Thanks to Leadership and Staff for working to pull together Proposal 5. I am adding a link to it here for those who were not on the call. https://docs.google.com/document/d/1X8F8zHkgMzQg2WqGHpuoEP78rhpDkFOjD2qKrZZzjHw/edit#<https://docs.google.com/document/d/1X8F8zHkgMzQg2WqGHpuoEP78rhpDkFOjD2qKrZZzjHw/edit> During the discussion on Thursday 16 July - there was a comment about the group being overly responsive to the Board's concerns about gaming of the system. For reference, the Board language is below, with my emphasis added: "Regarding question 2.7.4.e.2 on 'gaming' or abuse of private auction, the Board believes that applications should not be submitted as a means to engage in private auctions, including for the purpose of using private auctions as a method of financing their other applications. This not only increases the workload on processing but puts undue financial pressure on other applicants who have business plans and financing based on their intention to execute the plan described in the application. In particular, we are concerned about how gaming for the purpose of financing other applications, or with no intent to operate the gTLD as stated in the application, can be reconciled with ICANN's Commitments and Core Values." Distilled to its essence - the Board is not comfortable with 1) applications submitted for the sole purpose of receiving a payout for losing private auctions nor are they comfortable with 2) gaming for the purposes of financing other applications. Two related but distinct concerns. It is imperative the group recognize the only way to completely eliminate the gaming of contention resolution to provide enrichment to applicants with no intention of operating a TLD or gaming to finance other applications is to ban all private resolutions. Not just private auctions, but all private resolutions. I am still in favor of a Vickery Auction as the most equitable and efficient way to accomplish what the Board is asking for. But as my Compromise Proposal indicated, we all have to learn to compromise. As currently drafted, Proposal 5 fails to adequately address both concerns the Board has. But It has good elements that can be built upon. Board Concern #1 - applications submitted for the sole purpose of receiving a payout for losing private auctions A lot of attention has been paid to the first concern. After all - that's where a large chunk of the tens of millions changed hands in the 2012 round. It's what drove earnings releases and blog headlines. I appreciate the Bona Fide requirements as put forth by Paul and that is why I incorporated them into my Compromise proposal. But on their own, they simply do not go far enough. So how can we make this stronger? ICANN has a responsibility to oversee this program in its entirety. Unlike 2012, it simply cannot encourage resolutions of contention sets and then turn a blind eye to how that it accomplished. Proposal 5 added some much needed disclosure requirements to private auctions. That will help. But the private auction process itself still needs be overseen by ICANN. If ICANN is going to stand by the results of these auctions, they should oversee them. As this group experienced firsthand - getting any information out of private auction providers is impossible. That alone is reason for ICANN oversee this effort. Additionally, how can we expect ICANN to enforce the Bona Fide requirements? We can't rely on the outside evaluators as listed in Proposal 5 as they will disappear once their project is done. This is the responsibility of ICANN Org, specifically compliance, to monitor this. Anything short of full ICANN oversight is merely suggestive. We need enhanced disclosure around JVs and other "creative forms of private resolutions." Why? As one observer noted to me, "A private auction is just a negotiation with binding bids." I'm not suggesting we need trade secrets but we do need to know full ownership, percentages of ownership and what other conditions are attached to the formation of the JV. For example., were other parties compensated for not participating in the JV and withdrawing? We can determine the exact information needed during implementation but for purposes of high level concepts, we should err towards more transparency rather than less. As mentioned on the call, one element of my Compromise Proposal which adds assurance is Competition Authority review. Paul suggested that mandatory referral may be difficult. That doesn't mean it should be dismissed. At a minimum ICANN should reserve the right to refer contention resolutions, whether through auction or other methods, to competition authorities. Following is suggested language based on the RSEP Policy to which all current and future registries abide. It is familiar and instructive to where the oversight policy should be. In the event ICANN reasonably determines during any resolution of a contention set, might raise significant competition issues, ICANN shall refer the issue to the appropriate governmental competition authority or authorities with jurisdiction over the matter within five business days of making its determination, with notice to the potential Registry Operator. Any such referral communication shall be posted on ICANN's website on the date of transmittal. If such a referral occurs, the potential Registry Operator's application will placed on hold until (XX) calendar days following the referral, unless earlier cleared by the referred governmental competition authority. With ICANN overseeing all the auctions as well as fulsome disclosure, this clause will likely not be triggered very often, if ever. However, for the protection of ICANN, it should have the ability to do so if a situation does arise that raises competition concerns. They cannot be seen as facilitating anticompetitive behavior and this provides a safety valve. Board Concern #2 - gaming for the purposes of financing other applications. Nothing in Proposal 5 addresses this concern. As crafted, Proposal 5 would return us to the wild west of 2012 where parties are off doing auctions shrouded in NDAs, rolling proceeds from losing one application to another and supported applicants or single applicants stand little chance against deep pockets and portfolio players. Sure we eventually will find out who paid how much but we have no assurances funds were not being rolled from one to the next. How do we accomplish this while addressing Susan's concern about without holding up contention sets? It's quite simple. All private auctions would be conducted using sealed bids and all bids, regardless of whether they be used for ICANN Auction of last resort or for ICANN administered "private auctions" would be due on the same day. Any bids not used would be destroyed and not revealed. Again - ICANN oversight and collection of bids at one time is critical to satisfying the concerns of the Board. Anything less, is toothless. Thanks for making it this far. As I said on the outset - there are good elements in Proposal 5 but it comes up short - Without the reinforcements outlined above it will fail to meet the Board concerns and we risk having this sent back to us in a year's time. In summary, -Include competition authority oversight - Sealed bids submitted at a single point in time - ICANN oversight of auctions -Full transparency of all contention resolution Jim Prendergast The Galway Strategy Group +1 202-285-3699