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21 Nov 2011

A serious antitrust challenge to .XXX ICANN

Manwin Licensing is a Luxembourg company that turns out to manage a large fraction of the mainstream porn available on the Internet. They run websites including (widely agreed to be the most popular porn site on the Net) as well as Playboy's online and TV properties. This week they and Digital Playground, a producer of porn video, sued ICANN and the ICM registry, which runs .XXX, on anti-trust grounds. In theory, .XXX was authorized by ICANN following the same rules as all of the other sponsored TLDs such as the uncontroversial .COOP and .AERO. Do they have a case?

Although ICM filed its application for .XXX along with the applications for the other new gTLDs, the process that led to its addition to the DNS root was, to put it mildly, far more tortuous than any other gTLD. It was rejected, the application revised, rejected, tentatively approved, rejected, ICM filed a third-party appeal which they won, then finally approved by the ICANN board under a threat of litigation. As this process went on, it increasingly became evident that most of the adult entertainment industry didn't and doesn't want .XXX, and that there was considerable opposition to it from both governments and a range of other organizations ranging from church groups, who somehow thought that it would lead to even more online porn than there is now, to free speech groups who though that it would lead to less. The choice for ICANN basically boiled down to a choice between a process argument, that ICM followed all the rules to the letter so ICANN should give them .XXX, and a merit argument that despite the history, .XXX is a mistake. The process argument won. (My position, documented in this blog, started in the process camp but ended up firmly on the merit side.)

Manwin's main complaint is that .XXX is designed to be a monopolistic shakedown of the porn industry. They claim that they have no interest in .XXX domains, yet they have to make defensive registrations of their brand names (e.g., to prevent squatting, and pay whatever price ICM sets. ICM has asserted, credibly in my view, that there will never be another porn TLD, due partly to the contract language for .XXX but mostly because governments would never let one through the new gTLD process. Hence, if you believe that porn TLDs are a separate market, ICM is the monopoly provider.

In support of the plaintiffs' position, they argue ("on information and belief", lawyer-speak for we'll prove it later, although nothing they say conflicts with what I know), that ICM basically defrauded ICANN during the application process, providing fake evidence of industry support both for .XXX and for IFFOR, the non-profit they set up to be the nominal sponsor of .XXX. In view of that, along with ICM's later coercive acts to get .XXX approved, ICM has no right to run any porn TLD, much less the only porn TLD

They then go on to argue that a porn TLD is different from other TLDs in that people care deeply about having their name associated with porn, much more than they do other things. If you do a thought experiment, and imagined how much a well known brand might care about, say, ORACLE.MUSEUM or ORACLE.AERO vs. ORACLE.XXX, that seems plausible. ("Oh, Larry, I always trigger on updates.")

ICM provides a variety of ways to block names in .XXX, but the plaintiffs argue they're not adequate. As part of the startup process of .XXX, there was a "sunrise" period in which for $150 trademark owners could claim and block domains that exactly match their trademarks, and a landrush period to make preregistrations. Once regular registrations start in two weeks, domains are first come first served, $60/yr. Applicants can either get a community ID from IFFOR, if they're in the porn industry, or not. With an ID, a registered domain is live, without one it's just blocked. The applicants note that $60 is ten times the price in generic domains, and that a registrant has either all live domains or all blocked, so a porn company has no way to register a few domains it wants to use and block the rest. Since .XXX plans to require that live domains all contain actual porn (Stuart Lawley told me it'll be someone's job to check), this is not a ridiculous concern. ICM is also holding back some domains for sale at very high prices, up in the six figures. So far they've just been generic words, but there's nothing in the contract to keep them from jacking up the price on domains that are exact or close matches for well-known names in .COM.

They go on to note, somewhat less persuasively, that ICANN didn't offer anyone else a chance to bid on .XXX as they did at the .NET renewal, or put price caps in the contacts as they do for the unsponsored TLDs. That's true, but no different from other sponsored TLDs.

For remedies, the plaintiffs ask the court to block .XXX, or failing that to put the TLD out for competing bids from operators, or at least put price caps in the contract.

All in all, it's not a slam dunk, but there's clearly enough to go to discovery, and the records from both ICM and ICANN are likely to be very interesting. It's not obvious what effect this will have on the new TLD process, although if I were thinking about a new TLD, I would be less inclined to send in my $185,000 to apply for it until I saw how likely it was that a grumpy competitor with a lawsuit could take it away from me.

(Copy of complaint here.)

  posted at: 23:24 :: permanent link to this entry :: 0 comments
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