Internet Name Registrar Could Have Violated Antitrust Law to Get Contracts

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Internet domain name registry operator VeriSign, Inc., could have violated federal antitrust law by allegedly conspiring with, or engaging in predatory conduct against, the Internet Corporation for Assigned Names and Numbers (ICANN), the U.S. Court of Appeals in San Francisco has ruled.

VeriSign's conduct was purportedly intended to set artificially high prices for its registry services and to ensure that it would receive successor contracts with ICANN without having to go through a competitive bidding process.

Dismissal of Sherman Act, Sec. 1 and 2 claims brought against VeriSign by an organization composed of participants in the Internet domain name system (such as Web site owners) was therefore reversed and remanded.

VeriSign acts as the sole operator of the ".com" and ".net" Internet domain name registries pursuant to separate agreements with ICANN, which coordinates the Internet domain name system on behalf of the U.S. Department of Commerce.

Conspiracy

The automatic renewal term of the contract for the ".com" domain was an actionable restraint on trade because it was sufficiently alleged to have been the product of a conspiracy between VeriSign and ICANN in which VeriSign participated with the intent to restrain trade, the appellate court held.

Further, the pricing provisions of the contract, which provided for a seven percent per year increase in the allowable registration fee, could give rise to antitrust liability because that increase was alleged to exceed the rate competitive market conditions would produce.

An argument that an antitrust claim could not be based on price increases alone was rejected because the pricing at issue was not alleged to be unilateral action in the context of a monopolization claim but concerted action intended to restrain trade.

The renewal and pricing terms of the ".net" contract, on the other hand, were not similarly actionable because they were reached as a result of competitive bidding, not conspiratorial action, the court stated.

Attempted Monopolization

The organization's extensive factual allegations of predatory conduct, in which VeriSign engaged in order to secure the ".com" agreement, sufficed to state a claim for attempted monopolization, in the appellate court's view.

It was noted that the trial court, in concluding that the organization had failed to state a claim for predatory conduct, had erroneously construed that allegation in the complaint as pertaining solely to VeriSign's litigation against ICANN, rather than to the predatory and harassing activities that accompanied that litigation. These alleged activities included actions such as paying lobbyists to support its positions, stacking ICANN's public meetings, paying bloggers to attack ICANN's position, planting news stories critical of ICANN in mainstream media, and threatening various investigations and lawsuits. Thus, the lower court's reliance on the Noerr-Pennington doctrine—which immunizes only litigation activity, but not other forms of threats or harassment—was misplaced.

However, as with the Sec. 1 claim, the claim of predatory conduct in the ".net" registration market was insufficiently stated, the court added. The complaint's allegations did not reflect any assertion that VeriSign's predatory activity had any bearing on the competitive bidding process that resulted in the ".net" agreement.

Relevant Market

The organization's claim that VeriSign attempted to monopolize the market for expiring domain names also should not have been dismissed, the appellate court decided. The viability of the claim turned on the issue of relevant market, namely whether the organization adequately pled the existence of a separate market.

According to the organization, expiring domain names were more valuable than other names because, in all likelihood, they had already been advertised by the previous owner and already had Web traffic. In light of these market conditions, which had not been explained to the district court, the appellate court was not prepared to affirm the lower court's ruling that no separate market existed.

The June 5 decision is Coalition for ICANN Transparency, Inc. v. VeriSign, Inc., 2009-1 Trade Cases ¶76,642.