<DOC> [106th Congress House Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:58497.wais] DOMAIN NAME SYSTEM PRIVATIZATION: IS ICANN OUT OF CONTROL? ======================================================================= HEARING before the SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS of the COMMITTEE ON COMMERCE HOUSE OF REPRESENTATIVES ONE HUNDRED SIXTH CONGRESS FIRST SESSION __________ JULY 22, 1999 __________ Serial No. 106-47 __________ Printed for the use of the Committee on Commerce U.S. GOVERNMENT PRINTING OFFICE 58-497 CC WASHINGTON : 1999 COMMITTEE ON COMMERCE TOM BLILEY, Virginia, Chairman W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts JOE BARTON, Texas RALPH M. HALL, Texas FRED UPTON, Michigan RICK BOUCHER, Virginia CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey Vice Chairman SHERROD BROWN, Ohio JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee CHRISTOPHER COX, California PETER DEUTSCH, Florida NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois STEVE LARGENT, Oklahoma ANNA G. ESHOO, California RICHARD BURR, North Carolina RON KLINK, Pennsylvania BRIAN P. BILBRAY, California BART STUPAK, Michigan ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York GREG GANSKE, Iowa THOMAS C. SAWYER, Ohio CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland TOM A. COBURN, Oklahoma GENE GREEN, Texas RICK LAZIO, New York KAREN McCARTHY, Missouri BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio JAMES E. ROGAN, California DIANA DeGETTE, Colorado JOHN SHIMKUS, Illinois THOMAS M. BARRETT, Wisconsin HEATHER WILSON, New Mexico BILL LUTHER, Minnesota JOHN B. SHADEGG, Arizona LOIS CAPPS, California CHARLES W. ``CHIP'' PICKERING, Mississippi VITO FOSSELLA, New York ROY BLUNT, Missouri ED BRYANT, Tennessee ROBERT L. EHRLICH, Jr., Maryland James E. Derderian, Chief of Staff James D. Barnette, General Counsel Reid P.F. Stuntz, Minority Staff Director and Chief Counsel ______ Subcommittee on Oversight and Investigations FRED UPTON, Michigan, Chairman JOE BARTON, Texas RON KLINK, Pennsylvania CHRISTOPHER COX, California HENRY A. WAXMAN, California RICHARD BURR, North Carolina BART STUPAK, Michigan Vice Chairman GENE GREEN, Texas BRIAN P. BILBRAY, California KAREN McCARTHY, Missouri ED WHITFIELD, Kentucky TED STRICKLAND, Ohio GREG GANSKE, Iowa DIANA DeGETTE, Colorado ROY BLUNT, Missouri JOHN D. DINGELL, Michigan, ED BRYANT, Tennessee (Ex Officio) TOM BLILEY, Virginia, (Ex Officio) (ii) C O N T E N T S __________ Page Testimony of: Barry, Michaela M., President and Director, Domain Name Rights Coalition........................................... 144 Bramson, James R., Counsel, America Online, Inc.............. 188 Dyson, Esther, Interim Chairman, Internet Corporation for Assigned Names and Numbers, accompanied by Mike Roberts, Interim President and Chief Executive Officer, Internet Corporation for Assigned Names and Numbers................. 42 Forman, Richard D., Chief Executive Officer, Register.com.... 179 Love, James, Director, Consumer Project on Technology........ 134 Miller, Harris N., President, Information Technology Association of America..................................... 150 Norquist, Grover, President, Americans for Tax Reform........ 139 Pincus, Andrew J., General Counsel, accompanied by Becky Burr, Acting Administrator, Office of International Affairs, National Telecommunications Information Agency, Department of Commerce..................................... 14 Rutt, Jim, Chief Executive Officer, Network Solutions Incorporated............................................... 93 Stubbs, Kenyon T., Chairman, Executive Committee, Internet Council of Registrars...................................... 184 Weinberg, Jonathan, Professor Law, Wayne State University.... 155 Zittrain, Jonathan, Executive Director, Berkman Center for Internet and Society....................................... 161 Material submitted for the record by: Barry, Michaela M., President and Director, Domain Name Rights Coalition, submission dated August 27, 1999......... 232 Bliley, Hon. Tom, Chairman, Committee on Commerce: Letter dated October 15, 1998, to Ira Magaziner, Executive Office of the President, enclosing questions for the record, and responses to same.................. 294 Letter dated October 15, 1998, to Hon. William Daley, Secretary of Commerce, enclosing questions for the record, and responses to same.......................... 306 Bramson, James R., Counsel, America Online, Inc., response for the record dated August 24, 1999....................... 275 Dyson, Esther, Interim Chairman, Internet Corporation for Assigned Names and Numbers, letter dated August 4, 1999, to Hon. Thomas J. Bliley, Jr., enclosing response for the record..................................................... 193 Forman, Richard D., Chief Executive Officer, Register.com, letter dated August 20, 1999, enclosing response for the record..................................................... 281 Love, James, Director, Consumer Project on Technology, letter dated September 10, 1999, enclosing response for the record 215 Miller, Harris N., President, Information Technology Association of America, letter dated August 18, 1999, enclosing response for the record.......................... 212 Norquist, Grover, President, Americans for Tax Reform, letter dated August 24, 1999, enclosing response for the record... 219 Pincus, Andrew J., General Counsel, J. Beckwith Burr, Acting Administrator, Office of International Affairs, National Telecommunications Information Agency, Department of Commerce, letter dated August 24, 1999, enclosing response for the record............................................. 195 Roberts, Mike, Interim President and Chief Executive Officer, Internet Corporation for Assigned Names and Numbers, letter dated August 20, 1999, enclosing response for the record... 210 Rutt, Jim, Chief Executive Officer, Network Solutions Incorporated, letter dated August 24, 1999, enclosing response for the record.................................... 202 Weinberg, Jonathan, Professor Law, Wayne State University, letter dated August 24, 1999, enclosing response for the record..................................................... 222 Zittrain, Jonathan, Executive Director, Berkman Center for Internet and Society, letter dated August 24, 1999, enclosing response for the record.......................... 263 (iii) DOMAIN NAME SYSTEM PRIVATIZATION: IS ICANN OUT OF CONTROL? ---------- THURSDAY, JULY 22, 1999 House of Representatives, Committee on Commerce, Subcommittee on Oversight and Investigations, Washington, DC. The subcommittee met, pursuant to notice, at 11 a.m., in room 2322, Rayburn House Office Building, Hon. Fred Upton (chairman) presiding. Members present: Representatives Upton, Bilbray, Bryant, Bliley (ex officio), Klink, Stupak, and DeGette. Also present: Represntatives Tauzin, and Pickering. Staff present: Eric Link, majority counsel; Paul Scolese, majority professional staff; Mike Flood, legislative clerk; and Edith Holleman, minority counsel. Mr. Upton. Good morning everyone. One piece of housekeeping before we get started. I want to acknowledge and thank the Berkman Center for Internet and Society at Harvard Law School for carrying today's proceeding live over the Internet. While the Berkman Center has an ongoing relationship with one of today's principle witnesses, the Internet Corporation For Assigned Names and Numbers, or ICANN, I have received assurances that the funding for Berkman's presence here today is being provided directly by Harvard University. I might also add that this hearing is also being webcasted on the committee's website. I hope that many Internet users take advantage of this opportunity to listen in on the subcommittee's proceedings. Today the subcommittee will examine the administration's efforts to transfer control of the Internet domain name system from the public sector to the private sector. This transition is important because the domain name system is a critical component of the Internet that routes all Internet traffic and allows users to locate websites and ensure e-mail is properly sent and hopefully received. As such, it plays a vital role in the stability of the Internet. Under the direction of a 1997 Presidential Directive, the Department of Commerce moved to end the Federal Government's role in the DNS. To achieve this, the Department of Commerce released a series of proposals. The Department of Commerce's final proposal, known as the ``White Paper,'' outlined the transfer of many of the DNS management functions to a private not-for-profit corporation. This corporation was to be created by the Internet community at large through a consensus-building process. Ultimately, ICANN was selected and recognized as this not-for- profit corporation by Commerce in October 1998. Many of the current DNS functions, such as registering .com, .net, and .org domain names are carried out by Network Solutions, Inc. or NSI. NSI carries out these functions under an exclusive cooperative agreement with the Department of Commerce. NSI signed this cooperative agreement with the National Science Foundation in 1993. NSF managed this cooperative agreement until it was transferred to Commerce in September 1998. The Committee on Commerce gained direct jurisdiction of this issue when NSF transferred the cooperative agreement to the Department of Commerce in September 1998. In October 1998, Chairman Bliley began reviewing the administration's selection of ICANN, how it was formed, and the selection of ICANN's board members. During the course of today's hearing, I think you will come to see that these questions are just as relevant today as they were last fall. The Department of Commerce recognized ICANN in November 1998 as the private sector body who would assume responsibility for the management of the domain name system. In the 8 months that have passed since then, ICANN has attempted to start filling its obligations to the administration. Most notably, ICANN is responsible for introducing competition into the registration of domain names. Introducing competition in this area requires the cooperation of NSI, since under its agreement with the Department of Commerce, NSI maintains the authoritative registry of domain names. Competition for Internet domain name registration currently is in a test period, with three competitors offering registration services, and two others soon to follow. Today we will hear from 3 of the 5 test-bed registrars. Recently some problems have developed in the transfer of the domain name system from the public sector to the private sector. For instance, the test-bed period for competitive registrars has been extended several times. Also, NSI and ICANN have been unable to reach an agreement addressing the transfer of fundamental responsibilities relating to Internet management. This impasse needs to be addressed before the administration's transfer plan can go much further. Finally, many observers have taken issue with several decisions made by ICANN's unelected interim board of directors, including their decision to hold portions of their meetings in private, a well as the imposition of a $1 per domain name fee. However, following an inquiry by Chairman Bliley regarding these practices, ICANN announced that it was suspending both until further notice. Today's hearing will provide an opportunity to explore the present state of the domain name system's transition, and evaluate whether the administration's plan, as it is currently being implemented, may benefit or threaten the Internet. In addition to hearing from the three principal players in this situation, the Department of Commerce, ICANN and NSI, we also will be hearing from a variety of interested parties who will share their perspective on the present situation. I thank all of today's witnesses for testifying before this subcommittee on a matter that I am sure will take on increasing importance. I would note, too, that those in attendance need to move from the back wall, or else you will be asked to leave. So, if you can spread out a little so we can shut that door, it will be helpful. I yield at this time my ranking member and friend, Mr. Klink. [The prepared statement of Hon. Fred Upton follows:] Prepared Statement of Hon. Fred Upton, Chairman, Subcommittee on Oversight and Investigations One piece of housekeeping before we get started today. I want to acknowledge and thank the Berkman Center for Internet and Society at Harvard Law School for carrying today's proceedings live over the Internet. While the Berkman Center has an ongoing relationship with one of today's principal witnesses, the Internet Corporation for Assigned Names and Numbers, I have received assurances that the funding for Berkman's presence here today is being provided directly by Harvard University. I might also add that this hearing is also being webcasted on the Committee's website. I hope that many Internet users take advantage of this opportunity to listen in on the Subcommittee's proceedings. Today the Subcommittee will examine the Administration's efforts to transfer control of the Internet domain name system from the public sector to the private sector. This transition is important because the domain name system is a critical component of the Internet that routes all Internet traffic and allows users to locate websites and ensure e- mail is properly sent. As such, it plays a vital role in the stability of the Internet. Under the direction of a 1997 Presidential Directive, the Department of Commerce moved to end the Federal government's role in the DNS. To achieve this, the Department of Commerce released a series of proposals. The Department of Commerce's final proposal known as the ``White Paper''--outlined the transfer of many of the DNS management functions to a private, not-for-profit corporation. This corporation was to be created by the Internet community at large through a consensus-building process. Ultimately, the Internet Corporation for Assigned Names and Numbers--or ICANN (``eye-can'')--was selected and recognized as this not-for-profit corporation by the Department of Commerce in October 1998. Many of the current DNS functions, such as registering com, net and org domain names are carried out by Network Solutions, Inc.--or NSI. NSI carries out these functions under an exclusive cooperative agreement with the Department of Commerce. NSI signed this cooperative agreement with the National Science Foundation in 1993, and the National Science Foundation managed this cooperative agreement until it was transferred to the Department of Commerce in September 1998. The Committee on Commerce gained direct jurisdiction of this issue when National Science Foundation transferred the cooperative agreement to the Department of Commerce in September 1998. In October 1998, Chairman Bliley began reviewing the Administration's selection of ICANN, how ICANN was formed, and the selection of ICANN's interim board members. During the course of today's hearing, I think you will come to see that these questions are just as relevant today as they were last fall. The Department of Commerce recognized ICANN in November 1998 as the private sector body who would assume responsibility for the management of the domain name system. In the eight months that have passed since then, ICANN has attempted to start fulfilling its obligations to the Administration. Most notably, ICANN is responsible for introducing competition to the registration of domain names. Introducing competition in this area requires the cooperation of NSI, since under its agreement with the Department of Commerce, NSI maintains the authoritative registry of domain names. Competition for Internet domain name registration currently is in a test period, with three competitors offering registration services and two others soon to follow. Today we will hear from three of the five test bed registrars. Recently, some problems have developed in the transfer of the domain name system from the public sector to the private sector. For instance, the test bed period for competitive registrars has been extended several times. Also, NSI and ICANN have been unable to reach an agreement addressing the transfer of fundamental responsibilities relating to Internet management. This impasse needs to be addressed before the Administration's transfer plan can go much further. Finally, many observers have taken issue with several decisions made by ICANN's unelected interim board of directors, including their decision to hold portions of their meetings in private, as well as the imposition of a $1 per domain name fee. However, following an inquiry by Chairman Bliley regarding these practices, ICANN announced that it was suspending both until further notice. Today's hearing will provide an opportunity to explore the present state of the domain name system's transition, and evaluate whether the Administration's plan, as it currently is being implemented, may benefit or threaten the Internet. In addition to hearing from the three principal players in this situation--the Department of Commerce, ICANN and NSI--we also will be hearing from a variety of interested parties who will share their perspective on the present situation. I thank all of today's witnesses for testifying before this subcommittee on a matter that I'm sure will take on increasing importance. Mr. Klink. I thank the chairman again for holding what I think is a very important hearing on the governing of the Internet and the process under which the Commerce Department is attempting to introduce competition into the domain name registry system. I thank the majority for working with the minority on the witnesses here today. They have been very cooperative. The concept of turning over a major portion of the international Commerce to a non-profit, non-governmental organization is a grand, complex, and fascinating experiment which has never been tried before. We do not know if, in the long-run, it is going to be successful. If we can judge by the number of calls and visits to our office from several of the parties before us today, there is a great financial interest in the outcome. I do hope, however, that despite the title of this hearing, the majority's mind has not been made up about this very new organization, ICANN, but that we are all open to a full and fair discussion of the issues at hand today. The Internet Corporation For Assigned Names and Numbers was established last fall to bring competition to the business of registering Internet domain names and moving it from the control of the Department of Commerce to a non-governmental organization. Currently this business, which is worth hundreds of millions of dollars annually, and growing exponentially, is in the hands of Network Solutions, Inc., through a cooperative agreement with the Commerce Dept. NSI, by operating a government-created monopoly, has grown from a minuscule private company in 1993, which was being paid by the U.S. taxpayers for its services, to a publically held, $120 million-plus company, to whom every person in the world who wants a .com, or .org address pays $70 every 2 years. Make no mistake, this is a very lucrative business. In the first quarter of 1999, NSI's earnings increased by 130 percent over the first quarter of 1998. Its stock is currently selling for $140 a share compared to less than $20 a year ago. One of the witnesses today will testify that annual revenues for domain name registrations are expected to be in excess of $2 billion in 4 years. Registrars also provide other Internet services. In our economic system, no one can support the continued existence of such a monopoly. I can only hope, Mr. Chairman, that the purpose of this hearing is not going to be to tear apart or even cripple ICANN, an organization that has been in existence for less than a year, so that the competition in domain name registration is delayed again, and again, with the deliberate or the unintended effect of extending a monopoly. Recently there have been some very disturbing reports on the threats of Internet disruption, intellectual property claims of the ownership of the .com registry, and delay tactics by NSI to prolong its unique market position. Today its Chief Executive Officer was quoted in the Washington Post as saying, ``ICANN is not necessary.'' It its testimony, NSI says that it does not have to recognize ICANN, although the Commerce Department has directed them otherwise. NSI also appears to be saying that it, alone, will decide if ICANN's procedures for accrediting new registrars are legitimate or if there is industry consensus. On the other hand, without any industry input, NSI requires 2-year registrations with a large penalty for transferring from one registrar to another. That can only benefit NSI. I am concerned about what appears to be a school yard bully approach. I expect the Department of Commerce to take firm and appropriate steps to deal with these issues. I have to say that I have seen no indication of that to- date. I also expect to receive today from NSI their response and their unequivocal commitment to furthering full and open competition as soon as possible. It is one thing to bring forward legitimate issues. It is quite another for the dominant market player to refuse to participate in a process because it cannot fully control it. In a growing market, there should be room for everyone, but everyone is going to have to give a little. We will also hear from several witnesses today that they believe that ICANN has over-stepped its authority as a non- representative organization with an unelected board. In this environment in which many parties have vested interest in the outcome and eventual scope of ICANN's authority, it can be difficult for policymakers to determine which issues are legitimate and which are being raised to cause delay or confusion in creating a new competitive structure. However, some of them appear to be worth looking at. They include the alleged dominance of large corporations with significant trademark issues at ICANN. Who should determine the procedures for resolving trademark disputes? Should ICANN use its process for accrediting registrars to impose unilaterally an alternate dispute resolution process on every holder of a .com or .org address, or to set jurisdictions for settling trademark disputes? Should ICANN limit the number of domains and the resulting increase in competition because trademark holders do not want to review large numbers of domains for possible infringements. In its White Paper, Commerce even suggest that ICANN should order its registrars to refuse to grant famous name domain addresses to parties that do not hold the trademark for those names. Many, many people have legitimate claims to addresses that may be or may become someone else's trademark. Who is to determine what a famous name is? The issue of accountability is a major one for both ICANN and NSI. If ICANN is not responsibility to any government or governmental organization, to whom does an aggrieved party go when a decision by ICANN, or one of its agents, has damaged that party's business or their relationship? When the interim Chairman of ICANN tells a consumer representative that pro-consumer policies will never be adopted by the board, we must wonder exactly what type of organization we are setting up. ICANN's habit of holding part of its board meetings in closed sessions also appears to be a mistake. On the other hand, to whom is NSI accountable in its pricing and contract conditions? Another very important question is how long NSI should retain its second monopoly as the administrator of the registry data base without any competitive process to subject fees and services to market review? Already, potential competitors are alleging that these fees are out of control. NSI claims it actually owns the data base to do what it wants with it. In the long-run, the stability of the Internet is not dependent on a particular software configuration or the number of competing domain registries. It must be under the control of an organization that is perceived by all stakeholders to be completely trustworthy and fair. For an organization like ICANN to survive without government controls and rules, it cannot be perceived as being under the control of one interest group or another. Congress must move expeditiously to ensue that full competition is commenced immediately. ICANN must move expeditiously to ensure that it is a representative organization and has some authority to carry out its mandate, but neither can do so without the full cooperation of Network Solutions. If this is not received, I predict that only the lawyers will benefit in the end. I thank the chairman. [The prepared statement of Hon. Ron Klink follows:] Prepared Statement of Hon. Ron Klink, a Representative in Congress from the State of Pennsylvania Mr. Chairman, thank you for holding this very important hearing on the governance of the Internet and the process under which the Commerce Department is attempting to introduce competition into the domain name registry system. The concept of turning over a major portion of international commerce over to a non-profit, non-governmental organization is a grand, complex and fascinating experiment which has never been tried before. We do not know if, in the long run, it will be successful. If we can judge by the number of calls and visits to our offices from several of the parties before us today, there is great financial interest in its outcome. I do hope, however, that, despite the title of this hearing, the majority's mind has not already been made up about the very new organization, but is open to a full and fair discussion of the issues at hand today. The Internet Corporation for Assigned Names and Numbers (ICANN) was established last fall to bring competition to the business of registering Internet domain names and move it from the control of the Department of Commerce to a non-governmental organization. Currently, this business--which is worth hundreds of millions of dollars annually and growing exponentially--is in the hands of Network Solutions Inc. (NSI) through a cooperative agreement with the Commerce Department. NSI, by operating a government-created monopoly, has grown from a minuscule, private company in 1993 which was being paid by the U.S. taxpayer for its services to a publicly held, $120 million-plus company to whom every person in the world who wants a dot-com or dot-org address pays $70 every two years. Make no mistake--this is a very lucrative business. In the first quarter of 1999, NSI's earnings increased by 130 percent over the first quarter in 1998. Its stock is currently selling for $140 a share compared to less than $20 a year ago. One of the witnesses today will testify that annual revenues for domain name registrations are expected to be in excess of $2 billion in four years. And registrars also provide other Internet services. In our economic system, no one can support the continued existence of such a monopoly. I can only hope, Mr. Chairman, that the purpose of this hearing is not to tear apart or even cripple ICANN, an organization that has been in existence for less than a year, so that competition in domain name registration is delayed again and again with the deliberate or unintended effect of extending a monopoly. Recently, there have been some very disturbing reports of threats of Internet disruption, intellectual property claims of the ownership of the dot- com registry and delay tactics by NSI to prolong its unique market position. Today, its chief executive officer was quoted in the Washington Post as saying ICANN is not necessary. In its testimony, NSI says that it does not have to recognize ICANN, although Commerce has directed them otherwise. NSI also appears to be saying that it alone will decide if ICANN's procedures for accrediting new registrars are legitimate or if there in industry consensus. On the other hand, without any industry input, NSI requires two-year registrations with a large penalty for transferring from one registrar to another. That can only benefit NSI. I am very concerned about this school yard bully approach, and I expect the Department of Commerce to take firm and appropriate steps to deal with these issues. I must say that I have seen no indication of that to date. I also expect to receive today from NSI their response and their unequivocal commitment to furthering full and open competition as soon as possible. It is one thing to bring forward legitimate issues; it is quite another for the dominant market player to refuse to participate in a process because it cannot fully control it. In a growing market, there should be room for everyone, but everyone is going to have to give. We also will hear from several witnesses today that they believe that ICANN has overstepped its authority as a non-representative organization with an unelected board. In this environment in which many parties have a vested interest in the outcome and eventual scope of ICANN's authority, it can be difficult for policymakers to determine which issues are legitimate and which are being raised to cause delay or confusion in creating a new competitive structure. However, some of them appear to be worth looking at. They include the alleged dominance of large corporations with significant trademark issues in ICANN. Who should determine the procedures for resolving trademark disputes? Should ICANN use its process for accrediting registrars to impose unilaterally an alternate dispute resolution process on every holder of a dotcom or dot-org address or to set jurisdictions for settling trademark disputes? Should ICANN limit the number of domains--and the resulting increase in competition--because trademark holders don't want to review large numbers of domains for possible infringements? In its White Paper, Commerce even suggested that ICANN should order its registrars to refuse to grant ``famous name'' domain addresses to parties not holding the trademark for those names. Many, many people may have legitimate claims to addresses that may be or become someone else's trademark. Who determines what a ``famous name'' is? The issue of accountability is a major one for both ICANN and NSI. If ICANN is not responsible to any government or governmental organization, to whom does an aggrieved party go when a decision by ICANN or one of its agents has damaged that party's business or other relationships? When the interim chairman of ICANN tells a consumer representative that proconsumer policies will never be adopted by the board, we must wonder exactly what type of organization we are setting up. ICANN's habit of holding part of its board meetings in closed sessions was also a mistake. On the other hand, to whom is NSI accountable in its pricing and contract conditions? Another very important question is how long NSI should retain its second monopoly as the administrator of the registry database without any competitive process to subject fees and services to market review. Already potential competitors are alleging that these fees are out of control. But NSI claims that it actually owns the database and can do whatever it wants with it. In the long run, the stability of the Internet is not dependent on a particular software configuration or the number of competing domain registries. It must be under the control of an organization that is perceived by all stakeholders to be completely trustworthy and fair. For an organization like ICANN to survive without governmental controls and rules, it cannot be perceived as being under the control of one interest group or another. Commerce must move expeditiously to ensure that full competition is commenced immediately; ICANN must move expeditiously to ensure that it is a representative organization and has some authority to carry out its mandate. But neither can do so without the full cooperation of Network Solutions. If this is not received, I predict that only the lawyers will benefit. Masters of Internet Domains Go to War [The Washington Post, July 22, 1999] By Rajiv Chandrasedaran Quietly tapped by a Washington lawyer acting on the wishes of a reclusive university researcher, the 10 board members were meant to be the first trustees of the Internet: volunteer stewards who would assume technical control of the global computer network and break up Network Solutions Inc.'s lucrative monopoly in registering electronic addresses. It was a task that was almost universally cheered by Internet activists and businesses when the group was formed nine months ago. But not anymore. A growing number of critics contend that the group, dubbed ICANN, is stealthily morphing into a regulatory agency for the traditionally unregulated Internet. Leading the charge against ICANN--by underwriting activists and hiring lobbyists--has been one very self-interested party: Herndon- based Network Solutions, which is refusing to participate in ICANN's plans for competition. The battle between ICANN and Network Solutions has the potential to disrupt the $150 billion flow of information and commerce on the Internet, as both sides engage in a tug of war over the network's master database of addresses. The fight also underscores how the Internet has graduated from being a creature of high-minded and free- wheeling academics into a big business proposition that is struggling to establish some form of professional management. Technical control of the Internet has long rested with the U.S. government, which created the network in the 1960s. But in a coming-of- age moment for the online world, the Clinton administration decided last year to transfer its authority to the private sector--through ICANN. ICANN is headed by Esther Dyson, an author and analyst who is one of the technology industry's best-known leaders. She has forcefully warned Network Solutions that it could lose its right to assign and manage addresses, its chief source of revenue, if it does not cooperate with ICANN. But Network Solutions has been unmoved, refusing to even recognize ICANN as a legitimate organization. ``They're not really necessary,'' said Jim Rutt, Network Solutions' chief executive. Dyson argues that Network Solutions' opposition to ICANN's plans to foster competition isn't based on principle, but out of a desire to ``prolong its monopoly.'' Administration officials have called Network Solutions' refusal to deal with ICANN ``extremely destabilizing for the Internet'' and ``quite harmful to its development.'' Network Solutions, in turn, has warned that there would be ``serious security and stability issues'' for the Internet if the company is stripped of its ability to manage addresses that end with ``.com,'' ``.org'' and ``.net.'' Network Solutions warned such a move could result in ICANN and the government ``disconnecting 5 million Internet addresses.'' ``The risks are very high,'' said Harris Miller, the president of the Information Technology Association of America. ``The thought that these obscure techie issues are somehow going to affect the operation of the Internet is really a very scary proposition.'' Network Solutions, ICANN and the administration all have incentives to reach an agreement without a bloody fight. For Network Solutions, not striking a deal with the other two and risking the chance it could lose its address-management role could worry many of its investors, who recently have bid the company's stock to record highs on the assumption that it will continue to dominate the address business. For the administration and ICANN, yanking away NSI's address-management function could open them to criticism that they are fracturing the network. ``I think we're all interested in making this work,'' Dyson said. At the same time, industry and government sources say the negotiations have not progressed significantly in recent weeks, creating a high possibility that no side might decide to take drastic action. ``The process,'' said one source close to the matter, ``is not moving forward the way it should be.'' The roots of the current conflict extend back to 1992, when the Internet was the territory of academics and computer enthusiasts. Needing an organization to manage addresses on the network--known as ``domain names''--the National Science Foundation entered into a cooperative agreement with defense contractor Science Applications International Corp., which eventually spun off the business as Network Solutions. As businesses began their frenetic rush to the Internet, Network Solutions' arcane agreement, which allowed it to charge $35 a year to register a domain, quickly turned into a lucrative government- sanctioned monopoly. To date, the company has registered more than 5 million domain names, helping it post an $11.2 million profit on revenue of almost $94 million last year. Soon, other firms began demanding a piece of the action, arguing that having a monopolist running the operation was impeding the growth of electronic commerce. After debating the issue for months, the White House decided last year to open domain registrations to competition and have a nonprofit corporation manage the process. It turned out to be easier said than done. There was no nonprofit group ready to assume the reins, so the government turned to Jonathan B. Postel, one of the Internet's founders. A Birkenstock-wearing researcher at the University of Southern California who had long been critical of NSI's monopoly, Postel set about soliciting suggestions from the Internet community for the corporation's board. Postel then drew up a list and had his Washington-based lawyer, Joe Sims, contact the prospective members. He included such industry and academic luminaries as Dyson and Linda Wilson, the president of Radcliffe College. But just as the group was readying its first meeting last fall, Postel died. The organization, formally named the Internet Corp. for Assigned Names and Numbers, eventually was pulled together by Sims. In April it picked five firms, including Dulles-based America Online Inc., to begin offering domain registrations on a test basis. ICANN has selected two dozen other firms to offer competing registration services, but they will not be able to until ICANN, Network Solutions and the Commerce Department can agree on pricing and other issues. Under the government's competition plan, Network Solutions would become one of several firms offering address registration services, but it would still have the sole right to run the master database of addresses. That database would tell firms if a certain address already is taken, preventing them from issuing a duplicate. The firms would pay a small fee to Network Solutions to keep track of addresses, but thus far, Network Solutions and the government thus far have been unable to agree on the size of the fee. Meanwhile, from almost the instant it was founded, ICANN has come under fire from many quarters of the Internet community. Activists have questioned the way the board was picked and its decision to meet behind closed doors. The board's subsequent decisions to charge a $1 fee on every domain to fund its operations and support a World Intellectual Property Organization plan aimed at resolving trademark disputes further enraged the activists, who worry that ICANN is moving well beyond its technical management mandate to more broadly regulate the Internet. ``The Internet has been successful because it never had any centralized management,'' said Tony Rutkowski, an Internet consultant in Northern Virginia who performs some work for Network Solutions. ``ICANN appears to be out to change that.'' ICANN officials deny they are moving beyond technical oversight and say much of the criticism reflects natural growing pains as the Internet moves to a self-governing structure. Nevertheless, Dyson admits it was a ``political and practical mistake'' to hold closed meetings and vows that future gatherings will be open. And on Monday, ICANN decided to abandon the $1 fee, which was called an ``Internet tax'' by critics. ``It became an issue that distracted from our mission,'' Dyson said. She said ICANN, which is essentially broke, instead will look for contributions from businesses and the government to keep the group afloat. Dyson and Sims blame Network Solutions for much of the opposition to ICANN, which Sims believes, is being used as a whipping boy for Network Solutions' disagreements with the government. ``We're an easier target than the government,'' said Sims, who contends that Network Solutions ``has put a lot of work into supporting, encouraging and actually paying for critics'' of ICANN. Network Solutions also has enlisted a team of high-powered lobbyists, led by Dan Dutko, whose firm also represents AT&T Corp. and the parent company of Federal Express, to press its case on Capitol Hill. Today, House Commerce Committee Chairman, Thomas J. Bliley Jr. (R- Va.) plans to hold a hearing titled: ``Domain Name System Privatization: Is ICANN Out of Control?'' Given the differences that remain among Network Solutions, ICANN and the administration, sources close to the negotiations believe there is a high possibility the Commerce Department either would strip the firm of its address-management function or the company would simply walk away from the agreement, opening itself to competition on more favorable terms and forcing the government to file a lawsuit if it wants to have someone else run the address database. Industry and academic experts following the debate worry that both sides are playing a high stakes game of political chicken with the Internet's critical infrastructure. ``There's an awful lot at risk here,'' said Michael Froomkin, a law professor at the University of Miami who recently helped start a group called ICANN Watch. ``And thus far, neither side seems to be doing much to minimize that risk.'' [GRAPHIC] [TIFF OMITTED] T8497.001 Mr. Upton. Are you a lawyer? Mr. Klink. I am not a lawyer. Mr. Upton. I recognize the chairman of the full committee, Mr. Bliley. Chairman Bliley. Thank you, Mr. Chairman. I am glad you are holding this hearing today. The Internet domain name system is at a critical crossroads. It appears that there may be serious roadblocks to achieving a successful move to private control of this system. Consumers, teachers, and businesses have a stake in seeing that this system go from government control to the private sector. Today's hearing provides an opportunity for the committee and the public to question the administration's actions on this plan. We will hear from the key players on this matter, including ICANN, the Department of Commerce, and Network Solutions, as well as others with an interest in this process. Today also marks the first time that ICANN will appear in a public forum since it was selected last October to run the day-to-day mechanics of the Internet. As part of our larger E-commerce initiative, the committee has focused on the domain name system. In June of last year, the subcommittee on Telecommunications, Trade, and Consumer Protection held a hearing on the future of the domain name system. As I said at the start of that hearing, ``we must see to it that the transfer of the domain name system ensures stability and continuity. The failure of the domain name system could have a profoundly negative impact on electronic commerce.'' Given the popularity of the Internet for business, learning, and entertainment, I believe that this statement is even more true today than it was in June of last year. That is why, since last June, the committee has investigated the transition of the domain name system to the private sector. We wrote last October to the administration to inquire about the selection of ICANN. Most recently, last month we asked ICANN and the Department of Commerce to explain in more detail the reasons for some of ICANN's actions and the Department's view of these actions. We asked ICANN about the notion that board meetings may be held in private, and the notion of a $1 per domain name fee. Think about that; $1 collected for each name, as millions of names come online. I believe this is an unauthorized tax on the American people. Since my inquiries, ICANN appears to be backing down on both of these misguided ideas. Needless to say, the impact that ICANN's actions could have on the Internet and E-commerce is huge. The committee is obligated to ask questions. Indeed, failure to ask them would have been a lapse of duty on our part. There has been much finger-pointing between ICANN, Network Solutions, and the Department of Commerce about who is to blame for this morass and, in particular, the failure of Network Solutions and ICANN to reach an agreement on the transfer. I believe the Department of Commerce needs to answer a few questions on whether they had a well thought-out plan. I must say that, at least to this observer, it does not appear some basic issues were adequately considered by the administration before it adopted and implemented its privatization plan. Therefore, I urge the Department of Commerce to redouble its efforts in this very important area, in order to ensure that the Internet's stability is not threatened by continuing disagreements related to the transfer. I have said on many prior occasions that I fully support the goals of the administration's White Paper, which calls for the privatization of the domain name system. However, my support for this process does not mean that I, or this committee, will turn a blind eye when confronted with troubling developments during this transition. The Internet is too important to this Nation, and the world at large, for this committee to stay on the sidelines. Thank you, Mr. Chairman for your work on this hearing. I want to thank all the witnesses today for their appearance. I look forward to their testimony. Mr. Upton. Thank you, Mr. Chairman. Ms. DeGette. Ms. DeGette. Thank you, Mr. Chairman. Mr. Chairman, I am eager to get to testimony, so I will not make a long opening statement. I would ask unanimous consent to put my full statement and also for other committee members who are not here to put their opening statements in the record. Mr. Upton. Without objection, all members of the subcommittee and the committee will be allowed to put in their remarks. Ms. DeGette. Thank you, Mr. Chairman. As in many parts of the country, my home State of Colorado is participating in the boom associated with the rapid expansion of the Internet and Internet-related services. Sometimes the pace change is breath-taking and so are the economics, I think as evidenced by our audience here today. A key component of this economic marvel is that after the Federal Government provided funding and then developed much of the Internet in its early day, the free market was allowed to voluntarily invest capital, assume risk, and usually to reap the reward of its investment, often with spectacular results. Today I think we are addressing another very important piece of the Internet, the domain name system and our attempts to privatize the registry. Without this system, the Internet would be like an international highway system without any road signs. Obviously, a central, standardized, internationally recognized registry is necessary for success. In reviewing the written testimony submitted in advance by some of the witnesses today, I am concerned, as others have expressed, about the progress that is being made in moving the domain name system registry into the open market where competition can benefit the consumer in the way it has in so many other Internet-related services by adding value, significantly reducing cost, and spurring innovation. I am also concerned that while we await this expected progress, there appears to be a private contractor reaping significant benefits from an apparent monopoly over the domain name system registry. I am told that the number of domain names registered is doubling every 9 months. Thus, we should be experiencing a tremendous economy of scale. I look forward to hearing from the Commerce Department witnesses, ICANN and NSI, as to why we are keeping these expected benefits from consumers and why competition is being hindered in this service. I expect the issue of the apparent monopoly is, itself, the heart of the matter and it could easily consume this hearing, a well as other hearings. I am aware there are many issues of concern regarding the establishment of ICANN. We have heard many of them here today. I believe it would be difficult for this committee to flesh out and address all of those issues in just one hearing, but I do believe they are worthy topics. I want to thank you, Mr. Chairman, for taking this step forward. I look forward to additional hearings on this topic, if we need. Thank you, Mr. Chairman. I yield back the balance of my time. Mr. Upton. Thank you. Mr. Bilbray. Mr. Bilbray. Yes, Mr. Chairman. I want to thank you for convening this hearing today on this complex and critical issue. Mr. Chairman, I would say that I think this hearing is important for a number of reasons. There are a number of what I see as primary questions that need to be examined here and now, such as the status of the continuing progress toward competition in the NSI, the past activities and future intentions of ICANN, and the question of administrative oversight of the entire process. Those are important discussions that we need to make. I think that this hearing will shed a good deal of light on these questions. From reading the testimony of the first panel of witnesses, it would appear that a heightened level of understanding, and perhaps communication, now exist between the committee, NSI, and ICANN. This is beneficial for the purpose of this hearing and more for the broader discussion of the bigger issues. The continuing positive growth of the of the Internet is at stake. Mr. Chairman, I hope this is what we will keep in mind as we hear the testimony of witnesses. We are in a unique position of being able to profoundly influence the continuing development of the Internet and clearly it is essential that we carefully consider all of the information and scenarios before us so that we can proceed in a wiser manner. At the end of the day, we need to be assured that the Internet and the infrastructure that operates it is available, understandable, and accountable, not to us or any one entity, but to the public at large, the student, the businessman, and the consumer. We have much to learn and to understand about how the future of the Internet will be shaped. We have a responsibility to do what we can in order to see that it is done as appropriately as humanly possible. Thank you again for holding this hearing, Mr. Chairman. I look forward to the testimony of the witnesses. I yield back. Mr. Upton. Thank you, Mr. Bilbray. Does the chairman of the Telecommunications Subcommittee wish to make an opening statement? Mr. Tauzin. Mr. Tauzin. Mr. Chairman, if I did make an opening statement, it would almost be exactly word-for-word what the chairman of our full committee has already delivered. I want to tell him, make it ditto. I deeply appreciate his statement today. I would only add that just a few months ago, if anyone asked what ICANN was, they would have guessed it was some sort of support group for the work of Dr. Normal Vincent Peale. It is only sort of newly arrived on the scene. It is obviously something we need to learn a great deal more about. I can also tell you that I have met with a number of the witnesses who are here today from the Commerce Department, Ms. Burr, in particular, I can assure I have learned that she is not related, as some have claimed, to the infamous trader Aaron Burr. Mr. Upton. I thought that was Richard Burr. Mr. Tauzin. And neither is she related to our great patriot Richard Burr. Again, I want to thank you and the Oversight Committee for doing this work. This is critical to the Internet. The work you do in this Oversight hearing we will follow closely, the Telecommunications Committee, because of course it is critical to our work in ensuring that all of us on the Commerce Committee that commerce is not only protected, but enhanced in this process. Thank you, Mr. Chairman. Mr. Upton. Thank you. Welcome, witnesses. For the audience, I would note that Ms. Becky Burr is the Acting Associate Administrator for the Office of International Affairs of the National Telecommunications Information Agency at the Department of Commerce; Ms. Esther Dyson, Interim Chairman of ICANN; Mr. Mike Roberts, Interim President and CEO for ICANN; and Mr. Jim Rutt, CEO for Network Solutions, and Mr. Pincus, General Counsel of the Department of Commerce. We have a long-standing practice in this subcommittee of taking testimony under oath. Do any of you have objection to that? [Chorus of nays.] Mr. Upton. Also, under House Rules, you are allowed to have counsel, if you wish to have it. Do any of you wish to have counsel here? [Chorus of nays.] Mr. Upton. I am just checking. We are not lawyers up here. If you would stand and raise your right hand. [Witnesses sworn.] Mr. Upton. Thank you. You are now under oath. We will start with Ms. Burr. TESTIMONY OF ANDREW J. PINCUS, GENERAL COUNSEL; ACCOMPANIED BY BECKY BURR, ACTING ADMINISTRATOR, OFFICE OF INTERNATIONAL AFFAIRS, NATIONAL TELECOMMUNICATIONS INFORMATION AGENCY, DEPARTMENT OF COMMERCE; ESTHER DYSON, INTERIM CHAIRMAN, INTERNET CORPORATION FOR ASSIGNED NAMES AND NUMBERS, ACCOMPANIED BY MIKE ROBERTS, INTERIM PRESIDENT AND CHIEF EXECUTIVE OFFICER, INTERNET CORPORATION FOR ASSIGNED NAMES AND NUMBERS; AND JIM RUTT, CHIEF EXECUTIVE OFFICER, NETWORK SOLUTIONS INCORPORATED Ms. Burr. I am here with the General Counsel. Mr. Pincus. Thank you, Mr. Chairman. Ms. Burr and I appreciate the opportunity to testify before this subcommittee on behalf of the Commerce Department regarding management of the domain name system. Continuing the dialog, as Chairman Bliley mentioned, that has been going on now for more than a year with the committee on this subject, we certainly welcome the interaction and hope it will continue as this process moves on into the future. It has by now become a cliche to observe that the Internet is a totally new phenomenon, born global, growing at a rate unprecedented for a new medium of communications and commerce, and changing rapidly as technology evolves. We believe that this new phenomenon requires a new approach from government, in particular, the administration has made private sector leadership and minimal government involvement the keystone of its electronic commerce policy. Ultimately, of course, it is the role of government to ensure that the public interest is protected. If the private sector cannot accomplish that, then government must act. We believe we must give the private sector a reasonable chance to do the job. Unlike many aspects of the Internet, domain name management has not been a private sector function. It has been conducted entirely under the auspices of the Federal Government. For example, as several of the committee members have mentioned domain name registration services have been available from only one company, Network Solutions, that operates pursuant to an agreement with the government. In July 1997, the President directed Secretary Daley to make the governance of the domain name system private and competitive. Following two rounds of notice and comment, and consideration of more than 1,000 comments, as the chairman mentioned, the Commerce Department in June 1998 issued a Statement of Policy, the White Paper, that is the blueprint for this transition process. The White Paper set forth substantive conclusions with regard to domain name management policy, and also laid out a process for the transition to private sector management and the transition to competition. The first step in the privatization process came at the end of November 1998 when, after another public comment process, the Commerce Department entered into a Memorandum of Understanding with ICANN. The terms of that MOU are important. It did not confer immediately upon ICANN responsibility for domain name system management. Rather, it is an agreement, ``to jointly design, develop, and test the mechanisms and procedures that should be in place to transition domain name system management responsibility from the U.S. Government to a private sector not-for-profit entity.'' Once testing is successfully completed, the MOU states ``it is contemplated that DNS management will be transitioned.'' Obviously if the project is not successful, that transition of responsibility will not occur. The MOU also incorporates a number of protections. It bars, for example, singling out one party for disparate treatment, prohibits unjustified or arbitrary actions, and requires that this private sector management operation be setup in accordance with the principles that are laid out in the White Paper. ICANN agreed to do something that was literally unprecedented; create a private sector organization that encompasses all of the many and varied Internet constituencies, to do that on a global basis, and to create a process that would allow for consensus-based decisionmaking with respect to domain name management issues. Given that tall order, it is not at all surprising that ICANN is not finished yet. It also is not surprising that mid- course corrections have been necessary. It would have been amazing, I think, if ICANN had done everything perfectly right along in this process that no one has ever carried out before. For example, we have advised ICANN to eliminate the $1 fee, open its board meetings to the public, and make certain other changes. Surely, additional other corrections will be necessary. ICANN is now, as it was supposed to be at this point, along the road to completion, but still a work in progress. I would like to make one last point about ICANN. The White Paper recognized that at the same time that ICANN was creating its structure for consensus-based decisionmaking, the interim board would be required to make specified, initial decisions; particularly, those relating to establishing competition. We simply could not postpone the introduction of competition until ICANN's structure was finalized. As several members of this subcommittee have mentioned, getting competition into the system was just too important. Therefore, the process of introducing competition has moved forward. It is also important to note that ICANN is not the only entity with work to do. A fundamental principle of our domain name policy, as I have said, is ensuring competition. That means that Network Solutions, which operates the central registry of names for the commercially significant domains, .com, .net, and .org must agree to principles that will produce real competition between it and other registrars. Network Solutions now provides both its registry, central registry, and retail registrar services pursuant to its agreement with the government and therefore it operates under government oversight. For that government oversight to be eliminated, it must be replaced by principles that will ensure competition. That means that Network Solutions, and other providers of registration services to the public, must operate under the same rules so we have a level playing field for competition. It means that Network Solutions must not be able to use its position as the sole operator of the central registry in which all names must be placed for the system to work. It cannot use that position to advantage its own registration operation or disadvantage competing registration providers; some of which, as the chairman mentioned, will be testifying before this subcommittee later today. We have laid out in some detail what we see are the relevant issues in the response to Chairman Bliley's letter. Our discussions with NSI are ongoing, but as yet none of these issues have been resolved satisfactorily. Thank you again for the opportunity to appear before this subcommittee. Ms. Burr and I look forward to answering your questions. [The prepared statement of Andrew J. Pincus follows:] Prepared Statement of Andrew J. Pincus, General Counsel, Department of Commerce Thank you, Mr. Chairman and Members of the Committee, for this opportunity to report on progress towards transitioning management of the Internet domain name system (``DNS'') to the private sector. The Commerce Department's Statement of Policy on the Management of Internet Names and Addresses (the ``White Paper''), issued thirteen months ago, identified a number of tasks to be undertaken on a priority basis in order to transition DNS management to the private sector: (1) private sector creation and organization of a new, not-for-profit corporation to conduct DNS management; (2) rapid introduction of competition in the provision of domain name registration services; (3) adoption of policies to reduce conflicts between trademark holders and domain name registrants; and (4) review of the root server system to increase the security and professional management of that system. Creation and Organization of New Corporation The Internet Corporation for Assigned Names and Numbers (ICANN) has made considerable progress toward establishing the structures for representative decision making contemplated in the White Paper, but there is still important work to be done: <bullet> ICANN's top priority must be completing the work necessary to put in place an elected board of directors on a timely basis. Specifically, it must do everything within its power to establish the Supporting Organizations, and ensure the election of nine board members by those Organizations to begin serving at the November 1999 Board Meeting. And it must work diligently to complete the process for electing at-large directors by June 2000. <bullet> ICANN should eliminate the $1 per-year per domain name registration user fee. Although the user fee may be determined to be an appropriate method for funding ICANN's activities, it has become controversial, and we believe a permanent financing method should not be adopted until after the nine elected members are added to the ICANN Board in November. That will ensure that this important decision is made in accordance with the representative, bottom-up process called for in the White Paper. In the meanwhile, we will work with ICANN and the entire Internet community, to the extent permitted by law, to obtain interim resources for ICANN. <bullet> ICANN should immediately open its board meetings to the public. Transparency is critical to establishing trust in decision making. And trust is essential for ICANN's ultimate success. As a general matter, ICANN has undertaken the vast majority of its work in an open and transparent manner. The final step of opening the board meetings is critical to establishing trust in ICANN. <bullet> There is concern in the Internet community about the possibility of over-regulation, and therefore ICANN should assure all registrars and registries, through contract, that it will restrict its policy development activities to matters that are reasonably necessary to achieve the goals specified in the White Paper and that it will act in accordance with the procedural principles set forth in the White Paper. With these actions, and the other steps already taken by ICANN, we believe that ICANN will put itself on a very firm footing to achieve the goals and principles spelled out in the White Paper. The ICANN apparently agrees and wrote to the Department of Commerce on July 19, 1999 indicating that these suggestions would be implemented. Introduction of Competition in Domain Name Registration Again, there has been considerable progress: the Shared Registration System (SRS) has been created; new registrars have been accredited under guidelines established by ICANN; Network Solutions, Inc. (NSI) has licensed the SRS to those registrars on an interim basis; and testing of the SRS has begun. But significant work still remains to be done in order to establish robust competition: <bullet> NSI must fulfill its obligation to recognize ICANN as required by Amendment 11 of the Cooperative Agreement. This requires NSI and ICANN to reach agreement on a number of contractual issues. The transition of DNS management to the private sector can succeed only if all participants in the domain name system--including NSI-- subject themselves to rules emerging from the consensus based, bottom-up process spelled out in the White Paper. <bullet> With respect to NSI's provision of registry services--as to which an unsupervised NSI would be able to exercise market power today and for the foreseeable future--we believe the NSI- ICANN agreement must assure reasonable supervision to prevent the exercise of that market power in a way that injures consumers. With respect to NSI's provision of registrar services, robust competition in the provision of those services--and the lower prices and greater choice that are the benefits of competition--cannot occur until all purveyors of those services abide by the same rules. <bullet> But what if an agreement cannot be reached? NSI's view is very clear. Its position is that when the Cooperative Agreement terminates, whether prematurely or upon its expiration on September 30, 2000, NSI will be free to operate these domains without any supervision by the government. The Commerce Department believes just as strongly that NSI does not have the legal right to operate these domains in the authoritative root in perpetuity. We believe that all or part of the functions now performed by NSI under the Cooperative Agreement could be reassigned through a competition and, unless NSI won the competition, it would cease to have any legal right to provide the recompeted services. And even if that were not so, an NSI unconstrained under U.S. law would quickly become a target of action by other countries in order to protect consumers against the exercise of market power. <bullet> This path--failure to reach agreement with ICANN, recompetition of the Cooperative Agreement and the likely results that would follow, together with action by foreign governments--would be extremely destabilizing for the Internet and therefore quite harmful to its development. We have been able to reach agreement with NSI in the past each time it has been necessary to do so in order to enable the DNS process to move forward. There is no reason to believe that agreement cannot be reached on the remaining questions. We believe all parties should put aside inflammatory rhetoric, set aside parochial concerns, and work for a fair solution that is in the interest of the entire Internet community. <bullet> NSI and the Department of Commerce must reach agreement on a post-Testbed license for registrars' use of the SRS. Remaining issues include modification of the SRS to allow registrars to offer different term lengths (and thus compete on this basis in addition to price); and allowing registrants to switch registrars without forfeiting the time remaining on an existing registration contract, upon payment of a cost-based transfer fee (the current system requires the transferring registrant to forfeit all time on its existing registration and pay an additional two-year fee). We are very concerned that imposing this monetary penalty on transfer of existing registrations among registrars creates a barrier to robust competition. We also must reach agreement on the size of the per- registration fee to be paid to NSI as registry. <bullet> NSI and the Department of Commerce also must resolve issues regarding the availability of the WHOIS database, and the .com, .net, and .org zone files. NSI took certain actions earlier this year without the consent of the Commerce Department that restricted access to this information, which had previously been widely and readily available to the Internet community. We strongly support the prohibition of uses that adversely affect the operational stability of the Internet, but we oppose other restrictions on third-party use of this information, which has been compiled by NSI in the course of its operations under the authority of the U.S. Government. <bullet> The Commerce Department and NSI also must reach agreement concerning the appropriate use of the InterNIC.net website. The Commerce Department believes that InterNIC should remain a neutral website for the purpose of educating the public about the introduction of competition in domain name registration and possibly for providing a comprehensive WHOIS service. Domain Names and Trademarks <bullet> The provisions of the ICANN Accreditation Agreement, together with the recommendations of the World Intellectual Property Organization (WIPO) when fully implemented, reflect the recommendations of the White Paper related to reducing friction between trademark owners and domain name holders. We commend ICANN for its prompt action on these issues, and urge it to proceed promptly, pursuant to the appropriate ICANN procedures, to establish a uniform dispute resolution procedure for cybersquatting. Management of the Root Server System <bullet> The Department of Commerce and ICANN are proceeding to implement the White Paper's call to develop and implement means to increase the security and professional management of the Internet root server system. I want to thank the Committee for inviting me to testify today on this important issue. We have attached our response to Chairman Bliley's letter of June 22, 1999 which discusses these issues in greater detail. As always, the Department of Commerce welcomes the Committee's interest in the DNS process. I would be pleased to answer any questions you may have at this time. [GRAPHIC] [TIFF OMITTED] T8497.002 [GRAPHIC] [TIFF OMITTED] T8497.003 [GRAPHIC] [TIFF OMITTED] T8497.004 [GRAPHIC] [TIFF OMITTED] T8497.005 [GRAPHIC] [TIFF OMITTED] T8497.006 [GRAPHIC] [TIFF OMITTED] T8497.007 [GRAPHIC] [TIFF OMITTED] T8497.008 [GRAPHIC] [TIFF OMITTED] T8497.009 [GRAPHIC] [TIFF OMITTED] T8497.010 [GRAPHIC] [TIFF OMITTED] T8497.011 [GRAPHIC] [TIFF OMITTED] T8497.012 [GRAPHIC] [TIFF OMITTED] T8497.013 [GRAPHIC] [TIFF OMITTED] T8497.014 [GRAPHIC] [TIFF OMITTED] T8497.015 [GRAPHIC] [TIFF OMITTED] T8497.016 [GRAPHIC] [TIFF OMITTED] T8497.017 [GRAPHIC] [TIFF OMITTED] T8497.018 [GRAPHIC] [TIFF OMITTED] T8497.019 [GRAPHIC] [TIFF OMITTED] T8497.020 [GRAPHIC] [TIFF OMITTED] T8497.021 [GRAPHIC] [TIFF OMITTED] T8497.022 [GRAPHIC] [TIFF OMITTED] T8497.023 [GRAPHIC] [TIFF OMITTED] T8497.024 [GRAPHIC] [TIFF OMITTED] T8497.025 Mr. Upton. Thank you very much. I would note for all witnesses that your full statement is made a part of the record. If you could limit your remarks, as you did, to about 5 minutes, that would terrific. We have this fancy Internet time clock available for all. Ms. Dyson. TESTIMONY OF ESTHER DYSON Ms. Dyson. Thank you very much, Mr. Chairman. I welcome the opportunity to appear here today on behalf of the many people around the world working together to create the global, non-profit consensus development body called the Internet Corporation For Assigned Names and Numbers. Like everybody else, I am going to try and just give an opening statement, and then address specific questions later. As you know, ICANN was formed by the Internet community in response to a challenge set forth by the U.S. Government in the so-called White Paper issued in June of last year. Global consensus is an illusive goal, especially when it must be generated entirely within the private sector with only the encouragement, but not the money or the power of the world's governments. Nonetheless, the various communities around the world that make up and depend on the Internet have taken up the challenge, and ICANN is the result; a work still in progress but substantially underway. Thus, the fundamental issue here is not ICANN and its admitted imperfections, which we are continuing to try to correct. The real issue is whether the coordination of these important technical aspects of the Internet will be done by the world's governments, or by private companies pursuing private economic interests, or by the Internet community as a whole, which includes of course governments and private economic interests, but also many individuals and technical people, all of whom increasingly rely on the Internet for information, communication, and commerce. ICANN is a vehicle for these various communities to carry out the coordination tasks. It has no will of its own, but the fact that these hearings are taking place today under this title is evidence that this issue, how it should be done, is still in doubt. The ultimate resolution of this question is very important to the future of the Internet, which owes its development in large part to the non-neglect from governments and from big business. The Internet is in fact the world's most successful, voluntary, cooperative effort based on consensus about technical standards and the naming system, which allow it to function so well. It has earned legitimacy because it has worked well and served its users. People can rely on it. They are not told to rely on it. They can. The Internet community's creation of ICANN is a continuation of that approach, even as the Internet becomes ever more complex, more important for commerce, and more ubiquitous. ICANN thus replaces a highly informal, unstructured system where very few individuals make key decisions about the future and direction of the Internet. Those individuals were remarkably wise and unselfish, which is why everybody went along with their decisions. The vast majority of those decisions were in the public interest as is proved by the success of the Internet. As the net grows, however, we need more permanent, more explicit, and more accountable structures to continue this tradition of consensus. ICANN is, itself, the product of what Internet engineers call ``rough consensus.'' Its sole objective is to encourage the continued coordination of some key technical and policy details of Internet management, through the development of community-wide consensus, and then implementation of those policies by contract. These are the key words: consensus and contract. As I have noted, developing such consensus is not an easy task. It inevitably involves contention and disagreement, followed by compromise among people of good faith. As those of us involved have seen, feelings can run deep and debates can be intense. Right now, this difficult task is being made even more difficult by the fact that one of ICANN's first tasks is to manage the transition from a monopoly to competition for a very visible and significant activity, and a lucrative one: the registration of domain names. Transitions from monopoly to competition are difficult and messy under the best of circumstances, as this committee fully knows from its oversight over the telecommunications industry, and as I personally know from my experiences in Eastern Europe. In telecommunications, the transition is being managed by Federal, State, and local governments which ultimately can rely on the course of power only governments possess. Here, by contrast, the transition is happening even as the government's supervisory power over its contractor is being replaced with a newly created process for implementing consensus. Mr. Chairman, we need to be clear about this. There is no issue about ICANN being out of control or off-track. ICANN is nothing more or less than the embodiment of the consensus of the Internet community as a whole. Consensus does not always mean unanimity. The disagreements you see are evidence of this process. They are not problems with it. Therefore, I have submitted a lengthier text with various attachments that I hope will be included. I welcome the opportunity to answer any questions you may have. Thank you very much. [The prepared statement of Esther Dyson follows:] Prepared Statement of Esther Dyson, Interim Chairman of the Board of Directors, Internet Corporation for Assigned Names and Numbers Mr. Chairman and Members of the Subcommittee: I welcome the opportunity to appear here today on behalf of the many, many people around the world who are working together to create the global, non- profit, consensus-development body called the Internet Corporation for Assigned Names and Numbers (ICANN). I. Introduction: The Challenge of Creating a Private Sector, Consensus- Based Organization As you know, ICANN was formed by the Internet community in response to the challenge set forth by the United States Government in its June 1998 Statement of Policy on the Management of Internet Domain Names and Addresses, commonly known as the White Paper. The White Paper called upon the global Internet community to create ``a new, not-for-profit corporation formed by private sector Internet stakeholders to administer policy for the Internet name and address system,'' 63 Fed. Reg. 31749, and specified that the new corporation should be dedicated to community consensus and to promoting the stability of the Internet; competition and market mechanisms; private sector bottom-up, coordination; and functional and geographic representation. ICANN is working hard to fulfill the mandate of the White Paper. Developing global consensus is an elusive goal, especially when it must be generated entirely within the private sector, with only the encouragement--but none of the money or power--of the world's governments. Nevertheless, the various communities around the world that make up and depend on the Internet have taken up the challenge, and ICANN is the result: a work still in progress but substantially underway. Mr. Chairman, I regret that the title of today's hearing (``Is ICANN Out of Control?'') conveys an erroneous impression about what ICANN is and what it is doing. Even more seriously, the title of the hearing tends to distract attention from the truly fundamental issue before this Subcommittee: How will the Internet's plumbing be managed? More to the point, will the coordination of the Internet's key technical functions be administered (1) by the world's governments and bureaucrats, (2) by a private company pursuing its own private economic interests, or (3) by the global Internet community as a whole? ICANN represents a strong endorsement of option (3), a consensus-based private-sector vehicle through which the Internet community--engineers and entrepreneurs, businesses and academics, non-profits and individuals alike--will coordinate Internet names and numbers. The fact that these hearings are taking place today under this title, however, is stark evidence that this issue--how will the Internet's plumbing be managed?--is still in doubt. The ultimate resolution of this issue is very important to the future of the Internet, which owes its successful development in large part to a lack of control by governments or private concerns. The Internet is perhaps the world's most successful voluntary cooperative effort. It has developed based on a voluntary consensus about the technical standards and naming system which allow it to function, fostered by the unusual willingness of governments (especially the United States Government) to leave it alone. It earned legitimacy because it worked well and served its users. This voluntary cooperative environment has produced a truly wonderful global resource, and the Internet community's creation of ICANN is intended to allow that basic approach to continue, even as the Internet becomes ever more complex, more important for commerce and society, and more ubiquitous. Because nothing like ICANN has ever been attempted before, its success is not assured, but because it seeks to embrace and build on the consensus tradition of the Internet, it has at least a chance to succeed. ICANN is intended to replace a highly informal, unstructured system where a very few individuals made key decisions about the future and direction of the Internet. Those individuals were remarkably wise and unselfish, and the fact that the vast majority of their decisions were in the public interest is evidenced by the very success and growth of the Internet itself. But individuals are not immortal, as we are so frequently reminded, and thus we need more permanent structures if we are to continue this tradition of consensus. ICANN is itself the product of what the Internet engineers call ``rough consensus,'' and its sole objective is to encourage the continued coordination of some key technical and policy details of Internet management through the development and implementation of community-wide consensus. As I have noted, developing this consensus is not an easy task, and is inevitably accompanied by contention and disagreement. Consensus, after all, is a result of disagreement and debate followed by compromise among people of good faith. As those of us intimately involved in this process have certainly seen, feelings can run deep and the debates can be intense. But this already difficult task has been made even more difficult by the fact that the creation of ICANN is happening simultaneously with the transition from a monopoly to a competitive environment for the activity most widely associated with the Internet's plumbing, the registration of domain names. Transitions from monopoly to competition are difficult and messy under the best of circumstances, as this Committee is fully aware given its oversight over the telecommunications industry. But in that industry, the transition is being managed by federal, state and local governments, which ultimately can rely on the coercive power only governments possess. Here, by contrast, the transition from monopoly to competition is being attempted at the same time that the United States Government's supervisory power over its contractors is being replaced with a newly-created process for developing community-wide consensus through a private-sector, non-profit entity. I would like to speak directly to the issues relating to ICANN's relationship with the current monopoly government contractor in this area, Network Solutions, Inc. Network Solutions is an important member of the Internet community, and participated very significantly in the process of forming ICANN and in its consensus-development efforts to date. It has important management responsibilities for the domain name system today, and has contributed to its growth over the last several years. It is a voice that needs to be heard. But it is not the only voice, nor can or should it be the decisive voice. Network Solutions was hired by the United States Government to do a job, and in large part it appears to have done it well. It has much experience and knowledge to offer. Nevertheless, as Network Solutions's Senior Vice President for Internet Relations noted recently (Inter@ctive Week, July 19, 1999), it has a ``fiduciary duty to [its] shareholders,'' and not to the global Internet community as a whole. Its primary responsibility is to ``make a reasonable profit,'' not to develop and follow the community's consensus. Thus, while it should be an important participant in the debates, and, one hopes, a constructive contributor to the creation of consensus, it should not be permitted to unilaterally determine how this important global resource will be managed. Mr. Chairman, we need to be clear about this: there is no issue about ICANN being ``out of control.'' ICANN is nothing more or less than the embodiment of the Internet community as a whole. It reflects the participation of a large and growing number of technical, business, public-interest, academic, and other segments of the Internet community. It is this collection of diverse interests and experiences that produces ICANN policies and decisions, as a statement of the consensus of the participants. But consensus does not always or necessarily mean unanimity, and there are certainly those in the community who disagree, for various reasons, with particular consensus positions produced by this process. Some disagreements are philosophical; some are cultural; some are economic. This is inevitable given the diversity of interests involved and the cultural, political and economic issues implicated by the matters that ICANN has dealt with. The fact of those disagreements, however, is evidence of the process itself, not of any problems with it. II. Open Meetings, Board Elections, and the ``Domain Name Tax'' Mr. Chairman, in your letter of June 22, 1999, you posed a series of questions relating to ICANN's formation, its structure and policies. ICANN's response, transmitted on July 8, 1999, encompassed forty-six pages and nine attachments. Rather than repeat the extensive information detailed in our responses (attached as Exhibit A), let me briefly address the four key issues that have attracted the most attention and controversy in recent weeks: <bullet> Closed Board meetings (or, ``Is ICANN making secretive decisions in the shadows?''); <bullet> Elected Board members (or, ``When will the mysteriously chosen Initial Board give up the reins of ICANN to Board members properly elected by the Internet community?''); <bullet> A permanent cost-recovery structure (or, ``How dare ICANN try to impose a Domain Name Tax?''); and <bullet> Constraints on ICANN's authority (or, ``Is ICANN a new Internet regulatory agency? What's to stop ICANN from taking away my domain name or censoring my web site?''). These four areas of concern have been raised by a number of parties, including you, Mr. Chairman, in your letter of June 22, and the U.S. Department of Commerce in its letter of July 8, 1999. In response to specific suggestions made by the Department of Commerce, the ICANN Board has agreed upon steps to address those concerns. Closed Board meetings. The Department of Commerce suggested that ICANN open its Initial Board meetings to the public. In response, ICANN's Initial Board has decided to hold the Santiago Board meeting as a public meeting, and to deal with all pending issues publicly (except for personnel or legal matters, if any, that might require an executive session). Following Santiago, nine elected Board members will join the current complement, and we will defer to that full Board any decisions on future meeting procedures, since the experience in Santiago will then be available to inform their decisions. ICANN's bylaws provide that the Annual Meeting (which will be held in Los Angeles in November) must be a public meeting. I should note that the Initial Board believes very strongly that it has carried out its responsibilities openly and transparently, recognizing community consensus when it exists and encouraging its development when it does not, and all in full view of the global public. The agendas of all ICANN Initial Board meetings are posted in advance of each meeting; at each quarterly meeting, the agenda is open for full public discussion in advance; any resolutions adopted by the Board or decisions taken are announced and released immediately following those decisions; and the full minutes of every Board meeting are posted for public review. The Board takes care to engage in public discussions of its efforts; it both encourages and considers public input, and fully discloses its own decision-making criteria. All public comments, Advisory Committee recommendations, and staff proposals have been posted on the ICANN web site well in advance of Board meetings. The only Board activity that has not (until now) been fully public is interaction between it and its staff, and discussion among the Board members of staff recommendations, at the exact time that they happen. Full minutes of decisions taken and the reasons for them (including any formal actions of the Board), of course, are posted publicly shortly after they occur. In short, the Board has made all the inputs and outputs of its decision making process fully available to the world at large. In any event, the Initial Board has decided to open its next meeting, in Santiago, to public observation. Elected Board members. ICANN's elected Directors will join the Board in two waves: the first wave will consist of nine Directors chosen by ICANN's Supporting Organizations; the second wave will be elected by an At-Large membership consisting of individual Internet users. The Board expects the first wave to be completed by November 1999, and the second wave as soon as possible following that. In any event, the process of creating a fully elected Board must be completed by September 2000. As to the first wave of elected Board members, ICANN expects that the nine Directors to be elected by its three Supporting Organizations (the Domain Name Supporting Organization, the Address Supporting Organization, and the Protocol Supporting Organization) will be selected and seated in time for ICANN's annual meeting in November in Los Angeles. As to the second wave, it is ICANN's highest priority to complete the work necessary to implement a workable At-Large membership structure and to conduct elections for the nine At-Large Directors that must be chosen by the membership. ICANN has been working diligently to accomplish this objective as soon as possible. The Initial Board has received a comprehensive set of recommendations from ICANN's Membership Advisory Committee, and expects to begin the implementation process at its August meeting in Santiago. ICANN's goal is to replace each and every one of the current Initial Board members as soon as possible, consistent with creating a process that minimizes the risk of capture or election fraud, and that will lead to a truly representative Board. Permanent cost-recovery structure. ICANN has decided to defer the implementation of its volume-based cost-recovery registrar fee (mischaracterized by some as a ``Domain Name Tax''), and to convene a task force to study available funding options and recommend to ICANN and the Internet community a fair and workable allocation of the funding required to cover ICANN's costs. The task force will include representatives of the key entities involved in the DNS infrastructure: the domain name registries, address registries, and domain name registrars that have (or are likely to have) contractual relationships with ICANN. Charged with reviewing the options for fair and workable cost-recovery mechanisms, the task force will be asked to make its recommendations by October 1, 1999, with an interim report (if possible) prior to the Santiago meeting in late August. ICANN will, of course, post those recommendations for public comment, so that the Board (which will then consist of a full complement of 19) will be able to consider those recommendations at its November Annual Meeting. Nevertheless, let me say a few words about ICANN's now-deferred cost-recovery structure. The volume-based user fee that has been mischaracterized as a ``Domain Name Tax''--in which the competing registrars contribute to ICANN's cost-recovery budget based on the volume of their registrations--seemed to be a fair and workable way to spread the costs among the companies and organizations that benefit from ICANN's DNS coordination and pro-competition activities. The registry fee was adopted following a thorough process of public notice and comment, and was broadly supported by an apparent consensus of the community. For example, the Coalition of Domain Name Registrars, a group consisting of most of the registrars that would actually be responsible for paying those fees, has written to Congress indicating that they have no objections to paying their fair share of ICANN's costs in this way. I understand that the Subcommittee will have an opportunity to hear from three of the competing registrars later today. In sum, we continue to believe that a volume-based fee is a fair and appropriate way to spread ICANN's cost-recovery needs. Indeed, in its response to the Chairman's questions, the Department of Commerce (which was fully apprised of the process that produced this consensus position) agreed that this was a rational and appropriate approach that (1) was the result of full notice and comment, (2) was consistent with the White Paper, and (3) was fully authorized by ICANN's Memorandum of Understanding with the DoC. Nevertheless, the DoC suggested that, because it has become controversial, ICANN should suspend this approach until there are elected Board members. ICANN has agreed to do so, pending the recommendations of the new task force on funding options. Obviously, ICANN must have a stable source of income adequate to cover the costs of its technical coordination and consensus-based policy development functions. The United States Government has asked ICANN to do an important job, but it has not provided the means by which to carry it out, leaving the job of providing funds to the Internet community itself. To date, ICANN has relied on voluntary donations, and a number of people and organizations have been very generous. But this is neither an equitable way to allocate the recovery of costs nor a means to assure stability over the long term. Thus, if ICANN is to continue, it is simply not possible to abandon the cost- recovery mechanism that has been produced by the consensus-development process and replace it with nothing. ICANN's goal is simple: to establish a funding structure for the technical coordination of the Internet that is stable, effective, and equitable. Any proposed method that would meet this goal will receive serious attention from ICANN and the Internet community at large. If the members of this Committee have thoughts about how ICANN should be funded, we would be pleased to hear them. Constraints on ICANN's authority. The ability of ICANN to make policy is very carefully cabined, both by its bylaws and by the terms of the White Paper. Nevertheless, as the Department of Commerce has noted, there remain concerns about the effectiveness of existing restrictions and limitations on the authority of the ICANN Board. On this point, we certainly understand the concern, but it seems misplaced, given the clear limitations in ICANN's bylaws and articles of incorporation on the scope of its permissible activities. Nevertheless, ICANN is entirely willing to incorporate in its contracts with registries and registrars (or perhaps in its Memorandum of Understanding with the U.S. Government) language that says that no ICANN policy is being agreed to in those contracts that is not fully consistent with, and reasonably related to, the goals of ICANN as set forth in the White Paper, which are replicated in ICANN's bylaws. Such language would fully reflect both the original concepts that gave birth to ICANN and this Board's understanding of ICANN's proper role. III. Network Solutions, Inc., and the Transition to Competition I have already spoken directly about ICANN's relations with Network Solutions, Inc. I will try to address in some detail a few of the more serious erroneous contentions that Network Solutions has advanced with respect to ICANN. Network Solutions has asserted in a number of forums that ICANN intends to terminate Network Solutions as a registrar of .com, .net, and .org domain names. Network Solutions has also claimed that ICANN's registrar accreditation agreements (which registrars must sign to become accredited for the .com, .net, and .org domains) grant ICANN the unrestrained authority to terminate a registrar on 15 days' notice. Both contentions are unequivocally wrong. ICANN has no statutory or regulatory ``authority'' of any kind. It has only the power of the consensus that it represents, and the willingness of members of the Internet community to participate in and abide by the consensus development process that is at the heart of ICANN. As you know, Network Solutions has held a government-granted monopoly in the market for domain name registration services in the .com, .net, and .org domains. In its October 1998 agreement with the Department of Commerce (Amendment 11), Network Solutions agreed that, once a competitive registrar system was introduced, a level playing field would be established for all registrars and that only properly accredited registrars would be permitted to provide domain name services to the public. When Network Solutions becomes an accredited registrar, it will continue to be able to offer domain name services as a competitor in a fair and open market; if it refuses to become accredited, as it has to date, its agreement with the US Government will prohibit it from offering domain name services in the .com, .net, and .org domains. When Network Solutions applies for accreditation from ICANN, ICANN will treat the application in the same manner as it would any other application, as required by its bylaws. If the Committee has been told that ICANN has the power to terminate Network Solutions' authority to register domain names, or has asserted that it does, the Committee has been misinformed. To clarify this point, the following description of the process for accrediting registrars may be helpful: <bullet> From January 1, 1993, until early June 1999, domain names in the .com, .net, and .org top-level domains were registered exclusively by Network Solutions under a Cooperative Agreement between it and the U.S. Government. As noted in the White Paper, public comments showed ``widespread dissatisfaction about the absence of competition in domain name registration.'' Accordingly, in its June 1998 White Paper, the U.S. Government stated its intention to ``ramp down [its] cooperative agreement with Network Solutions [then scheduled to expire September 30, 1998] with the objective of introducing competition into the domain name space.'' <bullet> To implement the ``ramp down,'' Network Solutions and the U.S. Government negotiated Amendent 11 to Network Solutions' cooperative agreement, by which Network Solutions and the U.S. Government agreed to extend Network Solutions' registry monopoly for a two-year period (until September 30, 2000), during which Network Solutions must create a Shared Registry System to allow competing companies to register domain names in .com, .net, and .org. Since Network Solutions was going to continue to be the sole administrator of the registries for .com, .net, and .org for at least two years, while simultaneously acting as one of the competitors marketing name registration services in those domains, Amendment 11 stated that a neutral body to be formed by the Internet community (``NewCo,'' subsequently designated by the U.S. Government as ICANN) would carry out the coordinating functions required to ensure a freely competitive registration market. In Amendment 11, Network Solutions expressly acknowledged that NewCo ``will have the authority, consistent with the provisions of the Statement of Policy and the agreement between the USG and NewCo, to carry out NewCo's responsibilities.'' On November 25, 1998, the Department of Commerce recognized ICANN as the NewCo entity referred to in Amendment 11; this was specifically reiterated to Network Solutions by letter on February 26, 1999. <bullet> To achieve the White Paper's ``objective of introducing competition into the domain name space,'' Amendment 11 provided that Network Solutions would implement a ``Shared Registration System'' to ``create an environment conducive to the development of robust competition among domain name registrars.'' The schedule agreed to by Network Solutions and the USG provided for several phases, beginning with a ``test bed'' in which Network Solutions agreed to ``establish a test bed supporting actual registrations in .com, .net and .org by 5 registrars accredited by NewCo (Accredited Registrars)'' and ending with a reengineering of the overall system to ``assure that Network Solutions, acting as registry, shall give all licensed Accredited Registrars (including Network Solutions acting as registrar) equivalent access (``equal access'') to registry services through the Shared Registration System.'' Thus, Network Solutions agreed in Amendment 11 that, after the introduction of competition into the registrar business, it would operate the registry to give access to, and only to, ICANN-accredited registrars (including Network Solutions). In this way, the level playing field necessary for effective competition in a shared registry environment would be established. In sum, ICANN neither has nor claims any ``authority to terminate Network Solutions' authority to register domain names.'' Instead, the requirement that Network Solutions must be accredited by ICANN to act as a registrar after the introduction of competition, so that it operates to the extent possible (given its continuing operation of the registries for .com, .net, and .org) under the same conditions as all other competing registrars, flows directly from Network Solutions' own agreement with the USG. To date, Network Solutions has not requested to be accredited by ICANN, and certain individuals purporting to speak for Network Solutions have publicly stated that it does not intend to be accredited. ICANN has received no official communication on this issue from Network Solutions, and stands ready to treat an accreditation application from Network Solutions in exactly the same way it has responded to similar applications by others. In fact, in the event Network Solutions chooses to seek accreditation, ICANN is required by its agreement with the U.S. Government to perform its accreditation function fairly, having specifically agreed in the MOU not to ``act unjustifiably or arbitrarily to injure particular persons or entities or particular categories of persons or entities.'' This fairness provision, which parallels provisions in Amendment 11, ICANN's registrar accreditation policy, and ICANN's own bylaws, appropriately and effectively ensures against arbitrary denial of accreditation to Network Solutions or any other registrar. Likewise, the registrar accreditation agreement is a contract between ICANN and its accredited registrars that provides a strong set of protections for accredited registrars. First, the registrar accreditation agreement spells out that ICANN can terminate accreditation only on the basis of a defined set of causes--for example, bankruptcy of the registrar or uncured breach of the registrar accreditation agreement. Second, the agreement provides for automatic renewal of accreditation: an accredited registrar (such as Network Solutions) ``shall be entitled to renewal provided it meets the accreditation requirements then in effect.'' ICANN Registrar Accreditation Agreement, Sec. III(B)(i). In the event of an unresolved dispute over any company's renewal of accreditation, the accredited registrar is entitled to fifteen days' notice and the right to invoke neutral arbitration that will be binding on ICANN. Together, the rights to automatic renewal and arbitration afford registrars (including Network Solutions) the predictability that is needed for sensible business planning, and the assurance that ICANN cannot treat a given registrar arbitrarily. IV. Conclusion Mr. Chairman, let me conclude by noting that ICANN's July 8, 1999, response to Chairman Bliley touches on a number of questions and issues that I do not have the time to address in my opening statement, including the process by which ICANN's Initial Board was selected, ICANN's relationships with country code top-level domain managers, intellectual property rights in registry databases, and ICANN's Transition Budget. Accordingly, I would ask that ICANN's response, along with the exhibits, be made a part of the record of today's hearing. I thank the Committee for the opportunity to testify, and I look forward to answering your questions. 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Thank you. Mr. Rutt. TESTIMONY OF JIM RUTT Mr. Rutt. Good morning, Mr. Chairman and members of the subcommittee. My name is Jim Rutt. I have recently become the Chief Executive Officer of Network Solutions. While new to Network Solutions, for the last 19 years I have been involved in building Internet and other online businesses. I come out of the Internet culture and cherish the delicate balance between freedom and voluntary cooperation that have allowed the Internet to flourish. Thank you for this opportunity to testify, and I might add further that this is the first time I have had the honor of testifying before the U.S. Congress. Again, I thank you for this opportunity. NSI is a public company that registers domain names in the .com, .net, and .org domains. It is headquartered in Herndon, Virginia and has 500 employees. NSI got into this business in 1992 when it competed for and won a cooperative agreement, not a contract, with the National Science Foundation. The cooperative agreement was designed to encourage a private company to build a business that would handle domain name registrations. When the Internet took off, the National Science Foundation asked NSI to make the tens of millions of dollars of private investment that became necessary to handle this growth. NSI's shareholders also took the risk and paid the very large costs of the litigation that were inevitable in the context of this unsettled yet important area. We think NSI is a great Internet success story; a small company that took risks and, like many other Internet pioneers, has done very well; though it did not always do well. A little known fact: for the first 3 years, NSI lost money on its DNS management business. We took a risk to build a business. We pledge we will continue to do everything we can to provide stable and reliable service to our current 5 million registrants who have legally binding contracts with NSI, and to help formulate practices that encourage continuing rapid growth of electronic commerce in this country and around the world. This hearing asks whether ICANN is ``out of control?'' Perhaps a better way to put it is that ICANN is off-track. Let me give you some examples of particular kinds of approaches and activities that do not fit with the original idea of ICANN as an open standard setting body. First, ICANN took a request to provide simple accreditation for some new registrars and turned it into an opportunity to impose a mandatory tax of $1 on every domain name every year, but only for the domain names in .com, .net, and .org, levied as a requirement for entry into the business. Second, despite protests from the Internet community, ICANN has made its decisions in closed board meetings and has failed to engage in a deep and continuing basis with the industry and the stakeholders they purport to regulate. Third, ICANN's proposed Registrar Accreditation Contract would grant ICANN the right to put registrars out of business on 15-days's notice. Fourth, ICANN, without having even formed its policy developing apparatus, is attempting to regulate business arrangements between registrar and registry, and even to set detailed terms of end user contracts, interfering in matters that ought to be the subject of market competition. Fifth, the ICANN Board proceeded to make critical policy before it was even composed of elected members, before the supporting organizations that are supposed to develop and demonstrate the existence of widespread agreement were fully formed. An ICANN that operates this way is off-track. In short, ICANN should be in the business of setting standards by consensus, as originally envisioned in the White Paper, not attempting to evolve into a bureaucracy that interferes with the growth of the new economy. We have been engaged constructively in this process for a long time. NSI has done everything required of it under the cooperative agreement, including those requirements set forth in Amendment 11 to open competition. NSI supports putting ICANN back on track and remains more than willing to work with ICANN, and to continue working with the Department of Commerce to bring this about. First, we need to establish a fund-raising mechanism for ICANN that all agree is fair and reasonable. NSI will pay its fair share. Second, ICANN needs to open its processes more fully and abide by its own bylaws. Third, as the Department of Commerce recognizes in their response to this committee, we need to limit by contract the subject matters that may be addressed by ICANN policies. Fourth, ICANN must become committed to equal treatment of all open registries that are in competition with one another, creating a level, global playing field. Fifth, ICANN should be required, as a pre-condition for making policy, to demonstrate that there really is widespread support for its standards. Let me thank this committee again for bringing sunlight to bear on a set of issues of great consequences for the growth and stability of electronic commerce. We believe there is need for continued Congressional oversight to ensure this transition process is a success. No matter how intense the debate, there is no need for actions that threaten the stability of Internet operations. You have our commitment to work constructively to help create a private sector system consistent with good public policy in the interest of the American people and the people of the world, an ICANN that is on-track. That would be an accomplishment which all of us, not least this committee, could be very proud of indeed. Thank you. I will be happy to answer any questions you may have. [The prepared statement of Jim Rutt follows:] Prepared Statement of Jim Rutt, CEO, Network Solutions, Inc. Good morning Mr. Chairman and Members of the Subcommittee. My name is Jim Rutt. I've recently become the CEO of Network Solutions, Inc. (NSI) Thank you for this opportunity to testify. NSI is a public company that registers domain names in the com, org and net domains. It is headquartered in Herndon, Virginia, has 500 employees and is traded on the NASDAQ Exchange. NSI got into this business in 1992 when it competed for and won a Cooperative Agreement with the National Science Foundation. When the Cooperative Agreement first began, it was designed to encourage a private company to build a business that would handle domain name registrations. US Government funding was capped at $1 million per year. When the exponential growth of registrations took off, NSF asked NSI to make the tens of millions of dollars of private investment that became necessary, on a continuing basis, to handle this volume. NSI's shareholders also took the risks and paid the very large costs of the litigation that were inevitable in the context of this unsettled yet important area. We think NSI is a great internet success story--a small company that took risks and, admittedly, has done very well. In the context of that success, I hope you share my view that it is remarkable that NSI has agreed to build a Shared Registration System and to open up an opportunity for competition by a large number of new competitors. We pledge that we will continue to do everything we can to provide stable and reliable service to our current five million registrants, who have legally binding contracts with NSI--and to help formulate policies and practices that encourage continuing rapid growth of electronic commerce in this country and around the world. We've all been discussing such policies for quite some time. NSI and many other parties provided comments over several years in the process that led to the Department of Commerce Statement of Policy (often called the ``White Paper''). That key document called for a private not-for-profit entity that would facilitate open, transparent, bottom up, consensus-based standard setting for the domain name system. The choices Congress, the administration and the internet community make now with respect to ICANN will determine for a long time, if not forever, whether the domain name system will benefit from having such a body. Off Track This hearing asks whether ICANN is ``out of control.'' My answer to that is that ICANN is off track. Let me give you some examples of the particular kinds of approaches and activities that don't fit with the original idea of ICANN as an open, standards setting body. First, ICANN took a request to provide ``accreditation'' for some new registrars and turned it into an opportunity to seek to impose a mandatory tax of one dollar on every domain name, but only for names in the com, org and net domains, levied as a requirement for entry into the business. Even now, despite Department of Commerce recommendations to the contrary, ICANN has only agreed to ``defer'' this tax. NSI will agree to pay its fair share of the costs of a true standard setting body, but we think Congress should object to the idea that a private non-profit corporation can fund itself by requiring involuntary payments as a condition of being in a lawful business. ICANN's plans for its funding mechanisms have gone off track. Second, despite widespread and continuing protests from the internet community, ICANN has made its decisions in closed board meetings and has failed to engage on a deep and continuing basis with the industry and stakeholders they purport to regulate. Again, even in response to Department of Commerce recommendations, they have declined to open their next scheduled telephonic board meeting (on July 26) to observers or to commit to amendment of their bylaws to require open board meetings on a continuing basis. A standard setting body, supporting organizations and advisory boards must hold open meetings to create a record regarding what all stakeholders agree upon. Until there is a mechanism to open all of ICANN's deliberations to the net and to accurately test the views of all stakeholders--ICANN will remain off track. Third, ICANN's proposed registrar accreditation contract purports to grant ICANN the right to put registrars out of business. As if the proposed contract did not adequately convey this notion, an ICANN Board member threatened that NSI would not be in business if it did not sign the mandatory accreditation agreement. An ICANN that makes such potentially destabilizing threats, which if implemented would derail a major portion of Internet infrastructure, is off track. Fourth, ICANN, without having even formed its policy-development apparatus, is attempting to set detailed terms of end user contracts, interfering in matters that ought to be the subject of market competition among registries and registrars. It has intervened to regulate business models and to prevent the kind of diversity that made the Internet grow in the first place. An ICANN that micro-manages by imposing top down rules that reduce the breadth of service offerings is off track. Fifth, the ICANN Board was not selected to govern the Internet but only to put in place the processes that will allow consensus policies to develop. The absence of widespread agreement about proposed standards should lead a standard setting body to make no rules--not to impose its own ungrounded conceptions of law. An ICANN Board that proceeds to make policy before it is even composed of elected members, before the supporting organizations that are supposed to develop and demonstrate the existence of widespread agreement are formed, is off track. In short, ICANN should only be in the business of setting standards by consensus, as originally envisioned in the White Paper--not attempting to evolve into a bureaucracy that interferes with the growth of the ``new economy.'' Solutions We have been engaged constructively in the process for a long time. NSI has commented extensively on every US Government policy paper on this topic. An NSI employee was even responsible for creating the name ICANN. We have suggested large portions of what became ICANN's bylaws, drafted structures for ICANN supporting organizations, commented on virtually all proposed ICANN policies, attended countless meetings all over the world and sought over the last six months on numerous occasions to enter into a reasonable contract with ICANN. NSI has done everything required of it under the Cooperative Agreement,including those requirements set forth in Amendment 11, to open competition. In particular, we developed a Shared Registration System architecture which was approved by an industry technical advisory group under procedures designated by the Department of Commerce. In implementing the Shared Registration System called for in Amendment 11, we have and will spend tens of millions of dollars. The Shared Registration System was deployed on schedule. Delays were necessitated by entirely predictable registrar development tasks coupled with designation of test bed registrars only five days before the test bed was to begin. NSI and the test bed registrars notified the Department of Commerce as far back as December 1998 that 60-90 days should be set aside to allow registrars to resolve interface and back office issues before the test bed activities began. So, it should come as no surprise that the test bed which was scheduled to run from March 21, 1999 through May 1, 1999 has been extended through August 6, 1999. What is disappointing is that ICANN, which did not identify the test bed registrars until five days before the test bed was to begin, would be blaming the delay on NSI. Amendment 11 also required that ``[f]ollowing the finalization of an agreement between the US Government and NewCo, NSI will recognize NewCo pursuant to a contract between NSI and NewCo.'' While there is significant doubt as to whether the ICANN-USG agreement has been (or should be) finalized, I want to make it clear that NSI is willing to recognize ICANN as the NewCo if ICANN is required to operate in compliance with the original Statement of Policy. Indeed, we have proposed such terms on several occasions, asking (we think reasonably) that ICANN policies, to be binding, be based upon a true industry consensus and apply to all competing registries and registrars. ICANN has, unfortunately, refused to negotiate on the terms of any such contract and has insisted, instead, that we accept their ``accreditation agreement,'' which would require NSI to give ICANN the unilateral right to terminate our business with 15 days notice and take over the ownership of our intellectual property, substituting the unaccountable judgments of ICANN's unelected board for those of an NSI Board which owes fiduciary duties to some 20,000 investors and five million registrants. NSI supports opening the Shared Registration System to additional competitors as rapidly as possible. NSI supports putting ICANN back on track--and we remain more than willing to work with ICANN and to continue our working with the Department of Commerce to bring this about. Let me provide you with some specific suggestions regarding how we can achieve the original goal of establishing an open standards setting process--and put ICANN back on track. First, we need to establish fund raising mechanisms for ICANN that involve those who are asked to pay the bill in the establishment of any such fees. We need to allocate fees fairly among all those whose activities produce the costs ICANN incurs--namely everyone who registers names or numbers on the Internet. A standard setting body raises money from those who find its services valuable, not from those it can threaten to put out of business. NSI is prepared to do its fair share to support an ICANN that is on track. Second, ICANN needs to open its processes more fully and abide by its own bylaws. Indeed, because a board can amend its own bylaws, it needs to promise in binding contracts to develop policies in an open manner and to take steps to prevent capture by special interests. If ICANN could only enforce policies that are developed in the open-- because that is all its contracts would allow it to enforce--then it will have an incentive to remain open. This is just one of many areas in which sound contracts between ICANN and all registries can help put ICANN back on track. Third, as the Department of Commerce itself seems to recognize, we need to limit by contract the subject matters that may be addressed by ICANN policies. No established business can or should agree to turn over control of its business practices to another board--and risk termination of its business if it fails to comply with any and all future policies that other board might one day adopt. But that is what the ICANN accreditation agreement now requires. In contrast, responsible domain name registries should be willing to commit by contract to adopt policies that have been demonstrated to have agreement from most other registries. Such policies should, of course, apply to all on a fair basis. They should deal only with issues the uniform resolution of which is necessary. That is the kind of contract an ``on track'' ICANN would ask for--and the kind of contract NSI has offered to sign. Fourth, ICANN must become committed to equal treatment of all registries that are in competition with one another, creating an open and level global playing field. It is easy for others to envy US leadership in establishing the internet--and all too easy for ICANN to claim that it is ``promoting competition'' by singling out com, org and net as the target of regulatory rules that, if sound at all, ought to apply to all registries. A contract that allows enforcement of ICANN policies only if those policies apply to all registries would help to put ICANN back on track. Fifth, ICANN should be required, as a pre-condition for enforcement of any of its policies, to demonstrate that there really is widespread support for these standards not just among some self-appointed group of ``stakeholders'' but also among those who are required to implement the policies. ICANN should be developing standards, not making laws or regulations. The goal is to make sure that ICANN has concrete procedures for testing the views of impacted parties--and, here is that concept again, that contracts with registries require compliance only when the procedures have developed demonstrable consensus support both among Internet stakeholders and among those who must implement the rules. Given such contracts, it wouldn't be possible for an ``off track'' ICANN to simply declare itself the voice of internet consensus and, thereby, impose its will. In short, the interim ICANN Board should return its attention to what should have been its main mission all along--getting a real board elected, which could then put in place the more permanent institutional mechanisms that would lead to the development of real (not just declared) consensus. NSI will cooperate with ICANN to achieve that goal. Conclusion We should all always remember that the Internet is a network of networks--a collaboration among independent private parties who own their own equipment, make their own decisions, and are free to adopt their own policies to govern their operations. Most of the reliability, and value, and growth, of the network stems precisely from the fact that there is no one who owns it or governs it. Its success is vivid testimony to the genius of private sector innovation and entrepreneurship, following essential government research, development and nurturing. As the most successful registry among some 250 competitors, based on its significant investment and marketing efforts, NSI can nevertheless tell you that there is some need even for the most successful players for coordination to create an orderly, competitive playing field. But there is no need for a new global government for the Internet. As I've discussed, voluntary, standardized, contracts between all concerned, with consensus development procedures and forcing mechanisms that prevent any holdouts from imposing costs on others, provide the best means to empower such coordination but also keep it under control. Let me thank this Committee again for bringing sunlight to bear on a set of issues of great consequence for the growth and stability of electronic commerce. We believe there is a need for continued Congressional oversight to ensure this transition process is a success. No matter how intense the debate, there is no need for actions that threaten the stability of Internet operations. You have our commitment to work constructively to help create a private sector system consistent with good public policy and the interests of the American people, and the people of the world--an ICANN back on track. That would be an accomplishment of which all of us--and not the least this Committee-could be very proud indeed. Mr. Upton. For the first round of questions, I am going to recognize the chairman of the full committee, Mr. Bliley, for 5 minutes. Chairman Bliley. Ms. Burr, I expected that an administration that has devoted a significant amount of time and resources to this matter should have been better prepared to successfully address the challenges related to the privatization of the domain name system. However, we are confronted today with a situation that apparently does not reflect such thoughtful deliberation. As I indicated in my opening statement, I question whether the administration anticipated and addressed issues, such as how ICANN is funded, whether an unelected board is credible, and whether there would be problems with Network Solutions and ICANN reaching agreement on critical issues. Ms. Burr, when you were setting up this process, did you anticipate the problems we have today? If you did anticipate them, why have they not been better addressed? Ms. Burr. Than you, Chairman Bliley. I think the critical piece of the White Paper is our reliance on private sector leadership. When you move to private sector leadership, it is a new process. There are going to be some new things that need to be done. We did anticipate that ICANN would need to go to the private sector for bridge funding for its operations as it has done. We also anticipated in the White Paper that ICANN funding would be based on fees, user fees, collected from registries and registrars. With respect to the issue of the board, we in fact specifically expected that there would need to be, at the beginning, an unelected board, but that one of the priorities of this unelected board would be to move toward creating the processes and election procedures to elect that board. In order to move forward with competition, we also said however that the interim board should move forward in certain areas, certain specific areas, related to the introduction of competition. With respect to decisions that needed to be made in those areas, we had developed over the process of a year a very large record, over 1,000 comments, that formed the basis for the consensus that we thought was there. We also anticipated the need for Network Solutions' cooperation. That was one of the reasons that Amendment 11 obligates. In Amendment 11, Network Solutions agreed to recognize this new corporation, once it was recognized by the United States. Now, having anticipated all of those things, have they been perfectly executed? I am afraid not. I think we are moving forward to getting them straight. I would like to ask Mr. Pincus if he has additional comments. Mr. Pincus. No. Chairman Bliley. Did ICANN consult with you, or the administration, or any other administration official regarding the advisability of imposing a $1 fee? Ms. Burr. As our responses to the chairman indicated, we did review and comment on a draft accreditation agreement, which included the notion that ICANN would charge up to $1 per domain name registration. We discussed whether there were other ways of collecting funding from registrars. ICANN put that issue up for comment. In fact, there were really very few comments, although I should note that Network Solutions did object at that point. Other than Network Solutions, there were not a lot of comments opposing that funding mechanism. Chairman Bliley. Mr. Chairman, I thank you. With your permission and with the cooperation of the witnesses, I would like to send some written questions to you that you can answer later. Mr. Upton. Without objection. Mr. Klink. Mr. Klink. Thank you. Mr. Rutt, I was taken by your optimism in coming before the subcommittee today. We do not usually have witnesses that are so happy to be here. Mr. Upton. If I might just interject, it was almost like that voice ``You have mail.'' Mr. Klink. There you go. That was very nice. I hope that it is a good experience for you. It always is for us to be here. I do want to ask you though, to start off and I mention this in my opening statement. I was reading the Washington Post this morning. This was not in your testimony. This was attributed to you. I just wanted to find out if this was accurate. It was talking about ICANN and whether or not you all are going to cooperate. It said, ``Network Solutions has been unmoved; refusing to even recognize ICANN as a legitimate organization. They are not really necessary,'' said Jim Rutt, Network Solutions, Chief Executive. Are they quoting you or portraying your feelings accurately, Mr. Rutt? Mr. Rutt. I am very glad you asked that question. I am sure that is not an experience that is unknown to some of the people on the panel. My quote was taken fairly severely out of context. Let me tell you what the context actually was. We had a pretty wide-ranging discussion about ICANN. We said we thought that a good ICANN was a good thing, et cetera. Then we got into discussion of competition and about how we were introducing competition, going ahead doing so under our requirements under Amendment 11. The reporter then asked, ``Is ICANN necessary for the introduction of competition?'' specifically that question, and I said no. They are not necessary. That is indeed our position. We could go ahead and introduce competition under Amendment 11, whether ICANN existed or not. ICANN can help in the process. It can be a central clearing house for certain necessary functions and we think would add value to the Internet community, but I do believe it is a true statement that the introduction of competition to .com, .net, and .org does not require ICANN. I am glad I got a chance to clarify that. Mr. Klink. Thank you. Mr. Pincus, what is your reaction to that? Mr. Pincus. Well, as I said in my statement, Congressman, the problem right now is that NSI exclusively operates the registry, which is necessary for competing--if you are a competing registrar, your registration has to get into the registry for it to work. Unsupervised control of that critical facility for these critical domains, which are the commercially valuable domains, means that, for example, I think it is NSI's position, as we laid out in the letter, that after the expiration of the cooperative agreement on September 30, 2000, NSI believes that it can charge whatever it wants and set whatever terms it wants for accepting names into that registry. So, that would obviously give it quite a lot of control over whether there will be any competition at all in registration. We need to have oversight over that, either by the government or by ICANN transitioning that responsibility to the private sector to make sure there is real competition. Otherwise, there just will not be. Mr. Klink. Mr. Rutt, I mean a lot of people have been in to see us. I think Mr. Pincus really laid out what the bad rap has been in the industry on NSI. I would like to give you the chance to react to what Mr. Pincus just said. Mr. Rutt. Sure. I think I would start with something that may be a misconception in a lot of people's minds that somehow NSI is the only company that operates a registry, gives out a domain name, et cetera. The truth of the matter is we are in what is already a fiercely competitive business. There are 248 other registries in operation around the world. Mr. Klink. If you will hesitate for a second. You are the only one that operates .com; is that correct? Mr. Rutt. Yes. Let me clarify what we believe that means. This is very important. This is very important. Mr. Klink. If you will just hesitate for a second. You are throwing out the numbers of how many there are, but you control about 80 percent of that market. Mr. Rutt. Something less than that. Mr. Klink. Seventy-eight, 79, 7.4? Mr. Rutt. Somewhere around 75, as I recall. Mr. Klink. All right, continue please. Mr. Rutt. Let me start again. There are 248 other registries. There about 2 million registrations from these other registries. At least 80 of them will take on all comers, and compete with us for business in the United States. It is also very important to keep in mind, and a lot of people do not, that 30 percent of NSI's business today is outside of North America. Mr. Klink. The other statement that you make here today, when you talk about ICANN, you say that ``ICANN has failed to engage on a deep and continuing basis with the industry and stakeholders that they purport to regulate.'' That is a pretty serious allegation. Will you explain that? Mr. Rutt. There are a lot of people who ICANN has not talked to that are not necessarily representing their interests. Mr. Klink. Who would that be? Who have they not talked to that they should be talking to? Mr. Rutt. Let me get back to you on that on the record. Mr. Klink. Mr. Pincus, do you find that to be an accurate portrayal of ICANN, one of their failings? Mr. Pincus. I think ICANN's outreach has been tremendous. There have been a series of public meetings around the world for them to give input. They have a website, which the accept comments from all comers. I think in terms of opening themselves up to input, it is hard for me to see how they are not doing that. Mr. Klink. Mr. Rutt, my time has expired. I would be very interested, on the record, in knowing specifically whom it is that ICANN has not spoken to and what damage has been done by them not doing so. If you could do that, that would be appreciated. Mr. Rutt. We will certainly take care of that for you. Mr. Klink. Thank you, Mr. Rutt. I appreciate that. Mr. Upton. Thank you. Mr. Rutt, we all appreciate your testimony, particularly the number of examples where you found some shortcomings in terms of how the operation has progressed at this point. I guess, Mr. Roberts, how many board members are there on ICANN's board and where are they from? Mr. Roberts. There are 10 members on the initial board. Mr. Upton. Where are they from? What areas? Mr. Roberts. There are five who are non-U.S. There is a director from Australia, from Japan, from Spain, France, and the Netherlands. There are four from the U.S. I am an ex officio member of the board. Mr. Upton. What is your sense as we look at expanding the board to include the elected board members, it is my understanding that the timeframe is to try and get it done by September of next year, I believe. Where are you on progressing along that timetable? Mr. Roberts. The bylaws of ICANN, which were developed in response to the White Paper, have created four bodies that will elect members of the board. There are three supporting organizations and there is an at large organization or cohort. We have endeavored, since I think Christmas time last year, to in parallel, advance the organization of each of those areas so that they might elect their directors in as timely a manner as possible. Mr. Upton. Is it your feeling then that you will make the deadline without too much difficulty? Mr. Roberts. Well, I cannot speak for the entire Board, sir, but we have recognized two out of the three support organizations. We expect to recognize the third within the next few weeks. We expect the board to deliberate on the creation of the mechanisms for electing the at-large directors substantively at our next two meetings. Ms. Dyson. If I may add. Mr. Upton. Go ahead. Ms. Dyson. What that amounts to in terms of numbers is that we hope to have nine newly elected directors by our annual meeting in November. Mr. Upton. November of? Ms. Dyson. November of this year; whatever it is, 4 or 5 months. Mr. Upton. Okay. Ms. Dyson. Then we hope to bring on the new at-large directors probably in two clumps. The first would be in the spring or summer of next year. Then the final would be by September of 2000. Mr. Upton. As we look at sort of the funding stream of ICANN, it is my understanding, from an e-mail, Mr. Roberts, you had sent earlier this year dated June 17, 1999, that ICANN will have a negative net worth of $727,000, as of June 30. Is that an accurate reflection of where ICANN is? [The e-mail referred to follows:] [GRAPHIC] [TIFF OMITTED] T8497.204 Mr. Roberts. Well, our financial statement of June 30 has not been audited, but that number I think is very close to the final figure. Mr. Upton. One of the concerns that a number of us have, particularly as we have looked at the board meetings, and some of the expenses that have been there, I mean, as you talk about the ten members that are now on your committee, and where they are from, I note that your next board meeting in August, I believe it is, is in Santiago, Chile. Is there a reason why Chile was picked when you do not have members from there? Mr. Roberts. Well, the absence of representatives from Latin America in our structure has been a matter of concern to the board and to many people in our constituency. We have had discussions with the administration about that. Latin America is, from both an economic and for other reasons, an important part of the total ICANN picture. We believe it is entirely appropriate that the board meet there. Mr. Upton. Mr. Pincus, did you all have a role--I do not know how you manage, micro or macro, on these decisions? Ms. Burr. Ms. Burr. We do not participate in the decisions about where board meetings are held. I think there is an important piece of the puzzle that is missing here. In addition to the fact that the board meets, there is and has always been with respect to the ICANN meetings, an open full day of open public participation. So, one of the good things about moving around the world is when you are trying to create a global organization and create consensus globally, you need to reach out to the Internet stakeholders, not just the board members. Mr. Upton. Just to follow-up on that statement, until now the meetings have not been open. Is that not correct? Ms. Burr. There have been preceded by a full day public open meeting. Mr. Upton. My time is expired here. So, I will go to Ms. DeGette. Ms. DeGette. Thank you, Mr. Chairman. The first thing I would like to ask everyone on the panel-- -- Mr. Upton. If I might just add, because of the camera, they have asked that we try and speak a little closer to the mike. I will restart your time. Ms. DeGette. Thanks. I needed that. I would like to ask all of the panel if they can tell me who they believe owns the intellectual property that is the domain name registry system? I think I will start with Mr. Pincus. Mr. Pincus. Our view is that those are rights that the government has as a result of the cooperative agreement. Ms. DeGette. Ms. Dyson. Ms. Dyson. I would say ultimately that it is public property. There are issues about how it is used, and the privacy of information where either someone like the U.S. Government or ICANN should decide what the proper policies are for its use. But I do not think it belongs to any particular company. To some extent, it belongs to the domain name holders, but it is important for it to be publically available for various public interest purposes. Ms. DeGette. Mr. Rutt. Mr. Rutt. It is our view that, under the cooperative agreement, the intellectual property, at least in its compiled form, transferred to us under the cooperative agreement as in all other cooperative agreements. We do believe that there is need for the Internet community to have access to this data through the traditional WHOIS service so that people can find people to make claims for trademark or copyright infringement. It can also be used to contact people to purchase a domain name, et cetera. So, we do provide access to it because the community has definite legitimate use interests in the WHOIS data. Ms. DeGette. But you believe the intellectual property right goes to your company? Mr. Rutt. We believe that it is quite clearly under---- Ms. DeGette. What is the legal basis for this? Mr. Rutt. [continuing] the cooperative agreement and the terms---- Ms. DeGette. That is spelled out? See, these guys like to bash lawyers, but I actually am a lawyer. Mr. Rutt. I am not a lawyer, but I was very interested in this topic. So, I had some of our people go through the regulations. I do not know what the right term is, the things that apply to cooperative agreements and the history of the hundreds of cooperative agreements that have been entered into by the National Science Foundation over the years. It appeared to me, a simple old country boy, real clear that the intellectual property, created under any cooperative agreement of this sort, transfers to the person who executed the agreement. Ms. DeGette. If you could, Mr. Rutt, following up, if you could provide this committee for the record any legal opinion that your company has that might back this up, because the concern I have is because the contents of the data base are nothing more than simple facts, it would be difficult to copyright that information, for example. Mr. Rutt. Of course we all know there are lots of different forms of ownership of intellectual property. I will be very happy to give you that. Ms. DeGette. If you can get me that information from your lawyers. Mr. Rutt. We will actually do it. [The information referred to follows:] [GRAPHIC] [TIFF OMITTED] T8497.070 [GRAPHIC] [TIFF OMITTED] T8497.071 [GRAPHIC] [TIFF OMITTED] T8497.072 [GRAPHIC] [TIFF OMITTED] T8497.073 [GRAPHIC] [TIFF OMITTED] T8497.074 [GRAPHIC] [TIFF OMITTED] T8497.075 [GRAPHIC] [TIFF OMITTED] T8497.076 Ms. DeGette. Counsel just pointed out to me that what you are basically saying is that because of these cooperative agreements, you view your company's ownership rights as a monopoly. Would that be a fair characterization? Mr. Rutt. I would say again that the business we are in is a fiercely competitive business. We are not the only registry in town. They all work exactly the same. Ms. DeGette. Sir, yes or no works with that question. Mr. Rutt. I would guess I would say that it is a question that I cannot answer yes or no. Ms. DeGette. Okay. Let us move along then. Mr. Rutt, as a publically held company, your primary fiduciary duty is to your shareholders, not the Internet industry, not to the U.S. Government, or ICANN, or some kind of big public interest like some of the folks down at this end of the table have talked about. Would that be accurate? Mr. Rutt. Clearly, as an officer of a public company, my first responsibility is to the shareholders of the corporation. Let me say that it has been the position of Network Solutions all along that what is good for the Internet is good for Network Solutions. It is our goal, our plan, and our business plan to growth with the Internet. Ms. DeGette. Yes. I can understand why that would actually be your company's motto. I am wondering if the rest of the industry shares that view as well? Mr. Rutt. I do not know. Why do you not ask them? Ms. DeGette. I will. Let me ask you then, is it your company's position that there should be full and open competition in providing domain name registration and that this will benefit your shareholders? Mr. Rutt. Yes, we do. Ms. DeGette. Well, I think that is great. Mr. Chairman, if I may just for an additional 30 seconds. I have to leave. Mr. Upton. Go ahead, even though you are a lawyer. Ms. DeGette. Thank you. You know, it surprises me to hear you say that because in your testimony and in some of your press statements, you indicate that NSI questions the very existence of ICANN's authority as spelled out in your agreement with the Commerce Department. So, I find it interesting, but we can follow-up on that. Thank you, Mr. Chairman. Mr. Rutt. If you do not mind, I would not mind addressing that. Ms. DeGette. Sure. Mr. Rutt. We believe the issue of introducing competition is good for Network Solutions, because as the new entrants come in, they are going to spend a lot of advertising time in the usual tradition to the Internet, develop new ways to use domain names, make our friends at AOL come up with some new ways to use domain names that we have never thought of. It will cause other people to say they want to use domain names the same way and we will sell some to those people. So, we believe, truly sincerely believe, that the stimulation that will come to domain name business by new business models, new entrants, additional advertising dollars is a good thing for Network Solutions. Ms. DeGette. Well, I am glad to hear that, and thank you, Mr. Chairman, for your indulgence. Mr. Upton. Mr. Bilbray. Mr. Bilbray. Thank you, Mr. Chairman. On just a point of clarification of my colleagues, when we talk about NSI and the mother company, SAIC, when we talk about the stockholders, we are actually talking about the employees themselves. It is an employee-owned business. So, they are not faceless investors. They are actually people out there performing the services. I have a question straight over, and I ask either one of the members of the Department of Commerce representatives here. Do you have a plan if NSI does not sign the contract with UCAN? Are you planning to re-bid the competitive agreement? What is your strategy? Mr. Pincus. Our first hope is that we can reach an agreement. If we do not reach an agreement, we have not made a firm conclusion about exactly what course we will pursue. We do believe that we have the authority to recompete the cooperative agreement and to assign those responsibilities to whomever were the winner of that new competition. Obviously, as I think Congressman Klink said in his opening statement, going down that road will benefit a lot of lawyers, since there probably will be a lot of litigation, since I know NSI has the view that we cannot do that. So, our hope is that we can reach agreement and we do not have to go down that road. Mr. Bilbray. You know it is there, but you have not developed that contingency plan yet. Mr. Pincus. Well. Mr. Bilbray. The possibility is there. Mr. Pincus. We have talked to the lawyers who work for me and to the Justice Department about what the steps are, and how one would go about doing it, but we have not firmly decided that is exactly how we would do it. People thought after the White Paper came out, the first was to negotiate Amendment 11 with NSI. A lot of people said NSI would never negotiate an Amendment 11 because that was going to require the creation of a test bed process and the introduction of competing registrars. We did successfully negotiate that agreement. So, I am not ready to give up. I do not think we are up against the wall time wise on the possibility that we will reach agreement. Frankly, I think if we have to go down the recompetition road, it will not be good for the Internet. There will be a lot of instability in the short term. So, I really want to exhaust every possibility of resolving this amicably. As somebody said, even if everyone is not completely happy, at least we have an agreement. The alternative, I think, has some very, very significant costs. Mr. Bilbray. You mentioned the ranking member. I want to compliment the ranking member and the line of questioning that was just performed by the ranking member. I think that I would like to get the video and show every Member of Congress a very productive way of getting the facts out and getting the dialog; allowing both sides time to articulate the positions, even if the individual member may not agree. Mr. Klink. I thank the gentleman. Mr. Bilbray. Very, very commendable question series. Let me turn around on the other side and ask NSI, you talk about developing a competitive environment. What are you doing to move toward that competitive environment? Mr. Rutt. We have invested tens of millions, or we will eventually invest tens of millions of dollars. We spent pretty well over $10 million today to introduce competition in .com, .net, and .org. We already have five companies up and running today. We have a considerable list that once we come to resolution on some of the outstanding business matters, we are going to move expeditiously, as fast as is practical, to bring in the competition. We have said that we are capable of bringing on at least five a month. That comes out to 60 a year. A year from now, if all goes well, we will have 60 people out there competing with us in .com, .net, and .org. There are not too many companies that have 60 competitors. We are going to aggressively bring competition to this business. Mr. Bilbray. Now you said how much money has been spent? Mr. Rutt. It is in the tens of millions of dollars. Mr. Bilbray. Tens of millions. It would be nice if you could get to this committee a little closer estimate than that. You state that the competition is out there. Can you give me the time line again? When do you think you are going to see this actually bloom? Mr. Rutt. Five are actually in business right now able to register domains in .com, .net, and .org. So, it is actually in production now. The first one went online on the 5th of June. The rest of them have come online since then. They are all ready to go. As soon as the test bed is over, and we have agreements on how to move forward, we will start bringing them on no slower than five a month. Mr. Bilbray. Okay. Thank you very much. Mr. Rutt. We are in competition right now. Mr. Bilbray. Thank you, Mr. Chairman. Mr. Upton. Mr. Stupak. Mr. Stupak. Mr. Rutt, it seems to me that NSI questions the very existence of ICANN's authority as spelled out in its agreement with the Commerce Department. For example, you claim that NSI has agreed to recognize ICANN, only if it has a final agreement with Commerce, which you doubt exist. It sounds like to me it is a classic delay tactic. The Commerce Department told you in writing that this agreement had been finalized. Has it been finalized or not? Mr. Rutt. I will leave that question to the lawyers. I will leave that question to the lawyers. I am not a lawyer. Mr. Stupak. I am sorry. Lawyers are not here. I am asking you. Mr. Rutt. Let me ask my lawyer. Mr. Stupak. Okay. [Pause.] Mr. Rutt. I think a better way to talk about this issue---- Mr. Stupak. No, no, no. I want my questions answered. Mr. Rutt. I do not think it is really relevant because we are working with them right now to negotiate a recognition of them as anticipated in Amendment 11 under the contractual term which calls for Network Solutions to recognize ICANN pursuant to a contract. Mr. Stupak. Mr. Rutt, like I said, it sounds like delay tactic to me. Sir, yes or no? Is there a final agreement? Mr. Rutt. We will get back to you for the record. Mr. Stupak. For the record. When will that be, Mr. Rutt? Mr. Rutt. Let me ask my lawyer. Hope he is not on the clock. [Pause.] Mr. Rutt. He says tomorrow. Mr. Stupak. Okay. Have you ever told the Department of Commerce or ICANN that, in your opinion, there is no final agreement? Mr. Rutt. Probably yes. Mr. Stupak. Okay. And that Amendment 11 is not yet operative? Mr. Rutt. No. I have definitely said that. We absolutely believe Amendment 11 is operative, and we have been going forth. Mr. Stupak. But there is no final agreement. Mr. Rutt. That is true. The recognition of ICANN by Network Solutions, pursuant to a contract between Network Solutions and ICANN, has not yet taken place. That is the moment that is important. That is what we are working toward. That is the thing you should focus on. Mr. Stupak. No. I think I am focusing in the right area. Let me ask Mr. Pincus and Ms. Dyson, do you believe that your agreement has not been finalized and therefore NSI is off the hook for following Amendment 11 in any of ICANN's directives? Do you believe they are off the hook and do not have to follow directives? Mr. Pincus. No. Our interpretation of Amendment 11 is that the obligation of NSI to recognize ICANN is due and has come due. Now it is true, it has to be done pursuant to a contract. Obviously there is no agreement--in terms of the obligation, we think it is due now. It is quite clear that the system would not have worked if we had to wait until the end of the line. Mr. Stupak. Ms. Dyson. Ms. Dyson. The short answer is yes, and we are moving forward to fulfilling the provisions of it. Mr. Stupak. Well, we seem to have some disagreement here. So, who is the final arbitrator here, the Courts? Mr. Pincus. I think our view, Congressman, is since Amendment 11 says that NSI must enter into a contract that does not have the terms, there is no way, as a practical matter that we can force NSI to enter into a contract against its will. I think the ultimate conclusion of an inability to reach that agreement is what we were talking about before, going down the road of recompeting these obligations, and assigning them to the winner of that free competition. Mr. Stupak. So, you are in favor then of putting it back out for recompetition? Mr. Pincus. If we cannot reach agreement, I think that is appropriate. Mr. Stupak. Is there some time line when this agreement should be reached? Mr. Pincus. Well, the outside limit is the expiration of the current agreement, which is September 30, 2000. Obviously, we want to move forward as soon as we can. We want to keep having discussions if they are productive, because clearly that is the best way to solve the problem. If we hit a stonewall, then we have got to do it another way. Mr. Rutt. I would like to make a point too, Congressman Stupak, that we are engaged right now in active negotiations to reach agreement. Now, we look forward to reaching an agreement that---- Mr. Stupak. Well, how long have those active negotiations been going on? Mr. Rutt. Since I have been here, I think back, when was it, late June, yes. So, I would say a month. Mr. Klink. Would the gentleman yield to me for a moment? Mr. Stupak. Sure. Mr. Klink. What is the impetus for NSI to conclude these negotiations? This is what everyone else is saying. The longer you drag it out the more money you are making. So, what stimulus is there for you to wrap these negotiations up and to negotiate in good faith. Mr. Rutt. Real simple answer to that. As the new CEO of Network Solutions I did not come here to run border wars with lawyers and try to squeeze two extra pennies out of the current business. I came here to grow a much more interesting business in various other segments of the Internet. I will be introducing some new products in the next few days indeed, which will be showing some of the moves that we are doing to diversify our company. I would much rather spend my time, the management focus of the corporation, et cetera, working on how to grow our business and compete, and be a ferocious competitor in a fair and open market, rather than waste my time and everybody else's in this industry about, frankly, small change matters. We think we can make a lot more money growing a big Internet company than we can figuring out how to, you know, two little few pennies off of the current user. Mr. Klink. If the gentleman will continue to yield. Are you saying that the kind of money that NSI has been making off of a virtual monopoly is small change? Mr. Rutt. I am saying that the money we are going to make off our other businesses is larger than we will lose by what we are giving up in coming to an agreement. Mr. Klink. But you are walking away from a sure thing which has bought a lot of value and a lot of wealth to your corporation. The longer you hold that, that gravy is running all over your plate. Mr. Rutt. Interesting that you think of it that way. I do not. I think that going out and becoming an aggressive, interesting, innovative, fast-moving Internet company is a much better way to grow value for our shareholders. Mr. Stupak. I think members here, and I do not mean to speak for everyone, but if the government had the authority to enter into a cooperative agreement, then we certainly have the authority to put in new competition for these services, and that is what we want to see. Mr. Rutt. And we agree with you. Mr. Stupak. Yes, but not in a monopolistic way. Mr. Rutt. Of course, we are not a monopoly. Mr. Stupak. Seventy-five percent. Mr. Upton. The gentleman's time is expired. Mr. Cox is recognized for 5 minutes. Mr. Cox. Thank you. I was just asking the staff the exact status of this dollar fee. I would just like Ms. Dyson, perhaps, to clarify for us. The dollar fee is off; right? Ms. Dyson. The dollar fee has been--we have deferred it until November when we have an elected board. That was partly in response to Commerce's suggestion. Mr. Cox. What is your recommendation; yes or no on the dollar fee? Ms. Dyson. My recommendation is that it makes sense. It is a very practical way of covering our costs. As you are going to hear this afternoon from the registrars who are in fact the people who are paying it, they approved of it. This was not, again, a decision taken in a vacuum or in a closed room. We posted it for comment. We received comments. Commerce thought it made sense. Most of the Internet community, with the exception of NSI, thought it made sense. Mr. Cox. Is that a one-time fee or is it perpetual? Ms. Dyson. It is per domain name per year. Mr. Cox. Is it perpetual? Ms. Dyson. It is perpetual. It compares just as when you get a domain name fee, you get it for a period currently of 2 years for $35. Mr. Cox. What you are talking about though is on top of the fee. Ms. Dyson. Yes. Mr. Cox. Just paying for the domain name is an extra dollar. Ms. Dyson. Right. It is an extra dollar, but the impact to consumers, just to make it clear, the net impact is the fee that NSI charges as going from $35 a year down to $9. So, in the context of that it is a dollar on top of the $9 NSI still charges for its registry services. Mr. Cox. What about the World Intellectual Property Organization, which was going to be funded with this dollar? Ms. Dyson. No, they are not funded through it. ICANN is funded through it. The WIPO is looking at the issue of domain names vis-a-vis trademarks, but they are not funded through ICANN or through a fee on registrars. Mr. Cox. I am sorry. What I mean to say is what about the WIPO role that is going to be funded through that dollar. Is that something that you still---- Ms. Dyson. No. WIPO's role is not funded through that dollar. Mr. Cox. No, no, your WIPO role. Ms. Dyson. I am really sorry. I do not understand the question. Mr. Cox. My understanding is that the purpose of the dollar is to get you in the business of looking at trademark infringement. Ms. Dyson. That is one thing we have asked WIPO to do, and that our DNSO will be considering their recommendations. But the dollar is for funding ICANN's operations overall. Mr. Cox. So, the trademark aspect is something you recommend in November that ICANN pursue or no? Ms. Dyson. Sorry. What is happening now, WIPO made a set of recommendations. Some of them de facto we already took into account in terms of the registration agreements with the registrars. Things like requiring pre-payment for domain names so that cyber-squatters would be deterred from reserving thousands of names and then not paying for them. Some of them related to the idea that there should be some common dispute resolution procedure adopted by the registrars. We accepted that recommendation, but sent it on to the domain name supporting organization to consider the details of implementation. Then the third large set of recommendations which concerned the famous names and trademarks, frankly we are not sure whether that recommendation makes sense. We have deferred that to the domain name supporting organization for them to consider, again, through an open process, soliciting comment and input from all affected parties. Mr. Cox. The reason I ask the question is that in the July 22, Thursday, today's Washington Post their description of this is, ``the board's subsequent decision to charge a $1 fee on every domain to fund its operations and support a World Intellectual Property Organization Plan aimed at resolving trademark disputes further enraged activists who worry that ICANN is moving well-beyond its technical management mandate to more broadly regulate the Internet.'' You are probably familiar with that. You probably read that in the paper today. You know what I am asking. Ms. Dyson. With all due respect, I now have some sympathy for Jim Rutt because it kind of just puts together a whole lot of different things we are doing. To the extent that we accept the recommendations of WIPO, that will fund the things that we do. Mr. Cox. So, the answer, in short, is that the $1 fee is something that you want to pursue for the very purposes just described. Ms. Dyson. Either something that we believe is the correct thing, but given the criticisms, we are again putting it out for comment and soliciting opinions on it. Then the elected board, rather than just the initial board, will be voting on it in November. Mr. Cox. Thank you. Ms. Dyson. Thank you. Mr. Upton. Okay. I think all members have had a chance to go through the first round. We will start a second round of questions. A number of members have a couple more questions. I want to follow-up on some of the funding. It is my understanding that ICANN was partially subsidized at the beginning through donations from a number of high-tech companies, whether it be Microsoft or IBM. We have some e-mail correspondence, I guess, I would like to be made part of the official record. All members here on both sides have had access to this before. So, with unanimous consent, I will make that as a part of the record. [The e-mails referred to follow:] [GRAPHIC] [TIFF OMITTED] T8497.077 [GRAPHIC] [TIFF OMITTED] T8497.078 [GRAPHIC] [TIFF OMITTED] T8497.079 [GRAPHIC] [TIFF OMITTED] T8497.080 Mr. Upton. As you indicated, there has been somewhat of a shortcoming, in terms of the funds, for the deficit that ended at the end of the fiscal year, as you commented earlier. I notice that this e-mail summarizes a meeting between Mr. Simms and Ms. Dyson that they had with Tom Kalil, who is presently listed as on the White House website as a Senior Director to the National Economic Council, with the responsibility for Science and Technology issues. In that e-mail, it says, ``Esther and I met with him,'' referring to Tom Kalil, ``today, and he promised to do what he could to encourage private donations on the scale necessary to make it clear that we are not going to be financially starved for the foreseeable future.'' Mr. Roberts, do you think that it is appropriate for a private corporation that is supposed to be managing a global medium to seek assistance from the White House? What is your reaction? Mr. Roberts. Mr. Chairman, We have a number of conversations with constituencies about raising funds. As the White Paper set forth, it expected the private sector to identify and obtain funds on both the short-term and a permanent basis. You have testimony from the Department of Commerce in this regard. The obligation to assist us with funding is a very important one. Mr. Upton. Has there been some follow-up by the White House in terms of what they have done in the last 6 weeks? Mr. Roberts. Both Ms. Dyson and I have had conversations over a long period of time with the White House people who are endeavoring to promote the President's E-commerce Initiative. Mr. Upton. Has there been any concrete results; any checks? Have they been received? Any pledges? Mr. Roberts. Well, the manner in which these sorts of things proceed is that some phone calls are made. If there is interest and a willingness to provide us funds, those of you who have had an opportunity to look at our contributions page, understand that this is a tax-exempt, charitable deduction with no strings whatever involved with that. Then the responsibility for making the contacts and arranging for the funding falls to me. We have indeed had direct conversations about contributions, and we continue to receive contributions. Mr. Upton. Is it a tax-exempt contribution? Mr. Roberts. ICANN is organized as a California non-profit corporation and is going to apply for a 501(C)3 tax exemption. The IRS reviews the entire record of those submissions and either grants it or does not grant exemption, depending on the facts that are before it. Mr. Upton. So, the IRS has ruled on it then? Mr. Roberts. No. In fact, the application, due to the shortness of time and our startup organizational activities, it has not been filed yet. Mr. Upton. Okay. Mr. Roberts. In some part because the IRS likes to see a financial statement and we have not had a financial--we have not concluded a financial period until June 30, which was some 3 weeks ago. Mr. Upton. But you are anticipating on filing those papers. Mr. Roberts. Yes, sir; within the next 30 or 40 days. Mr. Upton. In one of the e-mails also included in this packet produced for the committee by ICANN, ICANN's Counsel, Joe Simms, recounts a conversation with a DOJ attorney. In that e-mail, Mr. Simms refers to the DOJ attorney as the, ``DOJ senior person focused on NSI's ICANN issues.'' As you no doubt are aware, the Department of Justice is actively investigating NSI for possible anti-trust violations. A part of that e-mail reads, ``I suggested that one thing DOJ could do is to increase the level of pressure on,'' referring to the Department of Commerce, ``by some form of formal communication or a higher level contact.'' Ms. Burr, were you aware that ICANN's attorney attempted to influence your agency's management of the transition of the domain name system through another agency? Ms. Burr. We have not been following the Justice Department investigation. We know that it is ongoing, but we have not had continuing conversations with the Justice Department about it. I do not regularly follow the discussions between ICANN's lawyers and other people in the government. Mr. Upton. Mr. Klink. Mr. Klink. Ms. Dyson and Mr. Roberts, I see that you all have a problem. You are in a Catch-22 when it comes to finance. You put $1 on and you are accused of an illegal tax. If you go out and look for donations, then you have got a problem. Look at page 3 of the memo that my dear friend, the chairman, just put in. It is a memo from Joe Simms. It says, ``collecting small donations from a large number of companies is going to take much too long. A few big companies throwing money in creates a problem of big U.S. companies trying to dominate control of the Internet. Loan guarantees might be an angle. They present complexities for companies to provide them.'' I suppose you could print your own money or hold up a liquor store, but that would provide some problems too. My question is, I mean, have you solved this problem yet? You obviously cannot continue to run without some income. Ms. Dyson. What is actually happening right now is that Mr. Simms very kindly is providing his services on credit. The directors who are not paid have not received money for their expenses. Mr. Roberts' family company, with which we have a contract, has also not been paid in the last few months. So, we are doing what everybody does. We are managing our cash-flow. We are hopeful. Let me say this. I am persuaded---- Mr. Klink. What cash-flow is there? Is there any money at all coming in? Ms. Dyson. There is some money coming in. Mr. Klink. From what? Ms. Dyson. It is on our website. It is primarily donations from some of the companies you mentioned; IBM. Mr. Klink. You could start your own church. Ms. Dyson. Pardon? Mr. Klink. Never mind. Ms. Dyson. Yes; the First National Church of ICANN. We are encouraged by the support we have received from the Internet community, including the registrars, two of whom have volunteered to pay this $1 per name fee, even though it is not required. That is the depth of their commitment to the activities we are undertaking. So, we are convinced we will prevail, but it is a challenge, short-term. Mr. Klink. I can understand it would be. Mr. Rutt, in your testimony you proposed another condition that would be met before you would accept ICANN's authority. You say that NSI is not going to recognize ICANN unless it operates in compliance with the White Paper. I would just ask you, who would make that determination whether they were complying with the White Paper? Is that a decision that NSI would make or would you depend on some other consensus or Commerce Department consensus? Who would make that determination? Mr. Rutt. Would you point me to the language where I said we would not recognize ICANN with respect to the White Paper. We did say that was one of the reasons they were a little off- track. Mr. Klink. It was in your testimony. We will proceed on and I will come back to that. We will dig it out for you. We will get back to it. I read it in your testimony. Again, I would have hoped that you would be familiar with your own testimony. On page 7, about half-way down the middle of the paragraph it says, ``If ICANN is required to operate in compliance with the original statement of policy, indeed we have proposed such terms on several occasions asking, we think reasonably, that ICANN's policies be binding based upon a true industry consensus applying to all competing registries and registrars. ICANN has unfortunately refused to negotiate on the terms of such a contract,'' et cetera, et cetera, et cetera. Mr. Rutt. Yes. Basically, this is a comment about the contract discussions going on between Network Solutions and ICANN, through intermediaries, about how NSI will come to a contractual relationship to recognize ICANN. Those are some of the issues that are on the table. Mr. Klink. Let us get back. If you have a problem, whether it is whether or not they are in compliance with the White Paper, whether it is whether Amendment 11 is being adhered to correctly, who do you think makes that determination? Is that something that NSI decides itself or do you look for an industry consensus of some sort? Is that something you look for direction from the government on? Here is the question. It boils down to this. Did NSI ever get a consensus from anyone within the community when you set the rules or the fees for domain name registration? My sense, from your testimony, is that NSI can make objections whenever you do not think the amendment is being interpreted correctly, or if you do not think the White Paper is being adhered to correctly. You all got in business and who had input as to what the rules were that you established when you got into that business? Now you turn around, and it appears to me, and I am asking a question. I am not trying--you appear to want to hold ICANN to a completely different standard than NSI was held to when you began to do this. Mr. Rutt. Well, actually the rules of pricing and how we operate our business were developed in cooperation with the National Science Foundation. So, we did not set the price out of thin air ourselves. It was done by mutual agreement with the NSF. Further, you have to read carefully this part of the testimony. What we are talking about is reaching the agreement to recognize ICANN. Amendment 11, which is the basis for the framework for us to negotiate an agreement to recognize ICANN, does call for the White Paper policy to be the framework from which we are all operating. That is all this says. Mr. Klink. But who makes that determination, whether or not that policy is being adhered to? That is simply, Mr. Rutt, what I am asking. How do you make that determination? Mr. Rutt. We have two parties here attempting to negotiate a contract. When we both agree that the contract is mutually acceptable and within the context of the framework in which it is being established, we will have a contract. Mr. Klink. But Mr. Rutt, and again I am not trying to be argumentative. We are just trying to get to the bottom of this. A lot of people have said that NSI, again, that you have the fatted calf. The allegation is whether you are in the room or whether you are out of the room, everybody is coming and telling us that you are reluctant to give that up and that all you have to do is stall. So, the question is you have got to parties in the room. The cash-flow is coming in. If all you have to do is sit there and stonewall and say they are not adhering to this White Paper, if all your attorneys have to do is keep saying that, and while they are saying that, you are not divesting. You are not letting other people come in and compete with you. That is what those who want to compete with you are saying that NSI is doing. We are simply here in an open hearing trying to give you the opportunity to respond to that, that we are all hearing in our offices, and that we are all hearing in the hallways here. We are trying to do it, no in an offensive way, but just to give you the opportunity to tell us what that is not happening. Thus far, I do not think we have gotten there yet. Mr. Rutt. I think you may not realize we are negotiating in good faith at a pretty good clip to try to move these issues about clarification, about what things mean, what does the White Paper mean which, frankly is a little bit more like the Bible than it is like the Constitution, in terms of a very broad statement of where we are going. I think we are all working in good faith to get there. When we all agree that we have a contract entered into voluntarily, but within a framework called Amendment 11, we will shake hands and go forward. I really expect that we will do that and do it soon. Mr. Klink. Mr. Pincus, who do you think would make that determination, whether or not the White Paper was being complied with? Where is that decision made? Mr. Pincus. Ultimately, we will not approve a contract between NSI and ICANN and go forward with the transition process if we do not think elements of that agreement satisfy the White Paper. So, our view certainly is we are going to make that determination. Hopefully, we will get to that agreement. If we do not, then we will have to go down another road. We have been entrusted--the White Paper lays out our view of what the public interest is. We have to make sure that is satisfied. Mr. Klink. Can either party, either ICANN or NSI, scuttle that before it gets to you by them not agreeing? Mr. Pincus. Absolutely. The problem that we have is the September 30 deadline and the need to have a replacement in place if we are going down the road to that deadline. So, under the cooperative agreement now, it is true competition is moving forward and registrars are being added, but again under NSI's view of the world, on October 1st, everybody can be cutoff and there is no oversight, and NSI is in complete control. Mr. Klink. Thank you, Mr. Chairman. Mr. Upton. Mr. Bilbray. Mr. Bilbray. Thank you, Mr. Chairman. You know, let me just say as a layman that has been involved with regulatory agencies for the last 25 years, the dynamics of this field, it is hard for us on the government- side to comprehend. We always think in, you know, two- dimensional fields. This goes into cyberspace. I mean it just moves into so many dimensions. It is hard to comprehend. I appreciate the fact that NSI is talking with our colleagues about this issue of your right, there is a funding source here in this dimension, but you have got to comprehend the fact, you know, once we break out of this, we go into cyberspace. It was much like a company in my District that sold its stock. It quadrupled in 1 day, and they give away free CDs. Try to explain that to those of us who went to business school in the 1960's, and 1970's, and 1980's, and then function at what is going on. It boggles my mind. Let us get into this. I would ask the Commerce people, even with the dollar fee or tax, the talk about moving from a $35 a unit down to a $9 or $10 unit, extraordinary reduction. I mean, I do not think I can place anywhere in government, be it local, State, or Federal that I have seen this kind of reduction. Can you comment on that proposed reduction? Mr. Pincus. I should comment that those two numbers are not exactly comparable. Mr. Bilbray. Okay. Here we get into the multi-dimensional. Mr. Pincus. So, I apologize that it is a little complicated. The $35, $70 for 2 years, is for both. It is paid to NSI and to the cooperative agreement, and covers both management of the registry, the central data base for that name, as well as the processing and taking in at the retail level of the name of Pincus.com. The $9 is the interim fee that we negotiated with NSI that it could charge itself as a registry/retail registrar and other registrars for the central purpose, the maintaining of the central registry alone. So, on top of that fee, unless it is part of a zero-cost business because the registrar is doing something else, presumably different registrars will charge different amounts for the retail half of the business. I think it is anticipated the combination of those two things together will still be less than $35. We do not know what the final registry fee that is now $9 will be for the post-test bed period. There is a reasonable chance that when we get to a cost-plus profit number it will be less. Mr. Bilbray. Let me go over and ask Ms. Dyson, the attorney's bill that we are talking about that is being defrayed, how much is that? How much is hanging out there? I mean, it is one thing to say we do not have to pay for it, but we do not have to pay for it right now. Ms. Dyson. We do need to pay for it. I am not sure, but I think it is on the order of---- Mr. Roberts. Congressman, our payables at June 30 were approximately $800,000. Mr. Bilbray. That is the total attorney bill? Mr. Roberts. That is for all categories of credit that has been extended to us and includes half a dozen different categories. Mr. Bilbray. But that is your total legal fees for ICANN? Mr. Roberts. The current outstanding amount unpaid to our counsel is approximately $500,000. Mr. Bilbray. So, it is at $800,000 or $500,000? Mr. Roberts. Of the $800,000 total, approximately $500,000 is attributable to credit that has been extended to us from our counsel. Mr. Bilbray. Okay. And that is total for the whole ICANN attorney fees across the board? Mr. Roberts. That is correct. Mr. Bilbray. Now, the issue of the openness of ICANN, something very sensitive to Californians. We have a thing called the Brown Act. I might not have voted for him. We have to follow his laws. It says, if you are either public or quasi- public, if you have been appointed or working under that, you have got to be out in the open. There has been a big concern about that openness and how people get involved in ICANN. Ms. Dyson, how were you initially contacted to participate in this program? Ms. Dyson. Personally, I was initially talked to about it in the summer of 1998, both by Ira Magziner and by Roger Cochetti who is with IBM. They both said to me, separately, something along the lines of we are not asking you this, but if someone were to come and ask you to join a board that would oversee this process, would you be interested? I knew that this was going on. I was not following it very closely. Is said, sure. That sounds interesting. I think it is a worthwhile thing to do. I would have to know more details, but probably I would say yes. Mr. Bilbray. So, you were contacted by the private sector. Ms. Dyson. Yes, but I was actually asked to join the board by Joe Simms in September. Mr. Bilbray. Joe Simms represents? Ms. Dyson. He was representing, at the time, IANA which then de facto became ICANN. Mr. Bilbray. I am just saying, the private sector who contacted you, no one from the government, any government agency, had any contact at all? Ms. Dyson. No. The formal request to join the board came from Joe Simms. Mr. Bilbray. What about the first informal contact? Ms. Dyson. The informal contact was with Ira Magziner who I was very---- Mr. Bilbray. So, the White House had contacted you and said would you be interested. Ms. Dyson. It was--Ira Magziner, whom I ran into at a conference. He did not actually bother to call me, but he saw me and said, if we did this and you were asked to do it, would you do it, and I said probably yes. But he was very careful not to ask me, which I did not understand at the time, but I do now. Mr. Bilbray. I appreciate that. Mr. Chairman, I would ask for unanimous consent for just one follow-up here because I do not want to just leave her hanging. There has been concern about openness of the procedure. When can we look forward to the Brown Act being followed. In other words, the light of day shining into the operation of ICANN? Ms. Dyson. In Santiago. We have made the decision to open our board meeting, in addition to, as Becky mentioned, before every board meeting, not only do we post what it is we are going to be talking about and the comments on the various agenda items, we also hold an open meeting. Openness consist of two parts, as you know. One is being open to suggestions, criticism, comments, taking into consideration all of these people who need to get together to come to consensus. The second part of openness is having people see us, the board, seeing how we think, determining for themselves, do we seem to be unduly---- Mr. Bilbray. Figure out where you are coming from. Ms. Dyson. Yes. Mr. Bilbray. How you got to the conclusion. Ms. Dyson. Yes. Mr. Bilbray. Is this going to be the policy from now on? Are all the meetings going to be open from now on? Ms. Dyson. That is going to be determined by the vote of the half-elected, half-appointed board in November. Mr. Bilbray. So, we do not know that yet. So, the openness of the procedure will be determined in November. Ms. Dyson. But we are listening very carefully to your comments here today. Mr. Bilbray. I am glad. That is why we have an open process so you understand where we are coming from and why we come to the conclusions. Thank you very much, Mr. Chairman. Mr. Upton. Mr. Stupak. Mr. Stupak. Well, thanks. Ms. Dyson, the way I understood it earlier on a question asked about the meetings was that while you may go into open, but then you reserve the right to go into a closed or a private session. Ms. Dyson. Dealing with things such as personnel matters, or maybe proprietary negotiations with NSI. Mr. Stupak. So, just those areas that was often found or where there are exceptions to it then. Ms. Dyson. The usual exclusions. Mr. Stupak. Right; litigation, personnel matters, and things like that. Ms. Dyson. Yes. Mr. Stupak. So, we can take it by your assurances, at least you will be advocating in Santiago that you have open meetings here on through, except those common exceptions found in law. Ms. Dyson. That is correct. The board is not of one mind on this. Being Chairman, I do not make the decisions, even within the board. There is a requirement for consensus. Mr. Stupak. Sure. That is what we could expect your advocacy would be down there. Ms. Dyson. Yes. Mr. Stupak. Open meetings. Mr. Rutt, with the increased competition, you say there will be increased innovation and domain names sold by your competitors. As the registry, you will still be paid $9 per domain for your registry duties; will you not? Mr. Rutt. There will be some price agreed upon as a part of these contacts. Mr. Stupak. When the cooperative agreement expires in the fall of 2000, is it your view that NSI will own the registry or do you support competitive bidding for the registry. Mr. Rutt. It is and remains our view that the operation of our business transferred to us, under the cooperative agreement. I will say that in the discussions we are having right now, we are anticipating quite likely that we would agree to terms that considerably last beyond September 30. Mr. Stupak. So, what are you saying? Are you saying that the monopoly goes on beyond September 30? That is what you are saying; are you not? Mr. Rutt. No. Mr. Stupak. Okay. Mr. Rutt. I am saying our business will continue to operate. Mr. Stupak. Is it your view then that NSI will own the registry or are you going to put it out for open bids on September 30? Mr. Rutt. We believe the business transferred to us, under the cooperative agreement, and we are going to continue to operate our business through September 30 and beyond September 30. Mr. Stupak. So, you are saying .com belongs to you? Mr. Rutt. That is a metaphysical question I will leave to the lawyers and philosophers. The business that we are in today belongs to us. Mr. Stupak. And you expect after September 30 it is going to remain with you? Mr. Rutt. Yes. Mr. Stupak. And that business is .com? Mr. Rutt. The registration of names in .com, .net, and .org domains. Mr. Stupak. So, you do not plan on putting it out for open bid after September 30, 1999. Mr. Rutt. Had not thought about it. Mr. Stupak. So, the Commerce Department could do that; right? Mr. Rutt. We do not believe they have the legal right to do so, no. Mr. Stupak. You know, it seems like when I ask a question, you have not thought about it, or you do not have an answer. So, let me ask you this. Your testimony seems to indicate that you accept the decision of a ``true industry consensus concerning accreditation.'' Tell me, Mr. Rutt, should I assume that only NSI will determine if a ``true industry consensus'' has been obtained? Mr. Rutt. Not necessarily. When in our discussions on a framework for a contract, we put on the table some suggestions for, excuse me, super majority means of defining consensus that do not allow one obstructionist player, even if it is NSI, to stop the process going forward. Mr. Stupak. Have you proposed your definition of ``true industry consensus to ICANN or to the industry so they can review it? Mr. Rutt. We are working through our friends at the Department of Commerce on a framework that we think makes sense for everybody. Mr. Stupak. So, in other words, you then, as you indicate, this true ``industry consensus'' is something you have decided and you are now going to share it with other people in the industry. Mr. Rutt. It will be part of a negotiation of a contract between ICANN and NSI. Both sides will agree. Mr. Stupak. But you have already said that in your testimony, you determined this ``true industry consensus.'' So, what is it? What is your ``true industry consensus?'' What does that mean? They do not meet your standards and that is it? Mr. Rutt. I will get back to you on that one. I do not have an answer for that one, what it exactly is. It is an interesting philosophical question. Mr. Stupak. Mr. Chairman, if I may, could I ask Mr. Pincus if he has an answer to that ``true industry consensus?'' Mr. Pincus. Our view, Congressman, is that the result of the shuttle diplomacy that we are performing between NSI and ICANN, were there to be an agreement, has to be put out for comment pursuant to ICANN's procedures, because that is obviously going to be very significant. Policy determinations will be made about what the rules are for registries. So, our view is that will have to happen. We have not been able to discuss those terms with anyone because they have been stamped proprietary when we have been given proposals. Mr. Stupak. Proprietary by NSI? Mr. Pincus. By NSI, yes. Mr. Stupak. NSI. Mr. Klink. Would the gentleman yield for 1 minute? Mr. Stupak. Yes. Mr. Klink. Could I ask both Mr. Pincus and Mr. Rutt, since it is admitted that NSI controls 75 or 80 percent of that market, is it what NSI says is that the consensus? Since you control 75 or 80 percent of the market, is your opinion the consensus for industry and is it proprietary? Mr. Rutt. Sir, the answer to your question is no. A consensus is a consensus. Mr. Stupak. Well, a consensus by one is not a consensus. Mr. Rutt. I do not agree with that. A consensus is like pornography. You know it when you see it. If we are the only hold-out on a term, that is probably not enough to stop consensus. Mr. Pincus. One of our concerns with the system that would require consensus among separate elements of the Internet community, is that if that were interpreted to require a consensus, for example, among registries that were overseen by ICANN, there might only be one of those for a time because the addition of others depends upon decisions by other governments. So, we would obviously be troubled by a rule that required segment-by-segment consensus, where there was only one person in the segment. Mr. Klink. We would be troubled also. Mr. Upton. Mr. Cox. Mr. Cox. Thank you. Ms. Dyson and Mr. Roberts, I understand that the GAC, the Government Advisory Commission, is setup under your bylaws. Is that right? Mr. Roberts. Yes, sir. Mr. Cox. Your bylaws and your charter provide that the bylaws can be changed by the board of directors. Mr. Roberts. That is correct. Mr. Cox. So, essentially what the GAC is, is a function of ICANN's policy. Is that right? Mr. Roberts. Well, I think that the background to this is that it was felt during the open process last summer that there ought to be a mechanism for governments to convey their views to the new corporation. These bylaws and these bylaw provisions were created before ICANN existed. As I think you are aware, the White Paper is quite definitive on the issue that there should not be active involvement by any governments in the ICANN structure. So, we have a committee. It is self-organizing. Its role is limited to providing the board of ICANN with its recommendations on issues that are before us from time-to-time. Mr. Cox. Now, we are going to hear from witnesses later on, including a representative of the Consumer Project on Technology who are concerned about ICANN becoming a quasi- government. That is really why I asked where you are headed with WIPO. Having read the White Paper and not noticed a lot of direction where you might go in the work you pick up with WIPO, I just wonder what your response is to the concern that while we are as a government policy trying to promote competition, we have put an umpire in there that is going to stand in the place of a government and get the government out of it. That is you. That you are now conducting liaison with governments. How much policy should we expect to come out of this? Ms. Dyson. Let me try to clarify a few points here. First of all, we very specifically, or the people who originally created the bylaws very specifically, created a Government Advisory Committee as opposed to a supporting organization. Those three supporting organizations elect members to the board. The Government Advisory Committee gives us advice, which we need to listen to, but not to follow. It is a means of governments coming together and being clear and specific about what they want and conveying that to us. Mr. Cox. Are you listening to the right people? Ms. Dyson. That is always a question. That is part of the challenge of determining consensus. Mr. Cox. No. I mean on GAC. Ms. Dyson. The governments themselves. Mr. Cox. For example, I have been working for 11 years with the Democracy movement in the People's Republic of China. We hope that the Internet is a means of spreading freedom. We also observe that the People's Republic of China is putting in jail people like Lynn High for distributing e-mail addresses to anti-communist groups in the United States. Our hope for the Internet is profound. What we see GAC doing is admitting the PRC as a member, which is trying to build an intranet to keep out foreign information, excluding Taiwan, even though our government's policy is that in any organization that does not require sovereignty as a pre-condition, we have no objection to Taiwan being a member. Surely ICANN does not need to limit itself to sovereign states. Ms. Burr obviously wants to talk about this. I will be happy to let her do so. I just want Ms. Dyson to answer the more general question about whether we should not be concerned about policy being made without any oversight by anybody at ICANN. It is a different question than creating competition, which we are all for. Ms. Dyson. ICANN is extremely limited in what it can do. It manages technical infrastructure. It does not deal with, for better or worse it does not deal with, content, freedom of speech, privacy beyond what happens with domain names. Mr. Cox. It deals with architecture. What the PRC is trying to do is construct an architecture to keep out information. Ms. Dyson. Yes. We, unfortunately or fortunately, cannot control what the PRC does. We can control whether we listen. Mr. Cox. I guess what I am getting at with this specific example is that if the object is to create an intranet, that requires plumbing. You are in the plumbing business. I observe that the commission that you have setup under your bylaws to deal with this issue is listening only to the Communist part and not to the Democratic part of China. Ms. Dyson. I believe Taiwan is actually admitted to GAC. Mr. Cox. Is that correct now? Are they in there? My information was that they are not. Ms. Dyson. The Government Advisory Committee, which the members are not constituted by ICANN, but the governments of the world send their members. The original by law provision in ICANN said governments. Our first recommendation, when the Government Advisory Committee met, was to amend those by laws to include governments and distinct economies as recognized in the international, specifically for the purpose of inviting Hong Kong and Taiwan to join as full members of the GAC. Mr. Cox. That will happen next month in Santiago? Ms. Dyson. My understanding is that they will be there as full members in Santiago. Mr. Cox. I appreciate that. I know the chairman has been generous with the time. Mr. Upton. Unless another member has a pressing question, I would like to ask that we may submit questions in writing. All of members of the subcommittee will note that a number of us are on other subcommittees and they are also meeting at this time. So, with that being understood, thank you for appearing before us today. We look forward to seeing you in the future. Thank you. The second panel will include Ms. Mikki Barry, who is President and the Director of the Domain Name Rights Coalition; Mr. Jamie Love, Director of the Consumer Project on Technology; Mr. Grover Norquist, President of Americans for Tax Reform; Mr. Harris Miller, President of Information Technology Association of America; Mr. Johnathan Weinberg, Professor of Law, Wayne State University; and Mr. Jonathan Zittrain, Executive Director of the Berkman Center for Internet and Society, Harvard Law School. We are going to have votes soon as well. Mr. Norquist, I know that you are testifying at 1:30 p.m. someplace else. So, we may be submitting questions to you in writing. Before we start, I think most of you were here as we opened up panel one. As you may know, we have a long tradition of testifying under oath, if any of you have objection to that. Also, under House Rules they allow you to have counsel, if you so seek. Do any of you need or desire counsel? [Chorus of nays.] Mr. Upton. Therefore if you rise and raise your right hand. [Witnesses sworn.] Mr. Upton. You are under oath. Mr. Love, you had a quick question. Mr. Love. Yes. Mr. Upton. Are you also pressed for time? Mr. Love. I was surprised at different hearings--90 minutes the last minute. So, I would just say that I would enjoy going early if possible. I apologize. Mr. Upton. We will do this sort of like as we all leave for our respective States. I have a 6:45 p.m. flight tonight to Michigan. Is your hearing before or after 1:30 p.m. Mr. Love. The hearing has already started. Mr. Upton. You may go first. By the way, all of your statements are a part of the record. You are welcome to summarize. We will try to, for sure, limit this to 5 minutes. Go ahead, Mr. Love. TESTIMONY OF JAMES LOVE, DIRECTOR, CONSUMER PROJECT ON TECHNOLOGY; GROVER NORQUIST, PRESIDENT, AMERICANS FOR TAX REFORM; MICHAELA M. BARRY, PRESIDENT AND DIRECTOR, DOMAIN NAME RIGHTS COALITION; HARRIS N. MILLER, PRESIDENT, INFORMATION TECHNOLOGY ASSOCIATION OF AMERICA; JONATHAN WEINBERG, PROFESSOR OF LAW, WAYNE STATE UNIVERSITY; AND JONATHAN ZITTRAIN, EXECUTIVE DIRECTOR, BERKMAN CENTER FOR INTERNET AND SOCIETY Mr. Love. Thank you. I am not going to repeat my statement. I assume everyone has a copy of it. My name is Jamie Love. I work for a consumer group that was started by Ralph Nader. I am active in a lot of issues that have to do with things that are related to the Internet. I am the company-Chair of the Trans- Atlantic Consumer Dialogue Committee on the Working Group on Electronic Commerce. I do a lot of work under Microsoft-type anti-competitive monopoly issues. We have been interested in Network Solutions and the ICANN issue because we are interested, particularly, in the institution of ICANN and what it represents in terms of future of a governance-type structure for the Internet. I think that, from our point of view, NSI is a monopoly. They charge too much money. They are trying to do a grab on intellectual property of the domain. They want to say that they own actually the domain and they can set prices. I guess if they were down the road, I mean you can imagine the nightmare of them telling Amazon.com what their registration is. They told us if we wanted to change, you know, if they charge too much, we could get a different domain. The value of the domain is really the fact that people link to you. Your people know where you are. On the Internet, you just cannot pickup and walk away. You are locked in basically to where you are. So, somebody has to deal with the NSI monopoly and fix that. Now, that said, we are also highly critical of some aspects of the ICANN thing, the way we see it. Not about ICANN, per se, not about the personalities of ICANN, not even about particular decisions that have been made by the board at ICANN, but more about the way that the organization is taking off without any, what we consider to be, a charter or any kind of limiting structure as to what it can do. To understand why this is important, trademark policy which is policy-oriented, and it is stuff that we expect governments to make decisions about or it is what we have a Patent and Trademark Office for such things. There is only one thing that could be addressed by this new organization. It asserts that it will have the control over all the IP numbers that are used for connecting to the Internet, and it will have this authority over all of the domains of the Internet. It will be able to attach conditions upon people who want domains and possibly conditions on people that want numbers. It is an authority in power which is unique, broad, extensive, and limited only by the ability of people to organize around that thing, if it was started in a bad way. In other words, for example, if ICANN went crazy or if NSI went crazy, I mean people could try and do work around some things like that, but it is difficult. So between crazy and not so crazy, there is a big gradation. So, there is power there. So, people look at this control of the route servers, the control of the IP numbers, the control of domains as power. So, they want to know who has the power and how does this work? The fact that ICANN has been slow to define how you get elected to the board has been a source of problem. As those things become defined and people, maybe they can have a better understanding of it, maybe they will feel good about it. Maybe they will not feel good. But not knowing anything is a difficult thing for people. I am glad that they say they are going to try and define that. The fact it is a non-profit organization means next to nothing. They change their bylaws all of the time. I work for a non-profit organization and it does not mean anything that we have bylaws and Articles of Incorporation. What we were hoping is that ICANN would accept to have a charter from the government that said, look, we are going to do domain names. We are going to do numbers and that is all we are going to do. It would limit it in some way so that we would have some assurance that it would deal with strictly technical issues, and not get involved in the broader policymaking about electronic commerce. ICANN says to us they will not sign such a charter. That their idea is you give them their route server. You give them the IP numbers. You give them the domains and you say good-bye. At the end of next year, they are free agents and you will have less control over them than you ever had over NSI, which is already a problem because of the lousy legal work that was done on the cooperative agreement, not by the Department of Commerce. In any event, that is what I think you have to do with them. What are you creating? How much power does it have? What could you do down the road if it starts doing things that you do not like? Is there a better alternative? Thank you. [The statement of James Love follows:] Prepared Statement of James Love, Director, Consumer Project on Technology My name is James Love. I am the Director of the Consumer Project on Technology (CPT), an organization created by Ralph Nader in 1995. I am involved in a number of issues related to electronic commerce, intellectual property rights, software, computers, telecommunications, and the Internet. The CPT web page is http://www.cptech.org. CPT is a non-profit organization. We have no financial relations with any company or non-profit entities that are involved in domain registration.<SUP>1</SUP> --------------------------------------------------------------------------- \1\ About two years ago my wife worked as a subcontractor for SAIC, the majority investor in NSI, on a distance education project for a client in Malaysia. --------------------------------------------------------------------------- I am here today to discuss proposals for the Internet Corporation for Assigned Names and Numbers (ICANN), as well as our concerns about the role of Network Solutions, Inc. (NSI) in the management of internet domains. On June 11, 1999, Ralph Nader and I wrote to Esther Dyson, the Chair of ICANN, asking a series of questions about its mission, the degree to which ICANN could or would use its control over IP addresses or domain names to set policy on trademarks or other (unrelated) issues, the source and scope of authority to levy fees on the use of internet domains, what those funds can be used for, and the role of the interim board in making substantive policy decisions. Ms Dyson wrote back on June 15, 1999, in a letter that began with a rather lengthy ``scene-setting'' discussion about the efforts of NSI to protect its monopoly, and then offered often incomplete answers to the questions we raised. We have subsequently engaged in a number of discussions with persons representing ICANN, NSI and other persons who are interested in issues relating to the management of domain name registrations and other Internet governance issues. There is a sense among some that the controversy over ICANN is about NSI and NSI's attempts to retain its monopoly over the .com, .org, .net and .edu domains. For certain interests, this is indeed the key issue. However, our concerns over ICANN are much broader, and go to more basic questions of how key internet resources are managed and controlled. Before discussing ICANN, however, I would like to make a few comments about NSI, to make it clear that our concerns about ICANN should not be misread as a defense of the NSI monopoly. In our view, NSI is a government contractor performing a service for owners of particular domains. We do not believe that it is appropriate for NSI to assert ownership or control over the .com, .net, .org or .edu top level domains. Nor do we think it appropriate for any top level domains to be ``owned'' by a private firm. The prices for domain registration are excessive. We are alarmed that NSI is making claims that it ``owns'' certain databases that are essential for the operation of the network. We are concerned that NSI is using the profits from its current monopoly to lobby the government to extend its monopoly. We are concerned about these and many other issues, and we want the NSI contract for .com, .net, .org and .edu to be subject to periodic competitive bids. That said, we remain very interested in the fundamental issues about ICANN itself. What is ICANN? Who will control the board of directors? What will be the legally binding limits of ICANN's power? What recourse do people have if they are unhappy with ICANN's actions or policies? As I have said elsewhere, we don't view ICANN as a substitute for NSI, but rather as a potential substitute for the Department of Commerce, or more generally, as a substitute for governments. ICANN is poised to control key internet resources, and to impose private forms of taxation and regulation on the Internet. However, it will not be accountable in the same ways that governments are. Some persons perceive this as a positive feature, while others view the lack of accountability as a serious problem. The July 1, 1999 Presidential Directive on Electronic Commerce directed the Secretary of Commerce: to support efforts to make the governance of the domain name system private and competitive and to create a contractually based self-regulatory regime that deals with potential conflicts between domain name usage and trademark laws on a global basis. For many persons, this Directive, and the subsequent Commerce Department's Statement of Policy on the Management of Internet Names and Addresses (the ``White Paper''), were highly technical matters that did not appear to have broader practical significance. However, as the ICANN proposal has become better understood, there are concerns about the scope of issues that may be addressed by ICANN, the many limitations and problems of the ``self-regulatory'' and governance structures that are based upon private contracts, and the uncertainly over how ICANN itself will be governed. What exactly is ICANN, and why does anyone who is not in the domain registration business care? ICANN seeks to control Internet domains, IP numbers and root servers that are essential for anyone who wants to be connected to the Internet. David Post refers to this as ``life-or-death power'' over the Internet. The Australian competition authorities referred to it has the ``God power'' for the Internet. What exactly will ICANN do with this power? In her June 15, 1999 letter to Ralph and Myself, Esther Dyson said: The White Paper articulates no Internet governance role for ICANN, and the Initial Board shares that (negative) view. Therefore, ICANN does not ``aspire to address'' any Internet governance issues; in effect, it governs the plumbing, not the people. It has a very limited mandate to administer certain (largely technical) aspects of the Internet infrastructure in general and the Domain Name System in particular. However, this statement is far too modest. As Professor Froomkin and David Post have pointed out, ICANN has already proposed mandatory contract terms for firms that register (and own) domains, making substantive and non-trivial policy regarding the use of trademarks and personal privacy. ICANN has also proposed a mandatory fee of $1 per domain to finance its activities, and some persons associated with ICANN are considering asking for a fee on IP numbers, in order to cut down on the current hoarding of IP numbers. I asked ICANN what else it could do, in terms of putting conditions on domain registrations or spending the mandatory fees it collects. To put this in a positive light, for me, I asked, if the ICANN board of directors could legally require .com domains to post privacy policies on their home pages, or use the money from the $1 fee to fund the use of computers in Russian libraries. The purpose of this inquiry was to get a better idea of the limits of ICANN's authority. I was told that, yes, if the ICANN board wanted, it could do both of these things. But Ms Dyson did not think that this would ever happen. At best, less than half the ICANN board members will be elected from the general public. An equal number of board members will come from business consistences that are ``stakeholders'' in various Internet and ecommerce functions, such as the companies involved in domain registration. The ICANN President, who is an employee of ICANN, is given a vote on the board. Pro-consumer measures like requiring the .com domains to post privacy policies would never receive board support, Ms Dyson reckoned. Indeed, it isn't clear if there will be any meaningful consumer representation in ICANN. Board meetings are held in places like Berlin, Santiago, and Singapore, in fancy hotels, and it is difficult to participate in such events without corporate sponsors who can pay the travel expenses. And, having been told that it will be impossible to get support for pro-consumer policies, one wonders about policies that are supported by big ecommerce firms. Could ICANN become a mechanism to promote intrusive schemes for surveillance of copyright on the Internet, for example? If not today, what about 10 years from now when ICANN will be run by an entirely different board of directors elected by a different group of ``stakeholders?'' Our guess is that if ICANN succeeds, it will become a magnet for policy making on a wide range of issues. ICANN will have power, money and a dynamic staff. If it can ``solve'' trademark disputes, will it be surprising if ICANN is later asked to ``solve'' the SPAM problem? Or to set standards for digital signatures, or any number of ecommerce issues that benefit from harmonization? Indeed, ICANN has recently been asked to address new and novel issues that are associated with Internet searching and navigation services, raising even now the possibility of engaging ICANN in important content areas. In fact, persons associated with ICANN are already setting their sights on issues far beyond IP numbers and domain names. One of the arguments for ICANN is that it will be quick and non-bureaucratic, and thus able to move faster than government agencies to solve new problems. This may indeed be true. But who will ICANN really be accountable to? What are the differences between ``self governance'' and government? One model that has apparently been rejected is for the ICANN board to be elected directly by the people who use the Internet. If this is too hard to manage, given the difficulty of figuring out who is real and who is virtual, ICANN's board could be elected directly by domain owners, who are a known group. (A modern day version of letting property owners vote, albeit a system where people who own lots of property can vote more than once.) Instead, ICANN (and the White Paper) proposes a structure that elects some board members from the general public, under a system that has yet to be announced, and gives seats on the board to groups like the ``Address Supporting Organization,'' the ``Domain Name Supporting Organization'' or ``The Protocol Supporting Organization.'' Later on ICANN can and probably will add additional ``Supporting Organizations,'' each with seats on the ICANN board of directors. The idea that this is ``self'' governance depends entirely upon who is considered ``self.'' Many of the current discussions regarding ICANN concern the nature of contractual agreements between ICANN and the organizations, like NSI, that manage domain registrations. These contracts are held out as models for governance. The problems with this approach are many. For one thing, consumers are not part of this bargaining process. Neither are new entrants part of the process, thus giving too much power to established firms. There is also a question regarding bargaining power, as ICANN becomes more firmly in control of the ``plumbing'' of the Internet. Contracts that may be negotiated today will likely become ``take it or leave it'' propositions in the future, if indeed this is not the case already. It would be helpful if the government could begin to identify the range of issues and decisions that it expects ICANN to resolve, even in the short run, and then consider whether ICANN is truly the appropriate body to be making the decisions. Many of our concerns about ICANN would be mitigated somewhat if there was some plan for future accountability, some way to rein ICANN in if it goes crazy. We asked Esther Dyson if ICANN would be willing to enter into a charter with the US government or with an international intergovernmental organization (existing or new) that limited ICANN's powers in ways that were legally binding. Ms Dyson said that was not acceptable. While ICANN did not want to be accountable to any government or governments. ICANN is happy to receive the US government backing to get control over key Internet resources, it just doesn't want to ever look back once it gets those resources. As someone who works for a non-profit organization, I am not moved by the suggestion that ICANN is seriously constrained by its Articles of Incorporation or bylaws. The ICANN Articles of Incorporation are very brief and don't say much, and the bylaws, which are pretty general to begin with, can be changed by a \2/3\ vote of the board of directors. We asked NSI if it was in favor of ICANN having some type of government charter that limited ICANN's powers. David Johnson, a lawyer representing NSI, said no. NSI apparently prefers to deal with an ICANN that has no official charter. What NSI does want is greater bargaining power with ICANN. And as noted, NSI wants very badly to become the ``owner'' of .com, .net and .org top level domains, at least at the registry level. I asked NSI how consumers would be protected from over charging for registry services. NSI said that if .org was over priced, we could register a different top level domain. This of course is a ridiculous remedy. CPT has spent enormous resources to create our web pages, and the value and usefulness of the web page is based upon the internal and external hyperlinks to the web page content. We are in a ``lock-in'' situation where it would be extremely costly and inconvenient to abandon www.cptech.org. NSI also suggested that if it was required to charge everyone the same price, it would not gouge consumers, because it wanted to sell more domains, or that prices would be moderated by competition between top level domains. We don't find this persuasive, given the importance and economic value of the top level domains currently managed by NSI. NSI is clearly opposed to the idea that the contract for the registry would be re-bid, but this would be our preferred solution, to have periodic competition for the registry services. It does appear that NSI, through its management of approximately three quarters of registered domains, has too much power. Both the government and ICANN seem to need cooperation from NSI to accomplish a smooth transition from the current monopoly to a competitive system. This raises questions in our mind about the wisdom of permitting any single firm to control so much of the critical infrastructure resources. We have suggested it might be appropriate to have redundancy at the registry level, so that a contractor would not become so essential that it could make it impossible to re-bid a contract (arguably the position we are in today). It is not at all clear that ICANN will have the authority to solve this problem as a purely private party. We would very much like to see the Department of Commerce become more pro-active on the issue of new top level domains, to address the contrived scarcity of domain name space. We recognize there is growing international interest in participation in these policy decisions, and we urge the Department of Commerce to identify suitable forums for discussing these issues, including the creation of new special purpose agreements among interested countries on this topic. Policy makers, whoever they are, should explore mechanisms for putting restrictions on the registration of the same name in different top level domains, in order to truly expand the availability of the name space (as opposed to creating a situation where persons simply register all available top level domains.) With respect to ICANN, we are opposed to ICANN's current proposal to take control of key Internet resources without any clear understanding of the limits of ICANN's powers and without any ongoing oversight by government bodies. The concerns that we have discussed regarding ICANN are not about its present leadership, or about any particular policy decision that ICANN has undertaken. We are concerned about ICANN as an institution, and about the ramifications of current proposals for the future of democracy in cyberspace. Finally, I would like to thank the Commerce Committee for holding this important hearing. Mr. Upton. Thank you. Mr. Norquist. TESTIMONY OF GROVER NORQUIST Mr. Norquist. Thank you. Grover Norquist for Americans for Tax Reform. We do not receive any Federal money, or State or local government money. I wear two hats. I represent Americans for Tax Reform. I also serve on the Electronic Commerce Commission, which is discussing, in the wake of the legislation that you passed on the Internet Tax Freedom Act, how or why we ought to tax Internet commerce. There are an awful lot of States and local governments out there that have sort of one thing in mind on the Internet. They think it is really interesting and they want to tax it. I was concerned when ICANN started discussion of a $1 tax, not that $1 is a lot of money, but my question is where is ICANN getting the authority to levy a tax? If they have the authority to levy a tax, to announce that they are not going to take it until November, in November can they come back and put it in and make it $2 or $10? I would urge Members of Congress not to hand over to any third party the ability to levy taxes, either on the Internet or on anything in the United States. We have seen the United Nations recently announce they wanted to tax e-mail. They wanted to have a one penny tax on 100 lengthy e-mails. I am not sure what constitutes lengthy. It is not a lot of money, one penny, but they think it will raise $70 billion. I understand Pete Sessions has introduced legislation to explain to the United Nations that they do not have this authority, and the Congress does not agree that they do. That is necessary to do. Three years ago, the U.N. did the same thing, wanting to tax electronic transfers of money. We saw the FCC announce recently and implement that they are allowed to levy taxes, the Gore Tax, on everybody's phone bill. Then they passed a law to tell the phone companies that you are not allowed to tell anybody what this is or what it is going to. You just hid it in their phone bill. This idea of setting up third parties to levy taxes outside of Congress, outside of your authority, I think is extremely dangerous because it is one more step away from representative government. An institution that can raise $1, why not $2? Why not $10? I do not understand quite how they got that authority, but if they got it for $1, why do they not have it for $10? Last, I would just like to agree with the gentleman who was talking before. I think you need to be very careful what ICANN's authority is. There are an awful lot of people who would like to get in there and rewrite the rules on the Internet. If you are going to hand over to ICANN some sort of blank check to have taxes or rewrite the rules, I think that is quite problematic. I agree with the earlier comments. ICANN's meeting should be open. I think that the authority should be set, not by their own internal bylaws, and not by something that Commerce hands them, but by Congress. Thank you. [The statement of Grover Norquist follows:] Prepared Statement of Grover Norquist, President, Americans for Tax Reform Introduction Mr. Chairman, my name is Grover Norquist. I am President of Americans for Tax Reform (ATR). Americans for Tax Reform is--in simple terms--a government spending watchdog, with deep concerns regarding the breadth of government generally. ATR, as I noted last month in a letter to Congress, opposes all tax increases as a matter of principle. We believe in a system in which taxes are simpler, fairer, flatter, more visible, and lower than they are today. The individuals of the taxpayer's movement believe that the government's power to control one's life derives from its power to tax. That power should be minimized. Americans for Tax Reform and ICANN These aforementioned principles have required that Americans for Tax Reform become involved in the growing controversy over the domain name system. On its face, an issue as complex technically and politically cumbersome as the domain name system may seem like an unlikely place to find Americans for Tax Reform, however very few issues are as fundamentally important to America's economic well-being as the future of the Internet. Last year I was appointed to the Advisory Commission on Electronic Commerce, a commission tasked by congress to make recommendations regarding the allowance of Internet taxation and issues related to electronic commerce. I take this role seriously and want to make sure that every tax that impacts electronic commerce is carefully scrutinized. Also, as President of ATR I wanted to ensure that taxpayers were not increasingly burdened by new taxes. So, when the Internet Cooperation for Assigned Numbers and Names (ICANN) proposed the world's first global tax--an Internet tax--to support its own $5.9 million operating budget, I was concerned. Under their proposal, each registration of a domain name (the familiar Internet addresses ending in suffixes such as .com and .org would be taxed $1.) I was caused greater concern when I learned that ICANN, while created to be a consensus-based organization that only set standards, was now reaching well beyond that express purpose. Perhaps at first glance, a $1 tax may not seem like much, but that's just the tip of the iceberg. Complying with ICANN's regulations and participating in the organization's bureaucratic processes will cost governments and corporations (and thus taxpayers and consumers) around the world at least another $20 million to $30 million annually. Of course, to cover these costs ICANN can always decide to hike the tax or impose more regulations in the future, just as the Gore Tax has been doubled without any representation. Reportedly, ICANN has maintained that the $1 tax on domain name holders is merely a user fee and not a tax. User fees are charged at times for the provision of a service, but what service is ICANN providing to users? ICANN provides no service. This is an arbitrary cost imposed on a business transaction that is used to fund regulators, administrators and bureaucrats mostly based in Europe. That sure sounds like a tax--of course King George probably didn't really believe that a ``fee'' placed on tea was a tax either. Humorously, I found, ICANN attempted to defend itself by asserting that the National Park Service raises fees on admission to parks without a cry of taxation. Well, first, those so called fees are merely a tax by another name, admittedly aimed at those who use the park system, but a tax nevertheless. Second, ICANN's response causes me even greater concern in that again we find the organization using a governmental agency as a role model. On the one hand they say they have no governmental power and yet, on the other hand, they continuously assert their ability to take actions that at least appear quasi- governmental. In fact, in this defense we see that the best example they can give to justify their actions is of a governmental agency. From where does this power derive? And did the congress approve of the handing out of this congressional power to tax? As you investigate the remarkable quasi-governmental reach of ICANN, please also consider that this tax is the camel's nose. Always keep firmly in mind that this new Internet tax has not been approved much less reviewed by congress. This combination is damaging to taxpayers and ultimately to the fundamental guarantees, constitutional guarantees, of citizenship. Now, I have read that ICANN has finally responded to the many concerns that have been raised by many who have been following the domain name issue. I, for one, am not impressed. We should all carefully consider what they have said, which is not much. ICANN has stated that it would ``defer collection'' of the $1 tax it imposed on new domain name registrations. The message has clearly not been received by this organization--defer collection does not equate in any way to a statement that they will not collect. Moreover, they apparently have yet to realize that only Congress has the power to tax, yet they plow forward. One other issue causes me some concern as ICANN has continued its activities. Some will raise the alarm of international interests invading the U.S. to the detriment of our best interests. In this case, those voices may be correct. ICANN boasts that it is made up of several international interests as the domain name is an international issue. What has been lost in the rhetoric is the simple fact that it was in the U.S. that the domain name got used as a way to direct web users. Why do we want to arbitrarily export our ideas so that foreign interests begin controlling a U.S. invention? More importantly, why would we allow foreign interests to decide how a totally privatized domain system is to be developed? Worse, why are foreign interests having a deciding voice in how to tax U.S. citizens? Reason for Optimism? Despite my noted skepticism of the ICANN process Mr. Chairman, notably I am somewhat encouraged by the recent Department of Commerce response to the Chairman Bliley suggesting the following changes to the ICANN structure: <bullet> ICANN's top priority must be completing the work necessary to put in place an elected board of directors on a timely basis. Specifically, it must do everything within its power to establish the Supporting Organizations, and ensure the election of nine board members by those Organizations to begin serving at the November 1999 Board Meeting. And it must work diligently to complete the process for electing at-large directors by June 2000. (Page 11 of the response) <bullet> ICANN should eliminate the $1 per-year per domain name tax. We believe a permanent financing method should not be adopted until after the nine elected members are added to the ICANN Board in November. That will ensure that this important decision is made in accordance with the representative, bottom- up process called for in the White Paper. In the meanwhile, we will work with ICANN and the entire Internet community, to the extent permitted by law, to obtain interim resources for ICANN. (Page 11 of the response) <bullet> ICANN should immediately open its board meetings to the public. Transparency is critical to establishing trust in decision making. And trust is essential for ICANN's ultimate success. As a general matter, ICANN has undertaken the vast majority of its work in an open and transparent manner. The final step of opening the board meetings is critical to establishing trust in ICANN. (Page 12 of the response) <bullet> There is concern in the Internet community about the possibility of over-regulation, and therefore ICANN should assure all registrars and registries, through contract, that it will restrict its policy development activities to matters that are reasonably necessary to achieve the goals specified in the White Paper and that it will act in accordance with the procedural principles set forth in the White Paper. (Page 17 of the response) Reason for Pessimism As I noted, I am encouraged by each of these suggestions. Each of these issues is a critical first step to making ICANN work. However, they are just suggestions. Nothing has been changed. In order to implement these modifications into the process then ICANN must adopt them into their bylaws. Despite my optimism over the Department of Commerce's suggestions, I am deeply troubled by the following section of the Department of Commerce's response to Chairman Bliley: The White Paper stated that the new not-for-profit corporation should be funded by Internet stakeholders, including registries and registrars. ICANN concluded that it should initially finance its operations through a payment by registrars of a user fee of $1 per year per domain name registered. This payment obligation was included in the accreditation agreement formulated by ICANN after notice, opportunity to comment, and a public meeting. (12) In recent weeks the user fee has become controversial. Although the $1 fee may be determined to be an appropriate method for funding ICANN activities, and we believe such a fee would be lawful, (13) we believe that ICANN should eliminate the fee. Adopting a permanent financing system is an important step that, we believe, should await the addition of the nine elected Directors in November. That will ensure that this important decision is made through a representative, bottom-up process. To date, ICANN has been funded through corporate contributions and extensions of credit. In the short term our recommendation means that ICANN must receive government funding, continue to rely on corporate contributions, or finance itself through some combination of both sources. We pledge to work with ICANN and the entire Internet community, to the extent permitted by law, to secure interim resources for ICANN. Americans for Tax Reform resistance of the proposed ICANN taxation without representation pales in comparison to our opposition to ANY plan by the Department of Commerce to use federal funds to support this organization. I am deeply troubled by the Department's pledge to use ``government funding.'' That taxpayer money be used to support ICANN is an anathema. A portion of our taxes may legitimately be called an Internet tax at that point as everyone in the country would be taxed to support an organization of questionable authority, that adamantly defends its power to meet without the taxpayers gaining the benefit of sunshine. Americans for Tax Reform will work diligently to block any such initiative and urges each of you to voice your concerted displeasure with this approach. ATR's concern over any effort to fund ICANN with taxpayer money is amplified by a report release last Friday on CNN on ICANN. The report located at http://cnn.com/TECH/computing/9907/16/icannt.idg/ spells out what I think each Member of Congress should find shocking. In this CNN article, ICANN announced that it was one (1) million dollars in debt. In fact, the original funds raised from the Internet industry around $500,000 were gone almost instantaneously. ICANN's General Counsel Joe Simms said in the article ``The $421,000 that came in the door ran out a long time ago,'' Simms stated. ``We're well over $1 million in the hole.'' Now it should come as little surprise that Americans for Tax Reform would be opposed to a government bailout of an organization that in the course of seven months has spent a million and half-dollars and essentially done nothing. In fact the suggested modifications from the Department of Commerce are as clear an indication as any that ICANN deserves serious Congressional scrutiny. However before the full light of day can be shed on this process, ICANN is passing the hat once again. Only this time the Department of Commerce has indicated it may be willing to pick up the tab. The proposed ICANN 5.9 million dollar annual budget, to be collected from domain name registrants for the limited technical oversight of the domain name system, strikes me as excessive. Now comes the idea that tax payer dollars should be spent to host lavish receptions and secret board meetings in five star hotels in Singapore, Berlin and Santiago for nine un-elected and unaccountable ICANN Board members is a travesty. ICANN has now agreed to open its next board meeting in Santiago, Chile. However, a decision on future meetings has been deferred. This organization really wants to live by its own rules--have the power to tax, fly around the world at taxpayers expense, grant foreign interests the power to determine, in part, the direction of the U.S. electronic economy, and still meet in secret. The fact that the Department of Commerce is signaling a willingness to fund the ICANN jet setters is a disturbing indication that its intent may not match the will of American taxpayers, Internet citizens globally and, increasingly, the U.S. Congress. The expectation that you or I would be on the hook to pay for a dubious organization's member's room service would be laughable if it weren't happening before our very eyes. The American taxpayer footing the bill for an organization that portends to be the rightful heir to control over the Domain Name system but yet cannot seem to control its own financial responsibilities is a seriously flawed premise. Americans for Tax Reform are committed to ensuring that any further discussion or debate concerning the expenditure of taxpayer funds of ICANN be fully examined in Congress so that the various constituencies and public may have appropriate inspection. We call for your committee to fully explore the expenditures of ICANN and demand a full accounting of these activities. It is this exact spirit that Americans for Tax Reform led the effort last week to overturn the United Nations proposed Internet tax. The UN recognized that Internet users will likely grow from 150 million this year to roughly 700 million in 2001 and is looking to find a taxing mechanism to fund its agenda. Unfortunately, Vice President Albert Gore has a record of supporting such commerce taxes for his agenda, i.e. the Gore tax. This has legitimized the most recent United Nations decree. We continue to urge Vice President Gore to join Congress and act decisively in rejecting his liberal tax and spend history, and for that matter to sign the Taxpayer's Protection Pledge and make the promise to every citizen that he will not raise taxes. 1ATR's efforts involving the UN Internet Tax and ICANN are consistent. Any effort to globally apply taxation without representation and fund an already bloated bureaucracy and an unaccountable secretive board are troubling to say the least. By some accounts the Internet will support nearly a trillion dollars of electronic commerce within a few short years and it is clear that American ingenuity and technological prowess has driven the Net's explosion. To suddenly turn the keys of control over to an organization that seeks to burden the very people responsible for its growth is preposterous. ATR seeks to have all the issues surrounding ICANN fully vetted before the U.S. Congress and the court of public opinion. Too much is riding on the decisions made by this body and the Congress needs to understand fully not only what will happen but what has happened. About Americans for Tax Reform Since 1986, ATR has sponsored the Taxpayer Protection Pledge, a written promise by legislators and candidates for office that commits them to oppose any effort to increase the federal income taxes on individuals and businesses. At present, 207 U.S. Representatives and 42 U.S. Senators have signed the pledge. ATR also works with state taxpayer coalitions in all 50 states to ask candidates for state legislature and governor to sign the STATE TAXPAYER PROTECTION PLEDGE which reads: ``I (name) pledge to the taxpayers of the (district #) district, of the state of (state), and to all the people of this state, that I will oppose and vote against any and all efforts to increase taxes.'' So far, 1,136 state legislators and eight governors have signed the pledge. ATR leads the fight against the Value-Added Tax (VAT), a European style national sales tax that can raise revenue while being mostly hidden to taxpayers. The VAT has been instrumental in the growth of the European-style welfare state. Today, 178 members of Congress are members of the Congressional Anti-VAT Caucus, co-chaired by House Majority Leader Dick Armey and House Majority Whip Tom DeLay. Americans for Tax Reform strongly supports the concept of a single rate flat tax, such as that introduced by Rep. Dick Armey as the ``Freedom and Fairness Restoration Act.'' In addition to the above activities, ATR sponsors the calculation of Cost of Government Day, the day on which Americans stop working to pay the costs of taxation, deficit spending, and regulations by federal and state governments. The cost of federal regulation alone comes to nearly $700 billion, $5,000 per household per year, more than the revenue raised by the personal and corporate income taxes combined.1ATR serves as a national clearinghouse for the grassroots taxpayers' movement by working with approximately 800 state and county level groups. ATR is a non-profit, 501c(4) lobbying organization. Contributions to Americans for Tax Reform are not tax deductible. The Americans for Tax Reform Foundation is a 501c(3) research and educational organization. Memberships begin at $25.07 and all contributions to the Foundation are tax deductible. Mr. Upton. Thank you. Ms. Barry. TESTIMONY OF MICHAELA M. BARRY Ms. Barry. Thank you, Mr. Chairman. I have to admit here that I am an attorney. Please make no mistake about ICANN's role. It goes far beyond that of technical management and enters into the realm of the regulatory body. It is not just about plumbing, but it is also about the codes and the licensing for that plumbing. ICANN's policy will affect commerce, freedom of expression, and likely stifle the very medium it seeks to regulate. We spent years fighting communism and its vision of planned economies. Let us not let that vision happen to the Internet. Competition is paramount, but not at the cost of free expression, sacrificing small business, and individual interests, and without accountability. ICANN is now trying to execute a policy agenda before it has created the participatory structures that would allow its decisions to be accepted and trusted by a broad spectrum of stakeholders. ICANN does not now, nor has it ever had legitimacy by consensus of the Internet community. ICANN is the classic top-down organizational structure without accountability. Most of the ordinary participant's in ICANN's activities thought that they were participating in an institution-building process. They thought that ICANN was a level playing field where all competing groups could come together to work out a consensus approach. They thought that they would have an opportunity to create membership structures, representational mechanisms, and policy development procedures first, and that actual policymaking would happen second. These include imposition of dispute policies from the World Intellectual Property Organization, WIPO, which even the U.S. Small Business Administration says are discriminatory. There is no consensus in the Internet community, even as to whether there should be a central domain name dispute policy. At every step of the way, participants have been completely frustrated in the goal of participation. ICANN's CEO and interim board have been driving the organization into making irrevocable, substantive policy decisions as quickly as possible. Imagine what would have happened to the U.S. Government if the first meeting of the U.S. Congress had tried to pass laws, impose taxes, and regulate commerce before half of its elected Representatives had arrived Philadelphia, and even before some of the States had elected Representatives. The country would have been torn apart and Congress would have lost legitimacy. This will give you a good sense of what it has been like to participate in ICANN. The sad fact is that ICANN has been captured from the beginning. The Department of Commerce gave control of the interim board to one partisan group in the DNS wars, even though three sets of bylaws were provided by three different organizations. That group was intent on enacting its own agenda, regardless of what the rest of the community told it. Competition is, of course, very important to the future of the Internet. We agree with ICANN that there is indeed consensus on this issue. However, we do not agree with ICANN's implementation. This is what is actually slowing competition. ICANN is requiring registries to agree to an owner's contract, which includes provisions that will stifle small business, individual, and free speech interests. Worse yet, they are doing this without the consensus of the Internet community and under unbelievable criticism. Without a membership in place, which was supposed to be the interim board's first task, and without appropriate representation for individuals, small businesses, and others, clearly the contemplated guidelines for registries, which are required prior to entrance into the marketplace controlled by ICANN, go far beyond the technical management contemplated by the White Paper, including creation of a mode whereby ICANN claims ultimate ownership over all names in the domain name space. For example, the accreditation agreement, in its current form, requires registrars to agree that ICANN can confiscate a domain name for any reason it sees fit. Domain name registrants must certify to the best of their knowledge that their choice of domain name does not interfere with anyone else in the world. Even those nations with vast experience in intellectual property laws would have trouble meeting this requirement. Congress authorized the NRC Study, authorized the Commerce Department to begin the NRC Study to study the interaction between domain names and trademarks. This has not been done, yet we see these onerous aspects of the agreement, and the wish that the WIPO process be put into place. ICANN's Advisory Committees are another serious bone of contention in the Internet community. For example, the GAC, Government Advisory Committee, is headed by Paul Twoomey of Australia. Mr. Twoomey, during the Berlin meeting of ICANN in May, made a point of threatening the Internet community that if it did not support ICANN, something even worse would take its place. This was again mentioned today by Ms. Dyson. In closing, as a result of all of this, ICANN has all of the power, but none of the oversight that a government group would have. Thank you. [The statement of Michaela M. Barry follows:] Prepared Statement of Michaela M. Barry, President, Domain Name Rights Coalition introduction: Thanks to the Committee for providing the opportunity to provide feedback to Congress regarding the role of ICANN and the Commerce Department in the ongoing battle for Internet governance. Although you have received letters from others who attempt to downplay ICANN's role, make no mistake; it goes far beyond that of technical management and enters the realm of a regulatory body. ICANN's policy will effect commerce, freedom of expression, and likely stifle the very medium it seeks to regulate. ICANN has not provided an accurate picture of the Internet world to the Committee. We felt it was necessary to correct and explain much of what they reported to you in response to your questions. personal qualifications: I have been participating in Internet issues since 1984 and am currently President of the Domain Name Rights Coalition. I am a consultant with Internet Policy Consultants, a member of the Boston Working Group, a member of the Open Root Server Confederation, former steering committee member of the IFWP, steering committee member of the Individual Domain Name Supporting Organization (which is still waiting for confirmation by ICANN), member of INTA, and a trademark attorney and member of the Virginia Bar. I am co-founder of InterCon Systems Corporation, the first commercial Internet software applications developer on the Macintosh platform. summary: ICANN is now trying to execute a policy agenda before it has created the participatory structures that would allow its decisions to be accepted and trusted by a broad spectrum of stakeholders. Further, ICANN has delegated domain name policy decisions to the Domain Name Supporting Organization (DNSO). This group is disproportionately large corporations, and is moving forward on its expansionist trademark agenda even before the non-commercial community has even elected its representatives! Most of the ordinary participants in ICANN's activities thought that they were participating in an institution-building process. They thought that ICANN was a level playing field where all the competing groups could come together to work out a consensus approach. They thought they would have an opportunity to create membership structures, representational mechanisms, and policy development procedures FIRST, and that actual policy making would happen SECOND. At every step of the way, however, they have been completely frustrated in this goal. ICANN's CEO and interim board has been driving the organization into making irrevocable, substantive policy decisions as quickly as possible. Imagine what would have happened to the United States government if the first meeting of the US congress had tried to pass laws, impose taxes, and regulate commerce before half of its elected representatives had arrived in Philadelphia, and even before some of the States had elected representatives. The country would have been torn apart and the Congress would have lost legitimacy. That will give you a good sense of what it has been like to participate in ICANN. ICANN cannot be an organization that executes the agenda of the gTLD-MoU (one small faction in the DNS wars) and at the same time be an organization that builds the procedures and representational structures for developing a policy agenda that commands broad consensus. Either it already has a policy and executes it, or it is designed to allow the Internet stakeholders to formulate policy. Right now it is doing the former while claiming to do the latter. The sad fact is that ICANN has been ``captured'' from the beginning. NTIA gave complete control of the interim board to one partisan group in the DNS wars. That group was intent upon enacting its own agenda, regardless of what the rest of the community told it. History: I have personally been involved with Internet governance issues since the early 1980s. The Domain Name Rights Coalition was formed in 1996 directly because of the NSI domain name dispute policy which we thought stifled the rights of individuals and small businesses to choose domain names. The development and growth of the World Wide Web brought with it a significant interest by the business community. It soon became clear that IANA, a US government contractor run by Dr. Jon Postel, would be unable to continue its management of domain names and numbers without significant help. The first attempt to transfer control occurred in 1994 when Dr. Postel attempted to place IANA under the Internet Society (ISOC.) This failed, but something else grew from that union. The IAHC (International Ad Hoc Committee) was created, and tried to take over Internet governance via a document called the gTLD-MoU. Comments were solicited by the IAHC from the Internet community, but the responses were largely ignored. It is not coincidental that many of the members of CORE, POC (the Policy Oversight Committee) , ISOC (an original IAHC advocate), WIPO, and the ITU are now heavily involved with the ICANN process, and have in a sense ``captured'' that process. The gTLD-MoU was stopped by the Internet community when it became clear that the process was closed, unaccountable, and non-transparent. Various people appealed to the Department of Commerce and the State Department for help. Through significant work and effort, the IAHC plans were thwarted, and the Commerce Department produced the ``Green Paper'' as a roadmap for technical management of names and numbers. The Green Paper was truly a pro-competitive solution, one that was hotly contested by many European Governments, and the previous supporters of the MoU. In fact, it was right around this time, that Jon Postel redirected over half of the world-wide root servers to his server in California. While we may never know, this combination of events apparently derailed the Green Paper, and started the process that resulted in the White Paper. Thousands of comments were submitted by a large cross section of the Internet community, although many questioned (and still question) under what authority the Department of Commerce was taking control of Internet functions. Many of these comments were incorporated in the ``White Paper'' which provided a framework for considering these issues. Using the White Paper as a foundation, the IFWP (International Forum on the White Paper) was created in 1998 to discuss these issues and attempt to reach the consensus that was required to move forward with the plans envisioned in the White Paper for an open, transparent and accountable organization, Newco, to manage domain names and numbers. Please note that even with the White Paper, significant numbers of people still ask under what authority Commerce is operating in choosing one company over another, mandating that company's bylaws, mandating that company to be non-profit, and assisting in choosing the unelected board members of that company. The IFWP steering committee consisted of members of the Internet community who were involved with not-for-profit enterprises. These included CORE, the Commercial Internet Exchange (CIX), Educause, the Domain Name Rights Coalition (DNRC), and various other groups. It was chaired by Tamar Frankel, a respected law professor and expert on corporate structure and process from Boston University. The IFWP held meetings around the world, and worked to come to consensus on various issues. In the midst of this process, Joe Sims, attorney for Dr. Postel, prommulgated a set of by-laws for Newco. He did this in closed meetings with no public input. These by-laws were presented to the IFWP, but did not gain consensus, largely because the points on which the IFWP had already garnered agreement were not included. Various further drafts followed, but still none of them achieved consensus. In late August of 1998 after the final IFWP meetings, the steering committee met telephonically to plan the final or ``wrap up'' meeting in which the consensus points would be memorialized, and further concessions would be provided by all sides. Although there had been multiple votes already taken that clearly supported a wrap up meeting, yet another vote was called at that time. Mike Roberts vehemently opposed a wrap up meeting, and was supported in this by Barbara Dooley of the CIX. There is speculation that Mr. Roberts had already been contacted at that time regarding serving with the ICANN board in some capacity. Further, around the time of the wrap up meeting, Esther Dyson says that she was approached by Roger Cochetti of IBM and Ira Magaziner in Aspen, Colorado and asked if she would be interested in joining the ICANN Board. The IFWP wrap up was finally completely derailed by ICANN's refusal to participate in the meeting. Some of the members of IFWP continued their work to create an open, transparent and accountable Newco. Two major groups, the Open Root Server Confederation (ORSC) and the Boston Working Group (BWG) promulgated by laws for Newco through open process. DNRC officers play a major role in both groupings of Internet leaders. Three sets of by- laws were provided in a timely manner to the Department of Commerce. Although the Commerce Department had long stated that they would not choose one set of by-laws over any other, they chose the ICANN's bylaws as a starting point The Commerce Department directed ICANN to consult with the BWG and the ORSC regarding areas of concern to Commerce but there was little reason for them to do so since their bylaws and structure had already been chosen. ICANN did meet telephonically with BWG and ORSC, but failed to make substantive changes in its bylaws to accommodate the diversity of opinions towards fundamental issues such as openness of board meetings, voting on the record, voices for individuals and non- commercial entities, limitations on ICANN's powers to strictly technical issues, etc. Both BWG and ORSC warned that the concept of constituencies would lead to capture by corporate interests at the expense of expression. BWG wanted to do away with constituencies altogether. ORSC wanted constituencies structured so that everyone would have a voice. The ICANN constituency structure has, as predicted, become the catalyst for capture by the old gTLD-MOU crowd, and a large and powerful group of trademark interests. These trademark interests are currently pressing non legislative expansion of rights for trademark holders, at the expense of free speech and expression. substance: The IANA Function. ICANN received a sole source award to take over the IANA function. In December of 1998, the Commerce Department through NIST quietly attempted to give official authority to ICANN over the IANA functions in December of 1998. There were many discrepancies surrounding the transfer of the IANA functions. First, Mike Roberts announced at the ICANN Meeting in Boston in November that the IANA staff then reported to him. When questioned about that, Becky Burr stated he had been mistaken. Then, quietly at the end of December, Commerce tried to sole source the transfer to the IANA. The ORSC (Open Root Server Confederation) appealed and it was rebid sole source in January or February of 1999. ORSC and others informed the Commerce Department that they were ready, willing and able to bid for this contract, yet it was still sole sourced. No explanation for this action has been provided. It is certainly not because there was consensus that ICANN would be best able to provide these services. On the contrary, ICANN states that it expected that all major participants in the global Internet community would ``rapidly come together to make ICANN an effective vehicle for global consensus development (...).'' There is a reason that this did not occur. It was not an oversight. ICANN is not receiving financial backing from most of the key players in the Internet community because ICANN does not represent them, and does not fulfill the mandate of the ``open, transparent and accountable'' 'Newco' envisioned by the White Paper. It also raises questions of ICANN finances, which for the most part, remain hidden from the Internet Community. It has been estimated that ICANN has expended more than 1.5 million dollars, and at most, has raised $500,000. It is unknown where the remaining financing is coming from, who is funding this deficit, why, and how is ICANN paying for the IANA staff since January. Creation of a Competitive gTLD Registry-Registrar System. Competition is, of course, very important to the future of the Internet. We agree with ICANN that there is indeed consensus on this issue, however, we do not agree with ICANN's implementation. ICANN is requiring registries to agree to a very onerous contract which includes provisions that will stifle small business, individual, and free speech interests. Worse yet, they are doing this without consensus of the Internet community, without a membership in place (which was supposed to be the Interim Board's first task), and without appropriate representation for individuals and others. For example, the accreditation agreement in its current form, requires registrars to agree that ICANN can confiscate a domain name for any reason it sees fit. Domain name registrants must certify to the best of their knowledge that their choice of domain name does not interfere with anyone in the world. Domain Registries must be run by non-profit entities eliminating incentive for competition and market checks and balances. Clearly, these contemplated ``guidelines'' which are required prior to entrance into the marketplace controlled by ICANN, go far beyond the ``technical management'' contemplated in the White Paper, including creation of a model whereby ICANN claims ultimate ownership over all names in the Domain Namespace. It is ironic in that in the midst of all the controversy over competition, ICANN has hesitated to take the single step that would introduce the most competition: creating new TLD registries. Indeed, it was the question of new registries that moved Jon Postel to begin this entire process in 1995. Instead, ICANN has delayed on the question and has passed it on to the DNSO for a recommendation that the ICANN board has already stated that it is free to ignore. It is difficult to imagine that any new discussion can resolve this issue that has been the subject of a distinct lack of consensus for over 4 years. An observation of the leadership of the quickly-constituted (and, it should be noted, distinctly incomplete) DNSO and the membership of the working group tasked to examine this issue shows a clear predominance of IAHC, CORE and ISOC leadership. It is no great surprise that the early discussions in the DNSO center around the very concepts and requirements outlined in the gTLD-MoU and CORE's operational documents, as its proponents attempt to manufacture consensus as quickly as possible. Coordination of the Root Server System. First, and most importantly, we question the authority or rationale for a CRADA. Professor Jun Murai was appointed to be chair of the CRADA. While Professor Murai is clearly a distinguished individual in the Internet community, he is also a member of CORE, the Counsel of Registrars formed by the IAHC process. Professor Murai's involvement, while not a direct conflict of interest, is questionable, especially as to the process by which he was appointed. Professor Murai became chair by ``fait accompli'' without any debate, other candidates offered, or any type of open process. The public was not informed of his nomination. In fact, it was accomplished at an ICANN meeting of the Interim Board that was closed to the public. As there is no record of voting, the Board cannot be held accountable. As there is no membership, no elected Board members exist. The Process of Consensus Development and Implementation. ICANN is correct in that its formation was an unprecedented experiment in private sector consensus decision-making. Unfortunately, that experiment has failed. ICANN's claim of ``openness and transparency, based on Internet community consensus, bottom-up in its orientation and globally representative'' is far from the reality of the situation. ICANN's Interim Board meetings are closed. Voting is not on the record. In nearly all documents that ICANN promulgates, it speaks of consensus, however no such consensus is apparent. ICANN is the classic top-down organizational structure without accountability. When its by-laws are inconvenient, they are changed without discussion. Board of Directors--Without a membership or even a plan for the construction of a membership, it is misleading for ICANN to suggest that the Board will be expanding ``in the very near future.'' ICANN Staff--A small executive staff seems rather extravagant given ICANN's already admitted lack of funding. This is especially so, given that they are paying their President $18,000 per month. Please note that the position of President was not contemplated by the White Paper and was added as an afterthought by ICANN's by-laws. There was no notice and comment on his appointment, or even for the addition of a new and costly position. The position of President, has thus far been of no benefit to the ICANN, and has instead caused public criticism of the organization because of the conduct of Mr. Roberts towards ICANN's critics. As an example, Mr. Roberts referred to those who disagree with him as ``arrogant juveniles'' in a public e-mail message. ICANN Meetings--ICANN has been holding periodic meetings in differentregions of the world. However, the regions picked have been among the most expensive in the world to travel to, and to obtain accomodations in. Further, ICANN Board members have to date stayed in expensive hotels and have held their meetings there. This, of course, drives the cost up further for anyone who wishes to participate in person. While ICANN had provided real-time broadcasts through the Berkman Center of Harvard University at their last meeting in Berlin, remote participants were acknowledged only on the first day. Very few of the hundreds of real-time comments from around the world were read on the second day. This was, of course, very frustrating to those of us attempting to participate remotely. Advisory Committees and Supporting Organizations--ICANN's Advisory Committees are a serious bone of contention in the Internet community. Of special note is the GAC or Government Advisory Committee. Beckwith Burr appointed herself to this committee. None of the other committee members have provided any indication as to their qualifications, reasons for inclusion, or any other information on their backgrounds. Further, at the ICANN meeting in Berlin, representatives chosen by sovereign nations were excluded from the closed meeting by spontaneous ``rules changes.'' Citing this as an ICANN funding issue seems suspect. Further, the GAC itself is headed by Paul Twoomey of Australia. Mr. Twoomey, during the Berlin meeting of ICANN in May, made a point of threatening the Internet community that if it did not support ICANN, something even worse would take its place, run by international governments. These same types of threats were used throughout the IFWP process. Unfortunately, the result, ICANN, has all of the power but none of the oversight that a government group would have. A further committee, the DNSO or Domain Name Support Organization, is probably the most misconceived part of the ICANN process. To a group dominated by commercial interests, with a double representation given to large businesses through the Trademark and Businesses Constituency, have been entrusted decisions regarding the delicate balance between free speech rights and intellectual property protections. No bounds or limits have been placed on what this Supporting Organization may demand. No scope has been placed on what ICANN may approve. No mandate to operate in the public interest, to protect the communication (non- commercial and commercial) of all Internet users has been provided by the US Department of Commerce or adopted by ICANN. We know of no precedent for entrusting American's vital free speech interests to a group of largely commercial players, and we know of no precedent for bypassing the US court system's traditional protection of minority speakers, popular and unpopular political speakers and human rights speakers in favor of a commercial arbitration system where corporate rights prevail (according to the WIPO rules proposed).'' Corporate and Office Expenses--ICANN's budget is far more expansive than many start-up companies that many of us have been involved in. One of the first expenses that ICANN took on was the hiring of an outside public relations firm. There has never been an adequate explanation of why this would be necessary for an open, transparent and accountable organization. Also of note is the enumerated ``basic legal services.'' At a proposed budget of what is estimated at $65,000 x 9 months or $585,000, these legal services seem far from ``basic.'' Please note that despite numerous requests, we have been unable to obtain exact figures from ICANN or from Joe Sims. Possible Cost Recovery Mechanisms--It is disingenuous for ICANN to claim that many supported their creation throughout the USG policy development process. The creation that was supported was that of ``Newco,'' an open, transparent and accountable entity with bottom-up representation, a membership structure, elected officials, and fair hearing panels. ICANN is none of these things. ICANN further states that it is desirable for the name AND ADDRESS registries to participate in the funding of the costs of consensus policy development (. . .) [emphasis added]. ICANN's role in charging for address allocations was not contemplated by any of us who were involved in the process. We feel this is a very dangerous tack to take, and could be even more detrimental to the further development and growth of the Internet than the current plans for domain names. The power to ``charge'' (even if not directly called a tax) is the power to destroy. There is no widespread dissatisfaction with the current IP registries (which are arguably representative of the Internet Service Providers in their respective geographical regions), Conclusion: The Internet is the single most significant communications medium ever created. Its power goes well beyond that of shopping malls and e- commerce, and empowers individuals in a way never before imagined. It is thus a national as well as an international resource. The ability to control important aspects of this technology cannot be underestimated. It is up to all of us to remain vigilant when organizations are given special privilege by a branch of the US Government to control this vast means of expression. Safeguards must be put into place whereby individuals, non-profit entities, churches, tribal governments, and other disenfranchised groups may provide unencumbered input and opinion to an open, transparent and accountable entity. This entity is, unfortunately, not ICANN. ICANN must either be restructured, with all current Board members and policy decisions rescinded, to be replaced with a new and elected Board, forced into acceptance of irrevocable bylaws changes that ensure these fundamental rights, or should be replaced with an organization that will be chosen from and by the Internet community. Mr. Upton. Thank you. The audience will refrain from applause. Mr. Miller. TESTIMONY OF HARRIS N. MILLER Mr. Miller. Mr. Chairman and members of this subcommittee, I feel badly because I do not have another hearing to run off to, but it is a great honor to be before this subcommittee. I am Harris Miller. I am President of the Information Technology Association of America. I want to commend you, Mr. Chairman, and this subcommittee for holding this hearing because I think this hearing is shedding a lot of light on a subject which has been clothed in darkness, inadvertently perhaps, and has confused a lot of people. In addition to being President of ITAA, I also serve as President of the World Information Technology and Services Alliance, which consist of 38 information technology associations from around the globe. Because this is a global issue, as members of this subcommittee have indicated, we are very interested in this topic from the international, as well as the domestic perspective. We have been actively involved since the beginning of the process of developing ICANN, seeking solutions, developing strategies, and working with both the private and public sector to setup a global mechanism to establish a competitive, self- supporting, industry-led, market-driven approach to the Internet domain name system. We formed with eight other organizations and submitted an application to the Board of ICANN laying out an organizational structure to be recognized as ICANN's domain names supporting organization. An ITAA senior staff member serves on the DNSO board of directors. Let me be clear. ITAA supports ICANN. We do not agree with every decision the interim board has made, but we believe that ICANN represents a comprehensive, sensible, and practical approach to the domain name registration process. ITAA's support of ICANN is based on three principles. One, there must be an open and transparent process for the organization. We are pleased with Ms. Dyson's announcement that the meetings will be open in the future. Second, there must be a new era of competition for domain name registration, and it must be set in place. Three, government involvement at all levels must be reduced. Clearly, as this subcommittee hearing indicates, transitioning from government control to industry-led Internet governance, which ITAA strongly supports, will produce some bumps, especially given the number of stakeholders committed to the future of the Internet. The magnitude of the challenge should not divert us from pursuing the proper course: building a domain name system that preserves the need for competition, requires minimal government intervention, and commands broad stakeholder support, all without disruption to the fundamental operations of the Internet. Because of this debate, our board recently adopted a resolution reaffirming these points. Is ICANN perfect? No. But there is a parallel between what Churchill said about democracy and ICANN. Churchill said that democracy is the worst form of government, except for all the others. Clearly, there are some out there who are less supportive of ICANN's principles than I am being today. Those who attack the fundamental legitimacy of ICANN may be inadvertently and unintentionally undermining the Internet itself, because unless we have an alternative that is viable to ICANN, and I do not consider turning us back over to the U.S. Government or to other governments to be a viable alternative, I think what we really need to do is to focus on improving ICANN, rather than try and undermine it. Clearly bringing competition to the domain name system is very important. We believe that it is important that the gTLD, which is currently administered by one company, be opened to multiple registrars who will compete with one another in providing services to new and existing domain name registrants. This will promote a stable and robustly competitive DNS and provide benefits to all users of the Internet. ICANN's top priority must be to put into place an elected board of directors and assure they begin as soon as it is reasonable. As Ms. Dyson said in her testimony, ICANN is well on the way to that. We want to do everything possible to move that quickly. It is also important that ICANN be as transparent as possible. Understandably, a certain amount of suspicion reigns about this new organization. Sunlight on the operations is the simplest way to reduce unwarranted and unsubstantiated conjecture about hidden motives or goals. The introduction of competition to create the shared registration system is welcome. Transition of DNS management to the private sector can succeed only if all DNS participants subject themselves to the same set of consensus rules. We believe that ICANN has already demonstrated that it is sensitive to and can respond to the needs of the Internet community with respect to the domain names and trademark issue, and can help reduce the inevitable friction between trademark owners and domain name holders. ICANN must be permitted to continue to proceed promptly to establish a uniform dispute resolution procedure for cyber-squatting. One last issue I want to address is the issue of how to pay for ICANN's operations. Mr. Klink made the point well. They are caught between a rock and a hard place. At the end of the day, I do not think we want government paying for it. I do not think we want a few rich corporations paying for it. So, there must be some kind of a user fee established that will have people across the board pay for it. We need to move to that as quickly as possible. Thank you very much, Mr. Chairman. [The prepared statement of Harris N. Miller follows:] Prepared Statement of Harris N. Miller, President, Information Technology Association of America Mr. Chairman, and distinguished members of this sub-committee--on behalf of the over 11,000 direct and affiliate member companies of the Information Technology Association of America (``ITAA''), I thank you for inviting me to participate in this morning's hearing, which focuses on the Internet Corporation for Assigned Names and Numbers (``ICANN'') and its relationship to the transition to privatized management of the Internet Domain Name System (``DNS''). ITAA has been actively involved since the beginning of this process--seeking solutions, developing strategies, and working with private and public sector officials across the globe on how best to develop an unfettered, equitable, competitive, self-supporting, industry-led, market-driven approach to the Internet domain name system. We are involved in this often times contentious process because we must be; the future of our industry demands nothing less. Our members are at the forefront of the revolution called ``Electronic Commerce.'' ITAA members provide enterprise software, information services, telecommunications, and network and systems integration. In short, ITAA members represent the stakeholders in the Internet at every level-- content providers, trademark name and copyright holders, and transmission products and services. We are the architects, builders and providers of the facilities and systems that are utilized to ensure that the digital revolution realizes its bright promise--delivering new levels of productivity and prosperity to countries around the world. We are also users of this revolutionary medium. In addition to serving as ITAA President, I am President of the World Information Technology and Services Alliance (WITSA), consisting of 38 information technology associations around the world. Because electronic commerce is a global issue, ITAA is interested in the topic of today's hearing from both a national and international perspective. WITSA joined eight other international organizations to submit an application to the ICANN Board laying out an organizational structure to be recognized as ICANN's Domain Names Supporting Organization (DNSO). An ITAA senior staff member serves on the DNSO Names Council. We have also been closely affiliated with the Private Sector Working Group (PSWG), an ad hoc industry working group, which initially formed to respond to the issues first identified in the transition of the Internet into private sector management. This group has raised significant concerns about the growing problems related to consumer fraud and confusion, and the need to ensure that protection of trademarks, prevention of consumer confusion, and the stability of the Internet are primary considerations as the Internet moves toward a private sector governance model. Members of the PSWG include AT&T, Bell Atlantic, Disney, Viacom, Warner Lambert, Microsoft, AOL, and other famous brand holders. Let me make it clear at the beginning: ITAA supports ICANN. We do not agree with every decision the Interim Board has made. But we believe ICANN represents a comprehensive, sensible and practical approach to the management of the central administrative functions of the Internet. No one said the transition of the Internet from its original defense research beginnings into a global vehicle for education, commerce, communication and social interaction would be easy. Transitioning from government control to industry led Internet governance--which ITAA strongly supports--will produce some bumps, especially given the number of stakeholders committed to the future of the Internet. But the magnitude of the challenge should not deter us from pursuing the proper course: building a globally recognized, private sector-based, financially self-sufficient, institutional foundation for the permanent management of such vital Internet functions as the allocation of IP addresses, the maintenance of the system of root servers, and the management of the domain name space-- all without disruption to the fundamental operations of the Internet and with undiminished protection to intellectual property rights holders. If the Internet is to continue to prosper and grow, the development of an independent, legal and credible framework that will supply uniformity and certainty to cyberspace must exist. In light of the continuing debate surrounding the formation and support of ICANN, ITAA's National Board recently reaffirmed its position through a Resolution embracing a number of important principles: (1.) private sector creation and organization of the Internet Corporation for Assigned Names and Numbers (ICANN)--a new, not- for-profit corporation to conduct DNS management; (2.) rapid introduction of competition in the provision of domain name registration services; (3.) adoption of policies to reduce conflicts between trademark holders and domain name registrants; and (4.) review of the root server system to increase the security and professional management of that system. Through this resolution, ITAA's leadership clearly restates its belief that successful implementation of ICANN's charter is the best available means to achieve the objectives articulated by the Department of Commerce and to ensure the future stability of the Internet. ITAA's support of ICANN and its ability to succeed has been based on three principles: <bullet> that there must be an open and transparent process for the organization; <bullet> that a new era of competition for domain name registration must be set into place; and <bullet> government involvement at all levels must be reduced. We agree with many of the essential points raised in the Department of Commerce letter from General Counsel Andrew Pincus to Chairman Bliley on July 8, 1999. Particularly with respect to transitioning DNS management responsibility to a new, not-for-profit corporation ``governed on the basis of a sound and transparent decision making process, which protects against capture by a self-interested faction.'' I do not want to be apocalyptic, Mr. Chairman. But I do want to point out that if we lose this opportunity to create a workable, globally recognized organization that will help supervise a competitive and robust administrative structure, we will also lose the opportunity to realize the full value of the Internet. We have looked at this closely and have found no practical alternative to ICANN--and I do not consider having either the US government, or other governments run the Internet a viable option. As a result, I respectfully suggest that those who find fault with it work to improve ICANN's operations. The very principles articulated in the Commerce Department's Statement of Policy on the Management of Internet Names and Addresses (the ``White Paper''), issued more than a year ago, parallel those of our industry--particularly: <bullet> Private sector creation and organization of a new, not-for- profit corporation to conduct DNS management; <bullet> Rapid introduction of competition in the provision of domain name registration services; and <bullet> Adoption of policies to reduce conflicts between trademark holders and domain name registrants One of the principal short-term goals identified in the White Paper is the introduction of competition in the provision of domain name registry and registrar services. Under a series of documents executed by DOC and agreed-to by all the parties, the gTLDs currently administered by one company are to be opened, on reasonable terms, to multiple registrars who would compete with one another in providing services to new and existing domain name registrants. The opening up of both registry and registrar services will promote a stable and robustly competitive DNS. Access to the ``WHOIS'' database of domain name registrant and registration information is a critical building block to insuring the development of competition in the registration services. In addition, this resource, which historically has been considered to be a critical public resource--widely and freely available--is critical to trademark and copyright holders, of all sizes, as they seek to protect their legitimate intellectual property rights. We recognize that this is a controversial issue, but even the Department of Commerce pointed out in its letter, and I quote: ``We strongly support the prohibition of uses that adversely affect the operational stability of the Internet, but we oppose other restrictions on third-party use of this information . . . [the] WHOIS data had been freely available to the Internet community for years. Numerous people have built legitimate businesses that enhance the Internet using WHOIS and zone file data . . . The White Paper specifically endorsed the continued availability of that data to `anyone who has access to the Internet.' '' ICANN's top priority must be to put into place an elected board of directors, and ensure that they begin serving as soon as possible. I have talked to Interim Chairwoman Esther Dyson, and, while everyone understands that some parts of this are quite complex and perhaps even unprecedented, I know she is strongly committed to this goal. ICANN should be as transparent as possible. It is not surprising that a certain amount of suspicion might reign about this new organization. Sunlight on its operations is the simplest way to reduce unwarranted and unsubstantiated conjecture about hidden motives or goals. We support the existence and authority of ICANN, as articulated in the DOC Memorandum of Understanding. We should not confuse a gradual transition of parts of the DNS system, e.g. the root server, to a private sector management system with an underlying grant of authority to manage and administer the overall process. The letter Chairman Bliley received on July 8 from DOC outlines the legal authority we believe permits the Secretary of Commerce to enter into such agreements. The introduction of competition to create the Shared Registration System (SRS) is welcome. And while new registrars have been accredited under guidelines established by ICANN and the new registrars have been licensed on an interim basis, significant work still remains to be done in order to establish robust competition. Transition of DNS management to the private sector can succeed only if all DNS participants subject themselves to the same set of consensus rules. ICANN has already demonstrated that it is sensitive to and can respond to the needs of the Internet community with respect to the domain names and trademarks issue and can help to reduce the inevitable friction between trademark owners and domain name holders. ICANN, for example, must be permitted to continue to proceed promptly to establish a uniform dispute resolution procedure for cybersquatting. One contentious issue that remains unresolved is how to pay for ICANN's operations. To date, ``paralysis by analysis'' has created a major short-term financial hole for ICANN. My own position, and that of most companies that I have spoken with, is that a broad-based user fee is the best solution. We do not want to fall back to US government funding, which inevitably will lead to the reintroduction of government controls. Neither do we want to have a few major Internet players be the funding source, for that will lead to suspicions related to the financial golden rule: those that have the gold rule. Last but not least, ICANN should not attempt in any way to go beyond its fundamental charter of managing the administrative functions of the Internet. Attempts by ICANN or any organization to ``run the Internet'' are anathema to ITAA's members. We do not believe the Interim Board has any intention of doing so, but all stakeholders must be vigilant against possible future ``mission creep'' by ICANN. Summary Few historical precedents help guide us with a social, economic and technical phenomenon that is largely without precedent. We glimpse the potential. Now we must avoid the pitfalls. The Internet is a global medium. We need a global solution, free of parochial interests and public posturing. We call on all ICANN critics to channel their energy towards constructive solutions that truly serve the common good. ITAA and our member companies are committed to the successful transition of the management of the central administrative functions of the Internet to a competitive, globally recognized, private sector-driven, transparent, beneficiary-based mechanism. We applaud the progress made thus far by ICANN and appreciate the willingness of the U.S. Congress and, particularly, this Subcommittee to review the steps undertaken to date. I thank you, Mr. Chairman, for the opportunity to testify today, and will answer any questions you might have. Mr. Upton. Thank you. Mr. Weinberg. TESTIMONY OF JONATHAN WEINBERG Mr. Weinberg. Thank you, Mr. Chairman. My name is John Weinberg. I am a law professor at Wayne State University. I was approached about testifying at another hearing today and I told them I could not because I had to be at this one. Mr. Upton. Good for you. We will give you 6 minutes. Mr. Weinberg. In 1997-1998, I was a scholar in residence at the Federal Communications Commission and I worked on some of the issues that are before the subcommittee today. I am not appearing here on behalf of either Wayne State University or the U.S. Government. I speak only for myself. In my view, ICANN suffered a bunch of self-inflicted wounds. They should not be fatal. ICANN needs to implement mechanisms for choosing new board members who will be drawn from and who can represent the Internet community. Second, it needs to learn to act like a part of the Internet community. Finally, it needs to find an adequate way of defining and limiting its own policy mandates. If ICANN can do these things, it will be able to fulfill the roll that the White Paper laid out for it. ICANN has taken a number of wrong turns so far. It started under a big handicap since the board members, for the most part, did not have, and do not have a lot of background in Internet technical issues. Their selection was shrouded in secrecy. That secrecy was exacerbated by the board's closed meetings. ICANN demonstrated a tin ear when it came to the Internet traditions of openness and communication. I mean, for the most part ICANN still communicates to the outside world through its PR firm and its lawyers. Those channels are fine for a commercial firm, but they are not going to win ICANN acceptance as an organization, as a part of the Internet technical community. ICANN has mis-stepped in other ways. It has brokered the creation of a structure for its domain name supporting organization that is arbitrary, that I think will give business and trademark interests disproportionate influence. It has not seemed to understand the importance of limiting its policy role. It seems to lack humility, notwithstanding that there is a great deal to be humble about. All that said, though, at the same time not all of the criticisms of ICANN are justified. I think the criticism of its proposal for the $1 per registration year fee has been sharply over-blown. It has been criticized on the ground that it is seeking to impose over- bearing requirements on NSI, but the fact is that conflict between ICANN and NSI is inevitable. NSI is enjoying an unparalleled monopoly in domain name registration services. It is earning huge profits from that position. ICANN's task as set out in the Green and White Papers is to eliminate NSI's monopoly by introducing competitive registrars to .com and NSI's other domains, by authorizing new generic top level domains to compete with those. It should not be surprising that NSI, which has consistently sought to forestall competition and to leverage its control over the generic, top level, domain databases would be and has been an opponent of ICANN. Some of ICANN's problems should dissipate as mechanisms are put in place to enact new board members, although there are some questions that still remain there. So, where do we go from here? What is the most important issue. ICANN is beginning to enter into contractual agreements with all firms. They are seeking to register domain names in .com, .net, and .org under which those entities would agree to terms, beginning with the financial and business qualifications designed to implement DNS policy goals. Later on, it is going to enter into contracts with all entities seeking to operate top-level domain registries. This approach is going to allow ICANN to enter into registry contracts requiring the registries to enter into specified contracts with the registrars, the registrars to enter into contracts with domain name holders, and so on. This web of top-down contrasts could give ICANN the power to impose a bunch of rules on domain name holders, and in turn, on the Internet population at large, that do not have a lot to do with Internet technical administration and domain name policy. That would be really bad. ICANN should not be a world Internet government. Its role should not be to enact good policies and impose them on the rest of us. It should not be to make the Internet safe for electronic commerce. It needs to be limited to the structure and stability of the domain name system and the administration of other Internet identifiers. Ironically, as Mikki Barry noted, one of ICANN's biggest current tasks in fact lies outside the boundaries I have just defined, that is trademark domain name dispute resolution. ICANN announced its intention to quickly adopt new rules to be imposed on all domain name holders through a web of top-down contracts, potentially requiring their participation in dispute resolution proceedings brought by trademark owners. Resolution of those trademark disputes has no technical components. It is not necessary to administration of Internet identifiers. It could be handled through ordinary trademark litigation, as it has been to date, without any threat to the stability of the domain name system. It is precisely the sort of issue that IANA would never have dreamed of taking on, and one would have thought ICANN should not be engaged in. I will stop there since my bell is rung. I am glad to answer any questions. [The prepared statement of Jonathan Weinberg follows:] Prepared Statement of Jon Weinberg, Professor of Law, Wayne State University Mr. Chairman, my name is Jon Weinberg and I'm a law professor at Wayne State University. In 1997-98, I was a professor in residence at the Federal Communications Commission and I worked on some of the issues that are currently before the Subcommittee. I am not appearing here, though, on behalf of either Wayne State University or the U.S. government; rather, I am speaking only for myself.\1\ In my view, the largely self-inflicted wounds that ICANN has suffered to date need not be fatal. ICANN must move quickly to implement mechanisms for choosing new Board members who will be drawn from, and who can represent, the Internet community. Second, and relatedly, it must learn to act like a part of the Internet community. Finally, it must find an adequate way of defining, and limiting, its own policy mandate. If it can do all of these things, it will be able to fulfill the role that the White Paper laid out for it. --------------------------------------------------------------------------- \1\ I am currently participating in Working Group C of ICANN's Domain name Supporting Organization, Discussing the addition of new top-level domains. It goes without saying that I am not speaking for that group either. --------------------------------------------------------------------------- Background--IP numbers and domain names Every computer connected to the Internet must have a unique Internet Protocol (IP) address in order to receive information, just as every telephone on the public switched network must have a unique telephone number. A stable and reliable IP addressing system is crucial to the proper functioning of the Internet. IP addresses (such as 149.59.6.22), however, are opaque and hard to remember. It would not be practical for a user to have to remember, and type in, a different IP address for every Web site he sought to visit or electronic mail message he wished to send. Accordingly, under the current Internet architecture, each IP address maps to a more or less easy-to-remember domain name such as www.house.gov or www.law.wayne.edu. The domain name system (DNS) makes it easier for ordinary people to use the Internet. The domain name system is hierarchical. That is, the domain name space is divided into top-level domains, or TLDs; each TLD is divided into second-level domains, or SLDs; and so on. The currently-available TLDs include .com, .net, .org, .edu, all administered by Network Solutions, Inc. (NSI),\2\ and the so-called ``country code'' top-level domains such as .us, .uk and .fr. At the outset, it was thought that .com would used by commercial entities, .net by entities involved with the Internet networking infrastructure, .org by nonprofit organizations, and .edu by educational institutions. NSI, though, does not enforce any such restrictions on registrants in .com, .org and .net. Indeed, NSI urges businesses to register their preferred second- level domain names in all three of those top-level domains. --------------------------------------------------------------------------- \2\ Other top-level domains include .gov, administered by the General Services Administration; .int, administered by the University of Southern California's Information Sciences Institute; and .mil, administered by the U.S. Department of Defense and DISA. --------------------------------------------------------------------------- How we got where we are In the early days of computer networking, there was no need for a hierarchical domain name system. Until 1984, after all, there were fewer than 1000 ``host'' computers connected to the Internet. That number, however, quickly grew. It soon became clear that the Internet needed a new addressing structure. Scientists including Jon Postel and Paul Mockapetris of the University of Southern California's Information Sciences Institute (ISI) developed the current domain name system, and the first domains were registered in 1985. ISI assumed responsibility for oversight of the domain name system, including oversight of the root servers, which sit at the apex of the domain-name system and effectively determine which top-level domains will be recognized by the system. These and other coordinating functions, performed by Dr. Postel and his staff at ISI, came to be known as the Internet Assigned Numbers Authority, or IANA. The Defense Department, which had bankrolled almost all of the early development of the Internet, entered into a series of contracts with ISI under which the U.S. government paid for the IANA functions. The Defense Department in 1985 assigned SRI International, a nonprofit Silicon Valley research institute, the job of registering second-level domains in the generic (non-country code) top-level domains. Later on, the National Science Foundation (NSF) assumed the lead from the Defense Department in funding basic Internet infrastructure. In 1992, NSF established a new structure known as the InterNIC, or Internet Network Information Center. It entered into cooperative agreements with AT&T to provide Internet directory and database services; General Atomics to provide certain Internet information services; and NSI to perform the registration services that had been handled by SRI. NSI agreed to register second-level domains in the generic TLDs and to maintain those top-level domains' master databases. Those services were free to users; they were underwritten by the National Science Foundation. NSI had physical control of the AA'' root server, from which all of the other root servers get their information, but it operated that root server on instructions from IANA. By 1995, the Net had come of age. It had been more than 25 years since the initial establishment of the Internet's predecessor, the Arpanet. Business were beginning to use the Internet for commercial purposes. The U.S. House and Senate were online. More than 100 countries were now connected to the Internet backbone, and operated their own top-level domains. The World Wide Web, which had become the dominant Internet application, was now thus truly world-wide. NSI negotiated with the National Science Foundation an amendment to the cooperative agreement under which NSI would begin charging a $50 annual fee to domain-name registrants. The NSI fee was unpopular, and crystallized growing unhappiness with the structure of the domain name system. Registrants wondered why, in seeking to registering names in the generic TLDs, they were stuck with the service provided by, and the fees charged by, the NSI monopoly. NSI also generated considerable animosity with its domain name dispute policies, under which it asserted the right to (and did) suspend any domain name upon complaint from a trademark owner, without regard to whether the trademark owner had a superior legal claim to the domain name. Finally, there was growing consensus in the technical community that the architecture would support many more top-level domains than had so far been authorized. Accordingly, Jon Postel floated a suggestion that IANA authorize up to 150 new generic top-level domains, to be operated by new registries. As the proposal went through successive iterations, IANA and the Internet Society formed an elaborate, internationally representative ``Internet Ad Hoc Committee'' (IAHC) to consider the question of adding new top-level domains, with representation from, among others, the International Telecommunications Union, the International Trademark Association and the World Intellectual Property Organization. The trademark lawyers urged that the number of new domains be cut considerably; the group ultimately generated a proposal for the addition of just seven new top-level domains. Would-be domain-name holders, under the IAHC plan, could go to any of a large number of competing ``registrars'' to register names in those new domains; the actual master databases for all of the new domains would be controlled by a single nonprofit corporation known as CORE, to be run by the registrars. When Jon Postel requested that NSI insert the new CORE top- level domains into the ``A'' root server, though, NSI declined to do so absent authorization from the U.S. government. The U.S. government, in turn, instructed NSI to wait; it was still in the middle of its own analysis of the domain-name situation. In 1998, the Commerce Department issued a ``Green Paper,'' followed by a ``White Paper,'' expressing its views on Internet identifiers. The White Paper emphasized that with the changing role of the Internet in the modern world, IANA's functions needed to be transferred to an entity, not funded by the U.S. government, with a more formal and robust management structure and more formal accountability to the international Internet community. While Dr. Postel had the loyalty and respect of a wide consensus of the community, his informal leadership was no longer enough--``What happens,'' the question ran, ``if Jon Postel gets hit by a beer truck?'' The new entity, the White Paper continued, should have fair, open, transparent and pro-competitive decisionmaking processes that protected it against capture by a narrow group of stakeholders. The White Paper made clear that there was an urgent need for greater competition in domain name registration. That competition, it explained, should come in two ways. First, customers should be able to register domains in any top-level domain, including those currently operated by NSI, using any of a number of competing registrars. The U.S. government contemplated that NSI would continue to control the ``registry,'' or master database, for .com, .net and .org, but that it would have to offer equal access to competing registrars seeking to enter names in that database. Second, the White Paper continued, IANA's successor should add new top-level domains to the root zone, operated by new domain-name registries, so as to expand the name space and maximize consumer choice. The actual establishment of ICANN was clouded by tragedy. Jon Postel had agreed to serve as Chief Technical Officer of a new corporation, to be known as the Internet Corporation for Assigned Names and Numbers, to perform IANA's technical management functions. The corporation's Board of Directors were chosen from a group of distinguished personages who had had little involvement in (and, for the most part, little knowledge of) the ``DNS wars'' of the previous few years. The facts that not all of the Board members had extensive technical expertise was not considered to be a problem, since Dr. Postel could provide that technical background and guidance. On October 16, 1998, though, Postel died at 55 of post-operative complications from heart surgery. In figurative terms, he'd been hit by a beer truck. The Department of Commerce nonetheless, six weeks later, entered into a memorandum of understanding with ICANN, agreeing to work together to develop mechanisms and procedures so that the nascent ICANN could administer Internet technical identifiers in a transparent and fair manner. Before the Internet took on its current economic importance, the substantive questions confronting ICANN could have been resolved within the Internet Engineering Task Force, a technical standards body composed of scientists and engineers interested in Internet infrastructure, with little attention paid by the outside world. By the mid-1990s, though, those questions had too much money riding on them to allow such mundane resolution. Those with money or prestige at stake-- NSI, trademark interests, international standards organizations and others--all brought their lawyers to lobby in favor of their preferred models. The high-profile White Paper process, indeed, probably encouraged any entities with economic stakes that had not yet ``lawyered up'' that it was high time they did so. To an increasing degree, it was lawyers and lobbyists, rather than technical experts, who were demanding seats at the Internet architecture table. Where we are now In its quest for legitimacy, ICANN has taken several wrong turns. It started out under a considerable handicap since its Board members, for the most part, have little background in Internet technical issues. They were chosen on the theory that it would be helpful for the Board members to be new to the DNS debates, so that they were not tainted by identification with past controversy. The newness of most of the members to Internet technical issues, though, greatly complicated the task of securing the confidence of the Internet community. The Board members' selection was shrouded in secrecy, and that secrecy was exacerbated by the Board's early penchant for closed meetings, so that the Internet community knew neither who these people were nor how they were reaching their decisions. ICANN demonstrated a tin ear when it came to the Internet traditions of openness and communication. For the most part, ICANN still communicates to the outside world through its public relations firm and its lawyers. Those channels are all very well for a commercial firm, but they are insufficient to win ICANN acceptance as an organ--and thus a part--of the Internet technical community. Nor have the structures ICANN created been the most representative. ICANN has brokered the creation of an arbitrary structure for its Domain Names Supporting Organization, which will have a lead role in the development of DNS policy, under which business and trademark interests will have a disproportionate role. ICANN, further, lacks humility, notwithstanding that it has a great deal to be humble about. I was bemused to read Esther Dyson's explanation, in her July 19 letter to NTIA Associate Administrator Becky Burr, that the public need not worry that ICANN will use its authority to impose inappropriate requirements on Internet actors. Since ICANN, Dyson explained, is by its nature ``nothing more than the reflection of community consensus,'' by definition it cannot do anything improper. If this message is sincere, it reflects previously unimagined depths in ICANN's lack of understanding of others' concerns. ICANN has seemed not to understand the importance of limiting its policy role. The matter of domain-name dispute resolution provides one example. The White Paper had urged that the World Intellectual Property Organization explore recommendations for a uniform dispute resolution approach for ``trademark/domain name disputes involving cyberpiracy''-- that is, abusive registrations of a domain name string identical or closely similar to another firm's trademark, solely for the purpose of reselling the domain name to that firm or one of its competitors. ``[I]t should be clear,'' the White Paper noted, that any dispute resolution mechanism put forward by ICANN should be limited to that category of disputes. WIPO, after extensive deliberations, issued a report recommending such a dispute-resolution mechanism, limited to the cases described in the White Paper. ICANN referred the WIPO report to its Domain Names Supporting Organization. It then issued a press release expressing its view that the mandatory dispute resolution for domain name registrants imposed through ICANN-sanctioned contracts should not be limited to abusive registrations, and indeed should ``ultimately cover all commercial dispute issues linked to Domain Name registrations'' (emphasis mine). This suggests that ICANN fundamentally misunderstands its role. We do not need a world Internet government, imposing such policies as seem to it good. We need a technical coordinator to perform the limited tasks of expanding the name space, protecting the stability of the domain name system, and policing bad actors who threaten competition and consumer welfare. At the same time, though, not all of the criticisms of ICANN are justified. ICANN has been much criticized for its proposal that it collect a fee to defray its own costs, from registrars registering domain names in .com, .net and .org, for each domain name they register, not to exceed $1 per registration-year. ICANN recently decided to table this fee for the time being, and to rethink it in conjunction with the directly affected entities. This was a wise decision. The fee was controversial, and ICANN's spending choices have not been beyond criticism. Nonetheless, the White Paper contemplated that IANA's successor--unlike IANA itself--would be free from government support precisely because it could be funded by ``domain name registries, regional IP registries, or other entities identified by the Board.'' The problem with the ICANN fee was not that there is something wrong with such a funding mechanism in principle, but that the Board went ahead with it without first securing the sort of community support that would make such a fee sufficiently broadly acceptable. ICANN has been criticized on the ground that it is seeking to impose overbearing requirements on NSI. Conflict between NSI and ICANN, however, is inevitable. NSI currently enjoys an unparalleled monopoly in domain name registration services, and is earning huge profits from its position. NSI's .com, .org and .net top-level domains include the overwhelming majority of domain-name registrations. (NSI has over 5 million registrations in .com alone. The largest top-level domain not administered by NSI is the country-code domain .de (Germany), with fewer than 400,000 registrations.) ICANN's task, as set out in the Green and White Papers, is to destroy NSI's monopoly in two ways: first, by introducing competitive registrars to .com and the other top- level domains now administered by NSI, and second, by authorizing new generic top-level domains to compete with those domains. It should be unsurprising that NSI opposes ICANN implacably. NSI has sought to forestall competition, and to leverage its effective control over the generic top-level domain master databases, in a variety of respects. It has aggressively and unjustifiably asserted intellectual property control over the contents of the .com, .net and .org databases, and is seeking to market the information contained in those databases through such devices as its upcoming ``dot com directory.'' It has been recalcitrant in its relationship with the Department of Commerce, dragging its feet on registrar competition and imposing barriers in the way of the testbed registrars. It now professes that because of ``personnel resource limitations,'' it will be able to enable new registrars to access its databases only at the rate of only five per month. It has arbitrarily and without notice blocked public access to sources of registration information, and has insisted on receiving a fee for maintaining the master database that unreasonably exceeds its costs. It is plain that somebody needs to ride herd on NSI. The DNS controversy was sparked in the first instance, after all, by user concerns over the monopoly franchise NSI was exercising under its cooperative agreement with the National Science Foundation. Four years later, NSI continues to exercise tremendous market power. The White Paper gave the job of supervising NSI to ICANN (with backup from the Department of Commerce). In turn, the White Paper directed that NSI must recognize ``the role of the new corporation [that is, ICANN] to establish and implement DNS policy and to establish terms [applicable to NSI among others] under which registries, registrars and gTLDs are permitted to operate.'' NSI's economic interests lie in its acting to obstruct that process. Some of ICANN's problems should dissipate as mechanisms are put in place to elect new Board members. As new Board members drawn from the Internet community take their seats, ICANN's task of winning legitimacy should become easier. Important questions, though, still remain. The voting mechanism for ICANN's at-large Board members, to be elected by the global membership, remains unsettled. Other aspects of ICANN's governance structure are already skewed. Many observers have expressed concerns (which I share) that ICANN's Domain Name Supporting Organization, which has the lead role in initiating policy concerning the DNS, is structured in a manner that is arbitrary, haphazard, and systematically tilted towards trademark and business interests. These aspects of ICANN's structure deserve continuing close attention. Where we go from here ICANN is seeking to enter into contractual agreements with all firms seeking to register domain names in .com, .net, and .org, under which those entities agree to terms (beginning with financial and business qualifications) designed to implement DNS policy goals. Later in the process, it will seek to enter into similar contracts with all entities seeking to operate top-level domains as registries. This approach will allow ICANN to enter into registry contracts requiring the registries to enter into specified contracts with their registrars, and the registrars to enter into specified contracts with domain name holders, and so on. Indeed, the WIPO report on domain-name dispute resolution contemplates exactly that: all domain-name holders, in order to register names in top-level domains included in the ICANN root, will have to agree to particular contractual terms related to dispute resolution. This web of top-down contracts could give ICANN the power to impose a variety of rules on domain name holders (and in turn, the Internet population at large) that have little to do with Internet technical administration and domain name policy. Such a result would be disastrous. ICANN must not be a world Internet government. Its role should not be to enact good policies, and impose them on the rest of us. In particular, its role should not be to make the Internet safe for electronic commerce. That effort, although much prized by business, would require a wide range of policy and value judgments that lie far outside ICANN's limited role. Rather, it should limit its task to the structure and stability of the domain name system and the administration of other Internet identifiers. Ironically, though, one of ICANN's biggest current tasks lies outside the boundaries I have just defined. I have already referred twice to trademark-domain name dispute resolution: ICANN has announced its intention to quickly adopt new rules, to be imposed on all domain name holders, potentially requiring their participation in dispute- resolution proceedings brought by trademark owners who feel that the domain names Apirate'' their trademarks. Yet resolution of such trademark-law disputes between trademark owners and domain name holders has no technical component. It is not necessary to administration of Internet identifiers. It could be handled through ordinary trademark- law litigation, as it has been to date, without any threat to the stability of the domain name system. It is precisely the sort of issue that IANA would not have dreamed of taking on, and that ICANN should not be engaged in. ICANN is involving itself in domain-name dispute resolution for three reasons. First, as a matter of pure practical politics, trademark holders have made clear that they will fight vehemently against the addition of any new top-level domains, in Congress and other fora, unless ICANN first implements a trademark dispute resolution mechanism. Second, NSI already has a trademark dispute resolution Amechanism'' in place--it will suspend any domain name upon complaint from a trademark holder with the same mark--and nearly all parties agree that that mechanism must be replaced. Finally, the current ICANN structure gives business and trademark-owning interests extensive influence, and the Board members are sympathetic to their concerns. At least the first two of these reasons may make the enactment of some sort of trademark dispute resolution mechanism inevitable at this point. But this should be the last of ICANN's forays outside of issues relating to the structure and stability of the domain name space, and the administration of other Internet identifiers. ICANN, in short, has three tasks before it. It must move quickly to formulate, and to implement, mechanisms for choosing new Board members who will be drawn from, and who can represent, the Internet community. Second, and relatedly, it must learn to act like a part of the Internet community. Finally, it must find an adequate way of defining, and limiting, its own mandate. (It will not suffice for it to declare piously that, because it is impelled by community consensus, it is incapable of overstepping its bounds.) If ICANN can do all of these things, it will be able to fulfill the role that the White Paper laid out for it. Mr. Upton. Thank you. Mr. Zittrain. TESTIMONY OF JONATHAN ZITTRAIN Mr. Zittrain. Mr. Chairman and members of the committee, Counsel, my name is Jonathan Zittrain. I am the Executive Director of the Berkman Center for Internet and Society at Harvard Law School where I teach several classes on Internet issues as a lecturer on law. As the materials I have submitted for the record describe, the Berkman Center has sought to document the process of ICANN's creation and the underlying debates, identify important social issues at stake, present advice to ICANN, especially on structures for openness and accountability, and develop systems for broad-based participation in ICANN-related activities and deliberation. We thank the committee for giving us the opportunity to webcast today's hearings which, at least in the earlier session, over-flowed the physical capacity of the room. I want to touch quickly on three things. First, the historical context behind what ICANN has been asked to do. Second, why it is so hard for ICANN to do it. Third, walk through some of the scenarios that might unfold if ICANN were to fail. First, what ICANN has been asked to do. It takes awhile to come to understand that the way this system used to be run, at least the apex of it, of the domain name system, prior to ICANN, was by a series of handshakes, traditions, and maybe a couple of cooperative agreements with incredibly vague terms. Government involvement was limited primarily to simply subsidizing it, much as the NEA might subsidize art, although perhaps slightly less controversial at the time. These subsidies made it then, in some sense, a public effort. Indeed, the people who received the subsidies, Dr. John Postel, not the least among them, worked on something called the IETF, the Internet Engineering Task Force, to develop the actual protocols by which the Internet, as we know it today, would work. They do so in open meetings. Anybody can show up. The IETF is not incorporated. You do not pay dues to the IETF because there is no one to whom to give the dues. They do not take votes. In fact, their motto is we reject kings, presidents, and voting. We believe in rough consensus and running code. The closest they come to voting actually is a hum. They will actually call for a hum in the room and see if those assembled, again mostly engineers, appear to be humming more one way or the other. At least, that is how they identify consensus and know it when they see it. This is a wonderful system. It makes for a great story, but it is one that obviously cannot withstand the kind of pressures that have been evident in the crucible of the earlier panel. There are serious amounts of money at stake and serious demands from now very powerful parties. The engineers, from what I can understand, really want no part of it. They do not want us at their meetings. It will disrupt the humming. As a result, John was wanting to get this out of his lap. As Professor Weinberg said, IANA never dreamed of some of the things that ICANN is contemplating doing. In that sense, what ICANN is being asked to do does have a regulatory or governance dimension. It is because it goes beyond the technical and it involves things in the political realm; things such as trademark arbitration within the architecture of domain name registration. I am not here to say whether that is a good or bad idea. Personally, I think it is a bad idea, but it is one that there are very powerful interests calling for. They want a forum in which it can be aired. ICANN is meant to be that forum and it is not clear to me that you have decided which way it will go on that issue. It is also governance in the sense of if it ultimately does have power over what we are calling the route, and that is the thing to which most people subscribe in order to get their domain name information, it is something that if you do not play by the rules and get access to the route as a registrar or a registry, you are really left out in the cold. It is a market power. It is not an outright regulatory power in that sense. It's governance. That is why it is so important to want to have many of the forms of governance present in ICANN. What do these forms include? They include openness, representation, due process, and funding. Openness has been spoken to a lot. I just want to add a footnote to it. Open board meetings are not the be all and the end all. I am totally in favor of them. I am glad they did it, but I think we all know that is just the beginning of what really is a much deeper process that has to be done in order to be truly open, in the sense of having the issues in a room, covered by media, discussed openly, rather than simply happening in the hallways. My belief is that if ICANN were not around to have it, somehow those discussions are still going to be had. Somehow power is still going to be brought to bear. Better to have a forum through which it happens as openly as possible, than no forum at all. Representation is another issue. Somebody pointed out earlier today that we want ICANN to be accountable and therefore to be representative of the Internet at large. That is so difficult to do. If we had the FCC have members from AT&T, Bell Atlantic, and several radio stations, that might be representative of stakeholders, but it might still not be a commission in the public interest. Facing that challenge has been very difficult. I see my egg is ready. Let me just read one concluding sentence, if I may. I am aware that the Berkman Center's participation in ICANN activities such as webcasting the meetings, developing remote participation systems, conducting a membership study, and giving other advice is itself a form of support to the organization. If we thought ICANN were corrupt, or renegade, or out of control, we would cease such support in a heartbeat. So far as I know, ICANN is none of these. It is making its share of mistakes in a territory that is uncharted. With that, I guess, if somebody wants to hear about scenarios if ICANN fails, maybe you could ask me in a question. Thank you. [The prepared statement of Jonathan Zittrain follows:] Prepared Statement of Jonathan Zittrain, Executive Director, Berkman Center for Internet and Society, Harvard Law School Mr. Chairman, Members of the Committee: My name is Jonathan Zittrain. I am the Executive Director of the Berkman Center for Internet and Society at Harvard Law School, where I teach several courses on Internet issues as a Lecturer on Law. The Berkman Center's research falls roughly into five categories. We look at the way in which the increasing use of the Internet and open networks generally is affecting the openness of code, commerce, education, security and government, and the relationship of law to each. Our research is active--we build out into cyberspace as a means of studying it. The development of the debate over domain names and IP numbers has thus been of great interest to us, and we have developed a perspective both as observer and participant. In an important sense, these names and numbers are the foundation upon which the Internet as we know it is built. The fact that key elements of the system were developed and managed with little more than a series of handshakes and a set of traditions for so many years speaks to the spirit that built the Internet, kept it running, and ultimately attracted the rest of us to it. The Net is no longer just a convenient means to share research results or a large-scale experiment in applied computer science, but an increasingly important foundation of commerce, social activity, and information exchange. As the materials I have submitted for the record describe, the Berkman Center has sought to document the process of ICANN's creation and the underlying debates; identify important social issues at stake; present advice on structures for openness and accountability; and develop systems for broad-based participation in ICANN-related activities and deliberation. The latter presents major challenges when the people who have an interest--the so-called stakeholders--are dispersed around the world, and indeed may have little in common except a link to the Internet and a desire to have some say in its future. In addition, individual Berkman faculty have published their respective views on ICANN, and two Berkman fellows have been drafted as advisors to ICANN. The Department of Commerce White Paper of last summer is in essence a call for a barn-raising by the Internet community. With a clear sense of the distinctly informal, bottom-up way in which the domain name and IP numbering system was semi-privately, semi-publicly developed, the White Paper called for the Internet community to produce a coordinating organization--a ``newco''--that has since been recognized as ICANN. By now you are aware of some of the tugs-of-war that took place in its formation, and competing proposals that to widely varying degrees were reconciled with the ICANN proposal. My supplemental materials try to give a sense of the few planks we've tried to lift ourselves for the ICANN ``barn,'' the documentary pictures we've taken as it has been assembled, the windows we have tried to encourage in it so that one can see inside once it has been completed. To be sure, as you will hear today, there are plenty of people who wish there were a different barn or only an open field, and I would like to speak to some of those issues generally. I want to quickly touch on three things. First, reflect on the context behind what ICANN has been asked to do. Second, discuss why it is difficult for ICANN to do it. And third, review some of the scenarios that might play out if ICANN fails. What ICANN has been asked to do First: the context behind what ICANN has been asked to do. As may be clear from today, there was nothing really like it before. A natural question may be: ``If we did not need it then, why do we need it now?'' What we had before was something called IANA, the Internet Assigned Numbers Authority. IANA was not incorporated; it had no legal personality. At its core was one figure, Dr. Jon Postel. Jon did pioneering work on domain names and personally managed key aspects of the domain name system, including the vaunted ``root.'' He was also the steward for the ``.us'' domain--the country code designated for the United States--until the day (which has not yet arrived) when the U.S. government would seek to manage the domain itself. To many, Jon was a Solomonesque figure who could apply an engineering talent to the various issues that would come up, think hard, and simply do the right thing to keep things running smoothly. Jon did much of his work with government grants, and, from what we can tell, he put them to good use. In addition to taking the lead in developing the system of domain names as we know it, he was the leader of a process to document standards as they were decided. These standards include the specifications for how domain names can work, along with manifold other aspects of Internetworking. The standards aren't formally enforced by any commission or governmental entity; and thus in some sense are voluntary. However, each computer on the Internet deviates from these accepted protocols at the peril of incompatibility and thus dysfunction. The protocols have become the lingua franca of the Net thanks to the sum of thousands of individual decisions by network administrators and software designers to hew to them. In this sense they are quite binding. These standards are actually written down somewhere. They are available online in documents called RFCs (``Requests for Comment,'' though often they're final drafts). No one owns the RFCs in the sense we normally think of as ownership--no private company has a patent on them, and they are open to adoption by anyone without license. In this sense they are public. Yet they are not developed by governments. In this sense they are private. An organization called the IETF, the Internet Engineering Task Force, itself unincorporated, with no legal personality, for which there is no particular membership fee to join since there is nothing explicitly to join, comprises a group of engineers, most of whom participate in their spare time. These engineers discuss the protocols on email lists with each other. Occasionally they gather in a city for a meeting. They try to develop consensus around what will work best. Indeed the IETF motto, such as it is, was coined by a colleague at MIT, Dave Clark. He says: ``We reject kings, presidents and voting. We believe in rough consensus and running code.'' How does the IETF know consensus when it sees it? Well, in a meeting they will actually call for a hum. Since it is difficult to hum particularly loudly no matter how passionately one feels about the issue, it seems a rough way of seeing the room is in agreement. This is not to say there isn't leadership. RFCs are shepherded by a leader of some sort. Someone takes it upon himself or herself to help own the document and to manage proposals for revisions to it. That editor, of course, has a lot of power in how the protocol that the document describes will ultimately turn out. I digress into this area because I think it's critical to give a picture of how this all used to work--and in most ways, still does. The design of the Internet was accomplished by a bunch of people with a common goal to make the Internet bigger, faster, louder, as it were; people who came from relatively similar backgrounds and had little patience for highly formalized structures (and even less for lawyers). This informal system works best--i.e. it comes to consensus--when the issues under discussion are incredibly boring to everyone but the engineers who have gathered to discuss them, and when any political ramifications of designing a network one way versus another are ignored or forgotten. In the IETF setting, there are no clear competing interests at stake, at least not competing interests outside the realm of engineering. But I will give two examples of interests that have catapulted the domain name system out of the sleepy meetings of the IETF and into the public eye. These are exactly the kinds of issues beyond the technical that led Jon to want to see a new, much more structured IANA come about, and which are echoed in the White Paper as a reason for trying to go beyond the status quo. First, there is significant concern about trademark. Domain names have become the primary way to reach something on the Internet. They're written on buses and coffee mugs, and the easier they are to remember, the more valuable they are when the audience in question is the public at large. Thus there are fights over what domain name belongs to whom. The old system of ``First come, first serve,'' indeed, for awhile, ``First come, first serve, with no fee per name'' has come under some fire, as major trademark holders, somewhat late to the Internet themselves, found that hertz.com (taken by a domain name speculator) and mci.com (taken by Sprint!) had already been registered at the time they were wanting to take up shop online. A major company is not afraid of initiating a lawsuit to claim what it thinks it's entitled to--and I don't mean to suggest today that the law says that every trademark holder pre-emptively owns her own mark plus a ``.com'' or ``.net'' at the end of it--but would prefer a simpler way to get to the bottom of the issue, or perhaps a form of dispute resolution whose results are more generous than the results of respective courts. Finally, those who think they deserve a domain name held by another may want to know simply who's behind the name--without solid contact information for the defendant, it's not easy to start a lawsuit. As you might guess, some cheer this fact (if only for privacy protection reasons) while others lament it. Decisions about domain name system architecture, and the handling of domain name registrations, can bear on whether famous mark holders and others can easily try to assert claims over names; this is a good example of a desire by powerful interests to have a means of proposing changes to the architecture of the Internet with justifications that are other than technical. A second example of pressures on the system beyond the technical is simply the entrepreneurial forces that want to provide domain name registration services. The ministerial act of registration of domain names--associating a holder with a name, and inserting the holder's desired destination address into a table that helps converts these names to the ultimate IP numbers required to really find a site on the Internet--is itself a lucrative business. When a lot of money is directly at stake, it is very difficult to have IETF-like informality at the apex of the pyramid. The power of the root of the domain name system is the power to designate who can register the names under a given ``top-level domain'' like .com or .org, and it's also the power to designate what top-level domains there are. The root of the system that nearly all of us use declares that there exists a ``.com'' and that a computer in the custody of Network Solutions will fill in registrations under it. It has no data on a ``.biz,'' and thus for almost all of us there is no .biz domain. Given the money to be made registering names in existing domains like .com, and the possibility of new territory like .biz, control over the root is more than just a technical function. Those who want a piece of the domain name registration action--and among them there are competing claims to slices of it--may only support ICANN if they think it'll generate policy that is responsive to them. At the very least, people trying to build or maintain a business like to know where they stand, they like to have it in writing, and they like to have what one would call ``calculable rules,'' so that they can build a business on predictable forces rather than whether a hum happens to be heard one way or another. Thus the authority to modify the root file or veto attempted changes to it is something that everyone agrees has to be handled more systematically than it had been. As the White Paper tells it, decisions like these are to be one of newsco's--now ICANN's--primary goals: developing policy about things like .biz in a fair and open way, so that decisions aren't arbitrary. Anyone with an interest ought to be heard, and policies that promote competition would presumably lower the cost of domain name registration and spread what surplus there is to be had on the supply side among multiple competitors. Furthermore, the White Paper structure provides an opportunity to take into account concerns that go beyond the technical--trademark, for example. ICANN is supposed to act in the public interest, not to be beholden to any one stakeholder, and it is supposed to come to closure on these issues, to develop policies that can be implemented and that put a given debate to rest. Why ICANN's job is hard to do Why is this so hard for ICANN to do? First, ICANN needs to be open. The easy part of openness perhaps is the ability of people to have a sense of what is going on, and if decisions are rendered, to know why they were made. Open board meetings seem a good idea, of course. But there will be tendencies still to have private consultations with staff, and perhaps even informal meetings where board members discuss things with each other. After all, there cannot be a microphone everywhere, and it may not even be desirable to have a microphone everywhere all the time. In any event, openness goes far beyond open board meetings. It is an ethos, a way of conducting business, that strives in good faith to be inclusive, clear, and genuine. ICANN here has been somewhat saddled with the baggage of a typical private corporation. After all, in form at least it is a private corporation. To call ICANN's chief policymaking body a ``board'' already endangers the spirit of openness--and obscures the fact that, indeed, ICANN is ``governing'' in some important sense. ICANN is a private company with a public trust; its contracts are ``voluntary'' just as much or as little as the IETF's RFC standards are. It makes policies that are explicitly meant to go beyond the technical--even a policy that considers and then refuses, say, to adapt the domain name architecture to be more beneficial to famous mark holders at the expense of other interests is still a political decision. A second area that is difficult for ICANN is representation. The White Paper calls for ICANN to be a broadly representative body, both geographically and with respect to the interests involved. But how does one weigh the different interests? Consensus defined in this environment as ``there does not appear to be any one complaining that much'' or ``most people seem to agree, with a few outliers'' will mean that consensus is going to be elusive at times. After all, contested issues may often be a zero-sum game, and in such cases someone will ``lose'' on a given policy decision. When they do, they might say: ``There is not consensus. I do not agree with this.'' And yet, ICANN cannot be paralyzed when consensus does not exist; maintaining the status quo is itself a decision that may upset some stakeholders. The first goals must be to make sure that the openness and deliberative processees are in place, then to try to forge consensus and compromise wherever possible. But when consensus is impossible ICANN really does have to make a decision, and just how to weigh the different interests will be a difficult challenge. We tried to help address the question of representation through the Membership Advisory Committee, which laid down possible parameters of a membership for ICANN, mandated to elect half of its board through an electorate largely open to anyone who wants to sign up. A fear is that the only people who will sign up are the people who have direct stakes in the process, and therefore the process might become a race to the ballot box to see who can get the most votes in. In some sense, that is a normal election. But, in another sense, it is a recipe for capture if a number of the interests that ICANN should be looking out for--perhaps the greater interest of the public at large--are not joining ICANN by becoming members. Jim Fishkin of the University of Texas is fond of telling the story of what happened when a question was put to the Internet at large through a poll open to anyone (this excerpted from the Guardian): TIME magazine's prestigious Man of the Century should be a global figure, a person of calibre and distinction whose fame transcends frontiers, a Gandhi, perhaps, or a Mao. A man whose influence has shaped the world and whose name is known from Ankara to Zanzibar. Step forward . . . Mustafa Kemal Ataturk. A household name in Ankara he certainly is--as founder of the Turkish republic 74 years ago--but who knows who he is anywhere else? TIME magazine, which asked readers to nominate the key people of the century, appears to be falling victim to Today's Programme Personality of the Year Syndrome: intense lobbying on behalf of an underdog for political purposes. In Turkey the prime minister, Necmettin Erbakan, and President Suleyman Demirel have joined a frenzied media campaign to have their man win. Offices and banks provided voting forms which members of the public could sign. Ataturk was streets ahead of the opposition. Diane Pearson, a Time magazine official, said that TIME had received between 500,000 and 1 million votes. ``Our fax lines have been tied up for hours.'' Ataturk led Bob Dylan in the Entertainers and Artists category. He is more of a Hero and Adventurer than Nelson Mandela or Martin Luther King, Jr. Einstein isn't even close in Scientists and Healers, while Henry Ford and Bill Gates were fighting it out for second place in Builders and Titans. Only in the Warriors and Statesmen category did Ataturk have work to do. Winston Churchill (Man of the Half-Century 50 years ago) led. But one Turkish newspaper claimed many Churchill votes came from Greece in a vain attempt to stop the Ataturk bandwagon. Assuming the vote wasn't fraudulent--i.e. no one voted twice--was Ataturk deserving of the best ``entertainer and artist'' mantle, or had there been ``capture'' in the election? In the end, of course, ICANN will have to move forward with some form of electorate, and being accountable in part to an open membership is a way of ensuring a tethering for ICANN that could lessen the need for direct government intervention. (ICANN's most direct form of accountability right now is to the U.S. government, whose memorandum of understanding phases in responsibilities slowly, and makes those responsibilities provisional for the duration of the MoU. Another source of accountability, or perhaps simply control, is the Internet technical community, which has been allotted several seats on the ICANN board through its ``supporting organizations,'' and which in any event could be hypothetically roused sufficiently to make the current popular, authoritative root file a pariah.) We see the same phenomenon with due process. Due process is something cherished in Western legal traditions--to make sure that people really do have a formal opportunity to be heard, to meaningfully protest if they think their rights are being trampled upon. The process developing within ICANN right now is one that struggles to adopt internal structures for due process and deliberation. For instance, once a policy proposal is made, it may be referred to one of ICANN's supporting organizations. In the case of the domain name supporting organization, the proposal goes to one or more ``constituencies'' or cross-constituency working groups; the constituencies think about it, come up with views, and put it back to the DNSO, which in turn makes recommendations to the ICANN Board. The ICANN Board takes a vote and comes to a decision. At that point an internal reconsideration process can be invoked by someone who feels that the decision is contrary to ICANN's structure and bylaws. If it gets past that, there is a structure emerging--still not here, to be sure--for an independent board of review, which then looks at a disputed issue and has the power to require the Board to explicitly come to a new judgment on the subject. One sees the same dilemmas arise in civil and criminal litigation, under the Federal Rules of Procedure, balancing the need for due process with the need to create and empower an ultimate closure-- preventing abuse by those who might make frivolous claims and simply tie up a policy within a structure for a long time. ICANN faces similar tradeoffs, and it must choose a structure to reach an appropriate balance. Funding is another issue. Somehow ICANN has to pay for itself. I think the domain name tax is a bad idea because it reinforces the notion that the right structure for domain name registration renewal is to pay by the name, and on an odd installment plan at that. (I'd be curious if anyone present today has any idea, apart from historical accident, why it makes sense to rent names by the year instead of ``have'' them indefinitely--or at least renew without paying.) However, any entity that pays ICANN more directly could be thought of as having undue influence over the organization, and every funding model will involve trade-offs. If ICANN fails So what are the scenarios if ICANN fails? I see three rough possibilities. First, one can imagine the creation of a ``Son of ICANN'' which would simply try to reconstitute a new organization to do better that which ICANN has not done so well. I am skeptical about the success of a second attempt because it may be difficult to energize increasingly cynical parties to this debate to try again for a new ICANN, and also because I am not sure it would be any better. The ICANN we have has plenty of flaws, but has also shown considerable progress since its inception under demanding conditions. Further, if someone feels he or she is going to lose out as a result of the actions of ICANN or its possible replacement, a perfectly rational approach may be to attempt to undermine the whole organization rather than live under what the person considers an undesirable decision. Therefore, there may always be attempts to destabilize, to restart the process leading to ICANN from scratch, to throw the dice again and see what might come out. This is not to say that any criticism of ICANN is the result of sour grapes; rather, that in a healthy environment there will always be criticism, and indeed some of it will call for ICANN's end. A second possibility is that ICANN's functions would be assigned to an inter-governmental entity. It is hard to imagine the US government alone trying to continue DNS management responsibilities solo for the very reasons stated in the White Paper. An international treaty organization is one possible way that governments could come to agreement on how this particular aspect of the Internet should be run. My personal guess is that this would be the likely outcome if ICANN were to fail. It's not clear to me that such an organization would make policies any more in touch with the Internet at large than a well- function ICANN can. More important, as the historical context suggests, the power of the root derives from the fact that a critical mass of system administrators and ``mirror'' root zone server operators choose to follow it. A drastic turnaround in the management of Internet top- level functions--either through a sea change in favor of much more aggressive government involvement, or one that purports to literally privatize the whole system (imagine auctioning it off to the highest bidder)--could result in abandonment of the network by the technical community. A third possibility is that the market is simply left to its own devices. In an important sense, this is already happening. For example, we have heard ICANN's claim that the only reason that root file dictates who gets to run .biz is because everyone chooses to look to the ``official'' root file--the ``IANA legacy'' root file intended for ICANN's custody--for the answer to that question. By everyone I mean network providers like AOL, and potentially even you and me. In the network control settings on almost every computer, there is a dialog box which we can edit, and there is software to make it especially easy to edit that box, that says: ``This is the computer from which I will get my domain name information.'' It need not be one that has any allegiance to ICANN or to Network Solutions, for that matter. The problem is that there is such benefit in interoperability that it is difficult to switch out of a system that everyone now has bought in to. To the extent that it was done, addressing on the Net would become more confusing (``You can reach me at zittrain@law.harvard.edu@icannroot, but not at zittrain@harvard.edu@competing root''). That's why the prospect of so- called multiple roots strikes me as a remote one. What would ultimately happen is ``tipping behavior'' through which one naming scheme would predominate and somebody would end up with control of a new root--a private actor answerable only to itself or its shareholders--and then antitrust or other mechanisms would have to apply to keep that private actor in line. This is indeed what will happen if current private naming schemes take off. Conclusion Is ICANN out of control? If by this one means a bull in the china shop, rampaging this way or that, unaccountable to anything but its own inexplicable motives, the answer is no. I worry about the opposite problem: ICANN has inherited an extraordinarily difficult situation, with high expectations all around, and with almost no discretionary room to move. The set of realistic options for substantive policymaking and procedural structure is quite small: for better or worse, ICANN faces swift dispatch if it strays too far from the desires of any of the mainstream Internet technical community; the United States and other governments (including executive, legislative, and judicial branches, which in turn may not agree); and powerful corporate interests. Indeed, those representing the ``little guy'' and/or those wanting a maximally unregulated Net--one where political concerns have no place in technical management--are quick to worry about capture of ICANN by one or another of these interests. The key in this critical transition period is to give ICANN enough rope to either demonstrate that it can heft what it needs to in order to foster trust and respect among disparate interests (the kind of respect that has even the ``losers'' in a given policy question know they got a fair shake), or to show a conclusive inability to rise to the challenge. Better that we know now rather than later. For the Berkman Center's part, we want to continue to be one voice among many pushing ICANN towards openness, and recognition of public interests that may not be well represented or fully aware of the true stakes of some of the architectural decisions that ICANN--and other elements of the technical community--are coordinating. I am aware that the Berkman Center's participation in ICANN-- activities such as webcasting its meetings, developing remote participation systems, conducting a membership study--is itself a form of support to the organization. If we thought ICANN were corrupt or renegade, we would cease such support in a heartbeat. So far as I know, ICANN is neither. It is making its share of mistakes, in a territory that is uncharted. Our own faculty have joined others who are pointing out its deficits as they materialize. Oversight of its work is critical, and indeed hearings like these are an important way of helping it identify and correct them. But there will be inevitable letdowns as we shift from the lofty rhetoric of possibility to the hard facts of building an organization that works--retaining or rebuilding the spirit of openness, representation, and trust among stakeholders who have differences that did not materialize yesterday and which will not disappear tomorrow. Mr. Upton. I appreciate your eggs being done. A couple of questions, and sadly we are going to have a series of votes very shortly. Normally, we would have started this hearing earlier, but in deference and certainly out of respect for the two Officers that were slain, there was a memorial service in the Capitol today. That is why we could not start until 11 a.m. I have a couple of questions. I am going to raise them and let each of you maybe make a quick comment, and then move to Mr. Klink. One of the things that I have been concerned about always is the current makeup of ICANN's board; whether or not it fully reflects the diversity of the Internet community. What major voices are missing and who should they approach as they look to expand the board in the future? The other question that I have that I would like each of you to answer, we will go down, is do you believe that it is appropriate for ICANN to in fact develop the policies to eliminate cyber-squatters? Where should we head in that direction? If you would like to comment, Ms. Barry, that would terrific, on both of those. We will just move down. Ms. Barry. Okay. My first comment to the first part of the question is that individuals are not appropriately represented by ICANN, in my opinion. There is no individual constituency where individual domain name holders have any kind of say whatsoever in the ICANN procedures. I have just been elected to the Steering Committee of what is trying to become the individual domain name owners constituency to the domain name supporting organization, but it has not yet been given the go ahead by ICANN to be one of the constituencies. Regarding cyber-squatting, first, there is no definition of cyber-squatting. You can ask 20 different attorneys or 20 different law makers and they will have 20 different definitions to cyber-squatting. There have never been any cases won by so-called cyber-squatters in any court in the world; the U.S. included. Any time that something even approaching cyber-squatting has come up, there have been some rather creative meanderings by the Judiciary to make sure that this is not allowed. I think it is a judicial issue. I do not think that it is an issue that should be addressed by a non-governmental organization or a non-Judicial organization. Mr. Upton. Other than the Congress. Ms. Barry. Other than the Congress, of course. Mr. Upton. Thank you. Mr. Miller. Mr. Miller. Mr. Chairman, I believe that the current people on the board are doing an excellent job, but I would agree to some extent with Ms. Barry's comments that we need to figure out how to get the user community broadly defined. I think the interim board is trying very hard to work with various groups to figure out how to do that systematically. It is not an easy task. It is something that I think will be achieved. Also, as was said on the earlier panel, I think there are certain regions of the world which are not adequately represented areas, such as Latin American and Africa. I think there is going to be a conscientious effort, to the extent possible, to reach out to those regions of the world because this is a universal medium. We need to make sure that all parts of the world are included. I commend the interim board for moving their meetings around the world and trying to get maximum input from other regions of the world, other than North America and Western Europe. Second, on the issue of cyber-squatting, I think that this in fact is an important issue. ICANN is appropriately trying to address it. There has been a lot of effort put in by WIPO. While one could argue whether it is a technical issue or a policy issue in terms of the operations of the domain name system, it is appropriate for ICANN to address it. Mr. Upton. Mr. Weinberg. Do you have any comments? Mr. Weinberg. ICANN's current board is not representative of anyone. I think it would be hard to argue that it is. With the formation of the constituencies, I can look at representatives from the protocol supporting organization who are essentially engineers, what has been referred to as the geek aristocracy; representatives from the address supporting organization who are, for the most part, engineers; both of which I firmly approve of; representatives from the domain name supporting organization who will be people involved in the business of or interested in the business of registering domain names. None of that will suffice to make it representative either. On the other hand, ICANN has announced its intention to have members elected at large by the general membership. I am hopeful that will give it much more of a broad-based electoral constituency. On cyber-squatting, I have expressed my views why I think this, in a perfect world, would be outside ICANN's brief. In fact, ICANN action on cyber-squatting is going to happen. The reason it is going to happen is because business and trademark interests have made it clear that they will vehemently oppose the addition of any new generic top level domains, unless they get a trademark dispute mechanism they can live with. Various others of us, myself included, really want new generic top level domains. An agreement is going to be reached there. It is going to include new generic top level domains. It is going to include the trademark dispute resolution, even though I would prefer not to have that last part. On Congress, I just want to say there is a God-awful cyber- squatting bill that was marked up on the other side of the Hill this morning. They know this body will be sensible enough not to have anything to do with it. Mr. Upton. I will not provide editorial comment on the other side. Mr. Zittrain. Mr. Zittrain. First, on the issue of major voices missing. On the current board, since we do not know how they were picked, it is hard to say whether each is meant to represent a distinct interest. So far as I can tell, that is not the case. It is meant to be a collective; just sort of a commission-like structure. Going forward you say well, what structures would help the board to have a broadly representative set of people? As Professor Weinberg described, this is kind of a bi-cameral structure to the board. The supporting organizations met to represent the technical community. Of course, participation there is to the extent that it is open. Also, whether it welcomes others who have an axe to grind. Then the other half is the at-large membership. The key there is how to make it grassroots. How to actually have it represent a good cross section of all of us, rather than sort of the astroturf just sort of minded by the various interests that have clear interests at stake, and who are not bored to tears by this stuff, and then load the membership that way. That is a difficult decision. The Advisory Committee on Membership has put forward some recommendations. I understand there will be a motion in Santiago taken to make that happen. On cyber-squatting, it is too bad that many American businesses woke up to the Internet a little bit later than others, and when they got there, found their names were taken. Hertz.com was originally in the hands of a speculator. MCI.com was in the hands of Sprint. They managed to work it out, through legal means, as Ms. Barry was describing. I am generally against heavy-handed ways in which ICANN would walk into that morass. There may be pressures to put them there. Somehow, they are going to have to sort it through. Mr. Upton. Thank you. Mr. Klink. Mr. Klink. Let me start off, in the previous panel, I suppose you all were in the room. Everybody else was. The Commerce Department and Network Solutions seemed to kind of agree on the fact that there would be an unacceptable instability if NSI did not maintain the monopoly on the registry and did not allow other companies to be able to come in and act as registrars and compete. A lot of people have suggested to us, prior to today's hearing, that there is a game of chicken going on here. That NSI is kind of playing a game. My question is what do you think would happen? Would the Internet come crashing down if NSI were to walk away and say, we are not getting what we want? We are going to pull out. We decided we are going to go invent a competing type of system. Let me start with Ms. Barry and work down. Ms. Barry. There has been an old adage on the Internet that the Internet will route around censorship. I believe that it will also route around instability. There have been several occasions where NSI has had significant difficulties with their operations. The Internet did not come crashing down. There were some difficulties while people were figuring out what was happening. Even when large trunk lines going to large carriers like Sprint, UUNET, or whomever go down, the Internet does not end. People route around it. One popular misconception is that running a route server is something that is magical, and difficult, and all of that. As a matter of fact, there have been several route servers that have been in operation besides the ones that are running the .com, .net, and .org matrices. There have been several alternative route servers and alternative route structures that have been up and operational. So, I think that it might take a little bit of time, but the Internet would prevail over any single company. Mr. Klink. Mr. Miller. Mr. Miller. I guess a couple of points, Mr. Klink. No. 1, I think there has been an unfortunate tendency to demonize ICANN and NSI. I do not think either of them are bad guys. I think they are both trying to make the system work because it is, as Professor Zittrain said, a relatively fragile system with a lot of it based on consensus. I was thinking this morning before I came to the hearing if John Postel were still alive and he were running the Internet all by himself, which he was trying to transition out of that, what kind of hearing would we have here today? People worry about consensus now. That really was, in some sense, a strange one-man consensus. To answer your question specifically, I do believe that there is a lot at stake here. This is not an easy system to run. I have been to Network Solutions' operations in Herndon. I have met with Mr. Rutt. Mr. Daniels is the chairman and was the acting CEO before that. It is getting more difficult and more sophisticated every day because of the growth. Is it going to be the end of the Internet? I do not want to be apocalyptic, but it would be terribly disruptive if the chicken game ended up either in court, or in the Commerce Department trying to remove NSI, against its own will, from running the registry. Yes, I think it would be terribly disruptive. I am optimistic. I believe that Mr. Rutt and his leadership team wants to work with ICANN. I believe ICANN wants to work with Mr. Rutt. I believe the Commerce Department is playing a very good shell diplomacy role, as Mr. Pincus said. I do not want to be Pollyannaish about it, but I do not think it is going to do anybody involving the Internet any good to sit here and to try to demonize either side. I commend this subcommittee because I think this hearing this morning probably gave both sides a little more impetus to move a little more quickly. Mr. Klink. I hope that it does not come across that the members here are demonizing either ICANN or DNS. We are just trying to figure out if there are checks and balances, and what is the stimulus for everybody to do the right thing as this is invented? As everybody knows, we are all on new ground here. Mr. Weinberg. Mr. Weinberg. NSI would like full control over the .com registry and the .com data base, preferably with a fig leaf of somebody else's control. If they say we are going to walk away and accept nobody's control whatsoever, the U.S. Government has two choices. They can either say fine, we concede, in which case NSI gets that control. I think that would be bad from a perspective of consumer welfare, because we would have a monopolist controlling 75, 80 percent of the global market, much more, much, much more of the U.S. markets, perhaps over 95 percent, acting like a monopolist and doing the things that monopolists do. That would be a problem. Commerce's other alternative is that Commerce could seek to recompete the competitive agreement, or Justice could bring a prosecution. That would lead to litigation. Litigation would take several years--which is to say in Internet time several centuries--and sure would be a mess. Mr. Klink. Mr. Zittrain. Mr. Zittrain. There are definitely forces on each of the parties who want to try to come to an agreement, no doubt at the 11th hour, because indeed it is a game of chicken. On the Commerce Department's half, as they have explained, they do not want a lawsuit. A lot of what has been going on has been improvisation of a sort; improvisation I think in good faith. It is difficult for me to second-guess, but improvisation none the less. On ICANN's part, a big lawsuit would be quite difficult, even from just the financial end of having to deal with it. Third, from NSI's part, I agree, they are not to be demonized. They are a rational profit maximizing corporation with duties to shareholders to gouge every cent they can to the limit of the law. God bless them for doing it, but you need a structure around them, that then cabins their behavior appropriately with respect to the public interest. There exists a public interest. Anti-trust law generally tries to get at it when there are market failures or only one person having great market share that is not easily contested. That is the situation we have here. It is one for which NSI will play out its hand and the other hands will play. I believe this committee has a role to play at that table and has been doing so today. Mr. Klink. Do we find ourselves in the position where government has created a monopoly and now does not know what to do with it? I always get that sense to that. Mr. Zittrain. I characterize it as a position where government allowed a contractor to do what was thought of as a chore, did it on a 5-year contract, eons in Internet time, and it is somewhat, if I may use the reference like the Beverly Hillbillies. You find yourself on top of a gold mine. Mr. Klink. Gold; Texas tea. Mr. Zittrain. Exactly. Mr. Klink. Does anyone else have a comment on that? Mr. Miller. Mr. Klink, like in a concession situation, if the government says we are going to let somebody come into Yosemite Park and manage the food service, well they cannot allow a true competitive situation because Yosemite is not going to be suddenly filled with Burger King, next to a McDonald's, next to a Kentucky Fried Chicken. You are only going to have one food service there, but you need to have a high quality food service, who has to be able to make a profit. So, at the end of the day, there still has to be the possibility that, that has to turn over. So, I do not think anybody sat there and said when we opened this operation, as Professor Zittrain said, we were going to do it in perpetuity. I do think that the government realized that obviously NSI was going to be a for-profit corporation and was going to behave accordingly. Mr. Weinberg. I just wanted to note here, by the way, the whole DNS controversy began in 1995, when NSI went from cost- plus reimbursement to actually charging a fee to the public, which was in the amendment negotiated with the National Science Foundation to the cooperative agreement. This, No. 1, gave NSI the beginnings of the gold mine that later accrued. No. 2, immediately sparked calls for the addition of new global top level domains, because all of a sudden, people all over the world started saying, well, why should we be stuck with them, and the prices they are charging, and the service they are offering? Mr. Klink. Let me just compliment the majority. This was an enlightening panel. I think you put together a good hearing. They have given us a lot to think about. Mr. Upton. I appreciate working with all staff. I would just like to say at this point, that you all may have heard these buzzers and beepers. We do not have a lot of time left on this vote. Without objection, I am going to certainly allow all members of this subcommittee to pose questions in writing. If you could respond to that, that would be terrific. I am going to excuse this panel. I am going to ask unanimous consent. I have not had a chance to clear this with Mr. Klink that Mr. Pickering is here, though not a member of this subcommittee, that he be allowed to ask some questions and then we will adjourn until I get back. Mr. Pickering Good afternoon. As many of you may know that in my previous committee assignment on the Science Committee, I have served as the Acting Chair on the Basic Research Subcommittee, which had the jurisdiction and the primary role, as were trying to debate and look at the transition of domain names and the work that NSI was doing, at that time, under the contract with NSF, to private sector competition. It was my hope, at that time, that we would see our hopes realized. That it would be a transition through a voluntary private sector, non-profit or profit organization that would setup the governance, as well as the structure that would lead us to competition. However, my concerns at that time that I hope would not be realized, I am fearful are being realized, and that is how do you have the accountability for the governance for ICANN or whatever entity, and how do you ensure that NSI goes to competition? It appears that we are running into the problems and the concerns. I hope that we will be able to work those out. My concern is do we need additional authority for NTIA to ensure that we reach the competitive goals? Do we need to ensure some type of ongoing oversight to ensure the accountability of ICANN. I have said it before and continue to believe that this is of enormous importance. This is, in essence, the Constitutional Convention, or the equivalent of what we saw in Philadelphia at the beginning of our country. This is the constitution of the int. It establishes the governance, the checks, and the balances. I am concerned as to where we are today; so concerned that I might recommend to the members of this committee and to the full committee that when we look at NTIA reauthorization, that perhaps we need to put a moratorium or a freeze on any further action until these issues are sorted out. Until we are adequately convinced that the issues raised in the two panels today can be worked out, where we have both the accountability, the right governance structure, that we avoid regulation, whether it is by government or by some elite group hand selected, and not open to accountability, and that we ensure that NSI goes to a competitive policy. So, I want to ask, one, Dr. Weinberg, I believe you had some additional recommendations or steps that we should take in your testimony that you did not get to. If you could, what recommendations would you make? Do we need to step in just to have a holding period until these issues are resolved and adequately addressed, in an open forum, and an open discussion? Mr. Weinberg. My bottom line, ultimately, is that you do not need to step in. That I think ICANN has a long way to go. I think NSI surely has a long way to go. But right now when I look at the Commerce Department, it seems to me that the Commerce Department is basically doing all of the right things. From time to time, I think the Commerce Department is being a little too timid in its relationship with NSI, but that is the kind of backseat driving that is easy to do if you are not actually there in negotiator seats. I think the best thing this committee can do is throw its support behind the Commerce Department, which is grappling with a difficult situation, and I think doing the best that can be done with it. Mr. Pickering. The question would be does the Commerce Department or does NTIA have adequate authority to ensure the objectives that they have set forth? One of the reasons that we went this route, one, I have no greater confidence that Congress will sort these things out any better than NTIA or I can. By going this route, we could avoid the Administrative Procedures Act, a lot of the bureaucratic delays of trying to have this transition work as quickly as possible, and also from the from the private sector. The concern is though that we are reaching an impasse. It appears that there is a conflict or a dispute over intellectual property; who owns or controls the data base? Did we, by trying to go this route, also leave us open to not having the authority or the accountability that is necessary to have a successful transition and a successful constitution? Mr. Weinberg. I think that to the extent there are gaps in Congress' authority, they may not be reparable now. Let me give you an example. NSI claims intellectual property rights over the contents of the .com registry. I personally think that is a silly argument. Indeed, of course they do not, as a matter of straight intellectual property law. If they are right, if they do, then it is not open to this Body to pass a law saying you do not have it. If they in fact own these property rights, then Congress cannot divest them of it. So, one way or another, that is something that may have to be resolved in court as opposed to by legislation, unless Commerce and NSI can come to some sort of negotiated agreement to that question. So, I have trouble thinking of exactly what action by the Congress would in fact solve the problems currently on the table. Mr. Pickering. Well, it could be simply a freeze in action, freezing action. It would not be to prescribe, but to force the negotiations that we would hope would resolve the issues, but to do it in a way that would have accountability and openness in that process. Mr. Miller. Mr. Pickering? Mr. Pickering. Yes, Mr. Miller. Mr. Miller. It seems to me, to some extent, the most important thing this subcommittee could do is plan to hold another oversight hearing in or about November. I think November is important for two reasons. No. 1, by that time the interim board is committed to try to have at least the first nine elected members on the board, which s very important in terms of the representation issue, which has taken some of the time of this subcommittee hearing today. No. 2, the issue of openness will have been dealt with or not dealt with, depending on whether the interim board does actually open the meetings or not. So, you will have a lot of those questions answered or perhaps dissatisfaction if in fact they have not opened the meetings. Third, the issue of funding will have to be dealt with because, even though Ms. Dyson is optimistic, they cannot continue to operate running up hundreds of thousands of dollars of debts each month. Something is going to have to be done in the near future. Fourth, you heard commitments during the subcommittee hearing from both sides, from ICANN and NSI, to try to work quickly to resolve these issues of dispute, which are of such concern. You will have by that time, I think the subcommittee will have the right to say, you promised this 4 months ago. You were going to make a lot of progress, or maybe even complete the contract negotiations, that there be real competition. I think at that point in time, if you still were not getting any satisfaction in those four areas, then you have a lot of questions to ask about perhaps the need to step in. I think it would be premature at this time to do so. Ms. Barry. Can I make a comment to that? Mr. Pickering. Yes, Ms. Barry. Ms. Barry. I just wanted to mention that it is a very common mistake to think that the Internet is all about Commerce or about E-commerce. It is essentially one of the best communications mediums that has ever been created. To have the Commerce Department overseeing, as it were, the Internet leaves out a vital component which is the expression, the freedom of expression, the free speech interests, and all of that. As you can tell, most of the testimony, and most of what people have been saying about the Internet have revolved strictly around commerce, commercial interests, trademark interests, and things that should frankly be legislated; expansion of the--Act in ways that were never contemplated when it was passed by Congress. So, in my opinion, a freeze might be the right thing to do while all of these aspects are looked at. Mr. Pickering. Mr. Zittrain. Mr. Zittrain. In some sense, seeing the proceedings unfold as they have over the past year or so has been watching a faucet drip. Nothing that drastic has happened in any one quantum. What existing accountability there is for ICANN, given that we are still in the stage prior to its own bi-cameral structure coming into places, and working out a membership scheme, et cetera for internal accountability, really rests with the Commerce Department and the U.S. Government, generally. There is a contract between ICANN and the government. I understand that expires in October 2000. At any time prior to that, I could imagine that the Congress could weigh in, in some way, and the Commerce Department would be able to take back any crown jewels that one was thinking were being handed over through the process of that MOU. So, it is not as if you are missing a chance now, if you do not seize it to do something about it. With respect to NSI accountability, I suppose some big stick is needed by the government if it is to be a respectable negotiator at the table over such things. I agree with Professor Weinberg that it is not a very compelling legal argument to assert intellectual property control over the data base by NSI. If it does end up in a lawsuit though, that again could stretch things on and, in effect, would be a moratorium of sorts. I just want to leave with the thought that I am not sure, it is not just a gold mine. I do not know why it is a renewable resource. Oddly, we pay by the year for these names, even once they are registered. Just every year you come back and you put more money into the hopper. Exactly what relationship that has to the underlying economics of the system has never been clear to me. It is one reason why ownership of that data base is such an issue. You heard NSI today say we have over 5 million registrants as our customers. I take it that is no accident. They are claiming all existing registrations, prior to this only recent test bed period, as their own, and therefore as their customers to handle the renewal each year. Mr. Miller. With all due respect to that last comment, it is important to realize, as Mr. Rutt said, that the pricing is going to be changing. Maybe NSI is not moving quite as quickly as some of us would like, but the pricing model is going to be changing fairly quickly, both the fee that NSI is able to collect for its registry function as long as it is permitted to do that, as well as more importantly as Mr. Pincus said, the retail side of what the competing registrars are going to charge. We could find ourselves within literally weeks being down to $15 to $20 with no renewable fee, or down to $9 or even less. So, I think we should not get too hung up on that. Again, I think that is a short-term phenomenon and it is clearly going to change in the near future. Mr. Pickering. It also strikes to the heart of our dilemma here. Does ICANN have the authorization to charge a fee that some would interpret to be a tax without Congressionally granted authority? The same if they were to be setting policy now from a regulatory perspective. So, these are the dilemmas in going the route that we did. I understand why we did, in the hopes that it could be private sector-driven. That it would expedite and speed the transition. It would give the community affected, hopefully, the Democratic process to make the decisions for themselves. I still support those objectives and want to help any way that we can. The question is can we serve as a catalyst or to facilitate the resolution of the current disputes that we are seeing, and the resolution of some of the authority issues, and accountability issues that we are now confronting. Again, I believe it is very important that we get it right. This is the framing of the constitution, in my view, of the Internet. So, we cannot just sit back and have no role. I think it would be an abdication of Congressional authority. Again, having said that, I want a very limited role for government, and Congress, and the Department of Commerce, and a going forward role. I do think we are at a critical point. We do have these disputes that are outstanding. We have authorization issues that are outstanding. Perhaps we do need to find a way that we can play a role as a catalyst and a facilitator to make sure that it is done right, and that we get it right. I would appreciate any further input or insight that you all have as we go forward as we make decisions, as with the NTIA reauthorization, or any other mechanisms that we have through additional hearings. That we play a constructive role to make sure that all parties feel like, one, it is an open accountable system, and that the objective of competition is going to be realized. With that, I have no other questions, unless you have any closing statements that you would like to make. [No response.] Mr. Pickering. Mr. Upton, thank you very much. Mr. Upton. Thank you for your answers. We are going to have a series of votes in about 10 minutes. I appreciate your indulgence with us. Again, you may see something coming via your mail carrier. If you would respond fairly quickly, that would be terrific. You are now excused. The last panel includes three individuals, Mr. Richard Forman, Chief Executive Officer of Register.com; Mr. Kenyon Stubbs, Chairman of the Executive Committee of Internet Council of Registrars; and Mr. James Bramson, Counsel of America Online, Inc. We are going to get started fairly quickly. You all, I think, were here for some if not all of the earlier two panels. You know of our long-standing practice for taking testimony under oath. Do any of you have objection to that? [Chorus of nays.] Mr. Upton. If not, we also, as a part of the House Rules you are allowed to have counsel. Do any of you desire to have counsel with you? [Chorus of nays.] [Witnesses sworn.] Mr. Upton. You are now under oath. Mr. Forman, we will start with you before we get interrupted. Again, your comments will be made a part of the record; as will your entire written statement. If you could summarize it in 5 minutes or less, that would be terrific. TESTIMONY OF RICHARD D. FORMAN, CHIEF EXECUTIVE OFFICER, REGISTER.COM; KENYON T. STUBBS, CHAIRMAN, EXECUTIVE COMMITTEE, INTERNET COUNCIL OF REGISTRARS; AND JAMES R. BRAMSON, COUNSEL, AMERICA ONLINE, INC. Mr. Forman. Thank you, Mr. Chairman and members of the committee. I appreciate your inviting me to testify because my company and I, personally, are concerned about the rate of transition in the industry as it was laid out in both the White Paper and Amendment 11 to the cooperative agreement. We are very interested in ensuring that there is fair and equitable governance, and management of the Internet domain name system. As has been discussed today, NSI has maintained exclusive rights for the .com, .net, and .org top level domains up until recently. ICANN was created with the Internet community and a consensus in order to oversee the management of names. We have benefited from that process. We were the first registrar, the first competitive registrar, to go live along side Network Solutions. Just to try and give some brief background on the market, many projections are that the market is going to grow over 20- fold over the next 4 years to approximately 32 million new names, 32 million new registrations, for a total market of about 100 domain names by the year 2002, 2003. Competition is going to help fuel that growth. It is also going to introduce new products and services built around a domain name. We are one of the leading registrars in the world. Our business model is geared toward trying to help small and medium-sized businesses grow, using the Internet, and by putting a domain name to work. The subcommittee hearing regarding Is ICANN Out of Control, we believe that there are three main issues that frame the issue of ICANN. One, participation in ICANN's processes by interested parties. What is the progress made to-date and with their fees? In terms of ICANN participation, I think that we all need to demand accountability from ICANN. We have personally been involved with every ICANN meeting. There is an open meeting at every ICANN session where there are public comment periods. Anyone who can get to the meeting is welcomed to go up to the microphone and testify. If you are unable to make it to a meeting, they have facilitated the Internet to provide remote participation. In fact, in the Singapore meeting where I was unable to attend, I was able to participate in that meeting remotely using Real Audio. In fact, questions that I had were asked during that session. So, I feel as though ICANN is an inclusive organization that encourages participation worldwide. There are many news groups that are out there. I think that one thing that ICANN can do in order to show that it is very interested and involved in some of the discussions is that it can take a more active role in some of the news groups, rather than just Esther Dyson or Michael Roberts participating. I think that the entire board would benefit by getting involved in some of the discussions. To-date, we think that ICANN has been very successful. They have accredited 52 post- test bed registrars. That is in a period of, I guess the MOU was signed back in November. So, in a period of about 9 months. They have authorized 52 registrars. It has taken the U.S. Government about 2 years to put all of these plans together. So, I think that ICANN has moved aggressively to try and deregulate the market. ICANN's solutions are not perfect, but there are open meetings and an open interest in trying to solve those problems. In terms of their fees, I know that there has been a great deal of controversy over the $1 fee. It may not be the best solution, but ICANN needs to find some way to recover its operating costs. As discussed in Amendment 11, the fees for ICANN are to be provided by the registry and/or the registrar. So, we are comfortable with that $1 fee, just as we are obligated to pay Network Solutions a $9 per name fee. In terms of competition in the market, we believe that as this market grows and in order to help it grow and mature, we believe that all registrars must be on an equal level. There are two major issues regarding that. No. 1 is the domain name Internet .net and the contractual obligations that exist in this industry. The data base Internet .net has caused us major problems. Approximately 20 percent of all the customer service requests we get are a function of the fact that NSI controls the domain name Internet .net, which is making it very hard for us to offer our customers service that they demand. In terms of contractual obligations, we believe that all registrars, including NSI, should be obligated to sign the same contract with ICANN. We believe that the next step for the industry is that the Department of Commerce should be allowed to finish the process that it started out approximately a year ago. I do believe that there is a substantial risk if the current process is derailed, that foreign governments may not continue to want to ascribe to the U.S. Government's management of Internet domain names. So, I hope that Congress and the committee support the current efforts as a road toward deregulation. Thank you. [The prepared statement of Richard D. Forman follows:] Prepared Statement of Richard D. Forman, CEO, register.com Mr. Chairman, Members of the Committee: It is my pleasure to appear before you today as a representative of register.com, inc. (``register.com''). I commend the Committee for holding this hearing to spotlight the issue of Internet Domain Name System Privatization--an issue of vital importance as the Internet moves into an era of massive growth and increased commercial use. I appreciate the Committee inviting me to testify because I am concerned about the pace and the process by which the industry is transitioning to a more competitive and open environment. My testimony is organized into the following sections: Overview; Industry and Company Background; ICANN's Process and Procedures; Fair Competition; and Next Steps for the Industry overview One of the interests of register.com is to ensure fair and equitable governance and management of the Internet's domain naming system. Network Solutions, Inc. (``NSI'') (Nasdaq:NSOL) has maintained exclusive rights under a government contract <SUP>1</SUP> to serve as the sole provider of generic top level domain names (``gTLDs''), primarily with suffixes .com, .org, and .net, since 1992. The majority of domain names that are issued fall under this classification. In April 1999, the Internet Corporation for Assigned Names and Numbers (``ICANN''), a not-for-profit entity recognized by the Department of Commerce to oversee the management of Internet names and addresses, selected register.com as one of five companies worldwide to be a test- bed registrar. My Company, register.com, was the first of these five registrars to successfully begin registering gTLDs alongside Network Solutions, Inc. --------------------------------------------------------------------------- \1\ The Cooperative Agreement originally executed between the National Science Foundation and NSI --------------------------------------------------------------------------- By way of introduction, please allow me to present some information about the growth of the Internet marketplace and my Company, register.com. industry and company background The market for domain names is projected to grow at least 20 fold over the next four years, reaching more than 32 million new registrations and achieving revenues in excess of $2 billion annually by 2002 <SUP>2</SUP>. According to SEC filings by Network Solutions, Inc., new generic top-level domain registrations were averaging approximately 1,000,000 names during the first quarter of 1999. This is a dramatic increase from the average quarterly volumes during previous years. I believe this high level of growth will be sustained as Internet use continues to penetrate all aspects of society and I believe we will see the market grow to over 100 million domain names in the coming years. --------------------------------------------------------------------------- \2\ register.com company estimates --------------------------------------------------------------------------- The recent introduction of competition by way of new registrars into the industry will facilitate (i) new products and services built around a domain name (ii) improved levels of service and (iii) an acceleration of the overall growth of the market. Register.com currently offers domain name registration services along with technical name services capabilities <SUP>3</SUP>, effectively the same service package as NSI, for approximately one-half the price ($70 for register.com versus $119 for Network Solutions, Inc.). --------------------------------------------------------------------------- \3\ DNS services --------------------------------------------------------------------------- My company, register.com, is one of the leading domain name registrars on the Internet. We estimate that we have captured a substantial portion of the global domain name market since launching our registration service. Our business model is geared towards helping small and medium sized companies worldwide establish and grow their business by using the power of the Internet. Register.com has twice been ranked as a Top 100 Web Site by PC Magazine, a Ziff-Davis publication, and we were recently named one of Fortune Magazine's Top 25 Products to Watch. The Company has also been featured in numerous publications and news services such as the Wall Street Journal, the New York Times, CNBC, CNNFn, Bloomberg, Fox News and WABC-TV. ``is icann out of control?'': icann's process and procedures The Committee is meeting to review the facts regarding the transition of the management of Internet names and addresses from the U.S. Government to ICANN, an industry led not-for-profit corporation. The interests of ICANN and NSI will undoubtedly be inconsistent given that ICANN is trying to reduce NSI's monopoly power and create a level playing field for all registrars. There are three main issues that must be discussed to fully understand the debate: <bullet> Participation in ICANN's process <bullet> Progress made by ICANN <bullet> ICANN's proposed fees ICANN has achieved widespread recognition and participation from various individuals, interest groups and commercial enterprises worldwide. It has also demonstrated significant progress in deregulating the domain name registration market and created the foundation for a more permanent management structure. Despite some growing pains and a very limited budget, ICANN is indeed moving in the proper direction. ICANN Participation Among the criticisms leveled against ICANN has been that board meetings, as well as several organizational and policy development meetings, have been closed. ICANN's board cannot realistically operate and make difficult decisions in an open environment with hundreds of participants. Some of the most vocal critics of ICANN have, in fact, been deeply involved in the process but have been unhappy with the results. We should all demand accountability from ICANN for its decisions and, thus far, the board has showed its responsibility in this regard. While it is true that board meetings are closed, ICANN has fostered widespread participation in the deregulation process and the changing environment through a variety of means, including the innovative use of technology. I personally participated remotely (from New York) in one of the ICANN meetings held in Singapore by linking up electronically via the Internet. My comments were duly noted and my questions were indeed asked and answered by the meeting's organizers and attendees, respectively. In fact, to my pleasant surprise, my question sparked a further discussion at the conference. ICANN's board has also been criticized for their lack of participation in the various Internet domain name related newsgroups. I believe that these members should be more assertive and involved in these newsgroups. Over the past two months alone I have received over 8,000 e-mail messages as a participant in these various groups. Many of these messages come from individuals or businesses that have an interest in the evolving market and want to express their opinions. Periodically, Esther Dyson <SUP>4</SUP> and Mike Roberts <SUP>5</SUP> contribute to the newsgroups; however, few, if any, of the other board members participate. This lack of participation creates an impression among many of the involved parties, mainly concerned commercial entities and individuals, that ICANN board members do not care or do not appreciate the issues being raised. I do believe that they care, but their lack of participation sends the wrong message. --------------------------------------------------------------------------- \4\ Interim Chairman of ICANN \5\ Interim President & CEO of ICANN --------------------------------------------------------------------------- ICANN Progress ICANN has been relatively successful in the short time it has been in existence. ICANN grew out of a U.S. Government mandate and the grass roots efforts of many parties, in effect, an industry consensus that was painstakingly reached over a period of years. The White Paper, published by the Department of Commerce, took into account the thinking of the entire industry. In only nine months from inception ICANN has accredited five test bed registrars and 52 post test bed registrars and has introduced competition into the market. At the same time, the Internet community and ICANN conceived of and recognized constituencies to help influence the evolution of the industry. While perhaps not providing perfect solutions, ICANN did indeed reflect workable compromises acceptable to a large majority of the interested parties representing individuals, corporations, industry trade groups and not- for-profit organizations. ICANN Proposed Fees There has been considerable controversy over ICANN's proposed $1.07 fee per registered domain name. Given ICANN's status as a not-for- profit entity, there must be some mechanism for ICANN to recover its operating costs, without which it will be unable to continue its work. Its funding should come from the registry and registrar community as clearly written in Amendment No. 11 to the Cooperative Agreement. I view the proposed $1.07 fee as part of the cost of doing business similar to the registry fee. fair competition As the industry grows and matures, it is becoming increasingly important for the governing bodies to create a level and equal playing field for all registrars. Until a few weeks ago, NSI had maintained a monopoly over domain name registrations. Going forward, NSI, in spite of being a legacy operator, must be obligated to comply with the same terms and conditions as all other registrars. I strongly believe that the following issues will greatly impact the introduction of fair competition into the domain name market: <bullet> internic.net <bullet> Contractual obligations <bullet> Prepayment The internic.net domain name A key issue in this debate is NSI's claim of ownership to the internic.net domain name. Internic.net and its corresponding trademark are owned by the U.S. Government. For the past seven years, internic.net has been considered a public resource for the entire Internet community. All public documents, programming books, marketing links and pre-programmed computers refer to the government owned internic.net as the authoritative source for all registration services and domain name registration data. In terms of registration services, NSI has mis-appropriated the internic.net domain name and is redirecting traffic to its own registrar site networksolutions.com. In doing so, NSI has provided itself with a clear, unfair and unauthorized competitive advantage. In terms of domain name registration data, the internic.net database and corresponding WHOIS <SUP>6</SUP> services now refer only to domain names registered by NSI, not to those of any other registrars. NSI has thereby caused confusion for consumers, ISPs and many other industry players. --------------------------------------------------------------------------- \6\ WHOIS is a term that describes both a program and a database used to look up domain name registration information --------------------------------------------------------------------------- A significant number of customer service issues my Company handles are caused by this issue alone. Twenty percent of all customer inquiries we have received since the launch of our service have been about this issue. Following is a recent example of customer inquiry to my Company regarding this confusion: ``I registered my domain name with register.com very soon after they became able to handle such registrations themselves. I found their service to be very good. The one problem I had is that while their site showed my domain in their whois directory immediately, if you searched through Network Solutions (which is where you get if you start with Internic), they did not show it. Thus, we had problems for our first week with some smaller ISPs not showing our site at all (and blaming it on this directory problem) and (at first) even our web host being leery of this new procedure. However, everything seems to be straightened out now, and I would hope this procedure will get smoother as we go along.'' Contractual Obligations An inequity among registrars revolves around the ICANN accreditation agreement, which all accredited registrars are obligated to sign. The 57 accredited registrars have already signed or have agreed to sign this agreement. To date, NSI has refused to do so, asserting that it does not agree with ICANN's terms. It is imperative, however, that all registrars, including NSI, work under the same contractual rules and obligations. Prepayment A major requirement incorporated in the ICANN agreement is that ``registrars shall not activate any registration unless and until it is satisfied that it has received payment of its registration fee.'' I support this prepayment requirement and believe it will control cybersquatting (registering names with the intent to sell them for a much higher price) among abusive registrants who can register, at no cost, a domain name that infringes another party's trademark rights. NSI, because it has not yet signed the ICANN contract, does not require pre-payment. As a result, NSI can give better payment terms to its own resellers (not requiring prepayment from them) thereby giving NSI a significant and unfair competitive advantage over other registrars who are playing by the rules laid out by ICANN. next steps for the industry Mr. Chairman, the process laid out in the White Paper, including the recognition and authorization of ICANN, was intended to create competition in the generic domain name space and to transition the management of Internet names from the U.S. Government to a neutral, not-for-profit, industry developed third party. While we have made great strides, the Department of Commerce must be allowed to finish the deregulation process they have begun. NSI must formally recognize ICANN and its authority. Without such action, the entire process and the further growth, development and stability of the Internet may be in jeopardy. By empowering the Department of Commerce to authorize ICANN to take responsibility for transitioning the management of Internet names and addresses from the government to industry, the U.S. Government is allowing the Internet to grow and mature into a global resource. If, however, this Committee delays or impedes the process, rather than supporting and correcting its minor flaws, I fear that the U.S. will lose the competitive and economic edge it currently has in the Internet space. For the benefit of the U.S. interests, I believe we should follow our present course, which will accelerate deregulation, innovation and competition. Mr. Chairman, Members of the Committee--it has been my pleasure to share my thoughts on this subject with you today. I hope it is clear that I have both a professional and personal interest in this vital issue. Thank you for the opportunity to speak with you today. Mr. Upton. Thank you. Mr. Stubbs. TESTIMONY OF KENYON T. STUBBS Mr. Stubbs. Thank you very much, Mr. Chairman. My name is Ken Stubbs. I am the Chairman of CORE, the Internet Council of Registrars, and I really appreciate the opportunity to appear before you today. For more than 2 years, we have been intimately involved in the entire governance process. We have collaborated closely with the Department of Commerce, the Internet community, and contributed extensively to the White Paper, as well as a myriad of meetings and conferences bringing the creation of ICANN. I will begin by addressing the issue that is central to this hearing. Is the ICANN completely fulfilling its responsibility to open up the Internet domain name system to competition? The answer, in my view, is right now it cannot. The reason it cannot accomplish the goals set forth is a cause for great concern, especially for those of us who are directly involved in the transitioning effort. It is certainly a concern to many businesses and individuals hoping to get more involved in the Internet as well as the domain name registry field. ICANN's ability to accomplish its responsibilities are conditioned upon the cooperation of the company that has held a complete monopoly on domain name registrations, Network Solutions. Despite a clear mandate for ICANN to be the consensus Internet governing body with a mission to create a level playing field to ensure fair and open competition, the incumbent still continues to make the process more difficult than it really needs to be. Let me share an observation drawn from my involvement in the effort. We are at a point in the process where critical decisions must be made if we are to realize the full value of the great promise the Internet holds for us. We are at this critical juncture, not because we have gotten off track, but because we followed two tracks. One track we followed involves having the U.S. Government purposely decide not to get involved in dictating how the Internet must evolve. The key challenge government faced was finding a way to ensure that as the Internet environment became more complex, there would be a structure in place that we continue to coordinate this consensus-driven approach that has propelled the Internet to its present height. The second track we followed springs from a misguided notion that to-date we are all in it together. When the DOC determined it was necessary to end the monopoly that had been conferred upon Network Solutions, in the spirit of cooperation it sought to use the incumbent contractor to help orchestrate the transition. The incumbent was given the opportunity to develop a structure for divestiture and to create the operational structure under which other competitors could enter the Internet domain name system. It is clear that NSI has taken advantage of the opportunity by creating a structure that is inordinately self-serving. Based on the experience we gained while participating in the test bed, it also appears the structure is inherently inequitable toward obtaining new registrars and competitors. ICANN setup a system to accredit the new registrars in accordance with the charter. ICANN's guidelines were intended to provide stability and facilitate for fair and open competition. We ended up with something of a hybrid process though, in which all of the new registrars must do business with the incumbent under the terms that ICANN sets, while the incumbent competes with the new registrars without regard to the operational guidelines that are intended to be a stabilizing force. First of all, I believe that there are some ways that we can resolve some of these issues. There must be a better way of facilitating choice. Customers must be allowed to choose their registrar without having to pay excessive transfer fees. That is the case under the current license agreement we operate with. We also must facilitate the transitioning through a competitive environment by ensuring that all competitors and their customers have the same relevant information to properly interact with the domain name system. I realize in discussing domain name registration, we are dealing with issues that are complex, but I think it is possible to come to well-reasoned judgments about the focal point of this hearing and that is ICANN. Let us remember that ICANN is roughly 8 months old. Its 8 months of existence have been difficult. Its progress has been sometimes uneven, but make no mistake, ICANN is the infrastructure we need to make this transition work. Taking these principles into order, it is clear that the domain name system itself, is basically stable and fully functional, contrary to assertions of impending catastrophe that the competition has been introduced where a monopoly reigned. The last principle to govern the transition of domain name management is representation. The concept is one that is fundamental in making progress in an increasingly difficult global economy. That, in my opinion, is ICANN's management structure and why it basically must reflect functional and geographic diversity of the Internet. Basically, there are quite a few other issues here that hopefully we might be asked questions about in terms of how we feel we can compete more equitably. Maybe we will have these issues brought forth. Thank you. [The prepared statement of Kenyon T. Stubbs follows:] Prepared Statement of Ken Stubbs, Chairman, Executive Committee, Internet Council of Registrars My name is Ken Stubbs, and I am the Chairman of the Executive Committee of CORE, the Internet Council of Registrars. I appreciate the opportunity to appear before you today. May I start by providing you with some brief background on CORE. CORE is a not for profit membership association comprising more than 50 domain name registration companies of all sizes, including my own and many others like it. CORE's member companies come from more than 20 different countries. Reflecting the strength of America's influence in the Internet, the largest share of CORE registrars are U.S. companies with a presence in many American cities. For more than two years, CORE has been intimately involved in the entire Internet governance process. We have collaborated closely with the Department of Commerce and the entire Internet community, and contributed extensively to the Green and White Papers, as well as the myriad of meetings and conferences leading to the creation of the Internet Corporation for Assigned Names and Numbers (ICANN). In addition, CORE was chosen last April to be one of the original five test bed registrars, and has recently ``gone live'' actively registering domain names. I'll begin by addressing the issue that is central to this hearing--is the Internet Corporation for Assigned Names and Numbers (ICANN) completely fulfilling its responsibility to open up the Internet Domain Name System to competition? The answer, in my view, is that right now it cannot. The reason that it cannot accomplish the goals set forth for it-- goals that were the product of years of deliberation and negotiation among people who see the Internet as the single greatest force in the global economy--is cause for grave concern. It is a concern for the people who have invested themselves heavily in the process of helping shape the future of the Internet. It is a concern for those of us who are directly involved in the transitioning effort. And it is certainly a concern of the many businesses hoping to enter the domain name registry field. ICANN's ability to accomplish its responsibilities is conditioned upon the cooperation of the company that has held a complete monopoly on domain registration. That company is Network Solutions Inc. Despite a clear mandate for ICANN to be the consensus Internet governing body with a mission to create a level playing field to ensure fair and open competition, the incumbent continues to thwart the process. Let me share with you an observation drawn from lengthy involvement in the effort to open the Internet's naming system to competition. We are at a point in the process where critical decisions must be made if we are to realize the full value of the great promise the Internet holds as a powerful and unifying force throughout the world. We are at this critical juncture not because we have gotten off track, but because we have followed two tracks. One track we have followed involves having the United States Government purposefully decide to avoid dictating how the Internet must evolve. To its credit, the government recognized that, to this point, the Internet has evolved in remarkable fashion, thanks in no small measure to the voluntary efforts of individuals who shared a global vision. The key challenge the government faced was finding a way to ensure that, as the Internet environment became ever more complex, there would be a structure in place that would continue to coordinate the consensus driven approach that has propelled the Internet to its present heights. The second track we have followed springs from a misguided notion that we are all in this together. When the Department of Commerce determined that it was necessary to end the monopoly that had been conferred upon Network Solutions, in the spirit of cooperation it sought to use the incumbent contractor to help orchestrate the transition. NSI was given the opportunity to develop a structure for divestiture and to create guidelines under which other competitors could enter the Internet domain registration system. It is clear that NSI has advantaged the opportunity by creating guidelines that were self-serving. Based on the experience we have gained while participating in the test bed, it also appears the guidelines are inherently inequitable toward new competitors. ICANN set up a system to accredit new registrars and developed operational guidelines. In accordance with its charter, ICANN's guidelines were intended to provide stability and facilitate fair and open competition. Unfortunately, these goals became illusory when the incumbent refused to recognize ICANN's authority. We ended up with something of a hybrid process, in which all of the new registrars must do business with the incumbent under the terms it has set, while the incumbent competes with the new registrars without regard for the operational guidelines that are intended to be a stabilizing force. That must change. I believe we must resolve the following issues: There must be a way to facilitate choice. Customers must be allowed to choose their registrar without having to pay excessive transfer fees as is proposed by the current NSI Registrar License Agreement. All registrars must formally recognize ICANN's authority. To date NSI has not signed ICANN's accreditation agreement, which would bind them to the same terms and conditions as all other registrars. NSI must withdraw its claim of ownership of the government's Internet name contact database. The database must continue to be held in the public domain and protected from abuse. We must facilitate the transition to a competitive environment by ensuring that all competitors have the relevant information to properly interact with the name registration system. The incumbent has currently implemented an inefficient and proprietary Shared Registry System (SRS). There must be a payment policy that is the same for all registrars. I realize that in discussing domain registration, we are dealing with issues that are complex, and working in a field that is not always easily understood. But I think it's possible to come to well-reasoned judgments about the focal point of this hearing--ICANN. Let's remember that ICANN is roughly eight months old. Its eight months of existence have been difficult, its progress sometimes uneven, but make no mistake--ICANN is the infrastructure we need to make this transition work. The fairest way to judge how ICANN is doing is to look at its progress in light of the bedrock principles that were established to guide the transition of domain management from the government to the private sector. Those principles are stability, competition, private- sector, bottom-up coordination, and effective representation. Taking these principles in order, it is clear that the domain system is stable and fully functional, despite ever increasing demand for domain-name services and despite the fact, contrary to assertions of impending catastrophe, that competition has been introduced where monopoly reigned. In the interest of competition, five new registrars have been accredited, and four are up and running. ICANN has provisionally accredited 50 plus more competitors, who in turn will be followed by even more as we make the transition to full and open competition. The third principle under which the transition to full competition in the Internet name and address system is to proceed is reliance on the private sector, and to the extent possible, incorporation of the kind of bottom-up, grass-roots kind of management that has been typical of the way the entire Internet has developed. Here ICANN has been required to participate in a process that vaguely resembles the sentiment Bismarck expressed about the making of laws and sausage--yet, the process, while not pretty, should be judged by its results. Three supporting organizations have been formed, and each of these has been organized through a democratic and constituent driven process. The last principle to govern the transition of domain management is representation. The concept, and it is one that is fundamental to making progress in an increasingly global economy, is that ICANN's management structure must reflect the functional and geographic diversity of the Internet, and should ensure international participation in decision-making. Here again, because of the bottom-up sort of approach ICANN has followed, progress has been uneven. But if progress has been slower than desirable, it is due to the fact that the democratic process is certain to take more time than the autocratic process--some time ago, this country decided that the democratic process, whatever its faults, was vastly preferable. Mr. Chairman, the process of creating a world-wide, non-profit consensus driven organization to manage domain registration on the Internet has been difficult, contentious, and occasionally acrimonious. But even the adversarial positions taken by competing entities may, in the long run, be helpful, for they bring into the open and cause us to examine differing views of how the Internet should evolve. For the process we are going through to be most helpful, we must carefully note what we have learned. At this point a number of lessons have emerged. First, we know that the business of being a registrar must be wholly separated from the business of being a registry. We have seen the incumbent take advantage of the fact that all newly accredited registrars must do business with it to create structural advantages that, if left intact, would seriously undermine competition in the future. Second, we have learned that pricing polices must be on an equal footing. All newly accredited registrars must be paid in advance before accepting a name for domain registration. In contrast, the incumbent offers credit terms and refunds. As a result, speculative buyers continue to flock to the incumbent. If we want to dampen domain name speculation, it is clear that advance payments must be required. We must also see NSI withdraw its specious claim of ownership of the government's Internet name contact database. These claims violate established intellectual property law and anti-trust law and will both restrict and damage competition, and ultimately, in my opinion destabilize the governance process. And we must know that any arguments presented that warn of the instability of the Internet brought about by ICANN's governance of the system are wholly unfounded. We must keep in mind the root server remains under the direct management of the U.S. government. There is no technical impact on the Internet brought about by competition on the business end. There are no stability issues, contrary to what is constantly being claimed by NSI as reason for continuing their policies and control. Most of us here understand that new choices in domain names, and choice among registrars, will create increased efficiencies, lower prices, and better service for millions of Internet users worldwide. But we need to have the playing field leveled. We need to get to the point where we can have certainty in our business plans, and that requires that the incumbent formally recognizes ICANN and accepts that it must be treated on an equal basis with all other registrars. NSI will still be the big kid on the block, but it must allow the new kids to play. Speaking as a newly accredited registrar, we have to reach the point where we have a sense of stability and confidence. Reaching that point is less a function of what ICANN does, than what NSI does. If the incumbent will work with us to facilitate the transition to a competitive environment, and acknowledge the role of ICANN, the focus of our activities can return to where they properly belong, on continuing to build what has become perhaps the best man-made resource of our time. Thank you for the opportunity to appear. I look forward to answering your questions. Mr. Upton. Thank you. Mr. Bramson. TESTIMONY OF JAMES R. BRAMSON Mr. Bramson. Thank you, Mr. Chairman. America Online appreciates the opportunity to contribute its own views on this very important issue. As you have already heard a fair amount of, and as the subcommittee has already shown their appreciation of, we are engaged in an extraordinary transition event right now, which is also very exciting because it will bring competition to a unique and important corner of the Internet environment, which is one of the most fiercely competitive industries that we have seen up until now. The domain names and the assignment of IP addresses are core building blocks for the success of all of the things that we have come to rely on, on the Internet. In order to be able to ensure this transitionary process, we need to make sure that there is stability, predictability, scale-ability, and an even playing field for new entrants into this market. ICANN is currently the only process that has provided any structure for this transition. Therefore, we think in a very short time it has accomplished a fair amount. We think it needs to continue down that road. As you have already heard and discussed somewhat today, ICANN has a broad range of issues that it is going to be focusing on, involving domain name governance, involving protocol numbers, and treatment of the introduction of generic top level domains and other issues. The core function that we want to focus on is the test bed itself, which we think is the critical avenue toward introducing competition here. The goal of the test bed is to do several things. One is to allow the registrars to understand the technical issues of being able to communicate with a relatively new shared registry system. Second, to allow the community of registrars to understand what is involved in moving to a multi-player system which has, up until now, been a single player system. Third, to be able to identify procedures that will be necessary to maintain reliability and predictability as we grow the competitiveness in this field, while maintaining usability for consumers, and give consumers more choice. We think there has been a relatively ambitious timeframe for the test bed, but even so, four out of the five tested registrars are already beginning to accept registrations. Nevertheless, we still lack some fundamental functionality for all of the test bed registrars that will be necessary for there to be true competition that meets consumer expectations. The learning that is going on in this test bed is, nevertheless, very important. We think it will help to improve the transition to additional registrants who will come after the test bed. AOL, for its part, has not yet gone live with accepting registrations, but has obtained the technical certification from NSI necessary to do that. We are continuing to work diligently to complete the internal systems that are necessary to launch this new business for us, while still maintaining our members' expectation of privacy of information, and controlling the data base that will need to be kept in accordance with the ICANN accreditation agreement. We expect we will be able to launch also our services by the end of the extended test bed period. We still think there are some hurdles that need to be overcome before this competitive process will really result in a true competitive environment that is user-friendly for consumers. That, at the very core, will require NSI, which is an important player, and will continue to need to be an important player for sometime to come, in our estimation. They will need to work with the Department of Commerce and with ICANN, collectively, to try to resolve what is a very important issue. As a community, we really cannot afford not to have this process work. The WHOIS data directory is another issue that needs to be addressed. Currently, or up until while there was a single player system, the directory was easy to use by consumers and it was effective for that reason. As we move into a multi-player system, WHOIS data bases will need to be coordinated in such a manner that we can ensure that consumers will be able to have their expectations met, and that this can really be a viable consumer oriented competitive business. Finally, we do think that there is a need for some standardization of voluntarily accepted standards for the registrar community in order to make sure that we can cooperate in having equal access opportunities to new entrants in the space, that treatment is consistently uniform among all the entrants, and that dispute policies are enacted in such a manner that it will meet the very real and conflicting interests of many members of the Internet community. The question that has been asked is whether or not the ICANN process is something which needs to be re-thought? We do not think so at this point. We do think that they have made a lot of headway in a relatively short period of time on a very difficult track. We think there are things that need to be done and we hope that they are. They have expressed today that they are listening to the criticisms and taking those criticisms to heart. We certainly appreciate the role of this subcommittee and the committee at large in helping to facilitate some of those changes we have heard today, at least one example of an adopted policy by ICANN that has been affected by the letter-writing and the involvement of the House. We look forward to having Congress continue to watch this process closely, and having this process continue to its successful conclusion, because we really cannot afford for it not to. Thank you very much. [The statement of James R. Bramson follows:] Prepared Statement of James R. Bramson, Counsel, America Online, Inc. introduction Chairman Upton, Ranking Member Klink, and members of the Subcommittee, thank you for the opportunity to share the perspective of America Online, Inc. (AOL) regarding the ongoing transition of management responsibilities for the domain name system (DNS) from a single company--Network Solutions, Inc. (NSI)--under government contract to a competitive marketplace that more fully embodies the core principles that drive our burgeoning Internet economy. As one of the five initial testbed registrars in the development of a Shared Registration System (SRS), AOL believes that Congressional review and support at this juncture in the transition process is timely and appropriate to further facilitate this unprecedented migration from government-sanctioned monopolistic control to the private sector. the importance of the dns privatization process The DNS is not merely one off-shoot component of the Internet. Rather, it is the underpinning of global Internet commerce from which all on-line communications and on-line transactions originate. This critical, technical link allows families to stay in touch, information to be disseminated, and products to be marketed and purchased. Much of the impetus for transitioning to a competitive DNS system derives from the core belief that a competitive, open, and democratic Internet community model will yield greater consumer choice, value, and innovation at lower cost. Since publication of Department of Commerce's (DOC) ``White'' Paper, the Department and the Internet Corporation for Assigned Names and Numbers (ICANN) have been proceeding to complete this challenging transition to a competitive marketplace according to an ambitious timeframe. DOC and ICANN, the entity empowered by DOC to oversee the transition, are to be commended for moving the registration system in a few short months much closer to this competitive reality. In line with the themes expressed in the Department's ``Green'' and ``White'' Papers, which served as the blueprint for ICANN, the global electronic commerce framework should strive for a private system that ensures competition and universal access, allows for the protection of intellectual property and privacy, minimizes consumer fraud, and fosters transparency and broad based participation so as to provide a stable basis for commercial activity. While there have been frustrations and technical difficulties, and their remain problems to overcome, AOL's central message to the Subcommittee is that the move into this unchartered territory is generally proceeding in the right direction. However, this fragile, forward progress could be easily corrupted if the transition is not completed in a manner that ensures competition in a stable, reliable, and predictable manner. Just as any new highway design requires an aggressive test-drive before driver confidence can be earned, so too is it imperative to ensure that the registration transition completely unfolds--both in policy direction and in technical accomplishment--in a manner that builds on and extends consumer expectations for Internet reliability. We believe the testbed is committed to achieving this goal. We share the view expressed by DOC and, more generally and emphatically, by the Internet community, that DNS competition that emerges in a structured manner will continue to bring growth to this new medium. AOL believes that ICANN is the proper coordinating vehicle for accomplishing this structured privatization. The alternative to privatization--a return to a government-regulated monopoly--is not compatible with the goal of enhanced access, choice, and value. And within the transition process, we believe that an untried, yet-to-be determined alternative to ICANN's leadership would merely slow down a train that has not only left the station, but is nearing its destination. That ICANN is the best of all compromise alternatives is reinforced by the unimplemented efforts of the International Ad Hoc Committee (IHAC), a short lived, independent effort of the Internet community to accomplish what now has proved possible only through ICANN. A reversion to governmental control or acceptance of instability and chaos in the DNS--which would certainly result were a departure from the ICANN structure now demanded at this late date--are equally unsatisfactory. icann's progress Overall, ICANN has accomplished a great deal in a very short time. It is important to remember that ICANN is not even one year old. Only in late 1998 did ICANN and DOC negotiate the agreement that has led to ICANN's role in the transition to a competitive registration system. In its managing role for the DNS transition and DNS governance generally, ICANN has provided needed structure. It is a credit to this process that the ambitious schedule set by ICANN has generally been met. With no DNS actor able to operate in isolation, the key to a successful testbed, and ultimately an open DNS, is cooperation among the registrars. ICANN has facilitated communication among the testbed registrars to ensure that AOL and others have access to information necessary to operate in a commercially viable manner. It is clear that NSI--an important participant in the stability and success of the DNS system--must continue to be an integral part of the DNS transition, not only as the registry, but also as a registrar. Even after full DNS registrar competition is a reality, a DOC-sanctioned monopoly will likely remain as NSI retains its role in maintaining the registry for .com, .org, and .net generic top level domains (gTLDs). NSI will also likely continue to act as one of many DNS registrars in the new marketplace. A challenge facing ICANN, DOC, and NSI is to bring NSI into the evolving system as a registrar on equal footing with the other registrars. ICANN has overcome many initial doubts about its ability to pave the way into a competitive marketplace. Given the time and money invested in reaching this point in the DNS transition, there are many well articulated but conflicting interests within the Internet community that will be impacted by any change in the status quo. Despite these inherent conflicts, ICANN has filled a necessary role in trying to build a system that is open to divergent interests in a manner that can ensure stability and robustness in the final DNS transition. the testbed process ICANN's formation of a testbed is a crucial step in the DNS transition, as it provides the framework for technical evaluation of multi-user access to a previously untested SRS. The ongoing stability of the transitional DNS system depends on such careful, incremental stress on this infrastructure. The testbed project commenced on a very tight application and decision time line. The testbed schedule was ambitious to ensure that the full DNS transition takes place expeditiously. As the process has unfolded, testbed registrars-- including AOL--have greatly enhanced their knowledge about building a registration business in a SRS environment which, by necessity, involves coordination among registrars. This learning curve will prove invaluable in bringing additional accredited registrars in a structured way into a competitive DNS. In commencing registration operations, there are internal technical issues that a registrar must overcome, as well as collaborative synergies that must be identified and developed among the registrar community and the registry to keep the system robust and valuable to registrant users. As it turns out, the original sixty day time frame set for the testbed was overly ambitious. Due to technical hurdles associated with starting up a new registrar service and the issues involved in launching what is essentially an entirely new business operation for some of the testbed registrars, only one testbed registrar became operational within the original sixty days. Even in the hyperspeed Internet world, sixty days can be a very short time, particularly when transitioning a five-year old government-controlled enterprise to the private marketplace. During the extension of the testbed period, three more testbed registrars have now commenced operations. Since selection as a testbed, AOL has diligently pursued its own implementation strategy, and has passed the required NSI registration test that ensures compatibility between the registry and a testbed registrar. This is a technical hurdle to becoming certified as a registrar. AOL has worked closely with NSI's technical personnel and has found them to be cooperative during the testbed. We are continuing efforts to build the internal systems necessary to launch our own registration service. We currently expect to have AOL registration services functional and on-line by the end of the evaluation extension, August 6, 1999. AOL believes that the experience of the testbed registrars, which will be publically shared at the end of the testbed period, will help to create a solid, competitive foundation for the DNS system. remaining hurdles to creating a competitive dns While there are a number of challenges to confront before the competitive DNS market is fully open for business, at least the following four important issues must be addressed: NSI's integration into the competitive system, coordination of the WHOIS database system, refinement of domain name transfer procedures, and finalization of dispute resolution procedures. NSI Integration NSI has an unusual role in the ongoing DNS system. The Internet community assumes that NSI will emerge from its historical role as a government-regulated monopoly into a dual-function entity: administrator of the DNS registry, under contract with DOC, as well as a competitor registrar in the open DNS model. DOC, ICANN, and NSI must mutually determine the course in which the NSI evolution will occur. Because of NSI's dual role, it is likely that DOC will continue to negotiate the agreement to be used by NSI, in its role as registry, with the competitive registrars. While industry often thinks that it is better positioned than government to negotiate private sector contracts, there is a role in this instance for DOC participation. However, it is necessary that any agreement reached between DOC and NSI ensure two fundamental results: that the Registrar License Agreement used by NSI as registry will be a commercially viable framework under which the competitive registrars can operate, and that NSI as registrar will be subject to the same rules of the road as its competitors. The Internet community is carefully monitoring the status of the ongoing DOC-NSI contract negotiations. DOC has been dealt a challenging role in this transitionary period and has delicately navigated the process as well as could be expected. It is our expectation that the natural result of the DNS transition will entail a diminishing level of DOC supervisory involvement until such time as there is a stable, competitive environment that ensures a fair playing field among registrars. WHOIS Database ICANN and NSI, in consultation with the testbed registrars, must determine how best to construct a coordinated database of domain name registration information. Under an effective DNS, consumers and intellectual property owners must have the ability to determine in a timely manner whether a specific domain name has been registered and by whom. If this information is difficult to obtain, there is a real risk that consumers' confidence in the DNS may be shaken and the integrity of the DNS will be compromised. The Internet is a medium where consumers have come to expect real-time information and readily available access. To be successful, a competitive DNS must fully meet this consumer demand. When only one registrar is in play, as was previously the case with NSI, the need for coordination among registrant names was not at issue. In the multiple registrar environment, where each maintains a separate database of registrants, it is critical that there be coordination among all registrars so that the introduction of a competitive DNS system does not take customer service a step backwards. Whether the chosen WHOIS database model in the competitive DNS world is a single database, or as is technically feasible, multiple databases that ``call'' each other when a user performs a single query, the key is to secure a cooperative, coordinated system that best serves the registrars' customers and preserves the integrity of the registry. Domain Name Transfers The testbed registrars have been working with NSI to develop procedures on how best to facilitate transfer of domain names between competing registrars. Discussions are ongoing for determining transfer parameters and protocols. Irrespective of the final technical design of the transfer procedures, it will be essential to preserve uniformity and ease of transfer without allowing an unscrupulous registrant to employ transfers as a means to undermine dispute resolution systems. The Internet community will be ill-served if registrants are able to game the DNS system to circumvent established dispute resolution mechanisms. Dispute Resolution While many have found fault with NSI's dispute resolution procedures, it is essential that a replacement process be constructed that will satisfy registrars' need to minimize their exposure, maximize registrant protection, and allow intellectual property owners to enforce their rights. As the open DNS marketplace continues to evolve and innovate, there is significant room for improvement in the current dispute resolution arena. WIPO has accelerated and aided this effort already. AOL is committed to working with others in the Internet community to continue efforts to accomplish this much needed refinement. congress' role At this stage in the DNS transition, AOL believes that Congress can be most helpful by continuing to keep informed about the transition process. Mr. Chairman, hearings such as you are holding today provide a needed forum for continuing oversight of this important devolution of government control. While legislative action is presently unneeded to further facilitate the transition, it is important for Congress to provide the necessary assistance for DOC to ensure that the task at hand reaches competitive closure. At the same time, with much progress already made, Congressional support of a registration playing field among equals--NSI, the testbed registrars, and entrants yet to emerge-- will further facilitate forward motion and, ultimately, one of the most exciting and expeditious free market transitions of recent time. AOL appreciates the opportunity to assist the Subcommittee in its review of this important process. Mr. Upton. Again, we all appreciate your fine testimony today. Again, as you hear these buzzers and bells, we have a series of votes coming. I think in the interest of time, and your time particularly, knowing you have been here all day, that I will certainly allow all members of the subcommittee to correspond with some questions, which I certainly have a list of them here, but rather than go through them, we will use the Postal Service to get back to you. We look forward to certainly working with your groups and interests in the future as we look at this very intriguing question. As things go forward, we appreciate your comments. This hearing is now adjourned. Thank you. [Whereupon, the hearing was adjourned.] [Additional material submitted for the record follows:] The Internet Corporation for Assigned Names and Numbers August 4, 1999 The Honorable Thomas J. Bliley, Jr. Chairman The House Committee on Commerce 2125 Rayburn House Office Building Washington, D.C. 20515 Dear Chairman Bliley: I am writing to answer your letter of July 28, 1999, asking for information about communications between ICANN and the Department of Justice. As several members noted during the recent hearing of your Committee at which I was privileged to testify, the creation and operation of ICANN is a complicated undertaking, and we appreciate any opportunity to better educate and inform the Congress and the public about what ICANN is doing and what we hope to achieve. Your inquiry apparently was prompted by an e-mail message that was one of many provided to the Committee by ICANN in response to your earlier letter of June 22. Your statement that the conversation reported in this e-mail ``appear[s] to be highly inappropriate'' is puzzling, and appears to be based on a misunderstanding about the nature of the conversation described in this message. The right to petition government is constitutionally protected, and indeed is one of the freedoms that has distinguished the American form of government. Members of the Board, staff and counsel of ICANN have had a number of discussions with various members of the executive and legislative branches of government since ICANN's formation in late 1998. The common focus of those conversations has been ICANN's mission and objectives, and the obstacles that remain to accomplishing those objectives. In this particular case, ICANN's counsel was urging the Department of Justice, which as part of its official mission is the principal advocate for competition within the Executive Branch, to urge the more rapid transition of domain name registration services from a single monopoly government contractor to a competitive market. The Department's representatives listened to this request, and agreed to consider it; that was the entire sum and substance of the conversation. We do not believe that this exercise of the constitutionally-protected right to petition government could even arguably be considered inappropriate. Indeed, I assume you and other members of this Committee receive regular requests to consider various actions, perhaps even related to this same subject. As the e-mail in question indicates, this discussion did not involve the pending antitrust investigation of NSI, which had been ongoing for some time. But if it had, that would certainly also have been completely appropriate. ICANN is charged, both by its Memorandum of Understanding with the Department of Commerce and by a clear Internet community consensus, with replacing the current non- competitive domain name registration system with a competitive system, where price, quality of service and other important criteria relating to domain name registrations are determined by the marketplace, not by a monopoly provider. The Department of Justice is charged with enforcing the antitrust laws. One possible avenue from monopoly to competition in domain name registration services is through enforcement of the antitrust laws. Thus, it is appropriate for ICANN, through its counsel, to discuss with representatives of the Department of Justice ICANN's views of the antitrust enforcement issues associated with the current monopoly name registration situation, and for ICANN to advocate antitrust enforcement action if it believes such would be appropriate. ICANN is entitled to express its views on such subjects, just as any other person or entity may. With this background, let me respond on behalf of the Initial Board of Directors of ICANN to your specific questions. 1. Provide a listing of all communications between the Department of Justice and ICANN. We are unable to provide such a listing. We are not aware of any records of such communications other than the e-mail message previously provided. Nevertheless, we can state that there have been a number of discussions between counsel for ICANN and Department of Justice lawyers over the several months of ICANN's existence. Those conversations have generally concerned the antitrust and competitive policy issues relating to domain name registrations. We are aware of no other substantive conversations between a representative of ICANN and any official or employee of the Department of Justice. 2. Provide all records relating to such communications. The Committee is already in possession of all such records. 3. Discuss the ICANN Board's knowledge of, or subsequent authorization of, the communication by counsel reflected in the e-mail message previously provided. To the best of my knowledge, the ICANN Board was not aware of this particular communication prior to its occurrence. Such communications are part of the ordinary activities of ICANN's counsel and would not require nor normally generate prior notification or approval. Questions about the ICANN Board's reaction to the conversation after the fact appear to be based on the premise that this communication, or others like it, was somehow inappropriate; since we do not believe this is the case, we had no reason to instruct counsel to avoid such communications in the future. In fact, the Board expects its counsel, in the ordinary course of carrying out his responsibilities to ICANN and the ICANN Board, to continue to communicate with Executive Branch agencies, members of the Legislative Branch and their staffs, and any others with whom such communications are, in his judgment, useful to support the efforts of ICANN to carry out its responsibilities. I hope this is responsive to your inquiry. On behalf of ICANN, let me reiterate that we are committed to carrying out our responsibilities with respect to the transition of the management of certain aspects of the Domain Name System from government control to the private sector through a process that is open and transparent. As a part of this, we are eager to work with this Committee and its staff to ensure that you have all the information required to fully understand how this transition is proceeding. As you know, we have offered to provide periodic briefings to Committee staff on a bipartisan basis, in the hope of avoiding misunderstandings such as the one that apparently prompted this particular inquiry. I look forward to working with the Committee and its staff to ensure that all Members of the Committee are fully informed about this difficult but important undertaking. Please let me know if we can provide any further information. Sincerely, Esther Dyson Interim Chairman cc: The Honorable John D. 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