BY ROBERT ROMANO | JULY 30, 2014
The Internet antitrust trap?
By allowing its current contract with the Commerce Department to expire in September 2015, conferring a global monopoly on itself as the sole administrator of the domain name system (DNS), the Internet Corporation of Assigned Names and Numbers (ICANN) may be painting itself with an antitrust bull's eye.
Why? Once the contract's term ends, ICANN — a California-based non-profit corporation — will be the world's exclusive provider of generic top-level domains (like .com, .org, and so forth), assigner of numerical Internet Protocol (IP) addresses, as well as the sole recipient of industry-generated fees deriving from the sale of second-level domain names.
This is significant, because although it would be a government-created monopoly, once loose of the federal contract, it would presumably lose any implied antitrust immunity as a government contractor — if for no other reason that the sole basis for that immunity rests in the existence of the current government contract.
This is not the first time this issue has come up.
In fact, in 1999, Name.Space, which sought to set up its own generic top level domain names, tried to sue National Science Foundation and Network Solutions on antitrust grounds for monopolizing access to the Internet's root zone file, getting all the way to the 2nd Circuit Court of Appeals.
Ultimately, they lost because Network Solutions had implied antitrust immunity by virtue of its contract with the federal government to operate the root zone file.
From the court's decision: "we hold that Network Solutions (NSI) is entitled to implied conduct-based immunity... Name.Space is surely correct in arguing that the existence of a government contract does not automatically confer a federal agency's absolute antitrust immunity onto a private contractor. However, the conduct being challenged by Name.Space in this appeal was compelled by the explicit terms of NSI's agreement with a government agency and by the government's policies regarding the proper administration of the DNS."
The same would undoubtedly apply to ICANN's current contract with the Commerce Department. As a government contractor whose anticompetitive conduct is "compelled by the explicit terms of [an] agreement with a government agency and by the government's policies regarding the proper administration of the DNS," ICANN certainly is "entitled to implied conduct-based immunity."
As noted in a 2012 legal paper by Justin T. Lepp published in the Washington University Law Review, "ICANN's ties to the U.S. Department of Commerce make antitrust analysis difficult because of the well-established principle that the antitrust laws do not apply to the government or its instrumentalities. Although it is far from a federal agency, ICANN's relationship with the United States government deters antitrust scrutiny, particularly by federal antitrust enforcement authorities."
But, strip away the government contract — as is called for under the Commerce Department's plan — and ICANN might lose that immunity, exposing itself to perhaps the biggest antitrust suit since MCI vs. AT&T (1983), that broke up AT&T's telephone company monopoly.
One way somebody might raise a challenge would be to simply start a company with the stated mission to sell generic top level domain names and assign IP addresses to compete with ICANN. Such a company would certainly have standing to raise the antitrust case, as Name.Space did in the 1990s.
Alternately, a class action suit might be brought by anyone who has to pay exclusive fees to ICANN merely by virtue of owning a second-level domain name.
If nothing else, there would certainly be a case to be made on antitrust grounds. 15 U.S. Code Section 2 prohibits and makes a felony any attempt "to monopolize any part of the trade or commerce among the several States, or with foreign nations." 15 U.S. Code Sections 13 and 14 forbid any business practice where the effect "may be to substantially lessen competition or tend to create a monopoly in any line of commerce."
And as Washington University's Lepp notes: "ICANN has potentially harmed competition by conspiring with its registry operators to eliminate competitive bidding; by setting maximum prices for domain name registrations in the .com, .net, and .org top level domains (TLDs); and by limiting the introduction of new TLDs. As a result of ICANN's anticompetitive conduct, consumers pay more for domain name registrations than they otherwise would, and innovation is discouraged."
In the MCI case, AT&T attempted to argue that as an entity regulated by the federal government, it was entitled to antitrust immunity. However, that did not save it, with the court ruling that not only was AT&T a monopoly, but that it had acted with anticompetitive intent to maintain its monopoly.
In ICANN's case, when the contract ends, at the end of the day it will unquestionably possess 100 percent market share in selling generic top-level domains, assigning IP addresses, and collecting fees deriving from the sale of second-level domain names.
And since intent matters in these cases, if it will please the court of public opinion, ICANN's director Fadi Chehade has himself argued in favor of maintaining this monopoly even after the contract ends, in a January 28 interview with CNET.com: "The U.S. government as well as the contract itself has always defined that at some point that stewardship will be replaced by the multistakeholder stewardship of the ICANN community. This was always envisaged as coming, but the question was when and how. I have in the last few months publicly stated that the time for that has come."
Chehade added, "Now it is important for the U.S. government to appreciate it's time to have that stewardship headed to the world community through the ICANN's multistakeholder model."
So, after the exclusive government contract ends, ICANN fully expects and intends that it will retain control over this entire segment of the Internet marketplace. It wants to keep its monopoly.
ICANN would likely argue that the government contract landed on its lap resulting in the monopoly — that it was "thrust upon" it — but after the contract ends, why should that matter? As an unregulated entity, ICANN cannot wield an expired federal contract forever as a shield from ever following the law. Can it?
Even if the acquisition of the monopoly power was allowed under the antitrust federal contract exception, what about maintaining it long after that contract has expired?
Otherwise, the effect would be allowing the federal government to create exclusive monopolies to benefit favored interests that no other business on its own would ever be allowed to keep. What greater form of cronyism could exist?
Yet, that is precisely what the Commerce Department is engaged in — a government-directed cartelization of the industry that likely will result in price fixing and a reduction of competition, with the winners in that bid gaining control of the regulatory body itself, ICANN, which too will have discretion to charge whatever it likes for domain name fees paid by consumers to ICANN.
Pretty sweet deal for ICANN, and its backers, but it might not last, since it has all the appearances of collusion.
And that may make not just ICANN, but also domain registry operators like Verisign or Google that benefit from this arrangement liable for any damages that arise from a successfully brought antitrust suit, according to the American Antitrust Institute's "Private Enforcement of Antitrust Law in the United States: A Handbook."
To wit, the handbook warns, "In cases where multiple defendants have engaged in a conspiracy with anticompetitive effects, it is well established that each defendant is liable not only for the injury caused by its own conduct, but also is jointly and severally liable for the injuries caused by the illegal acts of its co-conspirators. An antitrust action is a tort action, and, as such, co-conspiring joint tortfeasors are jointly and severally liable for the entire amount of damages caused by their acts."
All of which exposes the potential folly of the unquestioning, knee-jerk support that domain registry operators like Google gave to ICANN's bid for independence earlier this year. Google for example, is currently in the process of applying to be the registry operator of 101 new generic top-level domains.
Considering the potential damages that might arise via antitrust against the Internet cartel, perhaps they have not fully thought the matter through.
Robert Romano is the senior editor of Americans for Limited Government.