Name.space, Inc. v. Internet Corp. for Assigned Names & Nos.

Decision Date31 July 2015
Docket NumberNo. 13–55553.,13–55553.
Citation795 F.3d 1124,115 U.S.P.Q.2d 1949
PartiesNAME.SPACE, INC., Plaintiff–Appellant, v. INTERNET CORPORATION FOR ASSIGNED NAMES AND NUMBERS, Defendant–Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Michael B. Miller (argued), Craig B. Whitney, Adam J. Hunt, Morrison & Foerster LLP, New York, N.Y., for PlaintiffAppellant.

Jeffrey A. LeVee (argued), Eric P. Enson, Kathleen P. Wallace, Jones Day, Los Angeles, CA, for DefendantAppellee.

Appeal from the United States District Court for the Central District of California, Percy Anderson, District Judge, Presiding. D.C. No. 2:12–cv–08676–PA–PLA.

Before: STEPHEN REINHARDT, N. RANDY SMITH, and ANDREW D. HURWITZ, Circuit Judges.

OPINION

HURWITZ, Circuit Judge:

The Internet Corporation for Assigned Names and Numbers (ICANN) creates and assigns top level domains (“TLDs”), such as “.com” and “.net.” In 2012, ICANN accepted applications for the creation of new TLDs. This suit alleges that the 2012 Application Round violated federal and California law. The district court dismissed the complaint, and we affirm.

I. Factual Background
A. Top Level Domains

Each Internet website is assigned a unique Internet Protocol (“IP”) numerical address. For ease of searching, websites also have alphanumeric domain names, such as “nytimes.com.” The portion before the dot—“nytimes”—is called the “second level domain.” The portion after the dot—“com”—is the TLD.

There are three main types of TLDs—sponsored TLDs (such as “.gov” and “.edu”), restricted to users who meet specified criteria; country-code TLDs (such as “.uk” or “.fr”), controlled by sovereign nations; and generic TLDs (such as “.com” and “.net”), those at issue in this case, open to all users. Individual generic TLDs are operated by registries, such as VeriSign, which sell the ability to register a domain name with a particular TLD and maintain a zone file, or registry, of all the domain names associated with that TLD. These registries approve registrars, such as godaddy.com, to sell domain names incorporating those TLDs to the public.

A “Domain Name System” (“DNS”) links each of these unique domain names with the IP address corresponding to that website. When an Internet user searches for a domain name, the DNS converts the domain name to the IP address by searching a list of TLDs called the “root zone file” (the “Root”). Additional TLDs are made available by organizations other than ICANN on alternative root files. However, alternative root files can only be accessed through special settings not routinely employed by most Internet users. Thus, the vast majority of Internet users can only access websites with TLDs included in the ICANN controlled Root. When the complaint in this case was filed, ICANN included eight generic TLDs on the Root.

B. ICANN

The DNS and the Root were initially managed by the National Science Foundation. See Daniela Michele Spencer, Note, Much Ado About Nothing: ICANN's New gTLDs, 29 Berkeley Tech. L.J. 865, 867–69 (2014). In 1997, the National Science Foundation transferred control to the Department of Commerce (“DOC”). The DOC later issued a white paper proposing that management be transferred to a private, not-for-profit corporation. See Management of Internet Names and Addresses, 63 Fed.Reg. 31,741, 31,741 (Jun. 10, 1998).1 The white paper suggested that the corporation's board of directors “should be balanced to equitably represent the interests of IP number registries, domain name registries, domain name registrars, the technical community, Internet service providers (ISPs), and Internet users (commercial, not-for-profit, and individuals) from around the world.”Id. at 31,750 ; see also A. Michael Froomkin & Mark A. Lemley, ICANN and Antitrust, 2003 U. Ill. L.Rev. 1, 12 (2003).

In 1998, the DOC contracted with ICANN, a non-profit corporation, to manage the Internet Assigned Numbers Authority (“IANA”). See Justin T. Lepp, Note, ICANN's Escape from Antitrust Liability, 89 Wash. U.L.Rev. 931, 935, 959–60 (2012) ; Froomkin & Lemley, supra, at 15. ICANN thereby obtained the authority to operate the DNS and the Root, add new TLDs to the Root, and determine which registries would operate existing TLDs. The Memorandum of Understanding between the DOC and ICANN reserved the DOC's right to withdraw recognition of ICANN. See Froomkin & Lemley, supra, at 13–14. In 2009, the Memorandum lapsed and the DOC formally relinquished control over DNS policy to ICANN. See Lepp, supra, at 935.2

ICANN is controlled by a board of directors with qualifications along the lines proposed in the white paper; many are industry insiders. The government has no formal input into the selection of the directors. See Froomkin & Lemley, supra, at 10–11.

C. name.space

name.space is a registry specializing in “expressive” TLDs, such as .art, . food, .magic, .music, .now, and .sucks. According to the complaint, name.space's business model contemplates “the simultaneous operation of a significant number of TLDs.” None of name.space's TLDs is currently available on the Root.

D. The 2000 and 2012 Application Rounds

In 2000, ICANN first solicited applications for new TLDs. The application instructions were seven pages, the fee was $50,000, and a single application could seek multiple TLDs. The application included a release of all liability against ICANN. name.space applied for 118 TLDs. ICANN approved only seven new TLDs, none of which was awarded to name.space.

In 2012, ICANN again accepted applications for new TLDs. This time, the application guidebook was 349 pages in length, the fee was $185,000, and each application could seek only one TLD. Unsuccessful applicants from the 2000 Round received an $86,000 credit on one application, but were required to waive any claims arising from the 2000 Round. name.space did not apply in 2012 because the financial and procedural costs were too high. As in 2000, applications for new TLDs in 2012 came largely from industry insiders.

The list of TLDs applied for by others in 2012 included 189 TLDs currently in use by name.space. As of the filing of the complaint, ICANN had not announced which new TLDs will be included on the Root.3

E. Procedural Background

In 2012, name.space filed a complaint in the Central District of California, alleging that ICANN violated sections 1 and 2 of the Sherman Act, the Lanham Act, the California Cartwright Act, and the California Business and Professions Code in connection with the 2012 Application Round. The complaint also alleged common law trademark, unfair competition, and tortious interference claims.

In 2013, the district court granted ICANN's motion to dismiss the complaint, holding that the trademark and unfair competition claims failed to present a justiciable case or controversy, and that the other claims failed to state a claim upon which relief could be granted.4 The district court dismissed the Sherman Act § 2 claim with prejudice, and granted name.space leave to amend as to all other claims. After name.space elected not to amend, final judgment was entered in favor of ICANN. This timely appeal followed.

II. Jurisdiction and Standard of Review

We have jurisdiction over this appeal under 28 U.S.C. § 1291. We review de novo dismissals for failure to state a claim, Coal. for ICANN Transparency, Inc. v. VeriSign, Inc., 611 F.3d 495, 501 (9th Cir.2010) ( “ICANN Transparency ”), and for absence of a justiciable case or controversy, Laub v. U.S. Dep't of Interior, 342 F.3d 1080, 1084 (9th Cir.2003). “All allegations of material fact are taken as true and are construed in the light most favorable to” the plaintiff. ICANN Transparency, 611 F.3d at 501.

III. Sherman Act § 1

Section 1 of the Sherman Act prohibits conspiracies “in restraint of trade or commerce.” 15 U.S.C. § 1. A § 1 claim requires: (1) a “contract, combination or conspiracy among two or more persons or distinct business entities”; (2) which is intended to restrain or harm trade; (3) “which actually injures competition”; and (4) harm to the plaintiff from the anticompetitive conduct. Brantley v. NBC Universal, Inc., 675 F.3d 1192, 1197 (9th Cir.2012) (internal quotation marks omitted). “Because § 1... does not prohibit all unreasonable restraints of trade but only restraints effected by a contract, combination, or conspiracy, the crucial question is whether the challenged anticompetitive conduct stems from independent decision or from an agreement, tacit or express.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 553, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (alterations, citations, and internal quotation marks omitted).

A complaint asserting a § 1 claim must allege facts “plausibly suggesting (not merely consistent with) a conspiracy. Id. at 557, 127 S.Ct. 1955. It is not enough merely to include conclusory allegations that certain actions were the result of a conspiracy; the plaintiff must allege facts that make the conclusion plausible. See Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1047–48 (9th Cir.2008). This standard does not impose a “probability requirement,” but “simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement.” See Twombly, 550 U.S. at 556, 127 S.Ct. 1955.

The complaint in this case alleges that the rules and procedures governing the 2012 Application Round were the result of a conspiracy between ICANN, its board members, and industry insiders. As is common, the complaint includes no direct allegation of an agreement among the alleged co-conspirators. See Oltz v. St. Peter's Cmty. Hosp., 861 F.2d 1440, 1450–51 (9th Cir.1988). Rather, the complaint's conspiracy assertion rests on the following alleged circumstantial evidence: (a) some of ICANN's board members have “known, vested interests in the economic performance of the TLD registries”; (b) ICANN and its board designed the rules for the 2012 Application Round; (c) the 2012 application price was significantly higher than the 2000 price,...

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