Verisign's antitrust case against the Internet Corporation for Assigned Names and Numbers (ICANN) suffered a serious setback on May 19 when a federal judge in Los Angeles dismissed its antitrust claim. On February 26, Verisign had filed a complaint against ICANN, asserting various causes of action, including antitrust violations under Section 1 of the Sherman Act. The judge dismissed this cause of action because of Verisign's failure factually to allege a conspiracy and injury to competition.
According to Verisign's complaint, ICANN is a nonprofit corporation that was formed in 1998 in response to a plan by the Department of Commerce to create competition in the field of domain name registration. The Internet is made up of numerous top level domains (TLDs). Some of the TLDs are generic (gTLDs), such as .com, .net. and .gov, while others are country codes (ccTLDs), such as .uk or .ca. Each TLD has a single entity registry responsible for keeping the records and a directory of all the domain names registered with that TLD. Anyone wishing to register a domain name with any particular TLD must do so through the registrar for that TLD. Approximately 250 TLDs exist throughout the world that compete with one another, through their registries, to attract registrars (companies that offer registration services to consumers; for instance, Network Solutions) and registrants (consumers registering a domain name; for instance, USA TODAY).
The complaint further asserts that one of ICANN's functions is to enter into registry agreements that authorize an entity to act as the registry for a particular gTLD. In 2001, Verisign and ICANN entered into a registry agreement authorizing Verisign to act as the sole registry for the very important .com gTLD. According to the agreement, Verisign must provide certain registry services to accredited registrars in line with ICANN's specifications.
The heart of the dispute is Verisign's contention that ICANN has conducted itself in such a way to prohibit or restrict Verisign from offering services valuable to Internet users, imposed inappropriate conditions on the offering of such services by Verisign, regulated and set prices at which such services may be offered, and delayed the introduction of new services. As a result of ICANN supposedly blocking, delaying and restricting the value-added services Verisign has tried to offer its customers, Verisign allegedly is at a competitive disadvantage because the other TLD registries have been able to introduce similar services without restriction or delay.
Verisign's antitrust claim is asserted under Section 1 of the Sherman Act, which provides that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." Verisign seeks to recover treble (triple) damages for the alleged violation of the Sherman Act, pursuant to Section 4 of the Clayton Act.
To sustain its antitrust claim, Verisign must sufficiently allege antitrust conspiracy. Indeed, according to the judge, Verisign, is required to allege as a matter of fact that ICAAN's decision- making process was controlled or greatly influenced by economic competitors who have agreed to injure Verisign. Unfortunately for Verisign the judge concluded that it did not meet this burden. According to the judge, "there is not even an allegation (much less factual allegations supporting it) that the Board of ICAAN has actually conspired with any of Verisign's competitors. Nor are there sufficient allegations that competitors control or influence ICAAN."
In addition to the foregoing defect, the judge ultimately concluded that Verisign did not sufficiently alleged antitrust injury to have legal standing in the lawsuit. It is not enough to simply allege that Verisign has been put at a competitive disadvantage by ICAAN. Rather, Verisign is required to allege harm to competition. Because Verisign only alleged "injury to its own business," the judge ruled that Verisign did not have antitrust standing.
All is not lost for Verisign in this case. The judge has permitted Verisign an opportunity to amend its complaint to cure its defects. However, if the facts are not there, Verisign's antitrust claim will be lost, because any allegations added to the complaint must be grounded in actual facts. Antitrust allegations raise serious issues, and without rigorous factual support, antitrust cases will be knocked out of court.
Eric J. Sinrod is a partner in the San Francisco office of Duane Morris (www.duanemorris.com), where he focuses on litigation matters of various types, including information technology disputes. His column appears Wednesdays at USATODAY.com. His Web site is www.sinrodlaw.com, and he can be reached at ejsinrod@duanemorris.com. To receive a weekly e-mail link to Mr. Sinrod's columns, please send an e-mail with the word Subscribe in the Subject line to ejsinrod@duanemorris.com.