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Donuts loses $22.5m .web lawsuit as judge rules gTLD applicants cannot sue

Kevin Murphy, November 30, 2016, 14:19:59 (UTC), Domain Registries

The promise not to sue ICANN that all new gTLD applicants made when they applied is legally enforceable, a California judge has ruled.

Judge Percy Anderson on Monday threw out Donuts’ lawsuit against ICANN over the controversial $135 million .web auction, saying the “covenant not to sue bars Plaintiff’s entire action”.

He wrote that he “does not find persuasive” an earlier and contrary ruling in the case of DotConnectAfrica v ICANN, a case that is still ongoing.

Donuts sued ICANN at first to prevent the .web auction going ahead.

The registry, and other .web applicants, were concerned that ultimately successful bidder Nu Dot Co was being covertly bankrolled by Verisign, which turned out to be completely correct.

Donuts argued that ICANN failed to adequately vet NDC to uncover its secret sugar daddy. It wanted $22.5 million from ICANN — roughly what it would have received if the auction had been privately managed, rather than run by ICANN.

But the judge ruled that Donuts’ covenant not to sue is enforceable. Because of that, he made no judgement on the merits of Donuts’ arguments.

Under the relevant law, Donuts had to show that the applicant contract was “unconscionable” both “procedurally” and “substantively”.

Basically, the question for the judge was: was the contract unfairly one-sided?

The judge ruled (pdf) that it was not substantively unconscionable and “only minimally procedurally unconscionable”. In other words: a bit crap, but not illegal.

He put a lot of weight on the fact that the new gTLD program was designed largely by the ICANN community and on Donuts’ business “sophistication”. He wrote:

Without the covenant not to sue, any frustrated applicant could, through the filing of a lawsuit, derail the entire system developed by ICANN to process applications for gTLDs. ICANN and frustrated applicants do not bear this potential harm equally. This alone establishes the reasonableness of the covenant not to sue.

Donuts VP Jon Nevett said in a statement yesterday that the fight over .web is not over:

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. 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.

It looks rather like we could be looking at an Independent Review Process filing, possibly the first to be filed under ICANN’s new post-transition rules.

Donuts and ICANN are already in the Cooperative Engagement Process — the mediation phase that usually precedes an IRP — with regards .web.

Second-placed bidder Afilias is also putting pressure on ICANN to overturn the results of the auction, resulting in a bit of a public bunfight with Verisign.

TL;DR — don’t expect to be able to buy .web domains for quite a while to come.

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Comments (6)

  1. R P says:

    Well that sucks if you’re not Verisign.

    If you swim with the sharks don’t be surprised if you lose a limb.

  2. Jimmy says:

    Greedy people have ruined the release of GTLDs for uses.

    Auction process constitutes shill bidding, and fraud.

  3. A hollow voice (sounding like Chris Ambler at the end of a drainpipe) says “PLUGH … bwahahahahahah”

  4. Christopher Ambler says:

    I’ll add that to my next standup monologue. 😉

  5. Ed Pascoe says:

    In the comments section on another website:

    “Judge finds the hole in the donuts argument.”

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