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[arin-ppml] Draft Policy 2009-4: IPv4 Recovery Fund

Draft Policy 2009-4
IPv4 Recovery Fund

The following draft policy text is being posted for feedback and
discussion on the Public Policy Mailing List (PPML).

This draft policy was developed by the ARIN Advisory Council (AC) from
Policy Proposal 80: IPv4 Recovery Fund. The AC has taken the proposal
and developed it into a draft policy. The AC was required to submit text
to ARIN for staff and legal assessment prior to selecting it as a draft
policy. The assessment, along with the text that was assessed, is
located below the draft policy.

On 20 March 2009 the ARIN Advisory Council (AC) selected Draft Policy
2009-4: IPv4 Recovery Fund for adoption discussion on the PPML and at
the upcoming Public Policy Meeting.

Draft Policy 2009-4 is below and can be found at:
https://www.arin.net/policy/proposals/2009_4.html

We encourage you to discuss Draft Policy 2009-4 on the PPML prior to the
ARIN XXIII Public Policy Meeting. Both the discussion on the PPML and at
the Public Policy Meeting will be used by the AC to determine the
community consensus regarding adopting this as policy.

The ARIN Policy Development Process can be found at:
https://www.arin.net/policy/pdp.html

All of the Draft Policies under discussion can be found at:
https://www.arin.net/policy/proposals/index.html

Regards,

Member Services
American Registry for Internet Numbers (ARIN)


## * ##


Draft Policy 2009-4
IPv4 Recovery Fund

Date: 23 March 2009

Policy statement:

(Create new section in section 4, represented by "4.X".)

4.X IPv4 Recovery Fund

4.X.1 Implementation Timing

Upon receiving a valid request for a block larger than ARIN
can satisfy from its existing free pool, or, by obtaining
additional space from IANA, ARIN shall begin offering financial
incentives for returned IP blocks according to this policy.

4.X.2 Recovery of IPv4 Space

ARIN believes that organizations should voluntarily return
unused and/or unneeded IP resources to the community. However,
upon implementation of this policy, ARIN will offer financial
incentives for the return of IPv4 resources to ARIN
relinquishment of any future claims to those resources. ARIN
will continue to accept voluntary returns.

4.X.3 Allocation of Recovered Space

Once approved for IPv4 space ARIN will ask the requester to
specify a bid of how much they are willing to pay for
reclamation of address space. ARIN will use this bid in
determining what incentives to offer for return of space.
The requester may make a higher bid at any time, which is
treated as a brand new bid replacing their old bid.

If ARIN recovers space and offers it to requester at or below
the specified bid within 60 days of the time the bid was
made then the bid shall be binding on requester at the price
ARIN offers the space.

4.X.4 Address Block Management

ARIN may not offer a partial fill, that is provide a block
smaller than the one for which the requester was approved.

ARIN may split recovered blocks into multiple smaller blocks
at the staff's discretion using the following principals:
- It is unlikely a request will be made for the address
block size involved in the next 60 days.
- The block is divided into as few parts as practical.
- There are enough bids to allow the entire block to be
allocated.

4.X.5 Transparency

ARIN staff shall make public the current and historical
prices of asks, bids, and executed transactions in a manor
that facilitates the bidding process. ARIN staff must
regularly report on the amount of address space obtained and
distributed via this mechanism, number of blocks subdivided,
as well as aggregate financial numbers.

4.X.6 Cost Recovery

ARIN shall manage the address space recovery program with a
goal of cost recovery.

ARIN may:
- Use ARIN funds to reclaim blocks when there is no specific
demand; if such reclamation is deemed in the best interest
of the community and there is a significant likelyhood of
future demand.
- Use a portion of the funds collected under this program
to pay for the implementation of this program.

Rationale:

Many have recognized that in order for unused or poorly used IPv4
resources to be returned to the free pool that financial compensation
will be required. This is particularly the case in poorly used assets
where the current holder may have to expend time and money to renumber
in order to free the blocks.

This proposal sets up a fund administered by ARIN to encourage the
return of space. Effectively ARIN will offer financial incentives to
return unused or poorly used IPv4 resources and place them back into the
IPv4 free pool.

The intention is for this activity to be revenue neutral to ARIN. To
achieve that goal those requesting IPv4 resources will be requested to
bid on a one-time payment to the recovery fund to cover the cost of the
resources they have received.

The proposal is intentionally vague on the exact implementation details
to staff because:

- Transactions with those returning space and obtaining space may
occur in any order.
- The bidding process may need to evolve over time, and may not
be as simple as highest bidder wins. It may include aspects such
as a dutch auction style format (all winners pay the lowest winning
price), or may include other factors such as which size blocks
ARIN has free in an effort to limit deaggregation.
- ARIN will have to develop contracts and procedures around this
activity that are better suited for staff and legal than the
policy process.

Compared to other "transfer proposals", this proposal has the following
benefits:

- Maintains that IP addresses are not property.
- Maintains the concept that unused addresses should be returned to
the free pool.
- Maintains need based addressing.
- Removes the need for those with excess resources to find those
without resources. There is no need for any sort of listing
service, eBay, etc.
- All transactions are two party transactions with ARIN as one of
the parties. The potential for multi-party legal disputes is
reduced.
- ARIN can absorb spikes in supply or demand, creating more level
prices over time.
- ARIN can provide transparency across all transactions in this
system.
- Reduces confusion to new entrants over where they should go to
receive address space.

Change Log:

- Changed "monetary" to "financial" to allow for the possibility
of ARIN offering things other than direct payment (like fee
credits). Credit: Robert Bonomi.
- Updated numbering so there were not two 4.10.2's. Also changed
to using a place holder for section. Credit: Robert Bonomi
- Changed the cost recovery language to be more clear and provide
some additional flexibility.
- Clarified 4.10.2 about future claims. Credit: Ted Mittelstaedt
- Split 10.X.3 into 10.X.3 and 10.X.3 with better titles.
- Left the exact algorithm to staff. Removed examples as a result.

Timetable for implementation:

Staff should begin developing procedures and updated templates
immediately. Policy would not go into effect until the criteria listed
occurs.



#####


ARIN Staff Assessment

* Title: IPv4 Recovery Fund*

*Proposal Submitted: 08 Jan 2009 *

*Date of Assessment: 10 March 2009*

I. Understanding of the Policy:

*Staff Understanding of the Proposal:*

ARIN understands this policy allows approved requestors of IPv4 address
space to place binding "bids" for the addresses they have been approved.

In turn, ARIN can use the monies from those bids to offer financial
incentives to registrants of address space to return unused or unneeded
addresses to the free pool for reissue to the approved requestors.

II. Comments

A. ARIN Staff Comments:

    * It is unclear to staff exactly when this policy would be
      triggered. For example, if someone is approved for a /9, and ARIN
      has only bits of fragmented space left (/10, /12, /13, etc.) which
      together could fill a /9 request, would this trigger this policy?
      In other words, can ARIN use dis-contiguous smaller blocks or
      would the requester be denied and asked to bid on a /9 that may be
      returned in the future?
    * The policy appears to say that once a request cannot be filled, a
      requester must make a bid. There does not seem to be an option of
      waiting for a block that is voluntarily returned. It would be
      helpful if the policy specified that once the policy is triggered,
      there is no opting out, if this is indeed the case.
    * Once the policy is triggered, it is difficult to tell whether
      every request must then be filled via the bid process or if
      requesters can choose not to use it. Again, it would be helpful if
      this were specifically spelled out in the policy text.
    * Under section 4.X.3 what would happen if a requester doesn't pay
      the bid amount they committed to? If ARIN is paying the money up
      front for that address space but is unable to collect that amount
      back, it could put ARIN at some financial risk.
    * The bidding process as laid out in section 4.X.3 is somewhat
      confusing. There is no mention made of a situation where there are
      two bidders competing for the same address space. Would ARIN
      automatically award the space to the highest bidder? If so, could
      that be viewed as an unfair process that rewards those with the
      most monetary resources?
    * If someone return's space without monetary compensation in the
      midst of this, it is not clear whether ARIN would then offer that
      address space under the current fee structure or under this bid
      structure.
    * The term "cost recovery” in section 4x6 should be clearly defined.
      Specifically, this states that we can use "a portion" of the funds
      collected to recover space even when there is no demand.
    * Is there anything to prohibit out of region bidders? ARIN’s
      current practice is to issue address space only to organizations
      that will be using that space within ARIN’s region. If anyone can
      bid on this space from any region, it will represent a fundamental
      change in the way we operate today.
    * This policy would change ARIN’s current financial and business
      models and would significantly impact the way we do business today.
    * This policy could be a disincentive for people to voluntarily
      return IP address space, which is something that people do on a
      somewhat regular basis today.

B. ARIN General Counsel Comments:

Nothing in ARIN's Articles of Incorporation or Bylaws prevents ARIN from
implementing this policy.  However, this policy would represent a major
shift in ARIN's activities by requiring ARIN to build business
capabilities and undertake legal risks quite different from ARIN's
existing business and expertise.

In particular, this proposal would require that ARIN staff exercise
skills as traders -- e.g. buying IPv4 resource when they think they
should buy, selling when they think they should sell.  The required
skills are not unlike those involved in running a hedge fund or,
perhaps, the US government role in buying Strategic Petroleum Reserve
assets. The required skills are quite different from ARIN's core competency.

This proposal would also introduce potentially capital requirements --
causing ARIN to invest its funds in purchases of v4 resource in
anticipation of future sales.  As a nonprofit with a limited financial
reserve, ARIN faces an important financial risk from such transactions,
in that ARIN could lose significant funds if IPv4 prices do not evolve
as ARIN staff anticipate.

The proposal is relatively silent on the specifics of ARIN's
decision-making process for allocating the IPv4 resources ARIN obtains
through this process.  While it may be appropriate to delegate those
decisions to staff, it is difficult to legally assess the proposal
without a vision of the decision rules ARIN would use in allocating
scarce space among multiple prospective recipients.  Moreover, because
many potential recipients will urgently want additional v4 space, such
decisions are likely to be closely scrutinized, and ARIN would need a
clear and compelling reason to choose to grant space purchased to one
recipient rather than another.

This proposal also exposes ARIN to significant and unameliorated legal
risk. For example, in each potential transfer, ARIN participates at
least twice on "good" transactions that go well -- one to receive space
from an original provider, then a second time to transfer that space to
an ultimate recipient.  But each transaction performed presents legal
risk.  For example, if a putative provider promises to transfer, but
reneges, ARIN might find itself having to sue to compel such sale.

Conversely, if a putative provider wants to sell ARIN addresses at a
given price, but ARIN is unwilling to pay that price, the provider might
sue ARIN, alleging that ARIN's decision to reject that price was
wrongful.  (The provider might ground its case in a purchase it sees as
similar, in which some other provider received that price.)  As to
recipients, ARIN might face liability from those who wanted v4 resource
but did not receive it (at the prices they sought to offer), and ARIN
might feel compelled to enter litigation if a recipient ultimately
refuses to pay for resources it received.  In short, ARIN would face
important legal risks both due to the multiple sequential transactions
and due to disputes potentially resulting from ARIN's significant
decision-making discretion as to the purchase and allocation of v4 resource.

These risks may be worth accepting in order to get the benefits of
address transfers.  However, ARIN faces significantly less legal risk
from a other proposed decentralized markets where ARIN's role is not
central (e.g. , see the market portion of an abandoned policy, 2008-6)
in which address providers and recipients were left to their own
resources to reach agreements directly between one another, without ARIN
serving to receive and transfer all resources and all associated funds.


III. Resource Impact

The resource impact of implementing this policy is viewed as
significant. It is estimated that this policy could require up to 18
person months of effort to implement following ratification by the ARIN
Board of Trustees. Because this implementation is not planned, it may
preempt ARIN’s current project deployment schedule. It may require the
following:

    * The development of a tracking system to monitor the transaction,
      both the purchase and the sale, as well as the inventory.
    * The development of a reporting system.
    * Modifications to ARIN’s existing business model would be needed,
      particularly if ARIN gets into the business of buying back address
      space which then becomes designated as an asset and inventory.
    * Increased fees due to potential litigation, legal costs, and
      collection costs
    * Modifications to existing registration procedures
    * Staff training
    * Guidelines updates

Text assessed:

Policy Proposal Name: IPv4 Recovery Fund

*Policy statement:*

* (Create new section in section 4, represented by "4.X".)*

*4.X IPv4 Recovery Fund*

4.X.1 Implementation Timing

Upon receiving a valid request for a block larger than ARIN

can satisfy from its existing free pool, or, by obtaining

additional space from IANA, ARIN shall begin offering financial

incentives for returned IP blocks according to this policy.

4.X.2 Recovery of IPv4 Space

ARIN believes that organizations should voluntarily return

unused and/or unneeded IP resources to the community. However,

upon implementation of this policy, ARIN will offer financial

incentives for the return of IPv4 resources to ARIN

relinquishment of any future claims to those resources. ARIN

will continue to accept voluntary returns.

4.X.3 Allocation of Recovered Space

Once approved for IPv4 space ARIN will ask the requester to

specify a bid of how much they are willing to pay for

reclamation of address space. ARIN will use this bid in

determining what incentives to offer for return of space.

The requester may make a higher bid at any time, which is

treated as a brand new bid replacing their old bid.

If ARIN recovers space and offers it to requester at or below

the specified bid within 60 days of the time the bid was

made then the bid shall be binding on requester at the price

ARIN offers the space.

4.X.4 Address Block Management

ARIN may not offer a partial fill, that is provide a block

smaller than the one for which the requester was approved.

ARIN may split recovered blocks into multiple smaller blocks

at the staff's discretion using the following principals:

- It is unlikely a request will be made for the address

block size involved in the next 60 days.

- The block is divided into as few parts as practical.

- There are enough bids to allow the entire block to be

allocated.

4.X.5 Transparency

ARIN staff shall make public the current and historical

prices of asks, bids, and executed transactions in a manor

that facilitates the bidding process. ARIN staff must

regularly report on the amount of address space obtained and

distributed via this mechanism, number of blocks subdivided,

as well as aggregate financial numbers.

4.X.6 Cost Recovery

ARIN shall manage the address space recovery program with a

goal of cost recovery.

ARIN may:

- Use ARIN funds to reclaim blocks when there is no specific

demand; if such reclamation is deemed in the best interest

of the community and there is a significant likelyhood of

future demand.

- Use a portion of the funds collected under this program

to pay for the implementation of this program.