Donuts' Lawsuit Against ICANN Over .web Auction Dismissed
U.S. District Court in Los Angeles granted ICANN's motion to dismiss a lawsuit by domain registry Donuts against the organization over the controversial auction of the .web generic top-level domain. The company's Ruby Glen subsidiary sued in July, claiming ICANN…
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intentionally failed to adequately investigate what the company believed ahead of the .web auction to be changes in ownership or control of rival bidder Nu Dot Co (see 1608090036). Nu Dot Co won the .web auction and .com registry Verisign subsequently said it had funded the $135 million purchase with the understanding that control of .web would pass to it (see 1607250051 and 1607270027). ICANN filed its motion to dismiss in late October, saying in part that Donuts was barred from suing the organization due to a covenant placed in all gTLD applications (see 1610270037). Donuts claimed the anti-suit covenant was void under California law. Judge Percy Anderson ruled the covenant was allowed because it wasn't created to exempt ICANN from facing claims of fraud, willful injury or violating the law. “The nature of the relationship between ICANN and Plaintiff, the sophistication of Plaintiff, the stakes involved in the gTLD application process, and the fact that the Application Guidebook ‘is the implementation of [ICANN] Board-approved consensus policy concerning the introduction of new gTLDs’ … militates against a conclusion that the covenant not to sue is procedurally unconscionable,” Anderson said in his ruling (in Pacer). Without the anti-suit covenant, “any frustrated applicant could, through the filing of a lawsuit, derail the entire system developed by ICANN to process applications for gTLDs,” Anderson said. “ICANN and frustrated applicants do not bear this potential harm equally. This alone establishes the reasonableness of the covenant not to sue. As a result, the Court concludes that the covenant not to sue is not substantively unconscionable.” Donuts “disagrees with the Court’s decision that ICANN’s required covenant not to sue, while being unconscionable, was not sufficiently unconscionable to be struck down as a matter of law,” said Executive Vice President Jon Nevett in a statement. “It is unfortunate that the auction process for .WEB was mired in a lack of transparency and anti-competitive behavior. ICANN, in its haste to proceed to auction, performed only a slapdash investigation and deprived the applicants of the right to fairly compete for .WEB in accordance with the very procedures ICANN demanded of applicants. Donuts will continue to utilize the tools at its disposal to address this procedural failure.”