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from www.business2community.com – Some readers may remember hearing about a court ruling from last month that made some waves in the domain name space.

The Central District of California District Court ruled that the lawsuit filed by Manwin Licensing, the owner of YouPorn.com against ICM Registry, the operator of the .XXX gTLD, could proceed, indicating that ICANN is subject to U.S. antitrust laws.

Many assumed that this ruling would mean that new generic-term gTLDs would be subject to antitrust laws, and therefore would be open to antitrust lawsuits. FairWinds’ Counsel Steve Levy weighs in on this topic in a special post below.

On August 14, 2012, a Federal Court in California denied most of ICANN’s motion to dismiss an antitrust case that was brought against it and ICM Registry (the operator of .XXX) by a plaintiff who owns some of the most popular adult entertainment websites in the world.

Some have speculated that this could signal trouble for the entire New gTLD Program and leave both ICANN and new gTLD applicants open to further lawsuits. However, a careful analysis of the decision reveals facts that, if proven at trial, may make this decision applicable only to the unique situation of the .XXX domain and limit its impact on the New gTLD Program, or at least render it only partially relevant to new gTLD applicants.

From the very beginning, observers must take the facts discussed in the Court’s decision with a grain of salt. Under established court procedures, all of the Plaintiffs’ factual allegations must be accepted as true for the limited purposes of the Defendants’ motion for summary judgment – regardless of whether there is proof to support them. In the Manwin case, the Plaintiffs allege that the Defendants harmed competition in the market for .XXX gTLD registry services by suppressing or eliminating competing bids for the original .XXX gTLD registry contract and any renewals of that contract. They claim the resulting no-bid contract contains unfavorable prices and sales terms that Plaintiffs allege would not exist in a competitive market. Plaintiffs further allege that ICM mounted a coercive campaign to force ICANN to approve the .XXX gTLD and award the registry contract to ICM. This campaign allegedly included false statements and misrepresented the claimed interest from both the public and the adult entertainment industry in establishing a .XXX gTLD.

To establish a claim under Section 2 of the Sherman Act, a plaintiff must show that the defendant has monopoly power in a relevant market, and that its predatory conduct has caused antitrust injury. Since it is required that a plaintiff prove defendant’s monopoly power in a relevant market, defining just what that market is becomes critical. In the Manwin case, the two “markets” which Plaintiffs assert are 1) the market for affirmative domain registrations (where the owner actually uses the domain for its business) and 2) the market for defensive domain registrations (where the owner merely wants to prevent someone else from owning a domain that incorporates their brand).

In finding that no monopoly power exists for the affirmative domain market, the Court stated that:

“Plaintiffs have not alleged why other currently operating TLDs are not reasonable substitutes to the .XXX TLD for hosting adult entertainment websites. To the contrary, Plaintiffs allege that Manwin’s own website YouPorn.com is the most popular free adult video website on the internet. The .com TLD is an adequate economic substitute for an adult content website registered in the .XXX.”

However, in addressing the defensive domain market, the Court found that monopoly power may exist and that the Plaintiffs’ antitrust claims, which are based on that defensive market, may proceed. This is due to the fact that “[t]here is no reasonable substitute for these defensive registration services, because the only way to block a name in the .XXX TLD is to register a name in the .XXX TLD.”

Since the only way to block a name in any gTLD is to register or otherwise eliminate that name in the gTLD itself, the Court’s finding on this relevant market monopoly will likely apply to all new gTLD registries. This is what has caused some to speculate that the Manwin case might be the first shot in a prolonged war against ICANN and new gTLD Registry Operators.

However, it is important to remember that suits filed under the Sherman Act are also required to prove antitrust injury. In denying ICM and ICANN’s motion to dismiss the complaint, the Court relied on Plaintiffs’ claims that the .XXX Registry Agreement was not subjected to free competition but was coerced by ICM; that there are no limits on the prices ICM can charge for .XXX domains; and that when the agreement expires in 10 years, ICANN is obligated to negotiate its renewal with ICM, thus preventing other registries from seeking to manage the .XXX gTLD.

So this leads to the big question of whether there has been, or will be any anticompetitive behavior by ICANN or applicants in the current New gTLD Program. While the process had a high bar to entry – in the form of a $185,000 application fee and extensive background checks – it has been open to all on the same terms.

Assuming that ICANN treats all applicants equally and does not conduct any back-room deals to stifle competition through the Registry Agreement negotiation process, its handling of contention sets, auctions, and the various gTLD dispute processes, one could argue that the inevitable monopolies in defensive domain markets are permitted and do not run afoul of the Sherman Act.

As such, whatever decision results in the Manwin case may be strictly limited to the unique situation of the .XXX gTLD and may amount to much ado about nothing for new gTLD applicants. Of course, if new Registry Operators wish to avoid the monopoly question altogether, they could consider something novel like offering free defensive registrations to brand owners.

In any event, this case may be a wake-up call to ICANN. The cost of defending the dispute, alone, may lead to a realization that it needs to tread more carefully in future negotiations and approvals, implement improved ethics and conflicts of interest policies, and pay more attention to the voices of its constituents who may not be providing the most revenue to the organization but who could amplify their voices through use of the courts.

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