Explanatory Memorandum to COM(2018)231 - Implementation and functioning of the .eu Top Level Domain name

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1. CONTEXTOFTHEPROPOSAL

Reasons for and objectives of the proposal

The .eu top-level domain (TLD) was set up by Regulation (EC) No 733/2002 of the European Parliament and of the Council of 22 April 2002 on the implementation of the .eu top-level domain. The .eu TLD was delegated1 by the Internet Corporation for Assigned Names and Numbers (ICANN) on 22 March 2005 and uploaded in the Internet root zone2 on 2 May 2005. The .eu top-level domain (TLD) is further governed by the rules provided in Commission Regulation (EC) No 874/2004 of 28 April 2004 laying down public policy rules concerning the implementation and functions of the .eu TLD and the principles governing registration.

The .eu top-level domain is the domain name of the European Union and its citizens. The existence of a specific domain name for the European Union under a very clear and identifiable common label is an important and valuable building block for the European online identity. In line with the objectives of the Digital Single Market Strategy3, the .eu TLD enables European businesses and citizens to participate in e-commerce and increases their participation in the online single market.

Since the adoption of the .eu Regulations, the political and legislative context in the Union and the online environment and market have changed considerably. For instance, in 2013, a very large expansion of the domain name market took place, leading to the introduction of more than 1300 new generic top-level domains (gTLDs) like .shop, .design or .wine. To ensure that the .eu legal framework still serves its intended purpose and values, the Commission Work Programme included a Regulatory Fitness and Performance Programme (REFIT) review of the .eu Regulations. The initiative included a 'back-to-back' evaluation and impact assessment. In line with the Better Regulation guidelines, the evaluation exercise assessed the effectiveness, efficiency, relevance, coherence, and EU added value of the current .eu Regulations. The impact assessment outlined policy responses to the challenges identified by the evaluation, forming the basis for the review of the regulatory framework of the .eu.

The evaluation4 found that the .eu is a well-established TLD and continues to function well. It is nevertheless governed by an outdated and rigid legal framework, in the sense of (i) obsolete or rigid provisions that cannot easily be updated, and in the sense of (ii) not providing for an optimum governance structure in terms of oversight and accountability in

In the Domain Name System (DNS), the ‘delegation’ of a domain name occurs when the relevant Top Level Domain (in this case, .eu) is published in the root zone database by ICANN. Publication in the root zone database enables a code (e.g. .eu) to operate as a top level domain as part of the Domain Name System.

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The root zone is the top-level DNS zone in the hierarchical namespace of the Domain Name System (DNS) of the Internet. COM/2015/0192 final


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line with the Commission’s stated approach to internet governance, so that (iii) increasing difficulties can be foreseen for the .eu TLD in a time of rapidly changing markets.

The problem currently is not dramatic, it is observed in the functioning and management of the .eu TLD and therefore at the moment it affects primarily the actors that are involved in these functions. Nevertheless, if precautionary action is not taken, the problem is likely to become large enough to affect end users, in terms of the sustainability of the .eu extension and the attractiveness of the .eu compared to other competitive domain names.

The initiative is about making sure that a TLD that has worked relatively well continues to do so in the future. In light of that evaluation, the proposal aims to:

a) remove outdated legal and administrative requirements, while ensuring that the new regulatory framework is future-proof and allows the .eu TLD to adapt to rapid changes of the top-level domain market and the dynamic digital landscape;

b) continue incorporating and promoting EU priorities in the online world, ensuring a governance structure which reflects both technical and governance best practices, serving the EU public interest;

c) relax the current eligibility criteria for registration of .eu domains to allow Union citizens to register a .eu domain name, independently of their place of residence;

d) lift the strict prohibitions on vertical separation while providing clear provisions safeguarding the application of the rules of fair competition in accordance with the Treaty on the Functioning of the European Union (TFEU ).

The proposal responds to a greater ambition for the use of .eu TLD and ensures that the benefits linked to it can reach as many Union citizens as possible in the near future. By creating a principles-based, future-proof regulatory framework that does not require legislative revision to implement domain name industry’s novelties, the proposal will foster innovation in the .eu ecosystem, both at the level of the registry and in the downstream markets of registrars and registrants.

Consistency with existing policy provisions in the policy area

This proposal is consistent with the objectives of the Digital Single Market Strategy to encourage online cross-border activities in Europe, reinforce security and trust in the online environment, promote European entrepreneurship and start-ups and uphold citizens' rights, including privacy, in the digital age. By providing a revised, simplified and streamlined regulatory framework for the .eu TLD, this proposal will enable a better management and functioning of the .eu TLD, thus contributing to positively complement EU policies in particular in the area of the digital single market, trust and security on the Internet, multilingualism, Internet governance, promotion of European entrepreneurship and start-ups and the digitisation of European economy and society.

In the Council Conclusions on Internet Governance of 27 November 20145, the Union

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reaffirmed its commitment to promote multistakeholder governance structures that are based


on a coherent set of global Internet governance principles, consistent with human rights and

fundamental freedom online. In line with these Conclusions, the proposal creates a

multistakeholder Council to advise the Commission on strengthening and broadening input

for the good governance of the .eu Registry. This would bring the model into line with the

Commission's stated policy on Internet Governance, as articulated in its Communication on

"Internet Policy and Governance: Europe's role in shaping the future of Internet Governance"6.

This proposal also aims to ensure that the benefits offered by the .eu TLD reach as many Union citizens as possible. Having innovative, future-proof, responsive mechanisms will reassure the users that the .eu domain owner is established in or genuinely connected to the Union, and that any commercial undertaking using a .eu domain is subject to Union law.

2. LEGALBASIS, SUBSIDIARITYAND PROPORTIONALITY

Legal basis

The legal basis for Union action is Article 172 of the Treaty on the Functioning of the European Union (TFEU), which covers measures supporting the establishment and development of trans-European networks in the areas of transport, telecommunications and energy infrastructures.

Domain names are essential to promote access to and interoperability between Internet networks and services. In accordance with Articles 170 and 171 TFEU, the .eu top-level domain should continue, as it has been doing since its creation, to improve the interoperability of trans-European networks by providing a complementary registration domain in addition to existing country code top-level domains (ccTLDs) in EU Member States (like .es, .fr, .de) and global registration in the generic top-level domains (gTLDs).

Subsidiarity and proportionality

The .eu top-level domain has, by definition, a cross-border dimension. It is the top-level domain of the European Union and is a symbol of the European online identity of citizens, institutions and businesses. It gives users wishing to operate across the Single Market a specific European connotation which is globally recognised.

Public policy responsibility for the .eu TLD rests with the European Union. While ccTLDs of EU Member States are managed in accordance with the relevant national jurisdiction, oversight and governance mechanisms, regulatory action in respect of the .eu TLD cannot be sufficiently achieved by the Member States at national level and can only be achieved at EU level.

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Regulatory action taken at Member States level would not be able to deliver on the fundamental objectives standing behind the creation and management of a trusted and innovative namespace for the EU, to promote the European Union's priorities on the Internet and to deliver added value in terms of increased choice for users, in addition to the national ccTLDs. Regulation of the .eu TLD is therefore within EU competence and cannot be delegated to the Member States.

A regulatory framework at EU level for the .eu TLD is useful in order to continue providing for and expanding a domain name space on the Internet under the .eu TLD, in which relevant EU law, data and consumer protection rules apply.

The proposed Regulation does not affect how Member States manage their own country code top-level domain name (ccTLDs). EU action is therefore justified on grounds of subsidiarity and proportionality. The proposed Regulation does not go beyond what is necessary to achieve its policy objectives and therefore respects the principle of proportionality.

Choice

of the instrument

This proposal reviews the .eu TLD legal framework which is composed by two different instruments: Regulation (EC) No 733/2002 and Commission Regulation (EC) No 874/2004 ('the .eu Regulations')

The Commission is proposing a Regulation to ensure consistency and legal certainty for users and businesses alike. A Regulation provides a solid legal basis for ensuring that the Union is responsible for the .eu TLD and for the designation of its operator. It avoids any potential divergent i nterpretation by the Member States.

Firmly anchoring the management of the .eu T LD in a Union Regulation will ensure strong protection of funda m ental rights, in particular in the area of data protection, privacy, security, and m ultil ingual ism, as well as of intellectual property rights.

3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER

CONSULTATIONS AND IMPACT ASSESSMENTS

Ex-post evaluat ions/fit ness checks of existing legislation

The REFIT exercise examined whether the .eu legal framework still serves its purpose. The Commission, according to the evaluation study, assessed the effectiveness, efficiency, relevance, coherence and EU-added value of the current .eu legal framework under current circumsta nces, which have changed since the TLD was introduced. The evaluations main findings are the following:

Effectiveness: the .eu Regulations have been efficient at making .eu domain names widely available throughout the EU, at a low cost to consumers. W hile the .eu Regulations have been effective in supporting e-commerce and the internal market, there are signs of relative decline in the .eu TLD performance.

Efficiency: the .eu Regulations are the source of some inefficiency, which places the .eu TLD at a competitive disadvantage in the market, and reduce the potential benefits in terms of supporting e-commerce and the single market.


With detailed provisions, which are time-consuming and costly to change, the .eu TLD is unable to implement operational or technical changes as swiftly as the market demands and as its competitors are able to.

Relevance: the objectives of the .eu Regulations continue to be relevant to Union citizens, as indicated in the high level of uptake, active usage, and renewal of .eu domains by businesses and institutions throughout the Union.

The .eu TLD represents a concrete symbol of “being European” for Union

citizens and companies in their digital experience. However, the .eu Regulations are overly complex to ensure quick technical updates (for instance in the technical sta nda rds relating to Internationalised Domain Names7) and are no longer in line with international best practices.

Coherence there are numerous indicators that the measure is no longer fully coherent: an over-rigid regulatory framework places the .eu Registry at a competitive disadvantage amid toughening market conditions; the .eu TLD legal framework does not reflect current Union priorities such as the Digital Single Market; and .eu Regulations do not reflect international best practices in multi-stakeholder governance.

EU added value: the .eu domain has by definition a cross-border dimension.

The existence of a specific domain name for the Union under a very clear and identifiable common label is an important and valuable building block for a Union online identity.

The original .eu legal framework was pivotal in enabling the creation of a dedicated namespace for the Union, but, because of being outdated and rigid, it is no longer effective, efficient, or coherent in today’s fast-changing technological market environment.

Stakeholder consultations

As part of the REFIT review of the .eu TLD legal framework, the European Commission conducted comprehensive stakeholder consultations. These consultations sought to gather input for the evaluation, assessing the .eu TLD legal framework against the evaluation criteria of effectiveness, efficiency, coherence, relevance and EU added value. It also aimed to collect input on issues that may need to be reviewed under the current .eu legal framework through eventual legislative and/or non - le g isl ative initiatives.

The consultation strategy supporting the revision of the .eu Regulations distinguished between three groups of stakeholders: parties directly impacted by the Regulations in their day-to-day activities, i.e. the .eu Registry and the .eu registrars; users of the .eu TLD and other stakeholders in the Domain Name System (DNS) ecosystem; and stakeholders that potentially benefit from the contribution the .eu TLD makes to the Digital Single Market and the online EU identity, and thus are indirectly impacted by the .eu Regulation. The strategy also included a public consultation, direct outreach and ad-hoc meetings with stakeholders, a roundtable discussion with European registries, a survey amongst European ccTLDs registries, and a

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Internationalized Domain Names (IDNs) enable the usage of domain names in local languages and scripts. IDNs are formed using characters from different scripts, such as Arabic, Chinese, Cyrillic or Devanagari. These are encoded by the Unicode standard and used as allowed by relevant IDN protocols. The .eu TLD supports all 24 official languages of the EU, including Bulgarian and Greek, which require domain names in Cyrillic and Greek scripts.

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survey targeting the current .eu registrars. The public consultation also led to a number of


written contributions from stakeholders. The ‘Public consultation on the evaluation and

revision of the eu top-level domain Regulations’ was held between 12 May and 4 August

2017 and received 43 replies from respondents in 17 Member States. The results of the public consultations are published online .

Collection and use of expertise

The Commission gathered qualitative and quantitative evidence from various sources, including:

Public consultation: a public consultation on the evaluation and revision of the .eu top-level domain Regulation.

Surveys: EURid registrar survey and CENTR survey on the country code Top Level Domain registries (ccTLD).

Stakeholder meetings: brainstorming session with EURid on the .eu regulatory framework; meeting with EURid Registrar Advisory Board on eligibility criteria and vertical integration; session at joint High Level Group on Internet Governance (HLIG)/CENTR on the role of country code Top Level Domains (ccTLDs) in Internet Governance; meeting with the European country code Top Level Domain Registry .at on the regulatory framework /Internet Foundation; meeting with ICANN on the regulatory framework and Internet Governance.

Written stakeholders contribution: Open-Xchange on DNS security, DNSSEC ; MARQUES, the European Association of Trade Mark Owners on the role of Internet Governance and the regulatory framework; European Communities Trade Mark Association; EURid on the regulatory framework; European Union Intellectual Property Office on the regulatory framework and operational perspectives.

Im pact assessment

The impact assessment identified the following specific policy objectives:

remove outdated legal/administrative requirements in order to ensure the .eu TLD will fully deliver on its potential to positively co ntr ibute to the Union’s objectives, in

particular in the area of digital policies;

(2) ensure the rules are future-proof and will allow the .eu TLD to adapt to rapid changes of the Top Level Domain market and the dynamic digital landscape while enabling

the use of the .eu TLD as a vehicle to promote Union’s priorities in the online world;

(3)

promote the attractiveness of the .eu TLD.

ensure a governance structure that both reflects technical and governance best practices and serves the Union’s interest;

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The impact assessment further explored a series of possibly policy options:

(a) baseline scenario: maintenance of the current regulatory framework for the .eu;

(b) commercialisation: simplifying the regulatory framework while outsourcing the operation and management of the Registry to an external for-profit service provider;

(c) modernising the legal framework: replacing the current legal framework with one principle-based legal instrument. An external management system for the .eu TLD, based on a contract, would be maintained;

(d) separate governance: combines the option of modernisation with the creation of a separate multi-stakeholder advisory body to the Commission to effectively strengthen and widen input into the good governance of the .eu Registry; this body would be independent from the Registry.

(e) institutionalisation: management and operation of the Registry within a department of the Commission or a Union Agency.

The analysis led to the conclusion that the preferred option is the 'separate governance' option together with lifting strict requirements for direct registration, a citizenship criterion for natural persons and a residency criterion for organisations and companies.

The preferred option would allow a more streamlined, principles-based legal framework. It would provide the necessary flexibility for the .eu TLD to adapt to rapidly changing technical improvements to the Domain Name System. End users would therefore be able to enjoy the benefits of technical improvements without waiting for the time it takes to amend the Regulations. The preferred option would also improve the functioning of the .eu TLD and therefore increase its attractiveness in the Top Level Domain market. A more adaptable and responsive .eu TLD will be, in the long term, better positioned to innovate, quickly adopt new technical standards and therefore offer a better and more competitive product on the market.

On 16 February 2018, the Regulatory Scrutiny Board delivered a positive opinion with reservations. In line with the Board's recommendations, the Commission further improved its impact assessment report to streamline the evaluation's findings in the problem definition section and clarified the magnitude of the problem, and stakeholder' interest in this issue. The baseline scenario was further substantiated as an option. The description of the options was streamlined to refrain from analysing the impacts or setting out early conclusions. The separate governance option was further elaborated to explain what kind of legal requirements will be introduced in relation to the creation and functioning of the separate multistakeholder advisory body and the tasks and powers of the Commission. The text on the early discarded options was redrafted to provide stronger argumentation explaining why these options had been discarded. Further clarifications were provided on the direct registration and the eligibility criteria, including in the preferred option. In the monitoring section, core indicators that pertain to the domain name industry were further clarified and the link to operational objectives made more transparent. These were, in turn, linked to the initiative's four specific objectives. The report clarified that the success criteria for the preferred option will be regularly evaluated, through the report the Commission will have to submit to the European Parliament and the Council on the implementation, effectiveness and functioning of the .eu

TLD. In the new framework, this reporting will also serve as assessment tool to test the success of the preferred option, by means of examining and reporting on all the core indicators set.

Regulatory fitness and simplification

This initiative includes simplification and improved efficiency objectives. These are clearly articulated in specific objective (a) 'remove outdated legal/administrative requirements' and in specific objective (b) 'create futureproof rules for the .eu TLD'. The proposal creates a lightweight, principles-based framework. Primary legislation will contain only the principles which the functioning of the .eu TLD must abide by, while all unnecessary and detailed administrative and technical requirements will either be removed if they are outdated, or detailed in the contract to be concluded between the European Commission and the appointed Registry operator. This will enable the .eu TLD to adapt to rapid changes in the TLD market and dynamic digital landscape.

The proposal will mean reduced waiting times for holders of the .eu TLD with respect to the availability of technical and market innovations in the domain name sector. The reduction in these waiting times will be measured in terms of the lead time necessary to amend the .eu legal framework to enable such innovations in relation to the .eu TLD.

By establishing future-proof legislation and an easily adaptable set of detailed policies for the management and administration of the .eu TLD, the proposal aims to make the .eu domain name ready to cope with a rapidly changing internet environment.

Fundamental rights

While this proposal deals with a predominantly technical, sector-specific issue relating to the domain name system industry, it will also maintain a strong protection of fundamental rights in the European Union in the operation and management of the .eu TLD, in line with European Union’s rules in the area of data protection, privacy, security and multilingualism.

4. BUDGETARYIMPLICATIONS

The .eu Multistakeholder Council needs to be appropriately resourced. The cost is estimated around €50.000 per year. The new body will be financially sustained by the Commission.

5. OTHERELEMENTS

Implementation plans and monitoring, evaluation and reporting arrangements

The Commission will monitor and supervise the organisation, administration and management of the .eu TLD by the Registry.

The Commission will assess the implementation, effectiveness and functioning of the .eu TLD no later than five years after the date of application of this Regulation, and each three years thereafter.

The Commission will submit a report to the European Parliament and the Council on the findings of this assessment.

Detailed explanation of the specific provisions of the proposal

Chapter I of the Regulation contains the general provisions: the subject-matter and the objectives (Article 1) and the definitions (Article 2).

Chapter II of the Regulation contains the main provisions regarding the implementation of the .eu Top Level Domain name.

Section I under this Chapter lays out the general principles of registration of a .eu Top Level Domain name: it outlines the eligibility criteria (Article 3), the general conditions of registration and revocation of domain names (Article 4), the languages, the applicable law and the jurisdiction (Article 5), the procedures for the reservation of domain names by the Registry, the Commission and Member States (Article 6), and the accreditation procedures for Registrars (Article 7).

Section II concerns the appointment and general functioning of the Registry. These provisions span from its designation by the Commission (Article 8) and characteristics (Article 9) to its key obligations (Article 10). The section also lays down a list of principles and procedures on the functioning of the .eu TLD to be included in the contract with the Registry which aim to provide the policy framework within which the Registry will function (Article 11). Finally, a specific provision on the functioning and purpose of the WHOIS database is provided (Article 12).

Section III relates to the oversight of the Registry operator. The provisions on the supervisory powers of the Commission (Article 13) and establishment of a .eu Multistakeholder Council (Article 14) provide the basis for this group to advise the Commission on strengthening and widening input into the good governance of the .eu Registry and increase the transparency of its functioning.

Finally, Chapter III of the Regulation lays down the final provisions: the reservation of rights (Article 15), Evaluation and review (Article 16), the committee procedure (Article 17) according to Article 5 and 8 of the Regulation (EU) No 182/2011. Furthermore, the chapter provides the transitional provisions for the contract (Article 18) and the provisions on the repeal of the current legal framework (Article 19) and the entry into force (Article 20). A maximum limit of three years after the entry into force of the Regulation is foreseen for its entry into application. This is to limit any risks of disruption of services of the .eu TLD in the shifting between the old and new regulatory framework, taking into consideration the need for the Commission to designate and to enter into a new contract with the Registry and for the Registry to prepare for the organisation, administration and management of the .eu TLD.