A group of nine angry individuals and companies had sued the dominant domain registrar in 1998 in a class action claiming that the government and Network Solutions illegally taxed computer users when registering Web addresses.
The plaintiffs today lost their only hope for indemnification for some $165 million in registration fees charged between 1993 and 1995. Without any comment or dissent, the U.S. Supreme Court let stand an appellate court ruling that the fees do not represent unconstitutional or unauthorized taxes because Congress had approved their collection.
The ruling also dismissed allegations that Network Solutions (NSI) had violated federal antitrust laws.
"We're obviously pleased," said Brian O'Shaughnessy, a Network Solutions spokesman. "The merits of our inclusion (in the lawsuit) were certainly dubious, however.''
NSI shares closed up $42.56 to $280.31, a gain of 17.9 percent.
Representatives of the National Science Foundation, named as defendants in the case along with Network Solution, could not be reached for comment.
William Bode, a Washington D.C. attorney representing the group of plaintiffs who brought lawsuit also could not be reached for comment.
Today's decision brings a close to one of the last remaining unresolved issues from a time when Network Solutions operated as the world's sole domain name registrar for Web addresses ending in ".com," ".org" and ".net."
Under contract with the U.S. government, NSI enjoyed the monopoly until the middle of last year when the lucrative business of registering domain names opened up to competition.
From 1993 to 1995, when only a few people were interested in acquiring Web addresses, the National Science Foundation paid Network Solutions for all domain name registrations. But once the number of registrations skyrocketed, it became clear that the foundation could no longer continue to pay for all registrations and that the service could no longer be free.
That's when Network Solutions began charging computer users $100 for a two-year registration, with $30 of the fee going to a government fund.
Later, the government stopped collecting the fee and Network Solutions dropped the price of an initial registration from $100 to $70.
But the nine individuals, who called themselves the American Internet Registrants Association, sued claiming that the extra $30 fee an unauthorized tax and demanded that it as well as $70 registration fee be paid back.
In September 1998, a federal judge found that the fee was legal because Congress had retroactively approved the tax. He dismissed the lawsuit.
At the time, Bode, the attorney who brought the case, expressed his disappointment in the ruling and vowed to appeal it to the U.S. Supreme Court.
"We have a lot of clients who are upset with the quality of the service provided by Network Solutions, yet they paid these fees which seemed disproportionate," Bode said at the time. "We still think, correctly, that the fees exceed constitutional and statutory authority.''
Part of the government's $50 million fund was used to finance President Clinton's Next Generation Internet project to build a higher-speed network for scientists and academics.
For Network Solutions, today's high court decision, though considered a victory, was considered old baggage. Instead, the company focused on news related to the now competitive market of registering domain names.
Today, for instance, the registrar based in Herndon, Va., announced a multi-year registration service beginning this week that allows customers to register and renew their domain names for up to 10 years. Amazon.com, Nasdaq and New Balance were among the first companies to sign up for the service. Other registrars are also offering the service.