Yesterday an independent panel, the International Centre For Dispute Resolution (pdf) found in a 80 page decision, in favor of the ICM Registry against ICANN for its decision to eventually reject the .xxx extension and ruled that ICANN had to pick up all the costs of the independent panel to the tune of $475K and reimburse ICM the fees it paid for the application to the tune of another $241K. (ICM is stuck for its own attorney fees).

However the ruling by its nature is advisory only and has no biding effect.

However with ICANN considering an unlimited number of new gTLD’s its really interesting to see how the application, approval and eventually denial of the .xxx application all went down and should give any one considering applying for a new gTLD at least something to consider before heading down that path.

This matter has a long and extensive past, but I will try to summarize the facts here:

ICM originally applied for the .xxx extension back in 2000 but its application was rejected for various reasons including issues dealing with the applicant itself.

ICM reapplied for the .xxx extension in 2004 which is the subject of this review.

On June 1, 2005, ICANN voted 6-3 vote in favor of approving the .xxx extension

Done deal right?

No

Not by a long shot.

After ICANN approval was given, all sorts of objections came in from governments around the world at the meeting of the Governmental Advisory Committee (GAC) in Luxembourg July 11-12, 2005.

The record is not clear of why all these governments didn’t object, or even seem to have an interest in the .xxx extension until after ICANN voted to approve it, but based on the record that seems to be the case.

To be clear not all governments objection were based on creating an online adult district, but some objections were raised based on the applicant itself, some of which issues, at least in part, caused their 2000 application to be denied.

Included in the governments that seemed uninterested about the extension until after passage was that of the United States.

On August 11, 2005, some 2 months after ICANN approved the application, the U.S. Department of Commerce’s Michael D. Gallagher, wrote this now famous letter to Mr. Twomey, (then the CEO of ICANN):

“I understand that the Board of Directors of (ICANN) is scheduled to  consider approval of an agreement with the ICM Registry to operate  the .xxx top level domain (TLD) on August 16, 2005.  I am writing to  urge the Board to ensure that the concerns of all members of the  Internet community on this issue have been adequately heard and  resolved before the Board takes action on this application. “Since the ICANN Board voted to negotiate a contract with ICM Registry for the .xxx TLD in June 2005, this issue has garnered widespread public attention and concern outside of the ICANN community.  The Department of Commerce has received nearly 6000 letters and emails from individuals expressing concern about the impact of pornography on families and children and opposing the creation of a new top level domain devoted to adult content. We also understand that other countries have significant reservations regarding the creation of a .xxx TLD.  I believe that ICANN has also received many of these concerned comments. The volume of correspondence opposed to the creation of a .xxx TLD is unprecedented. Given the extent of the negative reaction, I request that the Board will provide a proper process and adequate additional time for these concerns to be voiced and addressed before any additional action takes place on this issue. “It is of paramount importance that the Board ensure the best interests of the Internet community as a whole are fully considered as it evaluates the addition to this new top level domain…”

After this letter and the concerns that many countries raised at the GAC meeting, another series of ICANN board meeting took throughout 2006.

Then at a special meeting of the ICANN Board on February 12, 2007, the following resolution was unanimously adopted:

“Whereas a majority of the Board has serious concerns about whether the proposed .XXX domain has the support of a clearly-defined sponsored community as per the criteria for sponsored TLDs;

“Whereas a minority of the Board believed that the self-described community of sponsorship made known by the proponent of the .XXX domain, ICM Registry, was sufficient to meet the criteria for an sTLD.

“Resolved that:

I. The revised version [now the fifth version of the draft agreement] be exposed to a public comment period of no less than 21 days, and

II. ICANN staff consult with ICM and provide further information to the Board prior to its next meeting, so as to inform a decision by the Board about whether sponsorship criteria is met for the creation of a new .XXX sTLD.

So 1 1/2 years after approving the application ICANN reopened the consideration of the application and opened up a public comment period.

Finally on on March 30, 2007, ICANN voted to reject ICM’s application for .xxx extension, by a vote of 9 – 5, with one abstention (that of Dr. Twomey) and adopted a resolution which stated in part:

“ICM’s application and the revised agreement failed to meet,  among other things, the sponsored community criteria of the RFP specification.

“Based on the extensive public comments and from comments from the GAC and  that this agreement raises public policy issues, the .xxx sTLD is rejected and the application request  for delegation of the .XXX sTLD is hereby denied.”

The ICM Registry then filed for a review of that determination.

So we now fast forward three years later and the ruling is in,  and its bad news for ICANN.

As you would expect with an 80 page decision that arguments are long and complicated but here is what I took away from the decision:

Once ICANN voted on June 1, 2005 to approve the application ICANN, could not reverse itself.

All of the discussion, arguments of governments, including that of the US Department of Commerce needed to happen before the vote, not after.

Duh.

For whatever reason the objections to .xxx extension and the applicant all came after the application was already voted on and approved by ICANN.

The panel said all of those issues could have been taking into account by ICANN and ICANN would have been fine rejecting the application for any of or all of the reasons and concerns raised by governments around the world and the US Department of Commerce, before the Vote. of June 1, 2005

“Once the ICANN Board determined that the application of ICM Registry met the sponsorship criteria, that determination was definitive and irrevocable.”

“””In the view of the Panel, the Board did decide by adopting its resolutions of June 1, 2005, that the application of ICM Registry for a TLD met the selection criteria, in particular the sponsorship criteria.”

“”In the Panel’s view, the TLD process was “successfully completed”…in the case of ICM Registry with the adoption of the June 1, 2005, resolutions.””

“””ICANN should have then have proceeded to conclude an agreement with ICM on commercial and technical terms, without reopening whether ICM’s application met sponsorship criteria.””

“”The majority of the ICANN Board appears to have believed that was acting appropriately in reconsidering the question of sponsorship. The Board was pressed to do so by the Government of the United States and by quite a number of other influential governments, and ICANN was bound to “duly take into account” the views of those governments. It is not at fault because it did so.””

“”The Panel does not conclude that the Board, absent the expression of those governmental positions, would necessarily have arrived at a conclusion favorable to ICM. It accepts the affirmation of members of the Board that they did not vote against acceptance of ICM’s application because of governmental pressure. Certainly there are those, including Board members, who understandably react negatively to pornography, and, in some cases, their reactions may be more visceral than rational. But they may also have had doubts, as did the Board, that ICM would be able successfully to achieve what it claimed .XXX would achieve. “””

“””The Panel concludes, for the reasons stated above, that the holdings of the Independent Review Panel are advisory in nature; they do not constitute a binding arbitral award. “”

“The actions and decisions of the ICANN Board are not entitled to deference whether by application of the “business judgment” rule or otherwise; they are to be appraised not deferentially but objectively.”

“”Third, the provision of Article 4 of ICANN’s Articles of Incorporation prescribing that ICANN “shall operate for the benefit of the Internet community as a whole, carrying out its activities in conformity with relevant principles of international law and applicable international conventions and local law,” requires ICANN to operate in conformity with relevant general principles of law (such as good faith) as well as relevant principles of international law, applicable international conventions, and the law of the State of California. “””

“”Fourth, the Board of ICANN in adopting its resolutions of June 1, 2005, found that the application of ICM Registry for the .XXX sTLD met the required sponsorship criteria. “””

“””Fifth, the Board’s reconsideration of that finding was not consistent with the application of neutral, objective and fair documented policy. “””

“””ICANN shall be responsible for bearing all costs of the IRP Provider. Each party shall bear its own attorneys’ fees.”

“Therefore, the administrative fees and expenses of the International Centre for Dispute Resolution, totaling $4,500.00, shall be borne entirely by ICANN, and the compensation and expenses of the Independent Review Panel, totaling $473,744.91, shall be borne entirely by ICANN. ICANN shall accordingly reimburse ICM Registry with the sum of $241,372.46, representing that portion of said fees and expenses in excess of the apportioned costs previously incurred by ICM Registry.””

In my view ICANN in a rush to judgment approved the .xxx extension without undertaking the ramifications such an extension would have.  It did not reach out and seek opinions of governmental bodies and other groups that had an interest in the creation of a internet red light district.  Even the adult internet community was by in large against the proposal, but ICANN rushed the application through.

The application process did not get enough press or publicity so people simply did not know about it until it was approved and then all hell broke lose.

Only once the application was approved, did ICANN start listening to the adult community, governments and consumer groups and the rest.

Back asswords.

Now out of fairness we have to point out that this whole mess took place well before Mr. Beckstrom took the helm of ICANN.

However anyone considering laying out hundreds of thousands of dollars going to a new gTLD, might want to check out the full opinion of the independent panel before stroking out the check.