Step 1. Some folks have pointed out that the COM and NET registry agreements (app. C, element 4) require Verisign's nameserver operations to comply with RFC 1034, 1035, and 2182. You could argue that Verisign is violating one or more of those RFCs, and hence is violating the agreements. But the IAB just threw cold water on that claim. Its recent statement emphasizes that Sitefinder -- though dangerous, highly problematic, and inconsistent with "the operational stability of the applications which depend on the DNS" — nonetheless "did not in any way violate the DNS specifications themselves." So it's real hard to argue that Verisign is violating the registry agreements on that basis.|
Step 2. It's plain that ICANN could enact a consensus policy barring Sitefinder. Some people have pointed to section I.C of the COM agreement (and sec. 4.3.4 of the NET agreement), which empower the ICANN Board to establish a consensus policy on an emergency basis, so long as a 2/3 majority of the Board "reasonably determines that immediate temporary establishment of a specification or policy on the subject is necessary to maintain the operational stability of Registry Services, the DNS or the Internet, and that the proposed specification or policy is as narrowly tailored as feasible to achieve those objectives." Once the Board enacts that policy (it would have to decide whether to ding the about-a-dozen ccTLDs that also use wildcards), and gives Verisign a reasonable period of time to comply, then Verisign's refusal to comply would put it in breach of the registry agreement.
There's a catch or two, though. For one thing, sections I.(A) &(F) of the registry agreement make clear that Verisign has no obligation to comply with an ICANN consensus policy until ICANN has an Independent Review Panel (IRP) in place, and Verisign has either lost its appeal to that panel or declined to take one. It turns out (see Art. IV, sec. 3 of the new ICANN bylaws) that ICANN needs to have contracted with an international arbitration provider to operate the independent review panel. The provider is supposed to have established operating rules and procedures for the IRP, subject to the Board's approval. But to the best of my knowledge, none of this has happened. So even if the Board issued Verisign an order tomorrow directing it to shut Sitefinder down, Verisign would have no actual obligation until a long time from now, when ICANN has all of the IRP machinery in place, and Verisign has lost its case before that body as well.
Suppose next that ICANN gets past its IRP problem. What if it issues its order and Verisign still declines to comply? ICANN's only immediate remedy would be to file a lawsuit seeking an injunction (and the court would have to decide whether the ICANN policy really was the narrowest possible way to "necessary to maintain the operational stability of . . . the Internet," and who knows what it would say and how long it would take).
Step 3. But at least, you say, Verisign knows that ICANN can refuse to renew its contracts when they come up for renewal, and it won't want to take that risk. Let's look at that. Section 25 of the COM registry agreement says, in essence, that Verisign has the right to keep the registry unless ICANN reasonably decides, come renewal time, that Verisign "has not provided and will not provide a substantial service to the Internet community" as registry operator; that Verisign is "not qualified" to operate the registry; that Verisign is "in material breach" of the agreement; or that its proposed prices are inconsistent with rules set out elsewhere in the agreement. Two of these criteria are useless and another is irrelevant to this case. It seems plain that ICANN can't refuse to renew Verisign, on the basis of the Sitefinder controversy, unless ICANN actually orders Verisign to shut the service down and Verisign refuses. In that situation, Verisign would be in breach of the agreement. But even then, would it be in "material" breach, so as to lose its right to renewal? The lawyers would have to sort it out . . .