With deadline looming, injunction forces Tucows to transfer domains.
A Washington State court has ordered Tucows to transfer 3.2 million .com and .net domain names to Namecheap, and an appeals court has denied (pdf) Tucow’s motion for an emergency stay.
The dispute stems from Namecheap’s termination of its reseller relationship with Enom, which Tucows (NASDAQ: TCX) acquired in January. Namecheap was a long time reseller on Enom’s platform but its exclusivity deal with Enom for .com and .net domain name registrations ended last year. This year, Namecheap requested Tucows to transfer domain names on Enom’s platform to Namecheap’s registrar credentials.
Namecheap is using its own registrar credentials for new registrations and wants to consolidate all registrations under its credentials. Between the domains registered directly with Namecheap and those on Enom’s platform, Namecheap has 8.5 million domains under management.
Namecheap’s contract with Enom allows for it to request the transfer of the domain names, but Tucows balked at Namecheap’s request this year to do the transfer through a “Bulk Transfer After Partial Portfolio Acquisition”, or BTAPPA. Namecheap already has approval from .com/.net registry Verisign to do a BTAPPA transfer of the 3.2 million .com and .net domains.
The alternative to BTAPPA is to require each of Namecheap’s customers to do individual domain transfers. This would be troublesome because these customers don’t understand that their domains are actually registered on the Enom platform. It would also require EPP codes and a one-year renewal upon transfer.
After Tucows resisted the BTAPPA transfer, Namecheap sued Enom and Tucows in Federal District Court in Seattle at the end of August. It subsequently dropped the case because it was concerned it wouldn’t get jurisdiction. It refiled the case in Washington State Superior Court.
Namecheap believes the deadline for doing the transfer is the end of 2017, so it asked the court for an injunction forcing Tucows to comply in a timely manner. The court agreed and demanded that Tucows comply with the transfer.
Tucows asked the court for a stay and was denied. It subsequently asked the Washington State Court of Appeals to stay the order.
The appeals court, considering expert testimony from former ICANN staffer Tina Dam who said the BTAPPA was appropriate for this circumstance, determined that Namecheap was likely to prevail in the lawsuit and an injunction was appropriate. It also considered that Enom previously did a BTAPPA transfer of 400,000 .biz domain names to Namecheap when Enom was still owned by Rightside. It denied Tucows’ motion to stay.
Namecheap represents a large portion of Enom’s revenue, historically accounting for about 25% of Enom’s domains under management. While margins on the registrations slim, Enom gets to keep 100% of expired domain revenue and all parking revenue during registrations and during the expiration cycle.
This gives Tucows an incentive to delay the transfer as long as possible. At the same time, it risks bad will with reseller customers who will now question how they will be able to transfer off the platform should they want to in the future.