Update: Official text now online.|
February 5, 2002
Nancy J. Victory
National Telecommunications and Information Administration
Department of Commerce
1401 Constitution Ave. N.W.
Washington, DC 20230
Dear Ms. Victory:
The National Telecommunications and Information Administration (NTIA)
recently awarded a contract for administration of the Dot US Domain Space
to a private sector entity. The contract contains elements that are more
than mere contractual provisions. Some of the provisions amount to a
legislative rulemaking that will affect the legal rights of millions of
small businesses and individuals. The elements of greatest concern to us
NTIA did not submit these legislative rules for notice and comment as
required by the Administrative Procedure Act (APA) and did not conduct a
regulatory flexibility analysis as required by the Regulatory Flexibility
- requiring the contractor to implement a Sunrise Provision that allows trademark holders to register domain names before non-trademark
- requiring the contractor to bind all registrants to a uniform dispute
resolution policy (UDRP).
As part of our statutory duty to monitor agency compliance with the RFA,
Advocacy requests that the NTIA place the contract for administration of
the Dot US Domain Space on hold and submit the legislative rulemaking
provisions for notice and comment, and conduct a regulatory flexibility
analysis. Alternatively, NTIA can strike the rulemaking provisions from
the contract, and the contract would no longer be subject to the APA.
Unless and until NTIA does so, the contract for the management of the Dot
US domain is unlawful, as it violates both the APA and the RFA.
Congress established the Office of Advocacy in 1976 by Pub. L. No. 94-
305 to represent the views and interests of small business within the
Federal government. Advocacy's statutory duties include serving as a focal
point for concerns regarding the government's policies as they affect small
business, developing proposals for changes in Federal agencies' policies,
and communicating these proposals to the agencies. Advocacy also has a
statutory duty to monitor and report to Congress on the Commission's
compliance with the Regulatory Flexibility Act of 1980 (RFA), as amended
by the Small Business Regulatory Flexibility Act, Subtitle II of the
Contract with America Advancement Act.
Importance of Dot US to Small Businesses
Small businesses are a crucial element of the U.S. economy and the
Internet. In 2000, there were 25 million small businesses in the United
States, who represent more than 99 percent of all employers in this
country. Advocacy estimates the number of small employers in 2000 at 5.8
million. These small businesses, both employer firms and sole
proprietorships, employ 51 percent of private workers, employ 38 percent of
private workers in high-tech occupations, and create 75 percent of net new
jobs in the United States.
Small businesses use of the Internet is rapidly expanding. According
to a recent study by the National Federation of Independent Business
(NFIB), 57 percent of all small employers (about 3.3 million businesses)
use the Internet for business-related activities and 61 percent of small
employers (about 3.5 million businesses) have a business Web site. This
number does not include sole-proprietors who were not covered by the NFIB
While most small business Web pages are registered in Dot Com, Advocacy
believes that this is due to the current management of Dot US. When the
Dot US is reorganized to become a viable top level domain, Advocacy expects
that millions of small businesses will register. Any policy that
detrimentally affects the ability of these small businesses to use the Dot
US would have a significant impact on this nation's economy and limit the
effectiveness of the Internet as a tool of business and commerce.
III. History of the Dot US Administrative Assignment
NTIA has been wrestling with management of the Dot US Domain Space for
nearly four years. NTIA released an initial "Request for Comments on the
Enhancement of the .us Domain Space" on August 3, 1998. This request for
comments was repeated on August 17, 2000, when NTIA requested comments on a
Draft Statement of Work (draft SOW). NTIA stated that the draft SOW was
expected to be incorporated in a request for proposals for management of
the .us domain space. A regulatory flexibility analysis was not performed
in conjunction with the draft SOW.
On June 13, 2001, NTIA issued a Request for Quotations (RFQ) for management
and coordination of the Dot US domain space. The Sunrise Provision and the
mandatory UDRP provisions appeared for the first time in the RFQ. NTIA
accepted questions received in response to the RFQ and posted them in a
series of amendments throughout the month of July. Advocacy submitted
objections to the sudden inclusion of the sunrise provision and the
mandatory UDRP on July 29, 2001. NTIA acknowledged these concerns in the
amendments, but did not directly address the questions we asked, nor did
NTIA's responses justify or otherwise provide any rational explanation for
the sudden inclusion of the provisions in the RFQ.
Advocacy sent an e-mail on August 9, 2001 to the NTIA raising concerns
about unlawful delegation of authority to a private entity. In a
responding e-mail, the NTIA staff stated that the RFQ was a contract and
therefore exempt from the APA. On October 25, 2001, Advocacy sent a second
e-mail to the staff detailing that the APA did indeed apply because the
Sunrise Provision and the mandatory UDRP were legislative rules. Advocacy
requested a meeting. NTIA did not respond to this request. Instead, on
October 29, 2001, NTIA went ahead and announced that it had awarded
management of the Dot US Domain Space to Neustar, Inc.
IV. Applicability of the APA on an Agency's Contractual Authority
The Administrative Procedure Act was created by Congress to allow
agencies to accomplish their statutory objectives while ensuring public
participation and that an agency's decisions are both informed and
responsive. The APA laid out guidelines for the informal rulemaking
process, which permitted agencies to make broad policy rules but required
agencies to submit these proposed rules to the public for notice and
comment. The APA defined a rule as "the whole or a part of an agency
statement of general or particular applicability and future effect designed
to implement, interpret, or prescribe law or policy."
As the Court said in State of New Jersey v. Dept. of Health and Human
Services, Congress adopted the APA for a good reason, because it ensures
"that unelected administrators, who are not directly accountable to the
populace, are forced to justify their quasi-legislative rulemaking before
an informed and skeptical public." Public participation is a key
component of this check on government power, as a means of assuring that an
agency's decisions are both informed and responsive.
Exceptions to the APA
The APA does not cover all agency actions. Section 553 carves out two
exceptions where agency actions are not covered by the APA: (1)
interpretative rules, general statements of policy, or rules of agency
organization, procedure, or practice; and (2) when the agency for good
cause finds (and incorporates the finding and a brief statement of reasons
therefor in the rules issued) that notice and public procedure thereon are
impracticable, unnecessary, or contrary to the public interest.
However, Congress did not intend for the exception to consume the rule,
and did not give agencies a blank check to adopt any contractual provision
whatsoever without undertaking notice and comment review. In the
legislative history of the APA, the Senate Committee responsible for
considering the bill stated that the courts have a duty to prevent
avoidance of the APA by any manner of form or indirection.
The second exception is not applicable to the facts at hand, as NTIA
did not issue a rule that included a brief statement as to why notice and
public participation were unnecessary or impracticable. Instead, the staff
of NTIA is contending that the DOT US assignment is a contractual action
and not covered by the APA. Therefore, it is important to define a
legislative rule as opposed to an interpretive rule or some other agency
B. Differentiating a Legislative Rule from an Interpretive Rule
The courts have spent a great deal of time wrestling with defining a
legislative rule. Factors that courts have looked at include whether or
not the agency action is a product of delegated legislative power rather
than merely setting forth an agency's own interpretation of the meaning of
a statute it administers, and whether the agency action essentially creates
new law by creating or affecting individual rights or obligations.
Courts also have taken into account the authority and intent with which the
agency actions are taken, and whether or not the agency action has a
present-day binding effect. On the other hand, interpretative rules
are not determinative of issues or rights, but are limited to narrow
situations where substantive rights are not at stake.
Courts have addressed the applicability of the APA to agency contracts
specifically. For example, the D.C. Circuit Court stated in American Hosp.
Ass'n v. Bowen that "any contract provisions that are legislative are
subject to § 553's notice and comment requirements." The D.C. Circuit in
the same case also noted that an agency "may not hide behind its authority
to contract in order to evade the APA." Furthermore, courts are not
bound by the "label" attached by the administrative agency. Instead, they
must look to such factors as the real effect of the rule, the source
authority for its promulgation, and the force and effect which attach to
the rule itself.
V. The Dot US Administrative Assignment Violates the APA and the RFA
The Dot US Administrative Assignment is a contract between the NTIA and a
private entity. The D.C. Circuit in American Hosp. Ass'n states that
contract provisions which are legislative in nature are subject to the APA.
Therefore, it becomes important to determine whether or not the RFQ
contains legislative rule provisions. Advocacy contends that it does in
the case of the Dot US RFQ.
A. Certain Provisions in the Dot US RFQ Are Legislative Rules and the
There are two provisions in the RFQ that were not contained in the Request
for Public Comment on the Draft Statement of Work:
Advocacy believes these two provisions are legislative rules, as they meet
the criteria that the courts have laid out: (i) they are issued using
legislative authority, and (ii) they create new law that affects individual
rights or obligations.
- requiring the contractor to implement a Sunrise Provision that allows
trademark holders to register domain names before non-trademark
- requiring the contractor to bind all registrants to a uniform dispute
resolution policy (UDRP).
In the RFQ, the NTIA asserts that it is issuing the contract under
Congressional statutory authority. As it stated in the Request for Public
Comment on the draft SOW, the NTIA is relying upon five different statutes
for the authority to issue the RFQ. These statutes provide only non-
specific, general grants of authority from Congress to the NTIA to issue
regulations to carry out its various functions. Since the NTIA is relying
entirely upon them for its authority, the agency is essentially relying
upon the delegated legislative power.
Moreover, these provisions affect and bestow substantive individual rights
and obligations on third parties outside of the contractor and the NTIA.
In the first provision, a class of parties gets a senior right to register
for a public resource. In the second provision, the NTIA is mandating that
every individual or entity who uses this public resource will have its
rights at law modified by forcing them to agree to an alternative dispute
resolution procedure. Therefore, both provisions substantively (and
substantially) affect individual rights and obligations.
Because the NTIA relies on legislative authority from Congress and the
provisions substantively affect individuals' rights and obligations,
Advocacy finds that these two provisions are legislative rules, subject to
the notice and comment provisions of § 553 of the APA.
B. NTIA Must Conduct a Regulatory Flexibility Analysis
The Regulatory Flexibility Act requires an agency to perform a regulatory
flexibility analysis on any action that is subject to the notice and
comment provisions of § 553 of the APA. As discussed above, the
contract is covered by § 553, and in turn, it is subject to § 603 of the
Regulatory Flexibility Act. We have seen nothing in the record which would
indicate that NTIA has performed any such regulatory flexibility analysis.
The RFQ for the administration of the Dot US domain is a legislative rule
and must undergo the informal rulemaking process of the APA. Notice and
opportunity to comment must be permitted and the NTIA must undertake a
regulatory flexibility analysis.
To rectify this situation and breach of administrative law, Advocacy sees
two possible paths for the NTIA. The first and best option is to put the
two aforementioned provisions of the RFQ out for notice and comment and to
perform an initial regulatory flexibility analysis. The second option is
to redact the two provisions out of the contract. Without these two
provisions, the RFQ would no longer be a legislative rule and would qualify
for an exception to § 553 of the APA.
However, unless and until the NTIA takes one of these steps, the contract
for the management of the Dot US domain is unlawful, as it violates both
the APA and the RFA. If you wish to discuss this issue further, please
contact me or my staff. We would be happy to work with you to reach a
solution that is accomplishes your agency's goals while complying with the
APA and the RFA.
Thomas M. Sullivan
Chief Counsel for Advocacy
Eric E. Menge
Assistant Chief Counsel for Telecommunications
Jonathan R. Pawlow
Assistant Chief Counsel for Intellectual Property
 Codified as amended at 15 U.S.C. §§ 634 (a)-(g), 637.
 15 U.S.C. § 634(c)(1)-(4).
 Pub. L. No. 96-354, 94 Stat. 1164 (1980) (codified at 5 U.S.C. § 601
 Pub. L. No. 104-121, 110 Stat. 857 (1996) (codified at 5 U.S.C. §
 < http://www.sba.gov/advo/stats/sbfaq.html>.
 The Use and Value of Web Sites, National Small Business Poll (National
Federation of Independent Business, Washington, D.C.) Vol. 1, Issue 2
 5 U.S.C. § 551 (et. seq.).
 5 U.S.C. § 551(4).
 670 F.2d 1262, 1281 (3rd Cir. 1981).
 See American Bus Ass'n. v. United States and Regular Common Carrier
Conference, 627 F.2d 525, 528 (D.C. Cir. 1980).
 5 U.S.C. § 553 (b)(A)-(B).
 American Hosp. Ass'n v. Bowen, 834 F.2d 1037, 1044 (D.C. Cir. 1987)
(".Congress intended the exceptions to § 553's notice and comment
requirements to be narrow ones.")
 American Hosp. Ass'n, 834 F.2d at 1053-1054.
 American Bus, 627 F.2d at 528.
 See State of New Jersey, 670 F.2d at 1281-2; see also Chamber of
Commerce of U. S. v. Occupational Safety and Health Admin., 636 F.2d 464
(D.C. Cir. 1980).
 See Joseph v. U. S. Civil Service Comm'n, 554 F.2d 1140, 1153 (D.C.
 See Community Nutrition Inst. v. Young, 818 F.2d 943, 946 (D.C. Cir.
 See American Hosp. Ass'n v. Bowen, 834 F.2d 1037 (D.C. Cir. 1987).
 834 F.2d 1037, 1054 (D.C. Cir. 1987).
 See Hou Ching Chow v. Attorney General, 362 F. Supp. 1288 (D.D.C.
 5 U.S.C. § 603(a).