Coalition for Icann v. Verisign, Inc.

• Decision Date: 08 December 2006
• Docket Number: No. C-05-04826 RMW.,C-05-04826 RMW.
• Citation: 464 F.Supp.2d 948
• Parties: COALITION FOR ICANN TRANSPARENCY INC., a Delaware corporation, Plaintiff, v. VERISIGN, INC., a Delaware corporation; Internet Corporation for Assigned Names and Numbers, a California corporation, Defendants.
• Court: U.S. District Court — Northern District of California

464 F.Supp.2d 948

COALITION FOR ICANN TRANSPARENCY INC., a Delaware corporation, Plaintiff, v. VERISIGN, INC., a Delaware corporation; Internet Corporation for Assigned Names and Numbers, a California corporation, Defendants.

No. C-05-04826 RMW.

United States District Court, N.D. California, San Jose Division.

December 8, 2006.

COPYRIGHT MATERIAL OMITTED

Bret A. Fausett, Imani Gandy, Cathcart Collins & Kneafsey LLP, Los Angeles, CA, for Plaintiff.

Laurence J. Hutt, Angel Lisa Tang, Brian K. Condon, Arnold & Porter, Los Angeles, CA, Courtney Mattson Schaberg, Sean William Jaquez, Jeffrey A. Levee, Jason C. Murray, Eric Patrick Enson, Jones Day, Los Angeles, CA, for Defendants.

James S. Blackburn, Arnold & Porter LLP, Los Angeles, CA.

ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS

WHYTE, District Judge.

Defendant VeriSign, Inc. ("VeriSign") and defendant Internet Corporation for Assigned Names and Numbers ("ICANN") both move to dismiss plaintiffs First Amended Complaint ("FAC") for failure to state a claim. Plaintiff Coalition For ICANN Transparency, Inc. ("CFIT") opposes both motions. The court has read the moving and responding papers and considered counsels' arguments. For the reasons set forth below, the court GRANTS defendants' motions to dismiss. Plaintiff has twenty (20) days from the date of this order to amend its complaint or it may elect to proceed on its proposed second amended complaint.

I. BACKGROUND

This action involves two types of services related to Internet domain names. The factual allegations relevant to the present motions are set forth in this order. Additional factual background is set forth in the court's February 28, 2006 Order Denying Verisign's Motion to Dismiss and Granting Defendants' Motions for Judgment on the Pleadings ("Feb.2006 Order").

A. The Parties

CFIT is a nonprofit membership organization whose members include certain Internet domain registrars, registrants, back order service providers, including Pool. Corn, Inc. and R. Lee Chambers Company, LLC. FAC ¶ 7. CFIT was formed for the purpose of challenging the allegedly anticompetitive agreements and activities of defendants as set forth in the FAC. Id.

ICANN is a private not-for-profit corporation that coordinates the Internet domain name system ("DNS") on behalf of the United States Department of Commerce ("DOC"). Id. ¶¶ 58-59. ICANN's bylaws provide that it shall "[i]ntroduc[e] and promot[e] competition in the registration of domain names where practicable and beneficial in the public interest." Id. ¶ 64. ICANN operates under a Memorandum of Understanding ("MOU") with the DOC. Id. ¶ 59-63. The MOU "is effectively ICANN's charter." Id. The MOU's purpose is to "promote[ ] the management of the DNS in a manner that will permit market mechanisms to support competition and consumer choice in the technical management of the DNS." Id. The MOU prohibits ICANN from "unjustifiably or arbitrarily" injuring "particular persons or entities or particular categories of persons or entities." Id. It requires ICANN to "act in a non-arbitrary and reasonable manner with respect to ... any ... activity related to a DNS project." Id. The original MOU was scheduled to expire in September 2000. Id. ICANN and the DOC have amended it six times. Id. The most recent amendment reiterates the DOC's "policy goal of privatizing the technical management of the DNS in a manner that promotes stability and security, competition, coordination, and representation." Id. In this amendment, ICANN also reaffirms its "commitment to maintaining security and stability in the technical management of DNS, and to perform as an organization founded on the principles of competition, bottom up coordination, and representation." Id.

B. The Internet Domain Name System

Every computer connected to the Internet has a unique Internet Protocol ("IP") address. Id. ¶ 19. IP addresses are long strings of numbers, such as 64.233.131.147. Id. The Internet DNS provides an alphanumeric shorthand for IP addresses. Id. ¶ 20. The hierarchy of each domain name is divided by periods. Thus, reading a domain name from right to left, the portion of the domain name to the right of the first period is the top-level domain ("TLD"). TLDs include com,. gov, net., and .biz. Id. ¶ 21. Each TLD is divided into secondlevel domains identified by the designation to the left of the first period, such as "example" in "example com" or "example.net." Id. SLDs can be further divided in third-level domains, such as "another" in "another.example.com" and so on. Id. Each domain name is unique and thus can only be registered to one entity. Id. ¶ 24. CFIT alleges that the "com" and ".net" TLDs have become the "definitive TLDs for all commercial and private TLD registrants." Id. ¶ 13. One reason is purportedly that other TLDs are either restricted as to accessibility (e.g., country code TLDs such as ".us") or restricted as to use or meaning (e.g., ".edu" or ".gov"). Id. ¶¶ 12-13.

A domain name is created when it is registered with the appropriate registry operator. Id. ¶ 25. A registry operator maintains the definitive database, or registry, that associates the registered domain names with the proper IP numbers for the respective domain name servers. Id. The domain name servers direct Internet queries to the related web resources. Id. A registrant can register a domain name only through companies that serve as registrars for second level domain names. Registrars accept registrations for new or expiring domain names, connect to the appropriate registry operator's TLD servers to determine whether the name is available, and register available domain names on behalf of registrants. Id. ¶ 48. As such, registrars necessarily need access to the registry maintained by the registry operators. When a domain name is expiring (and not renewed by the current registrant), the registry operator notifies the registrars. To register an expired domain name, registrars send "add" commands to the registry database. Id. An "add" command is accepted (thereby registering the name) only if the name is available. Id. Therefore, to increase the chances of obtaining a popular expired domain name, a registrar may send a rapid series of "add" commands for the expired name. See Feb. 2006 Order at 3. CFIT alleges that due to competition for registration of expiring domain names, a registrant may use the services of "back order service providers." FAC ¶ 49. Back order service providers further increase the chances of a registrant obtaining a highly demanded expiring domain name by pooling the resources of several registrars. In this way, the registrant's chances of an "add" command being accepted increases. See Feb. 2006 Order at 3-4.

The majority of domain name registrations for commercial purposes utilize the com TLD. FAC ¶ 43. CFIT alleges that demand for com TLDs is not interchangeable with other TLDs and consumers are willing to pay substantially more for com domain name registrations. Id. ¶ 40. As an example, CFIT alleges that no significant number of consumers switched from com to .net as a result of the more than thirty percent decrease in the registration fee for met registrations in July 2005. Id. ¶ 44. Indeed, CFIT asserts that many com domain name registrants consider the other TLDs to be complements to, rather than substitutes for, the com registration. Id. ¶ 41. Thus, a registrant often seeks concurrent domain name registrations in a number of TLDs (e.g., verisign.com, verisign .net, verisign.biz). Id. On the other hand, .net domain names have been the primary domain names used by registrants in the networking service, such as internet service providers and e-mail service providers. Id. ¶ 45. CFIT contends that substitution among TLDs is not feasible because many registrants' com or .net domain names have become their trademark or tradename, are associated with consumer goodwill, and represent their online brand name and identity. Id. ¶¶ 42, 45.

C. VeriSign and ICANN's Relationship

In the past ICANN has selected the registry operator for the com and .net TLDs through a bidding process. Id. ¶ 34 Once a registry operator is selected, it serves as the sole registry operator for the applicable TLD registry (com or net) until the expiration of the registry agreement. Id. ¶ 35. Currently, VeriSign is the registry operator for the com and .net domains pursuant to written registry agreements between ICANN and VeriSign. Id. ¶¶ 16, 25.

In May 2001 VeriSign and ICANN entered into a com registry agreement (the "2001 com Agreement") and a .net registry agreement (the "2001 .net Agreement") under which VeriSign was designated the sole registry operator of the com and .net TLD registries. Id. ¶¶ 67-68. The 2001 com Agreement was to expire November 10, 2007. Id. ¶ 69. Under this agreement VeriSign was permitted to make a written proposal sometime between November 10, 2005 and May 10, 2006 for a four-year renewal term. ¶ 69. ICANN was then to consider the proposal and grant the extension unless (1) ICANN determined that VeriSign was in material breach of the agreement, (2) the proposal contained a maximum price that exceeded what was allowed under the existing 2001 com Agreement, or (3) "certain other conditions appl[ied]." Id.

The 2001 .net Agreement was set to expire June 30, 2005. Competitive bidding was solicited prior to its expiration and VeriSign was again selected as the .net registry operator. Id. ¶ 34. Thus, in 2005, VeriSign and ICANN entered into a .net registry agreement (the "2005 .net Agreement").

VeriSign and ICANN have negotiated and signed a proposed com registry agreement (the "2006 com Agreement") that will replace the current 2001 com Agreement. Id. ¶ 71. The 2006 com Agreement effectively extends VeriSign's operation of the com registry for an additional five years beyond the original expiration date without any competitive bidding process. Id. ¶ 84. CFIT alleges that by negotiating and agreeing to the ...