Monday, June 8, 2009
Panel Revives Internet Domain Name Antitrust Suit
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals Friday revived an antitrust action alleging that the Internet Corporation for Assigned Names and Numbers and the Internet domain name registrar VeriSign, Inc. conspired to restrain trade and monopolize the market for expired domain names.
Reversing a ruling by Judge Ronald M. Whyte of the Northern District of California, the panel held that the Coalition for ICANN Transparency, Inc., which is made up of website owners and other participants in the Internet domain name system, had stated claims against VeriSign under the Sherman Act. The coalition had earlier dropped ICANN from the suit.
ICANN was created by the Department of Commerce in 1998 to administer the domain name system on behalf of the U.S. government. It contracts with registry operators such as VeriSign, the sole operator of the .com and .net registries since 2001.
The lawsuit centers on a 2005 contract, which VeriSign won after competitive bidding, to continue operating the .net registry, and a 2006 agreement—not competitively bid—with respect to .com. Both agreements provide for automatic renewal upon expiration unless VeriSign breaches either agreement and fails to cure, in which case the contract would be put up for competitive bidding.
Among other things, the 2006 agreement allows VeriSign to increase its registration fee, which was $6 per .com name, by up to seven percent per year in four of the following six years. The 2005 agreement kept a $4.25 cap on .net names, which expired at the end of 2006, leaving no cap in place.
Judge Mary M. Schroeder, writing for the Ninth Circuit, said the coalition raised a triable issue with respect to the .com agreement under the Sherman Act’s restraint-of-trade provision, Sec. 1, by alleging that the presumptive renewal provision rendered any possibility of a competitive re-bid illusory.
Whyte said that theory was speculative, but Schroeder disagreed.
“We have expressly held...that concerted action between co-conspirators to eliminate competitive bidding for a contract is an actionable harm to competition,” the appellate jurist wrote. “CFIT has adequately pled the existence of a conspiracy between VeriSign and ICANN, and that VeriSign had the intent to restrain trade when it entered into the .com contract.”
A Sec. 1 claim was not pled with respect to the .net contract, however, Schroeder concluded, since that agreement was competitively bid.
The coalition also pled a Sec. 1 claim, the judge went on to say, by alleging that the clause in the 2006 agreement allowing a 7-percent-a-year fee increase intentionally restrains competition by allowing VeriSign to impose a higher rate than it could get in a competitive market. The plaintiff had argued that potential competitors would register names at $3 each or less if allowed to do so.
Schroeder also said the plaintiff had stated a cause of action for monopolization or attempted monopolization under Sec. 2 of the act, by means of predatory conduct.
The judge explained:
“CFIT alleged that in order to get ICANN to agree to the terms VeriSign desired, VeriSign paid lobbyists to support its position, ‘stacked’ ICANN’s public meetings with VeriSign supporters, hired purportedly independent organizations and individuals to advocate VeriSign’s position, paid bloggers to attack ICANN’s reputation, planted news stories critical of ICANN in mainstream media, threatened ICANN with litigation, arbitration, and government investigation, and indeed eventually brought suit against ICANN in federal and state court. VeriSign’s suit against ICANN was settled, allegedly as a result of VeriSign’s offer to pay ICANN a fee of between $6 million and $12 million in exchange for the favorable terms in the agreements.”
If such “predatory and harassing conduct” occurred, and was part of an effort to pressure ICANN into signing contracts that it would not have entered into under free market conditions, the judge said, the plaintiff can prove a violation of Sec. 2.
Attorneys on appeal were Bret A. Fausett of Los Angeles for the plaintiff, Ronald L. Johnston of Los Angeles for the defendant, and Dennis M. Hart of Washington, D.C. for the Internet Commerce Association as amicus supporting the plaintiff.
The case is Coalition for ICANN Transparency, Inc v. VeriSign, Inc., 07-16151.
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