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From Antitrust Law Daily, August 3, 2015

ICANN avoids conspiracy, monopolization claims by top level domain registry

By Greg Hammond, J.D.

Conspiracy and monopolization claims brought by a top level domain name registry against the Internet Corporation for Assigned Names and Numbers (ICANN) were properly dismissed, the U.S. Court of Appeals in San Francisco has decided. The conspiracy claim failed to sufficiently allege an anticompetitive agreement, and the monopolization claim failed to allege that ICANN was a competitor of the registry’s in the relevant markets (name.space, Inc. v. Internet Corporation for Assigned Names and Numbers, July 31, 2015, Hurwitz, A.).

ICANN contracted with the U.S. Department of Commerce to manage the Internet Assigned Numbers Authority—the entity responsible for the global coordination of various Internet protocol resources. In 2012, ICANN accepted applications for new top level domains (TLD). The application process consisted of a 349-page application guidebook and an $185,000 fee. Each application could seek only one TLD. name.space, Inc.—a registry specializing in “expressive” TLDs, such as .art, .food, .magic, .music, and .now—did not apply in 2012 for new TLDs because the financial and procedural costs were purportedly too high. name.space filed suit against ICANN, alleging a conspiracy to restrain trade and monopolization claims in violation of the Sherman and California Cartwright Acts, as well as Lanham Act, trademark, unfair competition, and tortious interference claims. The district court dismissed the claims, and name.space appealed.

Conspiracy. name.space alleged that the rules and procedures governing the 2012 application were the result of a conspiracy between ICANN, its board members, and industry insiders. However, the complaint was devoid of any direct allegation of an agreement among the alleged co-conspirators. Instead, the complaint relied on circumstantial evidence that: (1) some of ICANN’s board members have “known, vested interests in the economic performance of the TLD registries”; (2) ICANN and its board designed the application rules; (3) the 2012 application price was significantly higher than the 2000 application price, and the rules became more complex; (4) the 2012 application price and rules conflicted with name.space’s business model; (5) the majority of 2012 applications were industry insiders and large technology companies; and (6) some potential applicants, including name.space, were deterred from applying in 2012 due to the price and rules. The appellate court determined that it could not infer an anticompetitive agreement when the factual allegations just as easily suggest rational, legal business behavior.

Monopolization. In support of its monopolization claim, name.space asserted three relevant markets: (1) the market to act as a TLD registry; (2) the international market for domain names; and (3) the market for blocking or defensive registration services. The court, however, determined that ICANN was not a competitor in any of three markets, and that the relevant markets cannot serve as the basis for a Section 2 monopoly claim. Rather, the Department of Commerce chose ICANN to manage the “Domain Name System” and the “root zone file.” Other than predatory behavior, ICANN is therefore free to choose the parties with whom it will deal, as well as the prices, terms, and conditions of that dealing. The court further noted that the complaint only alleged that the 2012 application was structured in a manner not advantageous to name.space’s business model. Whether ICANN’s choices were wise or fair, however, was an issue outside the purview of Section 2.

Trademark, unfair competition. The trademark and unfair competition claims, which arose from ICANN’s alleged acceptance of applications for TLDs in use by name.space, were not ripe for adjudication, the appellate court ruled. name.space failed to allege that ICANN had delegated or intended to delegate any of the TLDs that name.space used. Instead, all that name.space alleged was that ICANN had accepted applications from companies wanting to use one of those TLDs on the root zone file. Although name.space may have a ripe claim if such a delegation occurs, the court stated, the complaint as it stands did not allege actual or imminent infringement.

The tortious interference and common law unfair competition claims also were properly dismissed, because: (1) name.space did not allege any facts plausibly suggesting that ICANN accepted applications in 2012 with the intent to breach or disrupt any existing contracts or prospective economic relationships; and (2) name.space failed to state an antitrust violation, trademark claim, or other unlawful act to support the unfair competition claim.

The case number is 13-55553.

Attorneys: Michael B. Miller (Morrison & Foerster LLP) for name.space, Inc. Jeffrey A. LeVee (Jones Day) for Internet Corporation for Assigned Names and Numbers.

Companies: name.space, Inc.; Internet Corporation for Assigned Names and Numbers

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