Yesterday morning (26-April-2011), in US Bankruptcy Court for the District of Delaware, Judge Kevin Gross signed an order authorizing Nortel’s sale of IPv4 addresses to Microsoft. This is an important moment for the Internet community, as it represents the beginning of a new market-based mechanism for the distribution of scarce IPv4 address resources. As the various Regional Internet Registry (RIR) organizations exhaust their supply, traditional “needs-based” distribution will become impossible. But an address market approach will enable organizations to continue growing their IPv4 networks (while transitioning to IPv6, as the economical choice).

The court’s order (found here) was signed without objection at a hearing attended by representatives from Nortel, Microsoft (GFS), ARIN, Addrex, various creditors and observers. It specifically authorizes the sale of various IPv4 address blocks, totaling 666,624 individual IPv4 Internet Numbers, for USD $7.5M (or $11.25 each). The sale agreement, filed with the court and approved by this order, identifies the seller’s “exclusive rights to use and transfer” the Internet Numbers. The sale agreement also states that Microsoft, as the buyer, has agreed to enter into a Legacy Registry Services Agreement (LRSA) with ARIN. As a result we now have an example of Specified Transfer based, more or less, upon ARIN’s Number Resource Policy Manual (NRPM) section 8.3. This is the beginning of a legal structure for recognizing IP addresses as a form of property and a template for future transactions in the ARIN region.

Of course, there are still open questions. For instance, the actual LRSA side-agreement entered into by Microsoft was not disclosed to the court. At this time we don’t know what ARIN and Microsoft agreed or how it compares to the standard LRSA that others have signed. Also, there is no indication that a RSA is required for a legal transfer, only that ARIN requires a RSA as a condition of updating their Whois database. The court did not require the RSA, or any arbitrary terms of the sale agreement - it merely accepted the agreement negotiated between Nortel and Microsoft. Effectively, any question about whether a RSA is required has been postponed until a later date because Microsoft has agreed to sign a LRSA with ARIN. And there are questions about Microsoft’s “justification of need”, with regards to the ARIN transfer policy requirement. ARIN has stated that Microsoft did justify need and qualify for the transfer, but this raises a question about why Microsoft chose to buy these addresses rather than receive them as a direct allocation from ARIN.

Because of open questions such as these, we don’t know what complexities might exist for future sales. One challenging area will be inter-regional sales of legacy blocks. These may be more politically sensitive, for instance, depending on who the buyer is. And there will almost certainly be open issues with inter-RIR cooperation. For example, these transfers may be economically complex, now that the APNIC region is under the “final /8” policies (announcement) and transfers no longer require justification of need.

As more IPv4 addresses enter the market (including Nortel’s legacy /8 block) the community should pay close attention, and work to answer these questions proactively. A robust address market will benefit continued Internet growth and a smooth IPv6 transition, and we must be open-minded about these changes - exhaustion is here, whether or not we’re prepared.