance efficiency and almost certainly will result in benefits to consumers in the form of lower prices and enhanced services.
# Rules permitting cross-ownership enhance efficiency and almost certainly will result in benefits to consumers in the form of lower prices and enhanced services.
# The Rules of Conduct, which is to be part of the base agreement for all new gTLDs include adequate protections designed to address behavior the Board wants to discourage, including abuses of data and market power...
# The Rules of Conduct, which is to be part of the base agreement for all new gTLDs, include adequate protections designed to address behavior the Board wants to discourage, including abuses of data and market power.
# Case by case re-negotiation of existing contracts to reflect the new cross ownership rules will permit ICANN to address the risk of abuse of market power contractually.
# Case-by-case re-negotiations of existing contracts to reflect the new cross ownership rules will permit ICANN to address the risk of abuse of market power contractually.
# In the event ICANN has competition concerns, ICANN will have the ability to to refer those concerns to relevant antitrust authorities.
# In the event ICANN has competition concerns, ICANN will have the ability to refer those concerns to relevant antitrust authorities.
# ICANN can amend contracts to address harms that may arise as a direct or indirect result of the new cross-ownership rules.
# ICANN can amend contracts to address harms that may arise as a direct or indirect result of the new cross-ownership rules.
===EC Concerns Over the Full Removal of Vertical Separation===
===EC Concerns Over the Full Removal of Vertical Separation===
On June 17, 2011, the Information Society and Media Directorate General of the [[European Commission]] (EC) submitted a non-paper regarding ICANN's proposed full removal of the vertical separation to the ICANN Board. Copies were furnished to [[NTIA]] Assistant Secretary [[Larry Strickling]] and to Assistant Attorney General Christine Varney of the Department of Justice Antitrust Division. The EC cited some issues and recommendations, which include:<ref>[http://www.icann.org/en/correspondence/eu-to-icann-17jun11-en.pdf Removal of Vertical Separation Between registries and Registrars for New and Existing gTLDs]</ref>
On June 17, 2011, the Information Society and Media Directorate General of the [[European Commission]] (EC) submitted a non-paper regarding ICANN's proposed full removal of vertical separation to the ICANN Board. Copies were furnished to [[NTIA]] Assistant Secretary [[Larry Strickling]] and to Assistant Attorney General Christine Varney of the Department of Justice Antitrust Division. The EC cited some issues and recommendations, which include:<ref>[http://www.icann.org/en/correspondence/eu-to-icann-17jun11-en.pdf Removal of Vertical Separation Between registries and Registrars for New and Existing gTLDs], ICANN.org. Published 17 June 2011.</ref>
* Vertical separation provides a balanced playing field for competition between registrars. The absence of expert advice to remove vertical separation and stakeholders consensus shows that the move may be premature and might result in negative market output for consumers.
* Vertical separation provides a balanced playing field for competition between registrars. The absence of expert advice to remove vertical separation and stakeholders consensus shows that the move may be premature and might result in negative market output for consumers.
* Vertical Integration might harm competition. The European Commission cited the CRA International Report of 2008, which emphasized the risk of vertical integration wherein registries may discriminate independent registrars by lowering prices and providing better registry services to their affiliate registrars.
* Vertical integration might harm competition. The European Commission cited the CRA International Report of 2008, which emphasized the risk of vertical integration wherein registries may discriminate independent registrars by lowering prices and providing better registry services to their affiliate registrars.
* ICANN does not have sufficient data to support the full removal of vertical separation.
* ICANN does not have sufficient data to support the full removal of vertical separation.
* A consensus on the issue within the [[GNSO]] and internet stakeholders is lacking.
* A consensus on the issue within the [[GNSO]] and internet stakeholders is lacking.
* The procedural approach of ICANN to refer an application to relevant antitrust authorities for "expert analysis and ante determination" overlooks the fact that competition authorities have limited powers in implementing rules, which is based on a case to case market analysis. ICANN did not clearly identify specific laws that will serve as basis of its jurisdiction to determine if there are concerns regarding competition. Referral to competition authorities depends on ICANN's discretion.
* The procedural approach of ICANN to refer an application to relevant antitrust authorities for "expert analysis and post ante determination" overlooks the fact that competition authorities have limited powers in implementing rules, which is based on a case-by-case market analysis. ICANN did not clearly identify specific laws that will serve as basis of its jurisdiction, in order to determine if there are concerns regarding competition. Referral to competition authorities depends on ICANN's discretion.
Thus, the EC encouraged ICANN to reconsider decision to implement the full removal of vertical separation of registries and registrars and to follow these suggestions:
Thus, the EC encouraged ICANN to reconsider their decision to implement the full removal of vertical separation of registries and registrars and to follow these suggestions:
# Conduct independent economic and legal expert studies regarding the present situation of the domain name market and evaluate the impact of the existing restrictions on vertical integration. The impact of partially or totally removing the restriction on innovation and to consumers.
# Conduct independent economic and legal expert studies regarding the present situation of the domain name market and evaluate the impact of the existing restrictions on vertical integration. The impact of partially or totally removing the restriction on innovation and to consumers.
# Provide new market data on the current degree of competition and cross-ownership at the registry and registrar level.
# Provide new market data on the current degree of competition and cross-ownership at the registry and registrar level.
===Update in Response to RySG Memorandum===
===Update in Response to RySG Memorandum===
In March 2012, ICANN released an update on that status of vertical integration, following an inquiry from the [[GNSO]]'s [[Registry Stakeholder Group]].<ref>[http://domainnamewire.com/2012/03/13/icann-were-moving-forward-with-vertical-integration/ ICANN: We’re moving forward with vertical integration, domainnamewire.com]</ref> The update stated that ICANN had pursued the topic of vertical integration with two competition authorities, the United States Department of Justice Antitrust Division and the [[European Commission]] (EC). The United States Department of Justice Antitrust Division confirmed that it was conducting no active investigation into the topic at this time. The EC stated that although it was supportive of vertical integration in theory, it was concerned about the full removal of vertical separation, especially for existing TLD registries like for [[.com]]. ICANN stated that as a result of these correspondences, it would move forward with the past proposed vertical separation plans, and develop a process which would allow existing registries to
In March 2012, ICANN released an update on that status of vertical integration, following an inquiry from the [[GNSO]]'s [[Registry Stakeholder Group]].<ref>[http://domainnamewire.com/2012/03/13/icann-were-moving-forward-with-vertical-integration/ ICANN: We’re moving forward with vertical integration], DomainNameWire.com. Published 13 March 2012.</ref> The update stated that ICANN had pursued the topic of vertical integration with two competition authorities, the United States Department of Justice Antitrust Division and the [[European Commission]] (EC). The United States Department of Justice Antitrust Division confirmed that it was conducting no active investigation into the topic at this time. The EC stated that although it was supportive of vertical integration in theory, it was concerned about the full removal of vertical separation, especially for existing TLD registries like for [[.com]]. ICANN stated that as a result of these correspondences, it would move forward with its previously proposed vertical separation plans, and develop a process which would allow existing registries to request an amendment to their existing contracts, permitting vertical integration and cross-ownership.<ref>[http://domainnamewire.com/wp-content/vertical-sep.pdf Response to GNSO Registries Stakeholder Group Memo Regarding Registry-Registrar Cross-Ownership], DomainNameWire.com.</ref> The full text of the reply can be read [http://domainnamewire.com/wp-content/vertical-sep.pdf here].
request an amendment to their existing contracts, permitting vertical integration and cross-ownership.<ref>[http://domainnamewire.com/wp-content/vertical-sep.pdf Response to GNSO Registries Stakeholder Group Memo Regarding Registry-Registrar Cross-Ownership]</ref> The full text of the reply can be read [http://domainnamewire.com/wp-content/vertical-sep.pdf here].
As a continuation of ICANN's June 2011 decision to remove cross-ownership restrictions on existing gTLDs, the ICANN Board revised in October 2012 the policies by allowing registry operators to own and become affiliated with registrars selling domains in their own gTLDs.<ref>[http://www.icann.org/en/groups/board/documents/resolutions-18oct12-en.htm#1.a Approved Board Resolutions | Regular Meeting of the ICANN Board], ICANN.org. Published 18 October 2012.</ref>
Such a change in policy would allow incumbent registry operators, such as [[Verisign]], [[Neustar]], and [[Afilias]], to do so with [[.com]], [[.biz]], and [[.info]], respectively.<ref name="domainincite">[http://domainincite.com/10796-soon-verisign-could-sell-com-domains-direct Soon Verisign could sell .com domains direct], DomainIncite.com. Published 22 October 2012.</ref> In order to qualify for these new policies, each company would need to either sign the standard new gTLD registry agreement, which includes [[URS|Uniform Rapid Suspension]] (URS) and [[Trademark Clearinghouse]] provisions as [[RPM|Rights Protection Mechanisms]] (RPMs), or submit a contract renegotiation which contains additional provisions to ensure fair competition and adherence to the new gTLD Registry Code of Conduct.<ref>[http://internetcommerce.org/URS@DotCom URS Could Arrive Soon at .Com & .Net], InternetCommerce.org. Published 22 October 2012.</ref> In all cases, contract changes will be shown to competition authorities for comment prior to ICANN's approval.<ref name="domainincite"></ref>
== References ==
== References ==
{{reflist}}
{{reflist}}
[[category: glossary]]
[[category: glossary]]