From haywood.torrence@bellatlantic.COM Wed Sep 9 12:47:29 1998 From: haywood.torrence@bellatlantic.COM To: "comments(a)iana.org" Subject: Copy of comments on the August 24, 1998 draft of New Entity Date: Wed, 9 Sep 1998 15:41:37 -0400 MIME-Version: 1.0 Attached is a copy of the comments that Bell Atlantic previously provided to Joe Sims on 4 September. Woody Torrence 4 September 1998 Joe Sims, Esquire Jones, Day, Reavis & Pogue Metropolitan Square 1450 G Street, NW Washington, DC 20005-2088 Dear Joe: As you know Bell Atlantic, for some time, has taken an active role in the efforts to create a new, private sector-based structure for establishing Internet domain name policy. Our concern with and interest in these efforts grows most immediately out of our experiences under the current domain name assignment system, a system designed largely without input from the commercial sector and with a less than full appreciation for the intersection of Internet domain names and trademarks. That system, of course, was designed and implemented, the commerce was a negligible effectively a non-existent part of the life of the Internet. Today, however, commerce is integral to the life of the Internet. Accordingly, we believe it imperative that decisions with regard to domain name policy strongly reflect an appreciation for the need to protect against trademark infringement. And to that end, we believe that the commercial sector must have a strong and effective voice in any new administrative structures for the Internet. Bell Atlantic has reviewed IANA's most recent proposed set of incorporation documents. We commend IANA for stepping up to the difficult role of trying to synthesize a concrete and credible proposal out of the myriad ideas that have developed in conferences, fora and Internet discussion groups over the last two months. The process that IANA has initiated, while not perfect, represents the best opportunity for achieving the goals set out in the United States Government's White Paper, and we offer our support for that process. Bell Atlantic will work together with IANA and all other interested parties to achieve a viable, workable result. To that end, we would like to share with you our ideas on the latest draft of Articles and bylaws for a new Internet administrative authority. While we also join in supporting many of the comments of others -- especially with respect to the need for heightened attention to intellectual property implications of domain name administration -- our comments here highlight certain additional specific points in the documents that occasion significant concern for Bell Atlantic. Fundamental Concerns Our concerns derive, in large measure, from the difficulties we have experienced and continue to experience with regard to trademark infringement in the context of second level domain name assignments. We recognize that this is an issue as to which there is no simple solution; it brings into play many different, and potentially competing, equities. On the other hand, there has been set into motion (or are imminently contemplated) a number of processes which could help to resolve this issue among them, the WIPO process and the contemplated Leahy Study. We are concerned that powers accorded an initial Board of Directors under the current draft of the documents could pre-empt the results of these processes through the immediate introduction of new generic top level domains (or gTLDs). Accordingly, we strongly believe that the Articles of Incorporation should prohibit the Board of Directors from introducing new gTLDs pending resolution of the key trademark issues that are the subject of these studies. We recognize that proscribing the powers of a Board of Directors on such a specific point is unusual although certainly not without precedent. On the other hand, what is also clearly true is that the organization being created here is not an ordinary nonprofit corporation. Rather, is really the creation of a governance structure operating under the form of a corporation. And as it is the creation of a governance structure, orderly processes for resolution of difficult issues are not pre-empted or mooted that are already (or will shortly be) underway need to be respected and preserved by the new entity at a structural level, so far as is possible. Thus, we believe this proscription should be explicit in the Articles themselves. Bell Atlantic is also concerned about the absence in the current documents of any express limitation on the initial board of directors' power to reshape the basic governance design. The Articles of Incorporation appear to take a fairly standard approach: use the Articles the essential corporate structure required to get the corporation up and running; establish in the bylaws the basic outline for administration; and preserve for the future directors great flexibility to refine and hone that basic outline -- or, if warranted, to alter it substantially without having to alter the Articles. This is an imminently understandable approach, and justifiable one, as a general matter for corporation creation. It is also attractive perhaps in view of the tight timetables laid out in the White Paper for getting the corporation up and running; making final, definitive determinations, ab initio, of all the arrangements probably could not wisely be done for an organization such as this in such a short frame. We are concerned, however, that the current approach provides too much leeway for the initial board to redraft the bylaws on a variety of sensitive issues prior to the seating of board members nominated by one or more supporting organizations (SOs). Again, in this instance, the emphasis should be on this entity as a governance structure rather than on this entity as corporate entity. In order to create the trust necessary for a credible governance structure, we believe the Articles themselves, rather than the default provisions of the California Nonprofit Corporation Code, should establish the bases for their amendment. Further, we suggest that the Articles not be subject to amendment unless they have the support of a majority of each SO's directors. And finally, we suggest that the Articles include a provision precluding emendation of the bylaws until such time as each of the SOs has seated its members on the Board. This provision, coupled with other suggestions made below, would preclude a "rump" group of initial directors from substantially altering the shape of the organization outlined here until all directors are seated. Finally, we would add a word on a non-structural but nonetheless key issue. We applaud the IANA's recognition that commercial stakeholders, including trademark holders, have a valid interest in how the new Internet administrative authority will be structured and how it will function. If this interest is to find adequate and effective expression in the new administrative structure, it must find representation not merely in directors nominated by the specific supporting organization for domain naming activities, but also, and in significant measure, among the "At Large" directors that are proposed to comprise fully half of the corporation's Board of Directors. Specific Comments (by Document and by Section) Article V, Section 1, says that "the Board may act by a majority vote of Directors present at the meeting . . .," subject to quorum requirements. We believe that, given the potentially conflicting interests on this Board, an absolute majority of all directors holding office ought to be required for adoption of any resolution. As a general proposition, this probably should be effective for most non-controversial decisions. However, for any important substantive decisions that impact or effect the rights, obligations and/or interests of any significant sector of the Internet community, we believe that a four-fifths majority of the directors is appropriate, in addition to the requirement that such a decision have an absolute majority of all directors holding office. Article VI, Section 1 calls for the vesting, at least for some period of time, of all the Initial Board's authority in the nine "At Large" directors. Clearly, this provision is necessary, as a practical matter, in order to get the corporation established. The make up of that group of "At Large" directors, therefore, is crucial to the success or failure of this endeavor. We cannot stress strongly enough our belief that the commercial sector must be adequately and credibly included within that cadre. This is especially true in view of the dilution of the relative strength of the SO directors in the current draft (with the increase in the "At Large" contingent from six persons to nine persons). Otherwise, this proposal will not work fairly or effectively. Article VI, Section 4, Paragraph B allows the Board to adjust the representation formula for the SOs, subject to the proviso that it cannot do so until the all the SOs have elected members to the Board "or April 1, 1999, whichever is sooner" (emphasis added). Although we appreciate the intent of this provision, it is also important to recognize that the Domain Name Supporting Organization (DNSO), unlike the other two supporting organizations, does not have a clearly defined and relatively limited numbers of potential members. Moreover, many of the groups that may comprise this SO may have divergent positions on issues that could make creation of the structure of this organization problematical. Hence, April 1, 1999 is probably too optimistic a date to permit such a fundamental adjustment in the representational structure of the Board. Our earlier suggestion to wit, that the bylaws not be alterable until all directors from supporting organizations specified in the initial bylaws are seated would obviate this problem, and we reiterate our support for this idea. But in any event the date chosen is much too soon and should, in no event, be prior to October 1, 1999. Article VI, Section 9, Paragraph D raises a similar concern to that just discussed. It calls for the division of the SOs' directors into classes except that it specifies the term of all directors as being "considered to have begun on October 1, 1998 regardless of when those original Directors actually take office." As a practical matter, it is a almost a certainty that no DNSO director will take office prior to sometime into the next year; the whole DNSO entity needs to be created from the ether, and the structures and policies for electing its officers will have to be created. By the time the DNSO is in a position to nominate its directors for the board, one of them, in all likelihood, will be elected to a term that is about to, or may already have, expired. Thus, we suggest changing this provision. Article VI, Section 10 allows for aural resignations at Board meetings. That is not a problem, but we believe this section probably should also require, in the case of such an aural resignation, a prompt written follow up to corporate Secretary within some reasonable period of time. Article VI, Section 12 contains provisions for filling vacancies. Under its provisions, the Board can fill any vacancy. Perhaps the bylaws implicitly assume but in any event should expressly provide that in the event of a vacancy of a director of a SO, the director elected by the Board, if any, is required to resign as soon as the relevant SO nominates its own replacement director. Also, we are not clear about the purpose or the effect of the provision of this section that states "the replacement need not hold the office, if any, of the removed Director." Article VI, Section 22, we believe, ought to have the qualifier "reasonable" attached to it; the same is true of Article VIII, Section 7. Article VI, Section 23 says, in essence, that "silence amounts to consent." Is not it fairer, or at least less presumptive, to have silence imply abstention? Article VII, Section 1 establishes the authority of the Board to create new SOs by two-thirds vote. While we agree that there ought to be some provision for the introduction of new SOs, we think admission of a new SO ought to require, at minimum, the affirmative vote of a majority of the directors from each cohort of directors elected by SOs. After all, it is the interests of the SOs on the Board that will be subject to dilution by the introduction of additional SOs. More generally, we have serious concerns about the ability of other SOs to, in effect, "pocket veto" recommendations of the DNSO. Article IX provides for both a Chairman of the Board and a President. We would suggest as an alternative considering the title of "Chief Executive Officer" rather than "President" for the functional head of the corporation and having him or her also serve as the chair of the Board. Finally, the extent of the discretion established in Article XIV is a huge problem. It is, of course, already addressed in our comments at the outset of this document. We reiterate once again our view that the Articles of Incorporation need to substantially proscribe the ability of the initial board to alter the bylaws until all SOs have their directors seated on the board. Please feel free to contact me (202-336-7870; haywood.torrence@bellatlantic.com) or Sarah Deutsch (703-974-8450) if you want to discuss these issues in greater detail. Sincerely, Haywood Torrence, Jr. cc: Ira Magaziner Joe Sims, Esquire Page 5 September 4, 1998