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Antitrust and the Domain Name: Implications of the Manwin Decision Brought to you by Winston & Strawn’s Antitrust Practice Group
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Today’s eLunch Presenters
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Mark McCareins
Paul McGrady
Litigation Chicago
Litigation Chicago
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What is ICANN? ICANN stands for “Internet Corporation for Assigned Names and Numbers.” ICANN is a California public benefit company responsible for policy development in the generic top level domain name industry. ICANN cooperates With registries in the country code top level domain name industry. ICANN operates under an agreement with the U.S. Department of Commerce called the “Affirmation of Commitments.” ICANN is based in Southern California and has three meetings per year (often in faraway locations outside of the United States). Anyone can participate in the meetings.
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What is a gTLD?
gTLD stands for “generic top level domain name” as opposed to a ccTLD which is a country code top level domain name. Examples of gTLDs are .com, .net, .edu, and .xxx. Examples of ccTLDs are .co.uk (United Kingdom), .de (Germany). ICANN is currently in the process of rolling out hundreds of new gTLDs. In the recent application round, ICANN received over 1,900 applications by applicants wishing to run a new gTLD registry. The applications were for both generic terms, e.g. .book, and branded terms, e.g. .amazon.
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Who Participates in ICANN?
Any interested party can participate in ICANN. Even if you are not a new gTLD applicant, you can participate in the ICANN process through one of its various constituencies. For example, ICANN has a Business Constituency and an Intellectual Property Constituency. There is even a group for “noncommercial” users of the Internet.
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What is the Manwin Case About?
The Manwin case deals with issues which have arisen in ICANN’s recent roll out of the .xxx gTLD. Although .xxx is not part of the new gTLD initiative having its roots in an earlier ICANN application process, the lessons arising from the Manwin case are helpful in considering the consequences of the new gTLD program for ICANN, new gTLD applicants, and trademark owners.
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Procedural Posture in this Case Must Be Noted at the Outset
In a Rule 12(b)(6) motion, all allegations plead by the plaintiff are presumed to be true. There is no opportunity to challenge the underlying facts of the allegations in such a motion.
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FRCP 56 Provides the “Next Test” after Rule 12
A District Court’s grant of a Rule 12 motion is a relatively rare event and usually limited to situations in which the plaintiff (or its counsel) has mispled the legal elements of a claim. Even if a plaintiff survives a Rule 12 challenge, plaintiff still faces a serious challenge after discovery is commenced to survive a Rule 56 summary judgment motion (which would test the validity of the underlying factual allegations) before a trial can be contemplated.
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Can Plaintiff Cure the Pleading Deficiency?
Even if a Rule 12 motion is granted, it is not uncommon for the court to allow a plaintiff to try again and replead the faulty allegations (the decision in Manwin already involves a first amended complaint).
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Ninth Circuit Court of Appeals Decision not "Binding" in Other Jurisdictions
The Manwin case is governed by the law of the Ninth Circuit Court of Appeals; not all federal circuit courts of appeal share 100% consistency with the Ninth Circuit on antitrust issues and therefore this Manwin decision may be of limited significance outside of the Ninth Circuit.
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Relevant Market Definition In Antitrust Case is Critical
In any federal antitrust case under the Sherman Act (with the exception of per se cases that involve conduct among horizontal competitors such as price-fixing), the determination of the relevant product and geographic market is critical in the effort to assess relative market or monopoly power. Although the pleading of a relevant market is generally not difficult, the actual prove-up of that market through economically sound (and admissible) facts can be very problematic for a plaintiff, especially when a plaintiff needs to allege a very narrow market in order to enhance the defendants’ market share (typically, in an antitrust case, the plaintiff will allege a very narrow market and the defendant will allege a broader market in order to dilute its market share).
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Relevant Market Definition In Antitrust Case is Critical (Cont'd.)
Here the plaintiff alleged two different markets—the first was a ‘defensive registration market’ for blocking services and defensive registrations in the XXX.TLD. However, the Ninth Circuit had decided in 2010 in a different case involving ICANN Transparency that “expired domain names” could indeed constitute a relevant market. Thus the court in Manwin felt obligated to apply the appellate court’s earlier decision to conclude that the defensive registration market was a proper one here.
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A Second Market was Alleged
The second market alleged by plaintiffs for conspiracy to monopolize and attempt to monopolize was one for “affirmative registrations of names within TLD’s connoting or intended exclusively or predominately for adult content.” The court on this second alleged market declared that “plaintiffs have not alleged why other currently operating TLD’s are not reasonable substitutes to the .XXX TLD for hosting adult entertainment websites.” Plaintiffs’ efforts were stymied by their own complaint when they alleged that Manwin’s own YouPorn.com was the most popular free adult video website on the Internet. Thus, since the relevant market would necessarily include .com domain names, plaintiffs could not allege that defendants had or will have market power in this greater market (which would include .com sites). Even so, the court allowed plaintiffs to refile a new complaint if they can adequately plead that defendants enjoyed market power in this broader market.
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One Claim Was Quite Properly Thrown-Out
The Manwin court is correct that plaintiffs’ pleading of “a conspiracy to attempt to monopolize a market” is not a recognized claim under the Sherman Act.
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Interstate Commerce Jurisdictional Requirement was Met
While the trade or commerce requirement under the Sherman Act is jurisdictional, very few commercial activities are solely local or intrastate as to not meet the federal commerce requirement. Thus the court’s finding that the transactions between ICANN and ICM were sufficient to invoke interstate commerce is not remarkable.
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Antitrust Injury Under § 4 of the Clayton Act
Another jurisdictional requirement for any Sherman Act claim falls under Section 4 of the Clayton Act, which requires a private federal antitrust plaintiff to plead that it suffered “antitrust injury.” Antitrust injury includes an assessment that defendants’ unlawful conduct caused injury to the plaintiff that flows from that which makes the conduct unlawful in the first place and which is of the type that the antitrust laws were designed to prevent. In the same 2010 Ninth Circuit case involving ICANN mentioned above with respect to relevant market definition, that same court concluded that plaintiffs’ allegations in that case satisfied the antitrust injury pleading (as opposed to proof) requirement. It was not a stretch for plaintiffs in Manwin to mimic the pleading in ICANN in order to satisfy the antitrust injury pleading requirement and the court so found that they had. However, pleading and ultimately proving antitrust injury are two dramatically different matters.
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Did Plaintiffs Plead Sufficient "Bad Acts"?
Even if an antitrust plaintiff can plead a relevant market and that it suffered antitrust injury as a result of defendants’ alleged unlawful conduct, plaintiff must plead that defendants engaged in prohibited exclusionary conduct (i.e., even though a firm may have a high market share, that alone is not illegal—it must engage in some bad acts to harm competition). Here plaintiffs charged that defendants suppressed competition for the initial .XXX registry contract and renewal of that contract and also that defendants engaged in preclusion of other adult content TLD’s through setting above-market prices and output restrictions. Plaintiffs further claim that delegating ICANN’s sales and pricing authority to ICM for the purpose of allowing ICM to offer even less competitive sales and pricing terms in the future was also illegal. Again this court's decision relating to “bad acts” is not about proof of those “bad acts” but, whether (assuming the allegations to be true), plaintiffs have adequately pled the legal requirements of exclusionary conduct by a purported monopolist. Again, relying heavily on the Ninth Circuit’s earlier 2010 decision in the other ICANN case, this district court concluded that the “bad acts” referred to above were sufficiently “bad” for purposes of antitrust pleading requirements.
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What are the Significant Take-Aways?
ICANN’s activities are commercial in nature and subject to the law just like every other business. There is little doubt that second-level defensive registrations are a “real” market. New gTLD applicants who are ultimately awarded registrations must be careful how they deal with defensive registrations in their registries.
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Reference Link
This link will give you access to the Manwin decision and other related documents. http://www.icann.org/en/news/litigation/manwin-v-icm
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Questions?
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Thank You.
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