ICANN prevails in Ninth Circuit appeal of landmark ruling dismissing TLD monopolization claim
Clients ICANN (Internet Corporation for Assigned Names and Numbers)
On July 31, 2015, the Ninth Circuit Court of Appeals affirmed the landmark decision by a federal district court in the Central District of California to dismiss with prejudice name.space's monopolization claim against Internet Corporation for Assigned Names and Numbers (ICANN), a long-time Jones Day client. In addition, the Ninth Circuit affirmed the district court's dismissal without prejudice of name.space's remaining causes of action, including antitrust conspiracy, unfair competition, and trademark and tortious interference claims. This is the second victory Jones Day has achieved for ICANN in response to lawsuits brought by entities that submitted proposals for new Top Level Domains (TLDs) during a proof of concept process administered by ICANN in 2000.
For over a decade, the plaintiff in name.space, Inc. v. ICANN, name.space, has run an "alternative Internet" that is not connected to the domain name system (DNS), which permits Internet users to find websites and communicate within the global Internet. Instead, name.space's "alternative Internet" can only be accessed through the use of special software. In its alternative Internet, name.space operates a multitude of TLDs based on generic words such as .art, .book, .home, and .sucks. In 2000, name.space applied to ICANN to serve as the registry operator for these generic word-based TLDs in the DNS. On November 16, 2000, ICANN announced that it had selected seven new TLD applications to proceed towards contract negotiations with ICANN. name.space's application was not one of the seven. In 2012, ICANN began accepting applications for TLDs as part of its new gTLD program. Entities, like name.space, that had applied for TLDs in 2000 but were not selected could reapply in the 2012 Round and receive a reduction in the application fee. name.space chose not to apply in 2012.
In October 2012, name.space filed a lawsuit against ICANN in federal district court alleging an antitrust conspiracy, monopolization, unfair competition, trademark and tortious interference claims. Specifically, name.space alleged that ICANN violated Section 1 of the Sherman Act by conspiring with existing registry operators to restrain competition in the new TLDs market by charging inflated application fees. It further alleged that ICANN should be held liable under Section 2 of the Sherman Act because ICANN used its monopoly power to cause harm to competition in the DNS. name.space's trademark infringement and unfair competition claims were based on allegations that ICANN accepted application fees for 189 new top-level domains that name.space operates in its alternative Internet.
ICANN moved to dismiss name.space's entire complaint and, on March 4, 2013, Judge Percy Anderson of the federal district court in the Central District of California granted ICANN's motion in its entirety. Significantly, name.space's monopolization claim was dismissed with prejudice. name.space's Sherman Act Section 1 claim for conspiracy to restrain trade was dismissed without prejudice, as were name.space's trademark and common law unfair competition claims. The Ninth Circuit affirmed the district court's decision in its entirety. Specifically, the Ninth Circuit found the following:
1. The complaint failed to allege facts suggesting that ICANN or any of the members of its Board participated in an unlawful conspiracy in conjunction with establishing the New gTLD Program. To the contrary, the Court found that “ICANN’s decision-making was fully consistent with its agreement with the DOC to operate the DNS and the Root.”
2. “ICANN’s independent business decisions about how many TLDs to create, and at what price they are offered, are not policed by [Sherman Act] Section 1.”
3. ICANN cannot violate Section 2 of the Sherman Act related to “monopoly” conduct because ICANN is not a competitor in the three relevant markets identified in the complaint: (a) the market to act as a TLD registry; (b) the international market for domain names; and (c) the market for blocking or defensive registration services. And even if ICANN competed in any of the relevant markets, Section 2 liability could only arise if ICANN unlawfully acquired or maintained its monopoly, but here, ICANN’s authority was lawfully obtained through a contract with the DOC. In other words, because whatever monopoly power ICANN may have in administering the DNS was thrust upon it by the U.S. Department of Commerce, and thus the result of a historic accident and not exclusionary conduct, the Ninth Circuit affirmed Judge Anderson's conclusion that ICANN cannot be held liable for monopolization. This is an important decision for ICANN and should greatly discourage future plaintiffs from asserting monopolization claims against ICANN.
4. “The Department of Commerce chose ICANN to manage the DNS and the Root. Barring predatory behavior, ICANN is ‘free to choose the parties with whom [it] will deal, as well as the prices, terms, and conditions of that dealing.’ The complaint merely alleges that the 2012 Application Round was structured in a manner not advantageous to name.space’s business model. But whether ICANN’s choices were wise or fair is an issue outside the purview of § 2.”
5. name.space’s trademark claims were not ripe, and its common law claims did not allege sufficient facts to be able to state a claim for relief.
The Jones Day team was a multi-office effort and included Jeff LeVee (Los Angeles) (who argued before the Ninth Circuit), Eric Enson (Los Angeles), Kate Wallace (Los Angeles), Craig Stewart (San Francisco), Meredith Wilkes (Cleveland), Matt Silveria (San Francisco), and Anna Raimer (Houston), with assistance from Valrie Crawford (Los Angeles).
name.space, Inc. v. ICANN, No. CV 12-8676 PA (C.D. Cal.), aff'd, No. 13-55553 (9th Cir.)