VeriSign's Antitrust Claim Against ICANN Dismissed

A federal judge has tossed out an antitrust claim filed by VeriSign (Nasdaq: VRSN) against the Internet Corporation for Assigned Names and Numbers (ICANN), saying that the domain registrar failed to prove antitrust activity has taken place.

The decision came after VeriSign was ordered to file additional information to support its antitrust claims by the court in May. Because the antitrust claim was the only one that landed the case in federal court, the decision also means VeriSign will be forced to pursue any further action on some six separate breach-of-contract claims against ICANN in California state court.

VeriSign has claimed that ICANN was manipulated by the registrar's competitors who convinced the nonprofit group to curtail VeriSign's market activities, especially the implementation of VeriSign's Site Finder service last year.

VeriSign -- which oversees the .com and .net domain registries -- began using Site Finder to redirect users who typed misspelled or nonexistent domain names into their browsers. Versign suspended use of the service when ICANN threatened to yank its contract to issue domain names, but VeriSign has continued to assert its right to use the service.

Controversial Service

Several groups, including the Electronic Frontier Foundation (EFF), have argued that the Site Finder service wrecked havoc with day-to-day operations of the Internet, disrupting some e-mail services, facilitating spam and even creating new security holes that could be exploited by hackers.

After consulting with some other domain registrars, ICANN ordered VeriSign to halt the Site Finder service, saying it violated the contract under which it serves as the main registry of the .com and .net domains.

VeriSign argued that, in essence, its competitors used ICANN to shut down its service and impede its business, an argument the court did not buy.

"VeriSign's contentions are deficient," Judge Howard Matz wrote in the 16-page decision setting aside the antitrust claims against ICANN. "There is nothing inherently conspiratorial about a 'bottom-up' policy development process that considers or even solicits input from advisory groups."

More to Come

Asked for a comment on the ruling, VeriSign responded with a statement from VP of government relations Tom Galvin. "What this means is the case will be heard in a California state court. And while the venue will change, our objective to gain clarity regarding ICANN's appropriate role and the process for the introduction of new services does not," Galvin said. "We look forward to making our case in court so VeriSign and many other companies can get the clarity needed to run our businesses effectively."

ICANN said the decision not only supported its claims that the VeriSign suit had no merit but also upholds the basic structure and operational model of the international organization. "ICANN is not subject to capture by any commercial or other interest, including VeriSign," said General Counsel John Jeffrey.

That issue is at the core of the case and is why it will likely continue, analysts said. VeriSign has argued that ICANN's creation in the early days of the Internet left it ill-suited to oversee the Web after it became a hotbed of commercial activity and a powerful economic engine.

"The various issues being fought about are what's on the surface," Gartner (NYSE: IT) analyst Lydia Leong told the E-Commerce Times. She noted that smaller registrars that had been VeriSign competitors have previously challenged ICANN, which has often come under fire for its lack of public participation.

"The fundamental question is whether ICANN is the right way to govern and manage the Internet now and in the future," Leong added.

Goliath vs. Goliath?

Some observers have found it ironic that both sides in the case have attempted to paint themselves as the David up against Goliath, because neither entity fits the role. While ICANN is a nonprofit, its role gives it enormous influence over the Internet economy.

EFF staff attorney Fred von Lohmann said the case is more of a standoff between "two big bullies." The EFF has been critical of both VeriSign and ICANN, and helped push a suit that resulted in the organization being forced to open its financial books for inspection.

"VeriSign wants to put its service into place, so the lawyering is likely to go on for a while," he told the E-Commerce Times.

Shares of VeriSign were trading up about half a percent on Friday morning to 17.09.