By Stephen Ryan *
The Internet - one of the greatest innovations of this or any century,
is now crucial to tens of millions of individuals and organizations
for commerce and communications. As commercial transactions revolve
more and more around the Internet, its reliability and stability
is becoming not only more important, but at the same time, more
taken for granted. Yet, unknown to many, the very structure of the
Internet's reliability is currently undergoing a pivotal transition.
The structure, developed and overseen by the U.S. government and
a group of computer geeks, is now about to pass into a private-sector
self-governance system that poses incredibly challenging legal and
policy concerns for all Internet users. The handling of this delicate
transition holds enormous implications for the future of the Internet,
e-commerce, and U.S. law.
The Internet's stability is based on the Internet Protocol system,
which is a complicated system of transferring information through
circuits and addresses referred to as the Domain Name System.(1)
The Domain Name System ("DNS") was developed in 1969 through
a grant from the U.S. Department of Defense and was expanded by
Congress in 1987 and 1992 when Congress permitted the U.S. National
Science Foundation to extend the system to commercial uses. Currently,
the United States government oversees the DNS, which performs crucial
functions that keeps the Internet connections flowing and in good
As a result of the expansion of the DNS, the Internet has seen
unfettered vitality in the 1990s and has propelled technological
growth and free-market prosperity on a worldwide scale. Recognizing
that this engine of prosperity should not be jeopardized, the U.S.
government concluded there was a need to establish global standards
and consensus-based policies for the Internet. This policy decision,
currently being implemented by the Clinton Administration and a
private company called the "Internet Corporation for Assigned
Names and Numbers," or "ICANN," has raised concerns
by figures as politically diverse as Grover Norquist and Ralph Nader.
The government's decision, as well as the formulation and activities
of ICANN, demonstrate ample reasons for concern.
The White House and Internet Stability
On July 1, 1997, the Clinton Administration issued a policy paper
entitled, "A Framework for Global Electronic Commerce."(2)
The White House paper set forth a number of principles to guide
the Administration's policy toward electronic commerce and the Internet.
At that time, the White House paper outlined the Administration's
policy toward electronic commerce and the Internet. Among other
things, the paper appropriately suggested that governments "should
encourage industry self-regulation."
Regarding management of the Domain Name System, the White House
paper suggested that: "Governance of the Domain Name System
(DNS) raises other important issues unrelated to intellectual property.
The Administration supports private efforts to address Internet
governance issues including those related to domain names and has
formed an interagency working group under the leadership of the
Department of Commerce to study DNS issues. The working group will
review various DNS proposals, consult with interested private sector,
consumer, professional, congressional and state government and international
groups. The group will consider, in light of public input 1) what
contribution government might make, if any, to the development of
a global competitive, market-based system to register Internet domain
names, and 2) how best to foster bottom-up governance of the Internet.
The Department of Commerce Takes
While the White House statement was a policy document only, with
no claim to be backed by legislative authority, the Department of
Commerce ("DOC") adopted it as a mandate to privatize
the Internet and "promote international participation in the
Domain Name System."
On January 30, 1998, the DOC issued a "Proposed Rule,"
requesting public comments on plans to bring competition to the
domain name registrar process.(3) This document mirrored traditional
agency administrative law procedures. This Proposed Rule is now
commonly referred to as the "Green Paper." The Proposed
Rule requested public comments on a detailed plan to privatize all
current government functions regarding the Internet by authorizing
a new private, non-profit organization to perform those functions.
The Proposed Rule set forth initial Regulatory Flexibility Act,
Paper Reduction Act and Executive Order analyses. DOC purported
to have authority to issue the Proposed Rule based on the White
House's July 1, 1997 policy statement, described above.(4) Specifically,
the DOC interpreted that vague statement of policy as a direct presidential
directive for "the Secretary of Commerce to privatize, increase
competition in, and promote international participation in the domain
name system." DOC also purported to have authority to issue
the Proposed Rule under general statutory language granting DOC
the authority to conduct studies and coordinate interagency telecommunications
activity. See, id., citing 15 U.S.C.§§ 1512, 1525 (general
DOC authority to conduct studies and enter into joint projects),
47 U.S.C. §§ 902(B)(2)(1); (2)(m), 904(C)(1) (general
authority to coordinate executive branch telecommunications policies).
But on June 5, 1998, the DOC backed off from the notion of regulation
and issued a new policy document, the so-called "White Paper,"(5)
or more formally known as "Management of Internet Names and
Addresses," which authorizes the transition of all government
functions on the Internet to a new, nonprofit entity.(6) Lawyers
will note that the decision to not promulgate regulations probably
reflected a belief that issuance of regulations would lead to a
challenge that could not be sustained.
Indeed, there is a real question whether the DOC has the statutory
authority to issue these types of rules.
At its heart, DOC's White Paper calls for an ICANN-type organization
that would achieve four things: 1) preserve the stability with the
Internet; 2) provide for competition in the registration of names;
3) provide for private sector bottom-up coordination; and 4) election
and representation of the various constituencies.
As a result, DOC drafted a plan to create a new private entity
that would oversee the transition of the Internet to private governance.
Activists in the Internet community agreed this "new company"
would be an Internet consensus and limited standard-setting body
and stipulated that any new policies or standards must:
- evolve from the voluntary consent of Internet
stakeholders and innovators
- be applied even-handedly to all domain name registrars;
- be subject to public oversight.
In the fall of 1998, a 501(c)(3) California-based company, ICANN,
was created to meet the goals of the DOC's White Paper. Pursuant
to DOC's mandate, ICANN's primary task was to coordinate technology
issues for the global Internet so that the DNS and the Internet
community could move forward in a coherent fashion. ICANN was supposed
to reach these goals democratically and by consensus. It is important
to note that ICANN was not created by a world body such as the United
Nations, nor was it created by multilateral agreement among the
nations that use the Internet. Instead, ICANN was and is a private,
nongovernmental organization. In addition, ICANN, with no government
oversight, may end up with more power over the Internet than the
Congress of the United States. In fact, ICANN'S initial activities
indicate that it may be destined to grow into an international bureaucracy
with unchecked powers to tax, spend and create policies over the
entire Internet system. One example is ICANN's flow chart, which
contains more acronyms than one would experience in a week at the
Pentagon (See chart on pages 10-11.)
In fact, at a November 2, 1998 public hearing regarding the ICANN
proposal, Mr. Ira Magaziner, then Senior Assistant to the President
for Policy Development, assured the international participants that
although the US Government has legal authority over the DNS, it
was seeking to hand it over to the private sector. Mr. Magaziner
also stated that although the new nonprofit corporation would contain
largely international officers, it would have to be incorporated
in the U.S. in order to prevent domestic political opposition. He
assured the participants that after an initial period of time, the
corporation could become more international. Specifically, Mr. Magaziner
stated that although the new private sector corporation would initially
be incorporated in the U.S. "the organization can always be
moved outside the US once it has formed." He also stated that
the "[t]he structure of the new corporation will change and
evolve over time."
The Power of ICANN's Bylaws
On November 23, 1998, ICANN promulgated Bylaws giving itself broad
authority over the Internet. ICANN's Bylaws and Articles of Incorporation
do not contain reliable limitations on its future authority or powers,
as required by the DOC's White Paper. For example, the Bylaws permit
ICANN's Board a considerable amount of discretion in fiscal matters.
The Board is authorized to (1) make all budgetary decisions, (2)
set any fees at any time it deems are "reasonable" and
(3) to reimburse all staff, administrative and travel expenses,
without limitation. The Board is also empowered to set any fees
or taxes to be charged predominantly to U.S. citizens who use the
.com, .org, .net in order to recover "reasonable" operating
costs and establishing "reasonable reserves" "reasonably
related to the legitimate activities of the corporation." No
other limitations on fees are provided. On November 25, 1998, two
days after ICANN filed its Articles of Incorporation with the State
of California, DOC and ICANN entered into a Memorandum of Understanding
("MOU") in order to fulfill the "administration's
Framework for Global Electronic Commerce." Under the MOU, the
parties agreed to "jointly design, develop and test the mechanisms,
methods and procedures to carry out a number of DNS management functions."
Those functions included the four functions listed in DOC's Proposed
Rule and White Paper, as previously discussed. Subsequently, DOC
speedily awarded a sole-source contract to ICANN authorizing it
to take over the Internet Domain Name System. It only made the contract
public in early January 1999. Also, this contract provides that
by September of 2000, at the latest, all government functions related
to the Internet will be converged to ICANN. DOC also noted that
after a two-year "transition," the corporation would have
no government oversight. Although Congress held hearings on the
status of the Domain Name System, it never specifically authorized
DOC to transfer U.S. government interests in the management of the
Internet to a private entity.(7)
ICANN's "Interim" Board of Directors
Controlling ICANN is an "interim" board of directors
whose selection process is shrouded in mystery. Approximately half
of the board's 9 members are non-Americans, and many are the product
of regulatory type government whose approach to the future of the
net differs from that of most U.S. business or policy officials.
According to the DOC White Paper, the interim ICANN board was supposed
to establish, in short order, a permanent board consisting of netizens
from around the world and selected from a series of `net communities.
However, though it has completed its first year of tenure, the current
unelected, interim board has not as yet relinquished control or
held elections. A vote has been promised beginning in November,
but not completed until late in 2000.
Instead of holding elections to establish a duly elected Board,
ICANN's interim Board's first activities demonstrated its belief
that its most important mandate was to complete what DOC and NSI
had agreed, the introduction of competition into the registration
of domain names (known to the layman as online addresses). Previously,
Network Solutions, Inc. (NSI) had been the sole registrar of .com,
.net and .org domain names under a cooperative agreement with the
U.S. government. Under a 1992 development agreement with the National
Science Foundation, NSI pioneered the branding of the .com, .org,
and .net top-level domain. NSI also performed other critical technical
functions for the Internet, including managing the "A"
root server _ the definitive directory for all addresses on the
Internet _ which makes it possible for users to find one another
in cyberspace and not someone else.
In just its first year of tenure, there is now ample evidence that
this interim ICANN Board's agenda has turned out to be different
from first conception. In fact, critics have accused ICANN of exceeding
its authority and attempting to impose a regulatory will on the
worldwide Internet community.
Who are ICANN's Interim Board Members?
Key White House aide, Mr. Magaziner, and Professor Postel, one
of the founders of the Internet, appear to have been involved in
initial contacts and selection of some of the Board members. Postel
is one of the fathers of the Internet. He performed critical roles
in the Internet's formation through the Internet Assigned Numbers
Authority (IANA), not to be confused with ICANN.
One member of the interim board who was selected is Ms. Capdeboscq,
a representative of the French company, Bull, that is owned in significant
part by the French government. Bull is part of the association which
represents the French Information Technology Industry Association
(SFIB). SFIB is in turn a member of EUROBIT, The European Federation
of National Information Technology Associations. The Japanese member,
Mr. Murai, has significant business interests in the Internet and
contracts of the Japanese government: The French and Japanese taxpayers
did not pay for the development of the Internet, but their countries
are now in a position of significant influence. Other Board members
include Mr. Kraaijenbrink, Chairman of the European Telecommunications
Network Operators Association, who is the Manager of European Policy
and Regulation with the Royal KPV N.V. in the Netherlands, where
he is responsible for European and international regulatory strategic
affairs. Mr. Eugene Triana of Spain recently left the European Commission.
All are foreign regulatory gurus.
A Tea Party Postponed?
One of the ICANN board's most controversial actions to date was
its proposal of a global Internet tax aimed at only a limited number
of domains, peopled largely by U.S. business and private interests.
ICANN proposed an annual and perpetual $1 tax on each domain name
as a means to support its proposed annual operating budget of $5.9
million. (IANA, ICANN's predecessor, used to cost $250,000 a year.)
The $1 tax, labeled more palatably as a "user fee" by
ICANN officials, was designated for all domain names registered
within the .com, .org and .net domains.
More than 240 country codes exist throughout the world (such as
.uk). Approximately 80 of these countries will accept anyone's registration
if they pay their money. These country code top-level domain names
work just as well as .net or .com on today's web. But ICANN proposed
its tax to apply only to those names registered in the top-level
domains .com and .net, which registries are dominated by American
users and businesses.
Article I, Section 2 of the United States Constitution clearly
states that the Congress is the sole authority capable of imposing
a tax on the American public. A federal court has affirmed Congress'
authority over the Internet, finding that without Congressional
authority, the Executive Branch could not impose a tax on Internet
users. Thomas v. Network Solutions, Inc., 2 F. Supp. 2d 22 (D.D.C.,
1998). The question is whether the $1 tax is a tax, or is a user
fee as ICANN contends. In July 1999, just days before congressional
hearings were held to review this tax and other ICANN activities,
ICANN wisely announced it would defer the tax until an unspecified
future date. Nonetheless, the issue of ICANN's self-authorized taxing
authority remains. But ICANN has no source of funds except voluntary
contributions. The unfortunate alternative funding mechanism leads
ICANN to seek handouts from corporations with an interest in the
policy issues before ICANN. It has also led White House staff members
to promise to help raise such contributions.
Assuming Broad Power Over Registrars
ICANN has also issued mandatory contractual "accreditation
agreements" for new companies that want to offer domain name
registration services. In fact, ICANN has publicly threatened to
terminate the right of any U.S. company that doesn't accept these
terms. This includes NSI, the Internet's first registrar, whom ICANN
is threatening to remove as a registrar if the company doesn't agree
to sign essentially a contract of adhesion, which would give ICANN
the authority to terminate NSI as a registrar. This raises the issue
of what might happen to NSI's five million registrants, many of
whom are U.S. taxpayers. ICANN's sparring with NSI has also led
to related embarrassments. The House Commerce Committee recently
obtained an e-mail message detailing an exchange between ICANN outside
counsel, Mr. Sims, and a Senior Counsel to the Assistant Attorney
General of the U.S. Department of Justice's Antitrust Division.
The message _ sent from ICANN's counsel to ICANN's interim board
chairman, Ester Dyson _ alluded to a conversation the counsel had
with the Antitrust Division where he sought Department of Justice
"pressure" on NSI. Mr. Sims and the DOJ attorney discussed
that Justice should "increase the level of pressure on DOC
by some form of formal communication or higher-level contact."
Lack of Open Processes Heightens
Concerns Regarding ICANN
ICANN has developed its most controversial policies in closed-door
meetings. The meetings have occurred in locations where most Internet
users, particularly the small businesses who represent almost 90%
of the existing domain name holders, cannot afford to venture such
as Berlin, Singapore, and Santiago. Responding to mounting U.S.
Congressional and net complaints about its secrecy, ICANN did open
up its August meeting in Santiago, Chile. Ironically, one of the
ICANN Directors, Mr. Kraaijenbrink, stated: "I felt like I
was in a play ... performing an act," implying very directly
that acting open and actually being open are distinctions ICANN
makes. It did not, however, promise to open future ones. ICANN's
persistence in closed meetings has added to its image of mystique.
ICANN's interim president, Michael Roberts, tried to rebut this
criticism with a comment on the issue of consensus that is circular
in the extreme. "ICANN is nothing more than the reflection
of community consensus," he said, and "
consensus was by definition not `overly' regulatory." Roberts
claims that consensus is what ICANN creates, but it belies the lack
of consensus to many of ICANN's policies. It implies that if ICANN
characterizes something as a result of consensus ICANN has very,
very broad authority.
Obscenity in Domain Names
ICANN has permitted its new registrars of domain names to register
domain names that include obscenities _ whether they are the "seven
dirty words" that the Federal Communications Commission prohibits
from public broadcast or more imaginative but related words. Thus,
with the advent of new registrars and ICANN's oversight of the domain
name system, obscene domain names are now permitted and widespread.
This caught the attention of social conservatives such as Congressman
Cannon (R-UT) who sharply questioned this reversal of prior policy.
Global U.S. companies engaged in e-commerce around the world are
genuinely and rightfully worried that without global standards the
Internet could go through a disorderly and dysfunctional Balkanization
of national state regulation and control. Indeed, this fear was
one of the key reasons that stakeholders around the world welcomed
the creation of an entity responsible for holding the whole together.
But the righteous goal of creating an Internet that is not government-dominated
cannot overcome completely concerns that NGOs such as ICANN may
run roughshod over the Constitution and policies of the U.S. government.
Make no mistake: ICANN is or soon will be as important as the House
or Senate Judiciary Committee in establishing groundbreaking policies
and intellectual property regulations _ with one key exception:
The people at the helm of ICANN can make rules, regulations and
standards without having to answer to the voting public. Whatever
you may think individually or collectively of Orrin Hatch, Patrick
Leahy, Henry Hyde and John Conyers, each of the Chairmen and ranking
Members of the Senate and House Judiciary Committee must face the
voters at regular intervals.
ICANN was created for very legitimate reasons _ as a consensus-based
organization that would enable the Internet, its stakeholders and
beneficiaries to move forward in the most streamlined, cohesive
manner. It must not be permitted to grow into an international cybergovernment
with no system of checks and balances. Rather, ICANN _ or a similar
entity based on ICANN's original ideals _ should remain faithful
to the politically unencumbered, universal nature of the Internet
and the boundless possibilities it offers to users around the world.
Postscript: After this article was written, an important agreement
was reached between the Department of Commerce, ICANN and NSI. The
agreement is too complex to present here, but it reduces the price
registrars must pay the registry, encourages NSI to separate its
registrar and registry business, and continues the flood of new
registrars and redefines how "consensus" is to be established.
* Stephen Ryan is a partner in the Washington, D.C. office of Manatt,
Phelps & Phillips. He can be reached at firstname.lastname@example.org. He
is a former General Counsel to the U.S. Senate Committee on Government
- The Internet Protocol
system consists of four groups of digits separated by periods.
For the convenience of users, individual sites are also given
names, as an easy way to identify the four groups of digits. Domain
names are arranged so that reading from left to right, each part
of the name points to a more generalized area of the Internet.
For example, in the name "dccd.uscourts.gov," the "uscourts"
in the second-level domain name and the "gov" is the
top-level domain name is one of several that identify the type
of organization represented.
- 33 Weekly Com. Pres. Docs. 1006 (July 1, 1997),
available at www.ecommerce.gov.
- 63 Fed. Reg. 8825 (Jan.
- See "A Framework
for Global Electronic Commerce," 33 Weekly Com. Pres. Docs.
1006 (July 1, 1997).
- This name is somewhat
confusing because the White House Framework document Magaziner
drafted previously is also frequently referred to as "the
- See "DNS Statement
of Policy," available at www.ntia.doc.gov/domainname.
- Congress has, for example, passed the "Next
Generation Research Act of 1998," Pub.L. 105-305, which authorized
funding for DOD, NSF, NASA, and other agencies to improve the
"Internet System." The ICANN changes were never approved