The Internet is a seemingly endless and ever-expanding collection of information. You can find almost anything on the Internet if you look for it, and look in the right place. To find it, however, you often need the “domain name,” or address, of the web site that has the information you want. Every web page has its own unique domain name, and only one company can maintain the database that keeps track of all the domain names on the Internet. That company, currently VeriSign, Inc., essentially controls the Internet. The way VeriSign got that control, and the way it keeps it, led the Coalition for ICANN Transparency, Inc. (“CFIT”), to file an antitrust lawsuit, CFIT v. VeriSign, Inc. The Ninth Circuit ruled this week that CFIT can go forward with its suit, reversing the district court which had dismissed the suit three times. This begs the question: Will the Ninth Circuit bring down the Internet?
Well, no. The Ninth Circuit will not bring down the Internet, and neither will CFIT’s lawsuit. But the lawsuit might change the way ICANN, the nonprofit oversight body that coordinates the domain name system (“DNS”) on behalf of the United States Department of Commerce, awards contracts to the company maintaining the DNS registry. In 2001, ICANN awarded VeriSign, a private, for-profit corporation, the contract to maintain the DNS registry for the .com and .net domains. There can only be one registry at a time, so a monopoly is created by necessity with the contract. As a result of this contract, VeriSign sets the price for, and collects on, the registration of every domain name within the .com and .net domains.
In 2005, ICANN renewed the contract with VeriSign for the .com registry without accepting competitive bids for the contract. It also renewed the .net contract, but awarded it to VeriSign after competitive bidding. CFIT’s complaint alleged that prior to the 2005 renewal, VeriSign had harassed, and even sued, ICANN. That lawsuit was dismissed after VeriSign paid ICANN a fee of between $6 and $12 million in exchange for favorable terms on the contracts. In the current lawsuit, CFIT alleged that VeriSign also hired lobbyists to support its position with ICANN, “stacked” ICANN meetings with VeriSign supporters, paid bloggers to attack ICANN’s reputation, and planted stories in the media critical of ICANN, all to further the chances of keeping the .com and .net contracts. The settlement of the VeriSign-ICANN lawsuit required VeriSign to cease all such activity.
CFIT’s lawsuit claims that VeriSign violated Sections 1 and 2 of the Sherman Antitrust Act in obtaining and keeping the contract. CFIT’s Section 1 claim alleges that VeriSign and ICANN conspired to restrain trade in connection with the terms of the contracts for maintaining both the .com and .net registries. CFIT’s Section 2 claim alleges that VeriSign’s conduct in obtaining the anti-competitive contracts constituted monopolization or attempted monopolization of the .com and .net registration markets. In addition, CFIT claimed there was a separate market for expiring domain names sufficiently distinct from previously unregistered domain names to constitute a separate antitrust claim.
CFIT’s Section 1claim alleges that CFIT and ICANN conspired to restrain trade. Specifically, CFIT complains that in 2005 ICANN renewed its agreement with VeriSign without any competitive bidding on the contract. Moreover, the new agreement contained a provision that it would automatically renew unless a court issues a final order finding VeriSign to be in breach, and VeriSign fails to cure the breach. Although the district court found no possible antitrust claim there, the Ninth Circuit disagreed, stating that “concerted action between co-conspirators to eliminate competitive bidding for a contract is actionable harm to competition.” CFIT v. VeriSign, — F.3d — (9th Cir. 2009). The complaint also claimed that competition had been eliminated in the renewal of domain names, which the Court noted was “precisely the type of allegation required to state an injury to competition.” CFIT also alleged that this resulted in higher prices to consumers, which the Court agreed was sufficient to state a claim.
The Court found that the allegations of pricing provisions in the 2006 .com agreement were sufficient to state a claim because the allegations were of concerted action to restrain trade rather than unilateral action. The Court explained that “an entity cannot be held liable for antitrust violations if it simply unilaterally raised prices, absent a showing that it either conspired with another entity in order to restrain trade, or acted in a market in which it holds or is attempting to hold a monopoly.” CFIT v. VeriSign. Here, the complaint was sufficient because it alleged conspiracy along with the anticompetitive pricing.
The district court had dismissed the Section 2 claims alleging unlawful monopoly because CFIT (1) failed to state a claim for predatory conduct, and (2) failed to allege that expiring domain names are a separate market. The Ninth Circuit reversed on both counts.
The Court faulted the district court for construing the allegations of predatory conduct as limited to litigation against ICANN. Given all the other predatory conduct alleged against VeriSign, the Ninth Circuit held it was error to limit the allegations as pertaining to just the litigation. The Court also agreed with CFIT that ICANN is essentially a private standards-setting body, and noted that a Section 2 violation may be based on improper coercion of such a standards-setting body. Citing Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988), the Court held that CFIT stated a claim for Section 2 violations regarding the .com contract. The Court noted that commentators had even predicted that Allied Tube would provide a basis for antitrust liability against VeriSign.
The Ninth Circuit agreed with CFIT that expiring domain names are a separate and distinct market for antitrust purposes. Expiring domain names are different from, and more valuable than, previously unregistered domain names because they have a history, and have established traffic. Indeed, the “complaint alleges that every word in the English language is already registered as a domain name, and that desirable domain names can be difficult to come by.” CFIT v. VeriSign, Inc. The expiring domain names are more valuable because all the good names are already taken. The Internet Commerce Association filed an amicus brief agreeing that the expired domain name market exists now, but it did not just a few years ago. In all, the Court found that expiring domain names are a separate market, and the complaint stated a claim for Section 2 claims as to the .com registry. Because the district court had ruled it was not a separate market, the Ninth Circuit reversed on that basis also.
However, the Ninth Circuit agreed that CFIT did not state an antitrust claim as the .net registry under either Section 1 or Section 2. The Court found important that the .net contract was awarded to VeriSign after a competitive bid. Without additional allegations, the complaint did not sufficiently allege wrongdoing as to this contract. The Court did allow CFIT a fourth chance to get it right, and granted it yet another chance to amend its complaint to allege claims for the .net contracts.
If CFIT is successful in it suit, ICANN will likely have to change the way it awards contracts for domain name registries. However, there is little danger that this suit will cause the entire .com and .net domains, the largest on the Internet, to come crashing down. It might just mean that domain names become a bit cheaper to register. These days, lower prices can only be a good thing. Of course, there is a long way to go before this case concludes – the case is back to the district court and still in the pleading stage, more than four years after the complaint was originally filed.