A Private Equity Firm Is Blocked From Buying .Org

The deal for the internet domain for nonprofit organizations had set off fierce opposition.

Credit…Mark J. Terrill/Associated Press

A private equity firm will not gain control of dot-org, the digital real estate that is home to millions of nonprofits, nongovernmental organizations and community groups.

The board of the Internet Corporation for Assigned Names and Numbers, which oversees the internet naming system, decided on Thursday night to veto the sale of the rights to dot-org to Ethos Capital, which had offered more than $1 billion.

Maarten Botterman, the chair of ICANN, wrote in a blog post that after all the considerations were weighed, rejecting Ethos’s proposed bid was “reasonable, and the right thing to do.”

Ever since the planned sale was announced in November, the deal had stirred fierce opposition. Dot-org is best known as the cyber neighborhood to nonprofit organizations with civic missions like the Red Cross (redcross.org), Human Rights Watch (hrw.org) and NPR (npr.org).

To many, handing control of dot-org to a private equity firm seemed almost like heresy. The growing ranks of opponents eventually included internet pioneers, nonprofit leaders and the attorney general of California, Xavier Becerra.

The opponents raised several concerns, including the risk of steep price increases, underinvestment and censorship. Ethos Capital tried to address those worries by pledging to set up a “stewardship council” of outside experts and making “public interest commitments” to restrain price increases and not censor web content.

But critics remained unconvinced. They did not believe that a private-equity firm, driven by the need to deliver rich returns for investors, would act in the best interests of what they regard as the domain of online civic society.

In an interview on Friday, Mr. Botterman said a “convincing majority” of the 15 voting members of the board opposed the Ethos Capital bid. The overarching concern, he said, was the apparent “lack of guarantees that the spirit that was always intended for dot-org” would be preserved if the private equity firm gained control.

ICANN’s ruling on Thursday and the current arrangements for managing dot-org are byproducts of the arcane governance and history of the internet naming system.

In 2002, ICANN granted the Public Interest Registry, another nonprofit, the right to run the dot-org domain. Part of the rationale was that the domain should not be managed on a purely commercial basis — unlike dot-com and dot-net, for example.

The Public Interest Registry, in turn, is controlled by the Internet Society, a nonprofit that helps develop internet standards, education programs and policy. The registry holds a contract to manage dot-org, which was renewed last year for 10 more years.

But under the rules governing the registry, ICANN must approve major changes in its practices and ownership.

The Internet Society saw the sale to Ethos Capital as a way to gain an endowment to fund its operations and get out of the business of operating dot-org, which it wanted to do for some time.

In an interview this week, Andrew Sullivan, chief executive of the Internet Society, said the Ethos Capital bid was one of several proposals it had received — and one that appeared to combine people who had internet experience with the financial resources to help dot-org grow and prosper.

“We viewed it as a good transaction and that would be good for everyone,” Mr. Sullivan said.

If ICANN rejected the Ethos Capital deal, the Internet Society had no immediate backup plan, Mr. Sullivan said, adding that dot-org would be run as before. “We will not neglect dot-org,” he said.

The opposition to the Ethos Capital bid took a number of forms, including an alterative proposal made in January by a group of internet veterans and nonprofit leaders called the Cooperative Corporation of .ORG Registrants. Among the cooperative’s initial seven directors are Esther Dyson, who was the first chair of ICANN, and Mike Roberts, ICANN’s first president. The Internet Society, Mr. Sullivan said in the interview this week, has not yet had talks with the cooperative’s founders.

On April 14, Ms. Dyson and Mr. Roberts wrote to Mr. Becerra, California’s attorney general, urging him to oppose the private equity deal. ICANN is incorporated in California. (The letter was also addressed to the attorney general of Pennsylvania, where the Public Interest Registry is incorporated.)

In January, Mr. Becerra had expressed concerns about the deal and requested documents. Then, in a letter to ICANN’s chief executive and board chair on April 15, Mr. Becerra sided with the deal’s opponents and concluded that the dot-org domain and “the global internet community — of which innumerable Californians are a part — are better served if ICANN withholds approval of the proposed sale.”

The ICANN board came to the same conclusion, after lengthy deliberations and seeing the breadth and intensity of the opposition.

“The idea of a private equity firm owning this crucial public asset on the web was just anathema to a lot of people,” said Andrew Allemann, editor of Domain Name Wire, an industry news site.

Steve Lohr has covered technology, business and economics for The Times for more than 20 years. In 2013, he was part of the team awarded the Pulitzer Prize for Explanatory Reporting. He is the author of “Data-ism” and “Go To.” @SteveLohr

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