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ICANN Spurned in .xxx Antitrust Litigation — Is this a Win for Pornography?

In a fascinating decision and yet another blow to ICAAN, a California federal judge denied ICANN’s motion to dismiss an action brought against the Domain Name System overseer alleging antitrust violations in connection with the contract ICANN awarded ICM Registry for operation of the Internet’s newest top level domain (“TLD”) — .xxx.  Plaintiffs Manwin Licensing International S.A.R.L. and Digital Playground, Inc., two competitive adult content purveyors, wanted to run the .xxx TLD or not have it exist at all.  They were very unhappy when ICANN awarded the operation of the TLD to ICM.  So they filed suit, alleging a variety of antitrust conspiracy and attempted monopolization violations by ICANN and ICM.

ICANN sought to have the allegations against it dismissed, asserting, among a variety of arguments, that it was immune from antitrust scrutiny because ICANN does not engage in trade or commerce and because ICANN acted unilaterally and did not conspire with ICM.  The court disagreed.  It rejected ICANN’s assertion that its activities were not commercial in nature or that its non-profit nature brought those activities outside the scrutiny of the antitrust laws.  Moreover, the court found the plaintiffs’ assertions that the ICANN and ICM agreement resulted in “suppression of competition for the initial .xxx registry contract and renewal of that contract; preclusion of other adult content TLDs; setting above market prices and output restrictions; and delegating ICANN’s sales and pricing authority to ICM for the purpose of allowing ICM to institute even less competitive sales and pricing terms in the future” were sufficiently plead to withstand a motion to dismiss and allow the continuation of the case to a full investigation of ICANN’s and ICM’s behavior.

It is also interesting that according to the court, ICANN may have agreed with ICM not to approve any more adult content TLDs: “The contract also contains provisions which ICM itself proclaims will preclude ICANN from approving any other TLDs designated for adult content, such as .sex or .porn.”  Assuming this is true, why then did ICANN accept applications from would-be operators of .sex, etc. in its first round of new TLD applications?  If there is, indeed, an agreement between ICANN and ICM not to allow other adult TLDs, then one could certainly question the propriety of ICANN taking $185,000 from applicants that wanted a piece of the adult content TLD game.

Another important part of the decision is a finding that “defensive registrations” is a “relevant market” for antitrust purposes.  Defensive registrations occur when a company registers its trademarks in a given TLD with no intent of using the address for a website but solely for the purpose of protecting its trademarks from being hijacked by some cybersquatter.  This blog is not the place to engage in a technical discussion of why a well-defined relevant market is a key to antitrust prosecutions, but the court’s belief that behavior of parties in that narrow market could violate the antitrust laws must be viewed by ICANN with great concern.  ICANN’s process on how it will deal with defensive registrations within its planned introduction of thousands of new gTLDs most certainly will be under the microscope.

While the court’s findings are preliminary and a full trial is a long way off, certainly some ICANN Board members’ eyes must surely have opened wide from the fact that ICANN’s belief of being immune to antitrust laws has been shattered.  Damages in successful antitrust suits can be in the many millions of dollars with liability potentially lying at the executive and Board levels as well.  Who knows — if a violation has occurred, the damages might even be enough to put a serious dent into ICANN’s now well-sated coffers.

We Expert Doug Wood

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We Expert Doug Wood had written 40 articles for Party of We

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