An “X” on the New TLDs? In “.XXX” Lawsuit, Court Dismisses ICANN’s Claim that it is Immune from Antitrust Violations

The Internet Corporation for Assigned Names and Numbers (“ICANN”), the nonprofit responsible for regulating top-level domains (TLDs) and managing the stability of the Internet worldwide, may be subject to antitrust regulations.

A federal judge in California recently held that ICANN could not shrug off a lawsuit relating to the new .XXX top-level domain (TLD) by claiming that it does not participate in “commercial activity.” This ruling may open up the floodgates for other parties hoping to further delay or prevent the projected late 2013 launching of several dozen new TLDs.

While the new TLDs are intended to better organize the Internet, increase security and let users customize their online experiences, for brand owners, this often means spending a lot more money. With .XXX, for example, about 83,400 domains were “defensively registered” – blocked by brand owners and companies who want to avoid tarnishing their brand with a pornography affiliation.

In November 2011, Manwin Licensing International S.A.R.L., an online pornography purveyor, filed an antitrust lawsuit against ICANN and .XXX manager ICM, claiming that the parties have colluded and are “engaging in anti-competitive and predatory behavior” by charging unreasonable pricing for blocking of .XXX domain names. Intellectual property holders paid approximately $200 per domain, resulting in substantial expenditures for owners of large trademark and domain name portfolios.

While it is somewhat ironic that a supposed beneficiary of the new .XXX domain is bringing a lawsuit to protect the interests of those parties seeking to distance themselves from the new TLD, the court’s recent ruling may have far-reaching implications for all new TLDs if the suit is successful.

With the advent of an unlimited amount of TLDs, companies may be repeatedly forced to decide whether to register for new domains under the new TLDs (e.g. YOURBRAND.bank) to block others from registration or to file a “defensive registration” to prevent unflattering affiliations (e.g. YOURBRAND.stinks). ICANN has set itself up to be able to dictate the costs of both types of registrations, without any outside regulation.

ICANN has promised to protect intellectual property owners’ rights through the creation of a Trademark Clearinghouse, which is intended to function as a universal database of authenticated trademarks. ICANN has announced that Deloitte and IBM will serve as the primary Clearinghouse service providers. But this service will only notify participating rights holders when domain names matching the Clearinghouse records are registered during a new TLD’s startup period – trademark owners will still be required to engage in dispute resolution proceedings with would-be infringers.

What does all this mean for mark owners? Time will tell, but the court’s ruling could result in the judiciary taking a hard look at the sweeping authority that has been given to ICANN unquestioned, particularly in connection with new TLDs that are likely to be more controversial in nature and likely intended to generate “defensive registrations.”