Legal Update September 23, 2016 US Senate Holds Hearing on IANA Stewardship Transition and Its Impact on “Internet Freedom” On September 14, 2016, the US Senate Judiciary Committee, Subcommittee on Oversight, Agency Action, Federal Rights and Federal Courts (the Subcommittee) held a hearing on “Protecting Internet Freedom: Implications of Ending U.S. Oversight of the Internet.” The Internet Assigned Numbers Authority (IANA) stewardship transition, the final piece of ending US government oversight of the Internet, would benefit brand owners and Top Level Domain (TLD) registry operators, including operators of .Brand TLDs. However, this hearing demonstrated lingering opposition within Congress to the transition. Much of this resistance is based on a misunderstanding regarding what the transition actually entails, and much of the hearing was dedicated to parsing out the truth from falsehoods with respect to the transition and its implications for Internet governance. The analysis of the hearing below should help separate fact from fiction regarding this important issue. The hearing included two panels with the following representatives testifying: PANEL 1 • Larry Strickling, Assistant Secretary for Communications and Information and Administrator of the United States National Telecommunications and Information Administration (NTIA), US Department of Commerce; and • Göran Marby, President and CEO of the Internet Corporation for Assigned Names and Numbers (ICANN). PANEL 2 • Berin Szoka, President of TechFreedom; • Jonathan Zuck, President of ACT The App Association; • Dawn Grove, Corporate Counsel for Karsten Manufacturing; • Becky Burr, Deputy General Counsel and Chief Privacy Officer for Neustar; • John Horton, President and CEO of LegitScript; • Steve DelBianco, Executive Director of NetChoice; and • Paul Rosenzweig, Former Deputy Assistant Secretary for Policy for the US Department of Homeland Security. Opening Remarks Subcommittee Chair Senator Ted Cruz opened the hearing with the aggressive assertion that the IANA transition would relinquish US government control over the Internet and afford oppressive foreign regimes a greater hand in suppressing free expression online. Cruz invited viewers to imagine a post-transition environment where such governments could impugn and punish any Internet user for expressing certain political, religious or other views and referred to ICANN as a “mini UN.” Cruz unfortunately continues to 2 Mayer Brown | US Senate Holds Hearing on IANA Stewardship Transition and Its Impact on “Internet Freedom” misunderstand (either intentionally or unintentionally) the role of ICANN, the IANA functions and the process for transitioning the NTIA oversight functions to the global multistakeholder community. Cruz’s concerns could well have been exacerbated by recent ties between former ICANN CEO Fadi Chehadé and the China World Internet Conference, as Cruz repeatedly referred to the Chinese government throughout the hearing as the “number one enemy of a free and open Internet.” Senator Christopher Coons, the ranking Democrat on the Subcommittee, used his opening remarks to criticize Cruz’s politicization of and deliberate misinformation campaign regarding the IANA transition, noting that Congress has chosen to continually re-litigate an issue on which it has had multiple hearings and opportunities for review. He also noted that the transition involves purely technical functions with no nexus to the ability to inhibit Internet freedoms. As Coons correctly highlighted, the IANA transition eliminates NTIA’s mere clerical intermediary role in approving TLD delegations and re-delegations into the authoritative root zone and related technical tasks in ensuring its operational functionality. As Coons explained, “it is important we execute the transition properly, which can enhance US credibility on the international stage, and ensure a greater ability for us to engage in and lead on Internet issues.” He also pointed out that the IANA transition plan, which was developed by the consensus of the ICANN community, has also been widely supported by the NTIA and technology and industry groups that share the same interests as Congress in ensuring the continued openness and freedom of expression on the Internet. Coons acknowledged that there has been charged rhetoric about the transition but that Congress should move beyond such rhetoric and consider the facts of how the transition may or may not impact current levels of freedom of global communication and commerce that Internet users currently enjoy. Senator Chuck Grassley weighed in, claiming that the entire impetus for the transition was political, rather than based on any technical need, and suggested ICANN had not yet achieved adequate institutional maturity to be given oversight over the IANA functions. The senator asserted there are unanswered questions about how the transition will impact human rights and online freedoms and questioned whether it represents an unauthorized transfer or “giveaway” of government property. It was odd that neither Grassley nor any other member of the Subcommittee, or any witnesses, cited the recently published, nonpartisan Government Accountability Office (GAO) report discussing the government property issue and finding that the transition would not involve any relinquishment of government property. Panel 1 Much of time allotted to this panel involved Larry Strickling and Göran Marby defending the IANA transition from the loaded and misinformed questions from Cruz and other Republicans. As Strickling and Marby repeatedly told the Committee, the transition does not give governance power to ICANN, nor does it cede any governance power of the US government. Rather, it merely gives it oversight authority over technical functions of the IANA to the community that IANA serves and removes the NTIA from its “middle man” role in relaying and ensuring accuracy of TLD delegation and re-delegation instructions. As Strickling highlighted, in the three months since NTIA issued its analysis of the IANA transition plan, no one has criticized or opposed its conclusions. Further, after the transition, the US government, and especially the NTIA, will continue to be active participants and advocates at ICANN and continue to promote Internet freedom in the 3 Mayer Brown | US Senate Holds Hearing on IANA Stewardship Transition and Its Impact on “Internet Freedom” international Internet governance forums. In addition, Marby added that ICANN is not a regulator and that it operates pursuant to contracts with registries and registrars, all of which are subject to California law (as is ICANN as an organization), which will not change post-transition. Strickling and Marby reasserted that ICANN will not enjoy, nor has it ever enjoyed, legal immunity from antitrust liability and corrected Cruz’s mistaken allegation that the transition will remove First Amendment protection from US-based Internet content—in fact, the First Amendment will continue to apply only to government actors, while the vast majority of online content is already controlled by private parties not subject to the First Amendment. Further, foreign governments already have the ability to regulate and censor online content within their own borders—nothing about the transition will change the status quo in this respect, but it will only serve to enhance global trust in the autonomy of the decentralized network of networks that is the Internet. Strickling and Marby also defended against the assertion that ICANN is not mature enough as an organization and not sufficiently accountable to its community, citing the enhanced accountability mechanisms baked into the transition plan. They repeatedly emphasized that ICANN will remain headquartered in Los Angeles, subject to California and US law. They acknowledged, however, that the bylaws provisions anchoring ICANN in California could theoretically be changed in the future, but there are numerous hurdles to doing so because of new language in the bylaws and the fact that the accountability enhancements are tied to ICANN’s domicile in California. In perhaps the most stunning turn, Cruz ended Panel 1 by accusing Strickling and other NTIA personnel of being in violation of federal law, and subject to possible criminal liability, for expending funds in preparation for the IANA transition, citing Section 539(a) of the appropriations bill passed by Congress governing Fiscal Year 2016. Strickling explained that the legislation referred to by Cruz only applies to funds expended in actually relinquishing US government control over IANA but does not prohibit actions taken in preparation for the IANA transition. Indeed, according to Strickling, the NTIA was instructed by Congress to perform these preparatory steps, including performing due diligence and analysis regarding the transition. Again, it was odd that Strickling did not cite the recently published, nonpartisan GAO report finding that the transition would not involve any relinquishment of government property. Panel 2 The second panel consisted of witnesses offering two divergent views of the transition. Jonathan Zuck, Becky Burr and Steve DelBianco argued that the transition should proceed as scheduled. Berin Szoka, Dawn Grove, John Horton and Paul Rosenzweig argued that the transition should proceed eventually, but only after a “test period” for the enhanced ICANN accountability mechanisms and only after other lingering “questions” about the transition are satisfactorily answered. Szoka primarily criticized the NTIA for “rubber stamping” the community transition plan. He suggested it was violating Constitutional separation of powers because it involved the disposal of government property, which is a power granted only to Congress. Ultimately, though, Szoka supported an eventual transition after a trial period for the accountability enhancements. Grove also criticized ICANN’s accountability, citing the specific case of the .PING gTLD (Grove and her company own the PING brand and are represented at ICANN by Paul McGrady). She claimed her company was forced to pay USD $1.5 million at auction to control their TLD, where there was a competing generic application 4 Mayer Brown | US Senate Holds Hearing on IANA Stewardship Transition and Its Impact on “Internet Freedom” that ICANN failed to properly dispose of through a Legal Rights Objection. On the one hand, her arguments regarding the dispute over the .PING gTLD should resonate with all brand owners. ICANN not only permitted a competing application to proceed, despite the applicant’s established cybersquatting record, but it apparently threatened termination of Karsten Manufacturing’s application if Karsten decided to seek redress from the California courts. It was not clear why Karsten did not pursue ICANN accountability mechanisms and formal litigation given ICANN’s duty to deal fairly with the new gTLD application, per the various terms and conditions in its contracts with new applicants. For the most part, Grove’s arguments regarding the IANA transition were off-base, as she also suggested that there should be “a seat at the table for representatives of all fifty US states” and that no true accountability model had been imposed because the final plan did not include the previously proposed “Single Member” model. Grove failed to mention that the accountability plan is instead based on a Sole Designator model with similar accountability structures in place as the Single Member model. Horton also criticized ICANN’s accountability, citing concerns with its contractual compliance function. He noted that the compliance process was too opaque and unaccountable to complainants. He also argued that it remains heavily biased towards ICANN’s contracted parties. Horton’s testimony primarily focused on the prevalence of rogue Internet pharmacies and the role domain name registrars play in encouraging their business models. He recounted various unsuccessful attempts to shut down such pharmacies, as well as mounting frustration with the lack of information made available once the ICANN contractual compliance department closes each complaint. His point was that ICANN, as demonstrated by its ineffectual contractual compliance department, is simply not mature enough for the United States to relinquish even its soft oversight function. Rosenzweig made similar comments, advocating for a test period for the new accountability requirements. He flagged the complexity of the Empowered Community model and argued that while the “stress tests” that were conducted as part of the accountability enhancements development process were helpful, these “intellectual exercises” are not a substitute for practical experience. These arguments were effectively rebutted by DelBianco, who explained that it would take years, perhaps even a decade or more, before any of the new accountability enhancements were employed by the community. Certain accountability enhancements, such as termination of the entire ICANN board of directors, hopefully, will never need to be used at all. Cruz’s primary line of questions to this Panel involved the assertion that governments gain more power under the new ICANN bylaws, given the heightened threshold for the board to reject consensus Governmental Advisory Committee (GAC) advice and the participation of the GAC within the Empowered Community. Panelists agreed that these were concerns but also cited the counterbalancing elements of the bylaws, namely that only consensus GAC advice is afforded board deference, where such “consensus” is specifically defined in the bylaws as requiring unanimity within the GAC. The questioning proceeded in a hostile fashion, with Cruz latching on to comments from witnesses opposed to the IANA transition and completely disregarding the comments and answers other witnesses gave to the Committee making a strong case in support of the transition. In concluding the hearing, Cruz stated that “the transition is a solution in search of a problem,” and that his hope is that Congress will “exercise its Article I power to protect free speech” presumably by denying or delaying the transition. While Cruz and several other 5 Mayer Brown | US Senate Holds Hearing on IANA Stewardship Transition and Its Impact on “Internet Freedom” Republicans clearly intend to stick to their guns in opposing the transition to make a political statement, Democrats on the Subcommittee generally supported the transition. It is difficult to predict whether Republicans in Congress will actually be able to create enough momentum to prevent the transition prior to September 30, 2016, but we would not be surprised to see Cruz float emergency legislative measures to prevent the transition from moving forward as scheduled (likely in the form of another appropriations rider). A full recording of the hearing, opening statements and witness testimony are available here. For more information about the topics raised in this Legal Update, please contact any of the following lawyers. Brian J. Winterfeldt +1 202 263 3284 email@example.com Michael D. Adams +1 312 701 8713 firstname.lastname@example.org Mayer Brown is a global legal services organization advising many of the world’s largest companies, including a significant proportion of the Fortune 100, FTSE 100, CAC 40, DAX, Hang Seng and Nikkei index companies and more than half of the world’s largest banks. Our legal services include banking and finance; corporate and securities; litigation and dispute resolution; antitrust and competition; US Supreme Court and appellate matters; employment and benefits; environmental; financial services regulatory & enforcement; government and global trade; intellectual property; real estate; tax; restructuring, bankruptcy and insolvency; and wealth management. Please visit our web site for comprehensive contact information for all Mayer Brown offices. www.mayerbrown.com Any advice expressed herein as to tax matters was neither written nor intended by Mayer Brown LLP to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed under US tax law. If any person uses or refers to any such tax advice in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any taxpayer, then (i) the advice was written to support the promotion or marketing (by a person other than Mayer Brown LLP) of that transaction or matter, and (ii) such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. Mayer Brown comprises legal practices that are separate entities (the “Mayer Brown Practices”). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe-Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown Mexico, S.C., a sociedad civil formed under the laws of the State of Durango, Mexico; Mayer Brown JSM, a Hong Kong partnership and its associated legal practices in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. Mayer Brown Consulting (Singapore) Pte. Ltd and its subsidiary, which are affiliated with Mayer Brown, provide customs and trade advisory and consultancy services, not legal services. “Mayer Brown” and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions. “Mayer Brown” and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions. This publication provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek legal advice before taking any action with respect to the matters discussed herein. © 2016 The Mayer Brown Practices. All rights reserved.