The International Corporation for Assigned Names and Numbers ("ICANN"), a non-profit corporation formed under California law that is the governing body that administers the Domain Name System ("DNS"), must face antitrust scrutiny for its approval of the .XXX Top Level Domain ("TLD").
Before 1998, the U.S. federal government operated the DNS. In 1998, however, ICANN was formed to "privatize" the Internet, so that the DNS would be operated by a separate legal entity rather than a government.
As part of its ongoing responsibilities, ICANN determines what TLD's to approve, and chooses registries for existing or newly-approved TLD's.
As we have previously discussed, ICANN opened a Pandora's Box recently by accepting applications for thousands of new TLD's.
In 2011, one of the new TLD's that ICANN approved (with controversy) was the new .XXX domain.
ICANN claimed that one of the reasons for creating .XXX was to offer a clearly-defined TLD for adult entertainment and pornographic websites that could be more easily identified and filtered out by schools, libraries, churches and businesses.
Opponents argued, among other things, that it was a toothless exercise, since nothing prevented adult entertainment and pornographic websites to continue to register new domain names and corresponding websites ending with the more popular .COM, .NET, .ORG TLD's.
Therefore, opponents argued, it was nothing more than a money grab by ICANN and the chosen Registry for the .XXX (named "ICM"), to force individuals and businesses to expend money to purchase "defensive domain name" registrations.
Recently, Manwin Licensing International S.A.R.L. and Digital Playground, players in the adult entertainment and adult film industry related to the incredibly popular YouPorn.com website, recently filed suit against ICANN and ICM, the Registry that operates the .XXX TLD, for antitrust violations under the federal Sherman Act.
Their argument was that ICANN and ICM had unlawfully price fixed and restrained trade by creating the .XXX domain name, with the goal of forcing businesses to unnecessarily spend millions of dollars to register domain names that it otherwise didn't want or need.
ICANN shot back by moving to dismiss the Antitrust Complaint against it, arguing that ICANN, as a not-for-profit organization authorized by federal law to govern the Internet, is not a market participant, and is therefore legally incapable of conspiring to set prices or monopolize markets.
ICANN vigorously argued that its decision to create a new TLD such as .XXX is not an action that "could even conceivably result in a finding that [it] had restrained trade or monopolized a market."
However, despite its aggressive motion practice right out of the box, the U.S. District Court sitting in the Central District of California where the case was filed, ruled that ICANN CAN be accused of manipulating a market, for the purposes of receiving antitrust scrutiny under the Sherman Act.
Specifically, the Court found that "defensive registrations" are a legally defined market for antitrust purposes, and allowed that portion of the suit to proceed. Further, the Court dismissed ICANN's argument that it was totally immune from facing antitrust scrutiny:
"The Court finds the transactions between ICANN and ICM ... 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. Even aside from collecting fees from ICM under the contract, ICANN’s activities would subject it to the antitrust laws."