ICM Responds To Manwin’s .XXX Suit With Motions To Dismiss

ICM filed its repose to the lawsuit filed by Manwin Licensing International, S.a.r.l. (“Manwin”) and Digital Playground, Inc. (“DP”), which was recently acquired by Manwin, asking the Court to throw out the case.

Manwin operates various adult websites including YouPorn.com

ICM asks the court to hold a hearing on its Motion to Dismiss on April 2nd.

We have read through the 31 page memo in support of ICM’s Motion to Strike and here are the highlights:

“The Complaint here is nothing more than a transparent and ironic attempt to use the antitrust laws to eliminate a new internet platform for adult content—.XXX—that Plaintiff Manwin perceives as posing unwelcome competition to its dominant .com adult-entertainment empire.”

“Given that context, it is not surprising that not only are their various antitrust theories internally contradictory, but Plaintiffs do not even make a serious attempt to allege the requisite elements of their claims.”

Even though the Complaint itself recites the long and frustrating history of ICM’s efforts to secure approval for the .XXX Top-Level Domain Name (“TLD”), despite repeated ICANN rejections of its application and the absence of sustained interest from any other bidders, Plaintiffs nevertheless contend that ICM and ICANN were conspiring to eliminate competition for the establishment of adult-oriented TLDs and .XXX registry services during this same period.”

“Similarly, although it is well-established that the antitrust laws exist to protect the competitive process and not the profit streams of individual firms, it is clear from the Complaint that Plaintiffs’ real concern is with the competition to their .com websites that may be posed by rivals offering adult content via .XXX domain names—a business in which neither ICM nor ICANN participates.”

“But it is the proposed remedy for these purported violations that really exposes the baselessness of Plaintiffs’ claims and their ulterior motives in bringing this action.”

“Presumably because they cannot show any damages from the challenged conduct, Manwin and Digital Playground instead seek sweeping and unsupportable injunctive relief “enjoining the .XXX TLD altogether,” voiding the ICM-ICANN contract “and/or” imposing price and other restrictions on the offering of registry services.”

“Plaintiffs make such requests even though they cannot identify any authority requiring ICANN to insist on competitive bidding or contractual price constraints in contracts for new TLDs and acknowledge that ICANN’s operations (including its recommendations for new TLDs and registry contracts) are subject to review by the U.S. Department of Commerce (“DOC”).””

“”Unfortunately for Plaintiffs, under the Supreme Court’s most recent formulation of the pleading standard in antitrust cases, they must do more than merely assert the existence of Sherman Act violations to get past a Rule 12(b)(6) motion. Given the absence of factual allegations plausibly suggesting the existence of antitrust injury, standing, any unlawful ICM-ICANN agreement, or even unilateral anticompetitive conduct, the Complaint must be dismissed.”

“”The Complaint contends there are two separate relevant markets at issue in this case. ”

“”Plaintiffs also contend there is a second relevant market for “affirmative registrations” of names within TLDs connoting adult content.”
“Affirmative registrations are intended to make use of a domain name for the purpose of identifying websites showing new content.””
“Despite the fact that .XXX was fully launched only on December 6, 2011 (after the filing of this Complaint) and, by their own admission, YouPorn.com “is the world’s most popular source for free adult-oriented streaming videos,” Plaintiffs contend there is a “serious danger” that ICM “will establish and monopolize” this purportedly distinct market.”
“”(1) The approval of the .XXX TLD; (2) the approval of ICM as the .XXX registry, and of the contract with ICM; (3) an ICM/ICANN contract that does not contain restrictions on ICM pricing of registry services; and (4) ICANN acquiescence in ICM’s charging allegedly “supracompetitive” prices for defensive registrations, limiting the availability of permanent blocking and requiring registrants to adhere to IFFOR policies.”

“In addition to their § 1 claim, Plaintiffs assert that in violation of the § 2 provisions directed at single-firm conduct both ICM and ICANN “have acted willfully to have ICM acquire and perpetuate a complete monopoly” in the purported “market for permanent blocking and other defensive registrations in the .XXX TLD.”

“Next, Plaintiffs assert the same § 2 claims, again against both ICM and ICANN, with respect to the so-called “incipient market for the affirmative registration of domain names in the .XXX TLD.” ”

“The injunctive relief sought for all these § 2 claims is almost identical to what is requested for their § 1 claim (i.e., enjoining .XXX altogether, voiding the ICM/ICANN registry contract and institution of price controls), with an additional plea for imposition of price and service constraints on so- called “affirmative registration[]” services.”

“Finally, Plaintiffs assert state antitrust and unfair competition claims premised on the same allegedly anticompetitive conduct”

III. LEGAL STANDARD

In order to make out their Sherman Act §1 claim, Plaintiffs must allege facts showing (1) concerted action among two or more independent entities, (2) an unlawful restraint of trade, and (3) antitrust injury.7 Kendall v. Visa U.S.A. Inc., 518 F.3d 1042,

“Any private plaintiff seeking to state a claim for violation of § 1 or § 2 of the Sherman Act must plausibly allege that it has suffered “antitrust injury.”

“The Ninth Circuit has enunciated a four-part definition of antitrust injury: “(1) unlawful conduct, (2) causing an injury to the plaintiff, (3) that flows from that which makes the conduct unlawful, and (4) that is of the type the antitrust laws were intended to prevent.”

“As a practical matter, “plaintiff must show how defendant’s anticompetitive conduct harms both competition and plaintiff.”

Manwin and DP cannot hope to meet this standard. Here is what they allege to be the principal, imminently threatened “injury” resulting from their purported inability to register in .XXX: (1) the “diversion of business away from Plaintiffs, harm to Plaintiffs’ name rights, and loss of Plaintiffs’ business income” that will allegedly occur with “the probable registration of similar names by others in .XXX” and (2) “to the extent consumers associate the .XXX TLD with adult content,  lost business and income [Plaintiffs] could otherwise earn from affirmative registrations in .XXX.””The first problem with these allegations is that, at best, they describe hypothetical harm to Plaintiffs themselves and not, as the Supreme Court requires, to the competitive process or consumer welfare. “
“The Complaint concedes that, consistent with its unprecedented commitment to safeguard the rights of intellectual property owners, during a two-month “Sunrise” period ICM “sold through approved registrars … the permanent right to block use of names in the .XXX TLD” for “a one-time fee of about $150.”
“Plaintiffs admit that this option was available to all registered trademark owners, which they suggest they are,  yet do not allege they ever sought to purchase permanent blocking rights.”

“They also admit that defensive blocking rights for their domain names, whether or not those names are trademarked—are still available—just on an annual, rather than permanent, basis.”

“Plaintiffs’ quarrel with this option is that the purchase of annual blocking rights is more expensive (at $60 per year) and that those purchasing annual services are “forced by ICM to agree to comply with policies of IFFOR,” ICM’s sponsoring organization.”

“The second of these allegations is pure fiction and the first plainly does not qualify as antitrust injury.”

“Plaintiffs, of course, do not claim to have actually paid the annual fee, and even if they had, their unsupported assertion that the fee is “supracompetitive” is insufficient to support an inference of market-wide anticompetitive harm.”

“Having failed to make out the antitrust-injury element of their claims, Plaintiffs also lack standing to proceed with this case. ”

Plaintiffs Fail to Allege an Unlawful Agreement Between ICM and ICANN Plaintiffs’ Sherman Act § 1 and Cartwright Act claims also fail because the conduct that the Complaint principally alleges—an eleven-year (ultimately successful) effort by ICM to obtain approval for the .XXX TLD and a contract to operate th registry—simply does not describe, as it must, a plausible conspiracy between ICMand ICANN “intended to harm or restrain trade or commerce [and] which actually injures competition.”
“The Complaint contains no facts supporting its mere assertion that ICM and ICANN conspired to “approve[e] the .XXX TLD without competition from any other adult-content TLD” or to “approve[e] ICM as the registry of the .XXX TLD” without competition from other registries.”

“There are no allegations suggesting that ICANN closed the process to other adult TLDs or .XXX proposals—the object of the supposed agreement.”
“Given that ICANN repeatedly rejected or resisted ICM’s .XXX TLD applications over ten years, ICANN’s purported failure to “solicit” or “entertain” alternative .XXX proposals during that time cannot plausibly suggest a preceding agreement to anoint ICM as the .XXX registry.”
“Rather, the “obvious alternative explanation” is that ICANN was acting independently when it considered (and several times rejected), ICM’s applications”
“Even if ICM and ICANN had agreed in 2004 to consider only ICM as the .XXX registry, that act occurred well outside of the four year statute of limitations for the Sherman or Cartwright Acts, and cannot be a basis for Plaintiffs’ 2011 Complaint.”

“Nor is there any basis to infer a conspiracy between ICANN and ICM to commit “anticompetitive acts” on a bare allegation that ICANN “permitted” them to occur”

“Plaintiffs have not directly asserted—even in a conclusory fashion—an agreement between ICANN and ICM to bar other adult-content specific TLDs.”

Plaintiffs suggest that ICANN’s failure both to “solicit” or “consider any adult- content TLDs other than .XXX” and/or to “entertain” any competitive bids for the .XXX registry contract constitutes anticompetitive conduct for purposes of both its Sherman Act claims.”

“Such allegations, however, ignore the undisputed fact that in 2000, at the very beginning of its process for considering new TLDs, ICANN issued an RFP open to any interested parties, and three applicants in addition to ICM submitted proposals for adult-oriented TLDs.”

“ICANN thus clearly “solicited” and “considered” multiple bids for an adult-content TLD, but it chose to reject all four of them. ”

“Only ICM decided to try again with an application for an sTLD devoted to adult content, but the Complaint does not allege (presumably because it cannot) that there was ever any bar on similar efforts by other applicants. ”

“Nor is there any indication from the Complaint or elsewhere that another party (such as Plaintiffs) ever again expressed interest to ICANN in seeking approval for an adult-content TLD or later in becoming the .XXX registry—so if ICANN did not “entertain[]” alternative bids for the .XXX registry contract, it is because no one tried to submit one.”

“The fact that ICANN did not, as Plaintiffs now suggest they should have, insist on additional proposals subsequent to the 2000 RFP, cannot qualify as predatory conduct. ”

“The antitrust laws do not require competitive bidding, and Plaintiffs have which they say “may preclude ICANN from approving [other] TLDs” intended for adult content. As explained supra there is no such provision in the ICM/ICANN registry contract.”not pointed to any DOC or other regulatory authority that mandated ICANN to affirmatively seek out and obtain applications from additional parties.”

“The Complaint acknowledges that ICANN exercises its authority to approve new TLDs and choose registries pursuant to a series of agreements with DOC, but does not suggest those agreements contain any competitive bid requirement. “
“Plaintiffs concede that there can only be one registry for each TLD.”
“Of course, here the allegations do not even relate to an existing “monopoly” or the existing Internet at all, but rather the creation of an entirely new platform for adult content (proposed by ICM), which expands the number of TLD alternatives for consumers and creators of adult content alike.”
“As such, neither ICM’s nor ICANN’s conduct in establishing or operating .XXX can be “exclusionary” or “predatory” in the antitrust sense. “

“Plaintiffs also contend that ICM engaged in a variety of purportedly “predatory” lobbying efforts and “litigation tactics” designed to pressure ICANN to approve .XXX as an sTLD and ICM as its registry. ”

 

“Specifically, Plaintiffs complain about: (1) ICM efforts “leading to and after the rejection of its 2004 application … to persuade ICANN that ICM and the .XXX TLD met the sponsorship criteria;” (2) FOIA requests and ultimately a lawsuit filed by ICM against the State Department and DOC seeking documents “demonstrating their interest in the ICANN Board Resolutions in Carthage, Tunisia on the “XXX issue”; (3) ICM’s 2008 filing of an IRP challenging ICANN’s rejection of the .XXX TLD; and (4) “threats of litigation” against ICANN and its Board members if ICANN did not adopt the IRP majority Declaration ruling in ICM’s favor. ”

“With respect to ICM’s purported “lobbying efforts,” the Complaint concedes that notwithstanding the application of this purportedly “improper pressure,” ICANN twice rejected ICM’s .XXX TLD proposal. ”

“It is hard to see how, and ICM is aware of no authority suggesting that, entirely unsuccessful efforts to persuade another party can possibly qualify as predatory. In fact, the case law is clear that even successful attempts to persuade a decisionmaker to grant the petitioner a monopoly do not constitute anticompetitive conduct.”

The Complaint acknowledges that ICANN was created “in response to a [DOC] policy directive,” to administer the DNS, and is “charged by [DOC] with” “determining what new TLDs to approve, choosing [TLD] registries …, and contracting with the registries to operate the TLDs.”

Plaintiffs further admit that (1) pursuant to its bylaws and agreements with DOC, ICANN receives input from the U.S. and other national governments, and has committed to DOC that it will consider competition issues in approving TLDs and registries; (2) its activities are subject to review and comment by DOJ’s Antitrust Division; and (3) ICANN’s rejections of ICM’s proposal in 2006 and 2007 were prompted at least in part by opposition from DOC and other governmental entities.”

“Moreover, the injunctive relief Plaintiffs seek would require this Court to (a) enjoin .XXX altogether; (b) mandate that the .XXX registry contract be voided and “rebid to introduce competition;” and (c) “[i]mpos[e] reasonable price constraints and service requirements on” blocking services, as well as defensive and affirmative registrations in the .XXX TLD.”

“For the foregoing reasons, ICM respectfully moves this Court to dismiss the Complaint in its entirety.”

Beyond the motion to dismiss and accompanying legal memo’s, ICM also provided as exhibits to the motion certain demand letters of Manwin sent to ICM demanding to receive their TM domain for free, what appear to be a conversation between Fabian of Manwin and Stuart Lawley of ICM as well as emails between representatives of ICM and Fabian Thymann of Manwin from December 2010 where he says in part.

“Gac strongly opposes .XXX and its not going to pass the GAC.

Mr. Thyamm goes on to say in this email:

“there are no opportunities, the .XXX domain is useless, even if it comes to market, and I am not interested, just as I was not interested before”

 

Comments

  1. trust says

    why did they pick antitrust as their main argument?
    why not trademark?

    the icann-approved registry creates a threat of infringement by activating infringing domain names through icann’s domain name system.

    the names serve no real purpose from an web user navigation perspective.

    the names are aimed at capturing the results of either user confusion – mistakes in navigation where the user navigates soemwhere she did not intend to connect – or user uncertainty in navigation – where the user does not know what will result from typing a string and tacking .xxx on the end.

    contrast this with a telephone style directory where businesses are listed alongside their correct contact information, e.g. address, phone, fax, web.

    after deliberately creating user confusion and navigational uncertainty, the registry then sells “protection” through fees for so-called defensive registrations.

    maybe these adult entertainment companies just do not have good trademark coverage and that why they chose antitrust?

    the reality is that anyone can start a registry and do what .xxx is doing. people have choice in what naming system to use in navigating the web (or even not to use an external naming system at all), though they might not be aware of such choice. and they simply choose to use icann’s domain name system.

    the real issue might be framed as whether such icann registries are conducting legitimate business, or whether they are running protection rackets for trademark holders.

    without the threat of infringment that these registries deliberately create by inserting into their zone files domain names that are confusingly similar to trademarks, for a fee (or offering not to insert them, for a fee), their business would flounder.

  2. says

    Regardless of how the lawsuit turns out, Fabian’s words “the .XXX domain is useless, even if it comes to market” may prove to be true. According to Registrarstats, only 32 new .xxx domains were registered in the last 24 hours. I’m no expert, but I doubt one can keep a registry running on that kind of income.

  3. Miss Trust says

    @trust

    That argument could be used against any tld, cctld, stld no? Hey they are selling the same names in .whatever as we are in com, net org …

    no go

  4. trust says

    @miss trust

    it can and it should. going forward.

    just because the domain name system proponents made some mistakes in the past (and we had to pass anti-cybersquatting laws to deal with them) does not mean we need to keep making the same mistakes. it’s perfectly acceptable to ask the purpose behind what is being done here.

    maybe we should clone the uspto. then we could charge the same registrants for the same mark in the same class in the same jurisdiction multiple times. hey why not?

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