As the U.S. Government transitions certain responsibilities for the domain
name system to the not-for-profit corporation, corresponding obligations under
the Cooperative Agreement may be terminated and, as appropriate, covered in a
contract between the not-for-profit corporation and us. The U.S. Government has
directed us to treat ICANN as the not-for-profit corporation for the purposes
described above, but we have not yet reached agreement with the U.S. Government
or ICANN with respect to the terms of such transition. We may not be able to
reach agreement and either ICANN or the U.S. Government may take positions that
adversely affect us.
The
proposed accreditation contract would require payment of fees to ICANN and
would
impose special restrictions on a registrar also acting as the registry. We
filed
substantial comments with ICANN objecting to various aspects of the proposed
accreditation approach. We are currently in discussions with ICANN and the U.S.
Government regarding implementation of the shared registration system and a
wide
range of contractual issues. We cannot be sure that these discussions will
result in agreements or outcomes that are favorable to us.
INTELLECTUAL PROPERTY RIGHTS
Our principal intellectual property consists of, and our success is
dependent upon, our proprietary software used in our registration service
business and certain methodologies and technical expertise we use in both the
design and implementation of our current and future registration services and
Internet-based products and services businesses. Some of the software and
protocols we use in our registration services are in the public domain or are
otherwise available to our competitors. We also have compiled a database of
information relating to customers in our registration business. While a portion
of this database is available to the public in the form of a directory service,
we believe that we have certain ownership rights in this database and we intend
to protect such rights. We have no patents but our proprietary materials are
protected by trade secret laws. We also own or have rights to various
copyrights, trademarks and trade names in our business.
The U.S. Government has sent us a letter directing us to treat ICANN as the
not-for-profit corporation identified in the October amendment to the
Cooperative Agreement described above, in the performance of its obligations
under the MOU and until such time as the MOU is terminated. We have not yet
responded to that letter. We are currently in discussions with ICANN and the
U.S. Government regarding implementation of the shared registration system
and a
wide range of contractual issues. We cannot be sure that these discussions will
result in agreements favorable to us.
The Department of Commerce's
interpretation of certain provisions of the Cooperative Agreement could differ
from ours. For example, the Department of Commerce has publicly expressed
concerns about our consolidation into a single web site the web sites through
which our InterNIC registration services and our RegistrationPlus services were
offered. These differences in interpretation
12
could lead to disputes between us and the Department of Commerce or the
not-for-profit corporation, which may or may not be resolved in our favor.
Certain aspects of implementation of the Cooperative Agreement also remain
to be
fully negotiated, including the maximum price we will charge for registry
services in the top level domains for which we now act as registry.
SAIC owns 14,850,000 of the outstanding shares of our common stock. A
decision by SAIC to sell such stock could depress the market price of the Class
A common stock.
SAIC may maintain significant influence over us
Because it holds a significant number of shares of our Class B common
stock, which have ten votes per share, SAIC controls 89% of the combined voting
power of the Class A and Class B common stock and, therefore, effectively
controls all matters requiring approval by our stockholders including the
election of members of our board of directors, changes in the size and
composition of the board of directors and a change in control. We do not
have an
agreement with SAIC which restricts its rights to convert, distribute or sell
its shares of our common stock.
If SAIC converts all of its remaining shares of Class B common stock into
Class A common stock its economic interest and voting power will be below
50% of
the total economic interest and voting power of our common stock after such
conversion. Nonetheless, SAIC will remain our largest stockholder and may be
able to exercise significant influence over us.
On August 17, 1998, we received notice from the Commission of the European
Communities, or "EC," of an investigation concerning the Company's Premier
Program agreements in Europe. The EC requested production of these agreements
and related materials for review and we complied. We cannot reasonably estimate
the potential impact of the investigation nor can we predict whether an action
will ultimately be brought by the EC or the form of relief that might be
sought.
Any such relief could harm our business.
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