March 17, 1998 2:10 PM PST

Class action against NSI in court

WASHINGTON--Network Solutions' (NSOL) role in domain name registration is called "the public scandal of the decade" by plaintiffs suing the domain name registrar in federal court here today.

Attorney William Bode, representing domain name registrants in a class-action suit challenging Network Solutions (NSI), said the company's deal with the government is "a license to steal, to commit robbery on the information highway, and to accumulate fabulous riches" at the public's expense.

NSI is charged with doling out Internet addresses in the most popular top-level domain names, including ".com," ".net," and ".org".

The plaintiffs contend that NSI, under contract with the National Science Foundation (NSF), is overcharging for domain name registration. The plaintiffs have specifically targeted a 30 percent fee that has been going into a fund for Internet infrastructure.

They argue that because the infrastructure fee is collected by an organization working for the government--NSI--and goes to a governmental purpose, it is an illegal tax. "If it quacks like a tax, it's a tax," Bode said, noting that this was never approved by Congress as the Constitution requires.


Plaintiffs in a class-action suit presented a humorous illustration of how they see the domain name problem.

NSI charges $100 per domain name for two years and $50 per year thereafter. Yesterday, NSI and the NSF announced that beginning April 1 they would stop collecting the 30 percent fee. An NSF spokeswoman said the move was unrelated to the class action.

Today, lawyers for the government defended both the registration fees and the infrastructure fund. NSI asked U.S. District Judge Thomas Hogan to dismiss the case.

Suzanne Nyland, representing the government, argued that whether NSI's agreement with the NSF is a good deal for the public, it was negotiated properly.

The domain registration fee, including the portion that goes to the infrastructure fund, is "a fee for service. How it is spent, how it is appropriated, is an entirely different issue," she said.

"The parade of horribles that the plaintiff has suggested"--NSF and NSI ripping off the public--has not occurred, she added. Nyland noted that the money from the infrastructure fund was neither designated for nor used by the NSF, so there was no kickback to the NSF from its deal with Network Solutions.

But she conceded that $23 million from the fund did in fact end up in the hands of the NSF, transferred there recently by an act of Congress. The money was slated for the Next Generation Internet project, an effort to speed up the Internet that was begun by a consortium of universities and then adopted by the White House. Judge Hogan has frozen all money from the fund pending a final ruling in the lawsuit.

Nyland said that Congress effectively approved the infrastructure fee retroactively.

Bode and his cocounsel, George Washington University professor George Nash, argued that the NSF-NSI deal gave Network Solutions an illegal monopoly on registration for the major top-level domains.

It was "a license to charge people whatever they want," he said.

Hogan seemed sympathetic to that argument. "Here, in essence, they've granted a private company a license to charge whatever they want to charge," Judge Hogan remarked. He asked Nyland if there were any constraints: "Could they charge $5,000, $10,000?"

There was the restraint of the marketplace, Nyland answered. Charge too much, and people will take their business elsewhere.

"I think it's really a monopoly," Hogan countered.

"It's not a monopoly," Nyland said. "You can choose to go under the owner of another domain name. Plaintiffs chose voluntarily to buy these domain names and did not have to do so."

Many have contended, however, that NSI and the NSF do run a monopoly because anyone wanting one of the most commonly used top-level domain names must register it through NSI. Alternatives are generally limited to country codes.

NSI attorney Gary Wilson argued that the arrangement with the NSF bore tremendous risk for Network Solutions. Imagine, he said, what would have happened if NSI "had had to put in place a system for checking trademarks" or if Microsoft had decided to set itself up as a provider of third-level domain names (e.g., "yourname.msn.com"). NSI might have faced tremendous expenses or competition from the software giant, and "NSI bore that risk."

Hogan asked if the government in this case just "made a bad deal--like the $500 door knob or the $200 toilet seat? The government gave them permission to charge this much, and it may be a bad deal for taxpayers." The question remained, however, if the arrangement is illegal.

Bode argued that it is, because NSI charges the fee "cloaked in the robes of governmental authority, [and] it stands in the shoes of the government with respect to constitutional limitations."

Hogan said he would issue a ruling later on the defendants' motion for a summary judgment. On February 2, Hogan issued a preliminary injunction barring the federal government from spending any of the $50 million-plus it has collected from the infrastructure fee.

The hearing was held in the "electronic courtroom" at the federal courthouse in Washington. The courtroom is specially equipped with 16 monitors for high-tech cases.

 

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