A federal court made a ruling in the case involving Manwin, the owner of YouPorn.com, brought against ICM, the operator of the .XXX extension, and ICANN the non-profit organization which gave ICM the contract to operate the .XXX TLD ICM.
The ruling involved ICM & ICANN’s motion to dismiss the case.
Bottom line ICM & ICANN got two of the 2 of the 6 cause of actions thrown out but the court let the case continue on 4 of the 6 claims.
The court cited time and time again throughout its ruling the federal court decision in the case brought by the Coalition for ICANN Transparency, Inc. (CFIT ) vs. Verisign, Inc., 611 F.3d 495 (9th Cir. 2010) in which the court rejected Verisign’s motion to dismiss the case in which CFIT alleged that the no bid contract granted by ICANN to Verisign violated among other things the Sherman Antitrust Act. You can read our post on the ruling on the Verisign case here which we knew was a big win for the plaintiffs.
So in the Manwin case the court summarized ICM’s & ICANN’s Motion to Dismiss:
“Defendants move on various grounds to dismiss the First Amended Complaint. ICM requests dismissal of all five causes of action for failure to allege (1) an antitrust injury, (2) a conspiracy between ICM and ICANN to restrain trade or monopolize a relevant market, and (3) anticompetitive or exclusionary conduct by ICM. For its part, ICANN argues for dismissal because (4) ICANN does not engage in trade or commerce, (5) ICANN acted unilaterally did not conspire with ICM, (6) Plaintiffs fail to identify relevant markets, and (7) the Third Cause of Action for conspiracy to attempt to monopolize does not exist under the Sherman Act.”
“Section 2 of the Sherman Act imposes liability on “[e]very person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations.”
“For a Section 2 monopolization claim, a plaintiff must establish (1) possession of monopoly power by defendant in a relevant market, (2) predatory conduct, and (3) causal antitrust injury.”
“A conspiracy to monopolize claim requires (1) the existence of a combination or conspiracy to monopolize, (2) an overt act in furtherance of the conspiracy, (3) the specific intent to monopolize, and (4) causal antitrust injury.”
“And an attempted monopolization claim requires (1) specific intent to control prices or destroy competition, (2) predatory or anticompetitive conduct, (3) a dangerous probability of success, and (4) causal antitrust injury.”
“Defendants move on various grounds to dismiss the First Amended Complaint. ICM requests dismissal of all five causes of action for failure to allege (1) an antitrust injury, (2) a conspiracy between ICM and ICANN to restrain trade or monopolize a relevant market, and (3) anticompetitive or exclusionary conduct by ICM.”
“For its part, ICANN argues for dismissal because (4) ICANN does not engage in trade or commerce, (5) ICANN acted unilaterally and did not conspire with ICM, (6) Plaintiffs fail to identify relevant markets, and (7) the Third Cause of Action for conspiracy to attempt to monopolize does not exist under the Sherman Act.”
“The Court will address these seven arguments for dismissal in turn. Ultimately, the Court finds, with two exceptions, that the First Amended Complaint adequately pleads antitrust claims. The first exception is the Third Cause of Action for “conspiracy to attempt to monopolize,” which is not a recognized cause of action. Second, the Court finds insufficient the allegations of a relevant market for affirmative registrations of names within TLDs connoting or intended exclusively or predominately for adult content. The insufficiency of this market requires the dismissal of the Third and Fifth Causes of Action.
By its terms, the Sherman Act applies to monopolies or restraints of “trade or commerce.”
“The Court finds the transactions between ICANN and ICM described in the First Amended Complaint are commercial transactions. ICANN established the .XXX TLD.”
“ICANN granted ICM the sole authority to operate the .XXX TLD.”
In return, ICM agreed to pay ICANN money.
“This is “quintessential” commercial activity and it falls within the broad scope of the Sherman Act.”
“An antitrust plaintiff must “identify the markets affected by [a defendant’s] alleged antitrust violations.” Big Bear Lodging Ass’n v. Snow Summit Inc., 182 F.3d 1096, 1104 (9th Cir. 1999). ”
“The plaintiff must allege “both that a ‘relevant market’ exists and that the defendant has power within that market.”
“Plaintiffs allege two different relevant markets.:
“1. Defensive Registration Market
“The first market is for blocking services and defensive registrations in the .XXX TLD or in other words, these owners seek to prevent others from using their names in the .XXX TLD.”
“ICANN argues this is not an appropriately defined market. ICANN Mot. 22:1-23:12. ICANN contends the market fails because there is no market for all .XXX defensive registrations.”
“The Court finds this argument is foreclosed by VeriSign.”
“In VeriSign, the plaintiff alleged a market of “expiring domain names.” VeriSign, 611 F.3d at 501. “Expiring domain names are names that have fallen back, or are about to fall back into the registry database as a result of non- renewal by their current owners.”
“The defendant argued this market was insufficient because each expiring domain name would be its own market, and there was no such thing as a market for all expiring domain names. ”
“Accordingly, Plaintiffs have adequately pled a relevant market for defensive registrations.”
“2. The second market described by Plaintiffs is for affirmative registrations of names within TLDs connoting or intended exclusively or predominately for adult content.”
“Plaintiffs posit that through “network effects” the .XXX TLD could attract more and more providers of adult content and consumers of adult content, until a point is reached when .XXX is the exclusive purveyor of adult content on the internet.”
“The Court finds Plaintiffs have failed to adequately plead the affirmative registration market. Plaintiffs have not alleged why other currently operating TLDs are not reasonable substitutes to the .XXX TLD for hosting adult entertainment websites.”
On the issue of Antitrust Injury the court ruled:
“The Ninth Circuit has identified four requirements for an 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.”
“Plaintiffs allege that Defendants harmed competition in the market for .XXX TLD registry services by suppressing or eliminating competing bids for the original .XXX TLD registry contract and any renewals of that contract.
“The resulting no-bid contract contains unfavorable prices and sales terms that Plaintiffs allege would not exist in a competitive market.
“Under the Ninth Circuit’s VeriSign decision, these are adequate allegations for antitrust injury.”
“In VeriSign, the plaintiff alleged very similar harm to competition through a conspiracy to eliminate competitive bidding for a domain registry contract and a conspiracy to limit competition for renewal of the contract. The elimination of “competition itself” is “precisely the type of allegation required to state an injury to competition.”
“In addition, the Ninth Circuit held that allegations of “higher prices for registration of domain names, and potentially lower-quality services” were sufficient to plead harm under the Sherman Act. Id. at 503. In accord with VeriSign, the Court finds Plaintiffs have adequately stated antitrust injuries.”
“Plaintiffs assert ICANN and ICM agreed to the following anticompetitive and predatory conduct: suppression of competition for the initial .XXX registry contract and renewal of that contract; preclusion of other adult content TLDs; setting above market prices and output restrictions; and delegating ICANN’s sales and pricing authority to ICM for the purpose of allowing ICM to institute even less competitive sales and pricing terms in the future.”
“The Court finds, once again, that these allegations are sufficient under VeriSign. ”
“While VeriSign confirmed that competitive bidding is not required under the Sherman Act, “concerted action between co-conspirators to eliminate competitive bidding for a contract is an actionable harm.”
“Plaintiffs have alleged just such conduct.”
Like the ruling in the Verisign case, this federal court is allowing the claim to move forward.
Of course in the Verisign case the plaintiff’s ran out of money against a public company with over $1 Billion in the bank at the time.
As we noted back when this case was filed, if the court rules against ICM and ICANN it could well jeopardize the entire new gTLD program.
We will continue to follow this case with much interest.